Explanation

This risk was not identified. The audited financial statements for the franchisor, MIF, L.L.C. (MIF), are provided in Item 21 and show significant profitability and a strong balance sheet. Financial instability is a risk because a weak franchisor may be unable to provide support or invest in the brand, jeopardizing your investment. This does not appear to be a concern here.

Potential Mitigations

• A franchise accountant should review the provided financial statements and auditor's notes to confirm financial health.
• Discussing the franchisor's financial strategy and stability with your business advisor can provide additional context.
• Your attorney should verify if any state financial assurance requirements, like bonds or escrows, are applicable.

Explanation

This risk was not identified. The data in Item 20 shows a stable and growing franchise system over the past three years with a very low number of terminations or other cessations relative to the system's size. High franchisee turnover can be a major red flag, potentially indicating systemic problems, franchisee dissatisfaction, or lack of profitability.

Potential Mitigations

• It is wise to have an accountant analyze the tables in Item 20 to calculate the effective turnover rate.
• Contacting current and former franchisees listed in Item 20 is a crucial step your business advisor can help with to verify satisfaction.
• Your attorney should help you ask the franchisor about the circumstances behind any listed terminations or transfers.

Explanation

This risk was not identified. Item 20 data shows steady, manageable growth for the Delta Hotels brand, which is part of Marriott International, Inc. (MII), one of the world's largest and most experienced hotel franchisors. Uncontrolled growth can strain a franchisor's ability to provide adequate franchisee support, but that does not appear to be the case here.

Potential Mitigations

• Your business advisor can help you assess if the franchisor's support infrastructure is adequate for its current size and growth rate.
• Speaking with a range of existing franchisees about the quality and timeliness of franchisor support is always a valuable due diligence step.
• An accountant's review of Item 21 financials can help confirm if the franchisor has allocated sufficient resources for franchisee support.

Explanation

This risk was not identified. The franchisor, an affiliate of MII, has been offering Delta Hotels franchises since 2015. MII is a highly experienced global franchisor with a long-established history and proven operational systems. An unproven system increases risk, but this franchise is part of a mature and well-established lodging enterprise.

Potential Mitigations

• Engaging a business advisor to review the franchisor's history and market position is a prudent step.
• Discussing the maturity of the brand's systems and support with current franchisees provides valuable real-world insight.
• Your attorney can review Item 1 and Item 2 to confirm the franchisor's disclosed business and management experience.

Explanation

This risk was not identified. The franchise is for a full-service hotel, a long-established business model within the hospitality industry, not a concept based on a fleeting trend. A fad business model presents the risk of declining consumer interest over the long term of your franchise agreement, potentially leading to failure after the initial trend fades.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm long-term consumer demand for the services offered.
• Reviewing the franchisor’s plans for innovation and brand evolution in Item 11 can offer insight into their long-term strategy.
• It is wise to assess the business model's resilience to economic cycles with your financial advisor.

Explanation

This risk was not identified. Item 2 lists the directors and principal officers of the parent company, MII. This management team is composed of highly experienced executives with extensive backgrounds in the global hospitality and franchise industries. Inexperienced leadership can pose a risk through poor strategic decisions and inadequate support, which is not a concern here.

Potential Mitigations

• Your business advisor can help you research the backgrounds of the key executives listed in Item 2.
• Inquiring with existing franchisees about their perception of the management team's competence and support is a valuable due diligence step.
• Your attorney can review Item 2 to confirm the disclosed management experience meets your expectations.

Explanation

This risk was not identified. Item 1 indicates the ultimate parent company, MII, is a publicly-traded corporation, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the brand, which does not apply in this situation.

Potential Mitigations

• Your attorney should always verify the ownership structure detailed in Item 1 of the FDD.
• Understanding the franchisor's ownership can provide insight into its long-term strategic goals, a topic to discuss with your business advisor.
• A discussion with your attorney can clarify the implications of different ownership structures on a franchise system.

Explanation

This risk was not identified. Item 1 clearly discloses that the franchisor is a subsidiary of MII. Item 21 provides audited financial statements for the franchisor entity itself. Failure to disclose a parent company or its financials, when required, can obscure a complete picture of the franchise system's financial backing and overall stability.

Potential Mitigations

• Your accountant should review the provided financial statements in Item 21 to assess the franchisor's standalone financial health.
• It is prudent for your attorney to review Item 1 and Item 21 to ensure all required disclosures about parent companies and their financials are present and compliant.
• Clarifying the nature of the relationship between the franchisor and its parent company is a key due diligence step for your attorney.

Explanation

This risk was not identified. Item 1 discloses that MII acquired the brand from a predecessor in 2015. The FDD does not indicate any negative history, litigation, or other issues associated with this predecessor. A history of problems with a predecessor could indicate inherited issues for the current franchise system, but no such issues are disclosed here.

Potential Mitigations

• A thorough review of Item 1, Item 3, and Item 4 with your attorney is important to identify any disclosed predecessor history.
• Your business advisor can assist with researching a predecessor's public reputation if one is disclosed.
• You can ask long-tenured franchisees about their experiences under any previous ownership.