Explanation

The franchisor, MIF, L.L.C. (MIF), is a subsidiary of Marriott International, Inc. (MII) and its audited financials show significant profitability. However, the balance sheet reveals a very large receivable from related parties ($443.5 million), indicating a complex financial dependency on its parent company. While MIF itself is profitable, its financial structure is deeply intertwined with the broader Marriott organization, which is a factor to consider, though the parent's large scale mitigates some of this structural risk.

Potential Mitigations

• An accountant with expertise in complex corporate structures should analyze the financial statements in Exhibit J, paying close attention to the nature and terms of the substantial related-party transactions.
• It is important to discuss with your financial advisor the implications of investing with a subsidiary entity that has such significant financial interdependencies with its parent company.
• Your attorney should review any guarantees provided by the parent company, Marriott International, Inc., to understand the extent of their legal commitment to supporting the franchisor entity.

Explanation

High franchisee turnover can be a red flag for systemic issues. Item 20 tables show the number of outlets that have been terminated, not renewed, or otherwise ceased operation. This FDD does not indicate a high rate of franchisee turnover in the past three years. For instance, in 2024, only one franchised outlet was terminated and none were non-renewed or ceased operations. This suggests a relatively stable franchisee base.

Potential Mitigations

• Even with low reported turnover, it is valuable to contact current franchisees from the list in Exhibit M to discuss their satisfaction and relationship with the franchisor.
• A business advisor can help you review the Item 20 tables for the last three years to confirm the stability of the franchise system.
• Your attorney should confirm that the definitions used for turnover categories in Item 20 are clear and not misleading.

Explanation

Item 20 shows a system that is large and growing steadily, with 164 franchised outlets in the U.S. and Canada at year-end 2024 and 51 new agreements signed. While growth is a positive sign, you should verify that the franchisor’s support infrastructure, detailed in Item 11, is robust enough to adequately serve all existing and future locations. Rapid growth without proportional investment in support can strain resources and dilute the quality of assistance you receive.

Potential Mitigations

• Question the franchisor directly about how they scale their support staff and systems to keep pace with unit growth.
• A thorough review of the franchisor's support obligations in Item 11 with your business advisor is important to set proper expectations.
• Speaking with franchisees who opened recently can provide insight into the current quality and responsiveness of the franchisor's support teams.

Explanation

This risk was not identified. The franchisor and its parent, Marriott International, Inc. (MII), are highly experienced global operators in the hotel industry, with a history dating back decades and extensive experience managing numerous successful franchise systems. This is a mature and well-established franchise system, not an unproven concept. The management team listed in Item 2 possesses significant experience in the lodging and franchise industries.

Potential Mitigations

• Confirm the business experience of key executives listed in Item 2 with your business advisor.
• It is still prudent to ask existing franchisees about their perception of the management team's competence and support.
• Your attorney can verify the history of the specific franchisor entity, MIF, L.L.C., and its relationship with the parent company.

Explanation

This risk appears to be low. The Aloft brand and the broader hotel lodging industry are well-established and are not typically considered fad businesses. The business model is based on long-term consumer and business travel needs. The franchisor is a subsidiary of Marriott International, Inc., a company with a long history of adapting its various brands to changing market conditions, which suggests a focus on long-term viability rather than short-lived trends.

Potential Mitigations

• A business advisor can help you research long-term trends in the select-service hotel market to confirm the continued demand for this type of lodging.
• Ask the franchisor about their long-term strategy for keeping the Aloft brand fresh and competitive.
• Reviewing the franchisor's commitment to system evolution and R&D in Item 11 with your financial advisor can provide additional confidence.

Explanation

This risk was not identified. Item 2 of the FDD details the business experience of the directors and principal officers of the parent company, Marriott International, Inc. These individuals have extensive and long-standing careers in the lodging, hospitality, and franchising industries. The management team is composed of seasoned executives from major global corporations, indicating a high level of professional experience.

Potential Mitigations

• Even with an experienced team, it is beneficial to research the public reputation and track record of the key executives listed in Item 2.
• A business advisor can help you assess how the executive team's broad corporate experience translates to support for individual franchisees.
• Your attorney can review the listed experience to ensure there are no undisclosed red flags.

Explanation

This risk was not identified in the FDD. The franchisor, MIF, L.L.C., is a subsidiary of Marriott International, Inc. (MII), which is a publicly-traded corporation, not a private equity firm. While public companies also have obligations to shareholders, their operational incentives and timelines can differ from those of a typical private equity fund, which often has a more defined and shorter-term investment horizon. The risk of rapid, short-term-focused changes is therefore considered lower.

Potential Mitigations

• An accountant can review MII's public financial reports to understand its long-term strategic priorities and financial health.
• Your business advisor can research MII's history with its franchise brands to assess its track record as a long-term partner.
• Your attorney should still review the assignment clauses in the franchise agreement to understand the implications if the system were ever sold.

Explanation

This risk was not identified. The FDD clearly discloses in Item 1 that the franchisor, MIF, L.L.C., is a subsidiary of Marriott International, Inc. (MII), which is the ultimate parent company. While the financials provided in Item 21 are for the subsidiary MIF, L.L.C., and not the parent, this is generally permissible as MIF is the direct franchisor. Given that MII does not appear to provide a direct financial guarantee of MIF's obligations, providing MIF's financials is standard practice.

Potential Mitigations

• Your accountant should review the provided financial statements of MIF, L.L.C. in Exhibit J to assess its individual financial health.
• It is wise to have your financial advisor also review the publicly available financial statements of the parent, Marriott International, Inc., for a complete picture of the overall organization.
• Your attorney can clarify the exact legal relationship and obligations between the parent and the subsidiary franchisor.

Explanation

This risk was not identified. Item 1 of the FDD details the history of the franchisor and its affiliates, including when various Marriott brands began franchising. It notes that for Aloft Hotels, subsidiaries of the parent company offered franchises from 2006 to 2017, and the current franchisor entity, MIF, L.L.C., began offering them in March 2017. This history appears to be disclosed and does not indicate any attempt to hide or obscure predecessor information or associated issues.

Potential Mitigations

• A thorough review of Item 1 with your attorney is important to understand the full corporate history of the brand.
• Speaking with long-term franchisees who were in the system before 2017 could provide insight into the transition and past performance.
• Your business advisor can help you research the history of the Aloft brand under its previous franchising entities for additional context.