Explanation

This risk was not identified. The audited financial statements for MIF, L.L.C. (MIF) in Exhibit J show it is a highly profitable entity with significant net worth, indicating strong financial health and the ability to support the franchise system. Financial instability is generally a major concern as it can impact a franchisor's ability to provide services and grow the brand, but that does not appear to be a risk here.

Potential Mitigations

• Your accountant should review the franchisor's complete audited financial statements, including all footnotes, to confirm their financial health.
• Discuss the franchisor's financial condition and their plans for supporting the system with your business advisor.
• Ask your attorney about any state-specific financial assurance requirements, such as bonds or escrow, that might apply if a franchisor were financially weak.

Explanation

This risk is present but appears low. Item 20 data for 2024 shows only 4 terminations and 1 cessation of operations out of 901 franchised units at the start of the year. This represents a very low turnover rate (approximately 0.55%), suggesting a stable franchise system with minimal franchisee distress or dissatisfaction reflected in these specific metrics. A high turnover rate would otherwise be a significant red flag for systemic issues.

Potential Mitigations

• With your accountant, analyze the data in all Item 20 tables to calculate the annual turnover percentage and compare it to prior years.
• It is still wise to contact a representative sample of former franchisees listed in Exhibit N to understand their reasons for leaving the system.
• Your attorney can help you formulate questions for the franchisor regarding the circumstances of any terminations or cessations.

Explanation

This risk was not identified. The franchisor, a subsidiary of Marriott International, Inc. (MII), is part of a very large, established system. Item 20 data shows steady, not excessively rapid, growth. Furthermore, the financial statements in Item 21 indicate substantial resources. This suggests the franchisor has the infrastructure and capacity to support its current size and growth rate. Rapid growth in other systems can sometimes strain franchisor support services, but that does not appear to be the case here.

Potential Mitigations

• Engaging a business advisor to evaluate the ratio of corporate support staff to the number of franchised units can provide insight into support capacity.
• Ask current franchisees about their perception of the quality and responsiveness of the support they receive from the franchisor.
• Your accountant should review the franchisor's financials to confirm they are allocating sufficient resources to franchisee support systems.

Explanation

This risk was not identified. MIF and its parent, MII, are highly experienced operators and franchisors in the lodging industry, with a history dating back decades. The Courtyard by Marriott brand itself was established in 1983 and has been franchising since 1990. The system is mature, with over 900 franchised outlets. This is not an unproven or new franchise system.

Potential Mitigations

• A business advisor can help you review the experience of the key executives listed in Item 2 to confirm their tenure and relevant industry background.
• Consult with long-standing franchisees to gain perspective on the system's evolution and the franchisor's management over time.
• Your attorney should verify the operating history and brand establishment dates disclosed in Item 1.

Explanation

This risk was not identified. The Courtyard by Marriott concept is a long-established, select-service hotel model that has demonstrated decades of consumer demand. It is not tied to a recent or fleeting trend. The business model is a staple of the mainstream lodging industry, suggesting long-term viability and resilience to shifting consumer tastes. Therefore, the risk of this being a fad business appears to be low.

Potential Mitigations

• A business advisor can help you analyze long-term trends in the select-service hotel market segment to confirm its stability.
• You can review the brand's history of adaptation and evolution as described in Item 1 and Item 11.
• Speaking with long-time franchisees can provide insight into the brand's sustained market relevance.

Explanation

This risk was not identified. The executive team detailed in Item 2, from both the franchisor's parent MII and its direct brand management, consists of individuals with extensive and long-term experience within Marriott and the broader lodging industry. The key personnel have deep backgrounds in hotel operations, development, and franchising. There is no indication of inexperienced management.

Potential Mitigations

• It is still prudent to have a business advisor review the specific backgrounds of the management team members you will interact with most.
• In discussions with current franchisees, you can inquire about their direct experiences with the management team's competence and support.
• Your attorney can help you research the public careers of the top executives of the parent company for additional context.

Explanation

This risk was not identified. While MIF is a subsidiary of a large, publicly-traded corporation (MII), which has characteristics similar to private equity ownership such as a focus on shareholder returns, MII is a long-term strategic operator in the lodging industry, not a short-term financial investor. Its history suggests a focus on brand health rather than a short exit timeline, which mitigates the typical risks associated with private equity ownership.

Potential Mitigations

• A business advisor can help you research the parent company's history with its franchise brands and its long-term strategic goals.
• When speaking with franchisees, ask about any changes in system focus or support that might indicate a shift in ownership philosophy.
• Your attorney should review the assignment clauses in Item 17 to understand your rights if the franchisor company were to be sold.

Explanation

This risk was not identified. The FDD clearly discloses that the franchisor, MIF, is a subsidiary of Marriott International, Inc. (MII). While MIF's own financials are provided, the massive inter-company receivable due from MII ($443 million) and the overall context make it clear that MIF's stability is directly tied to its parent. Given that MII is a large, publicly-traded company, its extensive public financial filings are readily available for review, providing full transparency into the ultimate parent's financial health.

Potential Mitigations

• Your accountant should review not only the franchisor's financials in Exhibit J but also the publicly available financial statements of the parent company, Marriott International, Inc.
• An attorney can help clarify the legal relationship between the subsidiary franchisor and the parent company.
• Inquire with a business advisor about the implications of the large inter-company receivable on the franchisor's standalone operations.

Explanation

This risk was not identified. Item 1 clearly outlines the history of the franchisor and its parent, MII. MII has acquired other hotel companies (like Starwood), and this is discussed. The litigation in Item 3 related to the Starwood acquisition's data breach is disclosed. There is no indication of undisclosed or problematic predecessor history beyond what is transparently presented in the FDD.

Potential Mitigations

• It is good practice to have your attorney review the predecessor history in Items 1, 3, and 4 for any potential concerns.
• Discussing the brand's history with long-time franchisees can provide valuable context beyond the FDD's text.
• A business advisor can help you research the history of the brand and its parent company through public records and news archives.