Explanation

The franchisor, Days Inns Worldwide, Inc. (DIW), is a subsidiary of Wyndham Hotels & Resorts, Inc. (WHR), a large, publicly traded company. While DIW's standalone financials are not provided, WHR provides its audited financial statements and guarantees DIW's performance. The provided financials for WHR appear stable. The primary risk is concentrated in the performance of the parent company, which currently appears to mitigate the risk of financial instability for the franchisor entity itself.

Potential Mitigations

• An accountant should review the parent company's audited financial statements in Exhibit D, including all footnotes and the auditor's opinion, to assess its financial health.
• A franchise attorney should examine the specific terms and enforceability of the parent company's performance guarantee.
• Ask your business advisor to research the parent company's overall performance and strategic direction in the hospitality market.

Explanation

The system is large and mature, not undergoing the kind of rapid expansion that typically poses a risk of outstripping support resources. Item 20 shows a net decrease in franchised outlets over the last three years. This specific risk was not identified in the FDD package. However, prospective franchisees should always assess whether a franchisor has the infrastructure to support its existing and planned number of units, as rapid, unsupported growth can dilute brand quality and franchisee support.

Potential Mitigations

• During discussions with existing franchisees, it is useful to ask about the quality and timeliness of the support they currently receive.
• Your accountant can review the franchisor's financial statements to ensure they are investing adequately in support systems relative to their size.
• It is advisable to consult a business advisor to evaluate if the franchisor's support staff and systems seem appropriate for the current number of franchisees.

Explanation

Days Inn is a well-established, legacy brand in the hotel industry and has been franchising for decades, as detailed in Item 1. Therefore, the risks associated with a new or unproven system are not present. Prospective franchisees should still evaluate if the brand remains relevant in the current market, as even established systems can face challenges. It's important to assess how the brand is adapting to modern consumer preferences and competitive pressures.

Potential Mitigations

• A business advisor can help you research the brand's current market position and reputation among travelers.
• Asking current franchisees about the brand's competitiveness and the franchisor's efforts to keep the system modern is a key due diligence step.
• Your attorney can review the franchisor's obligations for system updates and marketing to ensure they are committed to maintaining brand relevance.

Explanation

The Days Inn brand is a legacy concept in the economy lodging sector, not a business based on a recent or fleeting trend. This specific risk was not identified in the FDD package. While the business model itself is not a fad, you should always consider whether a legacy brand's specific market niche and offerings remain competitive and relevant to today's travelers, as market tastes and technology evolve over time.

Potential Mitigations

• With a business advisor, investigate the current health and competitive positioning of the economy lodging sector.
• Speaking with current franchisees can provide insight into the brand's current appeal to its target customer base.
• Your financial advisor can help model the long-term viability of this specific business type in your chosen market.

Explanation

The management team detailed in Item 2 consists of executives with extensive experience in the hospitality and franchising industries, many with long tenures at Wyndham Hotels & Resorts or its affiliates. The risk of dealing with an inexperienced management team is not present. However, it is still valuable for you to research the public reputation and track record of the key executives to understand their leadership style and strategic direction for the brand.

Potential Mitigations

• A business advisor can assist you in researching the professional backgrounds and public statements of the key executives listed in Item 2.
• Asking current franchisees about their interactions with and confidence in the corporate leadership team provides valuable insight.
• To understand the strategic vision, your business advisor might review recent investor calls or press releases from the parent company.

Explanation

The franchisor is owned by Wyndham Hotels & Resorts, Inc., a publicly traded corporation, not a private equity firm. The specific risks associated with a typical private equity ownership model, such as short-term exit strategies, are not directly applicable here. However, as with any publicly traded parent company, you should be aware that management decisions can be influenced by shareholder expectations and quarterly performance pressures, which may not always align with the long-term interests of individual franchisees.

Potential Mitigations

• Your financial advisor should review the parent company's public filings to understand its financial health and strategic priorities.
• Speaking with other franchisees can offer perspective on how the parent company's strategies affect hotel-level operations and profitability.
• A business advisor can help you assess the overall health and direction of the parent company within the broader hospitality market.

Explanation

Item 1 clearly identifies Days Inns Worldwide, Inc. as a subsidiary of Wyndham Hotel Group, LLC, which is wholly owned by Wyndham Hotels & Resorts, Inc. (WHR). WHR provides a performance guarantee and its audited financial statements are included as Exhibit D. Therefore, the risk of non-disclosure of a parent company or its financials is not present. This transparency allows for a more complete assessment of the financial backing of the franchise system.

Potential Mitigations

• It is still prudent for your accountant to thoroughly review the provided parent company financial statements in Exhibit D.
• Your attorney should confirm the terms of the parent guarantee to understand its scope and limitations.
• Asking the franchisor about the operational relationship between the parent and the franchisor entity can provide additional context.

Explanation

Item 1 discloses that the franchisor changed its name from Days Inns of America, Inc. in 2000 and was part of a spin-off from Wyndham Worldwide Corporation in 2018. While this history is disclosed, you should assess any potential lingering issues or strategic shifts resulting from these corporate changes. A clear understanding of the predecessor's history, including any past litigation or bankruptcy disclosed in Items 3 and 4, is important for a complete risk assessment.

Potential Mitigations

• Your attorney should review the details of the corporate history in Item 1 and any related litigation or bankruptcy information in Items 3 and 4.
• Discussing the impact of past corporate changes with long-term franchisees can provide valuable historical context.
• A business advisor can help you research public information about the 2018 spin-off to understand its strategic rationale and outcomes.