Explanation

This risk was not identified. The audited financial statements for Hilton Franchise Holding LLC (HFH) in Exhibit C show a very strong and stable financial position. The company is highly profitable, with substantial net income derived primarily from ongoing royalties rather than initial fees, and holds significant positive member's equity. No signs of financial instability are apparent.

Potential Mitigations

• For continued assurance, it is wise for your accountant to review the franchisor's annual audited financial statements throughout your term.
• A business advisor can help you monitor the overall health of the Hilton Worldwide parent company and the lodging industry.
• Establishing a strong working relationship with the franchisor may provide better insight into the system's ongoing financial health.

Explanation

Item 20 data for 2024 shows a combined turnover rate (terminations and other cessations) of approximately 8.5%. While this is not unusually high for a large hotel system that is also expanding, the four units listed as having 'Ceased Operations' for unspecified reasons warrant further investigation. You should inquire about the circumstances behind these exits.

Potential Mitigations

• Asking a significant number of former franchisees from Exhibit B about their reasons for leaving is a crucial due diligence step your attorney can guide.
• Your business advisor should help you analyze the specific reasons for any franchisee turnover to identify potential systemic issues.
• Discuss the 'Ceased Operations' data directly with the franchisor to understand the context behind these figures.

Explanation

Item 20 shows steady and significant growth, adding nine net franchised hotels in 2024. Given that Hilton Worldwide is a very large, experienced operator with extensive infrastructure, this rate of growth does not appear to pose a risk of outstripping its capacity to provide support. The system seems well-equipped to handle its current expansion.

Potential Mitigations

• Engaging with a range of new and established franchisees can provide valuable insight into the quality and consistency of franchisor support during growth.
• Your business advisor can help you evaluate if the franchisor's support infrastructure, as described in Item 11, is adequate for its expansion plans.
• A review of the support services with your attorney will clarify the franchisor's contractual obligations regardless of system size.

Explanation

This risk is not present. HFH and its parent, Hilton Worldwide, are among the most established and experienced hotel operators and franchisors in the world, with a history dating back decades. The Curio Collection brand, launched in 2014, is also well-established with 88 hotels operating by the end of 2024. The system is mature and proven.

Potential Mitigations

• To understand the brand's specific niche, a discussion with your business advisor about its market position relative to other Hilton brands is beneficial.
• Reviewing the brand's evolution since its launch with current long-term franchisees can offer valuable historical context.
• Your attorney should confirm that all obligations are from the established entities listed in the FDD.

Explanation

This risk appears low. The Curio Collection by Hilton is positioned as a portfolio of unique, independent hotels backed by the Hilton system, a durable concept in the hospitality industry. This model, which leverages individuality with the power of a global distribution system, is less susceptible to being a short-term fad compared to concepts based on fleeting consumer trends.

Potential Mitigations

• Consulting with a hospitality industry expert or business advisor can help you assess the long-term viability of the 'soft brand' collection model.
• A discussion with long-standing Curio franchisees can provide insight into the brand's sustained market appeal.
• Your financial advisor should help you model the business's performance under various economic conditions to test its resilience.

Explanation

This risk was not identified. Item 2 details the business experience of a large team of executives and directors for HFH and its parent, Hilton Worldwide. These individuals possess extensive and long-term experience in the hotel, hospitality, and franchising industries at the highest levels. The management team is highly experienced.

Potential Mitigations

• Researching the public track records and reputations of the key executives listed in Item 2 can provide additional confidence.
• When speaking with current franchisees, you can inquire about their direct experiences with the management team's competence and strategic direction.
• A business advisor can help you understand the roles of the key personnel and how their experience relates to your potential success.

Explanation

The ultimate parent company, Hilton Worldwide Holdings Inc., is a publicly traded corporation (NYSE: HLT), not a private equity firm. While PE ownership can introduce risks related to short-term focus, these specific risks are not present here. However, as a public company, decisions will be driven by shareholder value, and the franchisor retains the right to sell the system.

Potential Mitigations

• An attorney should review the assignment clauses in the Franchise Agreement to clarify your rights if the franchise system is sold.
• Your financial advisor can help you monitor the parent company's public filings and strategic direction.
• Discussions with franchisees about the impact of public ownership on support and fees can provide valuable context.

Explanation

This risk is not present. The FDD clearly identifies the franchisor, Hilton Franchise Holding LLC (HFH), its direct parent, Hilton Domestic Operating Company Inc., and its ultimate parent, Hilton Worldwide Holdings Inc. Furthermore, the FDD provides audited financial statements for the contracting entity, HFH, as required. The ownership structure is transparently disclosed.

Potential Mitigations

• Your attorney should confirm the legal names and relationship of all entities involved in the franchise agreement.
• It is good practice for your accountant to verify that the provided financial statements are for the correct legal entity you are contracting with.
• A business advisor can help you understand the operational roles of the parent companies versus the direct franchisor.

Explanation

Item 1 provides a detailed history of the franchisor, its affiliates, and predecessors, including various Hilton entities and the spin-off of Park Hotels & Resorts. The disclosure appears comprehensive and traces the lineage of the various Hilton brands over many years. There are no apparent signs of obscuring a problematic predecessor history.

Potential Mitigations

• A thorough review of the corporate history described in Item 1 with your attorney is wise to understand the current structure.
• When speaking with long-term franchisees, you can ask about their experience during any corporate restructurings or changes in ownership.
• Your business advisor can help you research the public history of Hilton Worldwide to provide additional context.