Explanation

This risk was not identified. The data in Item 20 shows a net decrease in the number of franchised outlets over the past three years. Rapid, unsupported growth can strain a franchisor's ability to provide adequate support, but that does not appear to be the current risk for this system.

Potential Mitigations

• During your due diligence, asking current franchisees about the quality and timeliness of franchisor support is a valuable step.
• Your accountant can help review a franchisor's financials to assess whether they have the resources to properly support their system.
• Consult with a business advisor to evaluate if a franchisor's growth plans, whether fast or slow, are sustainable and well-managed.

Explanation

This risk was not identified. Item 1 indicates that Choice Hotels International, Inc. (Choice) is a large, established hospitality franchisor with a history dating back to 1939. The Country Inn & Suites brand itself has been franchising since 1987. Investing in an unproven system carries higher risks, but this brand has a long operational history.

Potential Mitigations

• For any franchise, it is wise to investigate the franchisor's history and the specific brand's track record with a business advisor.
• Reviewing the management team's experience in both the industry and in franchising, as detailed in Item 2, is a crucial due diligence step.
• Your accountant should always review the franchisor's financial statements in Item 21 to gauge their stability.

Explanation

This risk was not identified. The franchise is for the operation of a Country Inn & Suites hotel, which is part of the established and mainstream hospitality industry. Fad businesses are often tied to new, untested trends and can carry a risk of declining consumer interest, but the hotel industry has a long history of sustained demand.

Potential Mitigations

• A business advisor can help you assess the long-term market demand and competitive landscape for any business you consider.
• Evaluating a franchisor's plans for innovation and brand updates, disclosed in Item 11, can provide insight into their long-term vision.
• For any investment, it is important to analyze its resilience to economic shifts and changing consumer preferences with your financial advisor.

Explanation

This risk was not identified. FDD Item 2 details the business experience of the franchisor's management team. The executives at Choice Hotels appear to have extensive and long-standing experience in the hospitality and franchising industries, many with backgrounds at major hotel corporations. Inexperienced management can pose a significant risk, but that does not appear to be the case here.

Potential Mitigations

• A business advisor can help you research the background and track record of a franchisor's key leadership team.
• Speaking with current franchisees about their perception of management's competence and support is a critical part of due diligence.
• Your attorney can help you understand the management structure and how decisions that affect franchisees are made.

Explanation

This risk was not identified. Item 1 indicates that Choice Hotels International, Inc. (Choice) is a publicly-traded corporation, not a private equity-owned firm. While public companies face shareholder pressure, the specific risks associated with a private equity fund's typical investment horizon and exit strategy do not apply here.

Potential Mitigations

• For any franchise, it is important to understand the ownership structure with the help of your attorney and business advisor.
• Reviewing a public company's reports filed with the SEC can provide insight into its financial health and strategic priorities.
• Talking with existing franchisees can reveal how ownership structure impacts day-to-day support and long-term strategy.

Explanation

This risk was not identified. The FDD clearly states that Choice Hotels International, Inc. (Choice) is the franchisor and it is a publicly-traded company. Its audited financial statements are provided in Item 21. There is no indication of an undisclosed parent company whose financial information would be material to your investment decision.

Potential Mitigations

• Your attorney can help verify a franchisor's corporate structure to ensure there are no undisclosed parent or affiliate entities with significant control.
• If a franchisor is a subsidiary, an accountant should review the parent company's financials if they are provided or required.
• It is important to understand any financial guarantees provided by a parent company to a subsidiary franchisor.

Explanation

This risk was not identified in the FDD. Item 1 clearly discloses the predecessor entities for the Country Inn & Suites brand, which were part of the Radisson Hotel Group acquired by Choice in 2022. The FDD provides information on this history. Incomplete disclosure of a predecessor's history could hide past problems, but the disclosure here appears adequate.

Potential Mitigations

• Your attorney should always carefully review information about a franchisor's predecessors in Items 1, 3, and 4 of the FDD.
• If a brand was recently acquired, asking long-term franchisees about their experience before and after the acquisition can be insightful.
• A business advisor can help you research the public track record of any predecessor entities.