Explanation

This risk was not identified. The FDD provides audited financial statements for the parent company, Hyatt Hotels Corporation, which also provides a full guarantee of performance. These financials show significant net income and a strong balance sheet. The auditor's report from a major accounting firm does not contain a going concern qualification, indicating a stable financial position. The franchisor subsidiary also presents a positive, albeit unaudited, balance sheet in state addenda.

Potential Mitigations

• An accountant should review the parent company's audited financial statements and the franchisor's unaudited balance sheet to confirm financial stability.
• It is wise to have your attorney review the parent company's Guarantee of Performance to understand its scope and enforceability.
• Discuss the franchisor's financial health and their capacity to support a new brand with your business advisor.

Explanation

This risk was not identified. The 'Caption by Hyatt' brand is very new, with only one franchised outlet opened as of the end of the last fiscal year. Item 20 data shows no terminations, non-renewals, or other cessations. While this means there is no negative history, it also means there is no track record of franchisee success or retention to analyze. The primary risk is the newness of the system, not turnover.

Potential Mitigations

• A business advisor can help you assess the risks of joining a new system with a limited track record.
• Speaking with the very first franchisees, as listed in Item 20, is crucial for understanding their initial experiences.
• Your accountant should help you model financial projections conservatively due to the lack of historical franchisee performance data.

Explanation

This risk was not identified. The system is new and growing very slowly, with only two total outlets (one franchised, one company-owned) operating at the end of the most recent fiscal year. This slow initial pace does not suggest that the franchisor's support resources are being stretched thin by overly rapid expansion.

Potential Mitigations

• Discuss the franchisor's long-term growth and support strategy with their development team and your business advisor.
• In your discussions with the initial franchisees, ask about the quality and responsiveness of the support they are currently receiving.
• Your attorney should review the franchisor's support commitments in Item 11 to ensure they are clearly defined.

Explanation

This risk was not identified. The franchise is for a 'select service, urban lifestyle brand hotel'. This concept fits within a well-established and competitive segment of the modern lodging industry. It does not appear to be based on a short-term fad or novelty, but rather on evolving consumer preferences for boutique-style accommodations, suggesting potential for long-term demand.

Potential Mitigations

• Your business advisor should help you research the long-term trends and competitive landscape within the 'lifestyle hotel' market segment.
• Discuss the franchisor's strategy for brand evolution and maintaining relevance with their executives.
• An accountant can help you evaluate the business model's resilience to economic cycles and shifting travel trends.

Explanation

This risk was not identified. Item 2 details the professional history of the franchisor's key executives. The management team consists of individuals with extensive, long-term careers at Hyatt Hotels Corporation or other major companies within the lodging and real estate industries. This indicates deep experience in hotel operations, development, and management at a corporate level.

Potential Mitigations

• A business advisor can help you review the background of the key personnel listed in Item 2 to confirm their relevant industry and franchise experience.
• When speaking with the franchisor, you can inquire about the specific team that will be supporting the Caption by Hyatt brand.
• Your attorney might verify that the key personnel listed are still with the company.

Explanation

This risk was not identified. The franchisor's parent company, Hyatt Hotels Corporation, is a publicly traded company, not a private equity firm. The FDD package includes its audited financial statements and a Form 8-K filed with the SEC. Therefore, the risks typically associated with a private equity firm's short-term investment horizon and potential exit strategy do not apply here.

Potential Mitigations

• It is prudent to have your accountant review the parent company's public filings to understand its ownership structure and financial health.
• Your attorney can explain the differences in risk between a publicly-traded parent and a private equity-owned franchisor.
• A business advisor can help you research the history and strategic priorities of Hyatt Hotels Corporation.

Explanation

This risk was not identified. The FDD clearly identifies Hyatt Hotels Corporation as the parent company in Item 1. Furthermore, Item 21 provides the parent's audited financial statements, and Exhibit A-1 contains a full 'Guarantee of Performance' from the parent company, ensuring it backs the obligations of the franchising subsidiary.

Potential Mitigations

• Your attorney should carefully review the Guarantee of Performance to understand its terms and your rights as a franchisee.
• Have your accountant analyze the parent company's financial statements to assess the strength behind the guarantee.
• When speaking with the franchisor, you can confirm the nature of the relationship between the parent and the franchising entity.

Explanation

This risk was not identified. Item 1 of the FDD explicitly states, 'We have no predecessors'. This indicates that the franchising entity, Hyatt Franchising, L.L.C. (Hyatt), did not acquire the system from a prior company, and you do not need to be concerned about inheriting historical issues from a predecessor.

Potential Mitigations

• Your attorney can confirm the franchisor's corporate history based on the FDD's representations.
• Discussing the brand's origin and development history with the franchisor can provide additional context.
• A business advisor can help you understand the implications of dealing with a newly formed franchising entity versus one with a predecessor.

Explanation

This risk was not identified. Item 3 discloses only one recent litigation matter, which was an arbitration initiated by Hyatt against a franchisee, seemingly for unpaid fees. There is no disclosure of any pattern of litigation where franchisees have sued the franchisor alleging fraud, misrepresentation, or other systemic problems. The disclosed litigation history does not suggest an overly aggressive or problematic franchisor.

Potential Mitigations

• Your attorney should review the details of any litigation disclosed in Item 3, even if it appears minor.
• It is wise to ask current and former franchisees about their experiences with dispute resolution, even if no litigation is disclosed.
• A business advisor can help you research public records for any litigation involving the franchisor that may not have required disclosure.