Explanation

This risk was not identified. The audited financial statements in Exhibit J for MIF, L.L.C. (MIF) show a very strong financial position. For the year ending December 31, 2024, the company reported significant net income ($63.8 million) and substantial positive member's equity ($466.3 million). The auditor's report is unqualified, with no 'going concern' warning, indicating a stable financial foundation for supporting the franchise system.

Potential Mitigations

• An experienced franchise accountant should still review the complete financial statements, including all footnotes, to understand the franchisor's financial structure and reliance on its parent company.
• Discuss the franchisor's financial health and their plans for future system investment with your business advisor.
• It is wise to ask your accountant to explain the significance of the large 'due from related parties' asset on the balance sheet.

Explanation

This risk was not identified. The data in Item 20 shows a stable or growing system with very low turnover. In 2024, there were only two terminations out of 67 franchised outlets, a churn rate of approximately 3%. This low rate suggests a healthy system and general franchisee satisfaction. Healthy franchise systems typically see low rates of terminations, non-renewals, and other cessations, which can be an indicator of franchisee success and satisfaction.

Potential Mitigations

• You should still contact a diverse group of current and former franchisees listed in Exhibits M and N to discuss their experiences.
• Your attorney can help you formulate questions for former franchisees to understand their specific reasons for leaving the system.
• A business advisor can help you compare the turnover rates in Item 20 with available industry benchmarks for context.

Explanation

This risk was not identified. The franchise system has demonstrated steady and managed growth over the past three years, rather than explosive, potentially unsustainable expansion. Item 20 data shows a net addition of five units in 2022 and five in 2023, with stable numbers in 2024. This pace suggests the franchisor, Marriott International, Inc. (MII), has the resources to scale support infrastructure alongside unit growth, which is a positive indicator for new franchisees.

Potential Mitigations

• During your due diligence calls with existing franchisees, it is prudent to ask about the quality and timeliness of the support they receive from the franchisor.
• A discussion with your business advisor about the franchisor's development plans, as shown in Item 20 Table 5, can provide additional context.
• Reviewing the franchisor's capacity for support in Item 11 with your attorney remains a key due diligence step.

Explanation

This risk was not identified. The franchisor, MIF, is a subsidiary of MII, one of the world's largest and most experienced lodging franchisors. Item 1 shows MII operates dozens of established hotel brands. While the Delta Hotels brand was acquired by MII in 2015, it has been franchising for nearly a decade within this highly mature system. This extensive track record significantly reduces the risks associated with unproven systems or business models.

Potential Mitigations

• A business advisor can help you research the performance and reputation of the specific Delta Hotels brand within the broader Marriott portfolio.
• Engaging with your attorney to understand the relationship between the direct franchisor, MIF, and the parent company, MII, is still important.
• It is beneficial to ask existing franchisees about their experience with this specific brand and how it is supported within the larger Marriott system.

Explanation

This risk was not identified. The FDD describes the Delta Hotels by Marriott concept as a traditional, full-service hotel catering to business and leisure travelers. This is a well-established and mainstream segment of the lodging industry, not a business model based on a fleeting trend or fad. The stability of this market segment suggests a lower risk of sudden declines in consumer demand due to changing tastes.

Potential Mitigations

• Your business advisor can help you analyze long-term trends in the full-service hotel market to confirm its stability.
• It is still wise to assess the specific competitive advantages of the Delta Hotels brand within its market segment.
• Discussing the brand's adaptability and plans for future innovation with the franchisor can provide valuable insight.

Explanation

This risk was not identified. Item 2 lists the executive team of the parent company, MII, which is composed of individuals with extensive, long-term careers within Marriott and the global lodging industry. This deep bench of highly experienced management in both franchising and hotel operations provides a strong foundation for system support and strategic direction, which is a significant positive factor for a prospective franchisee.

Potential Mitigations

• Your business advisor should still review the backgrounds of the key executives responsible for the Delta Hotels brand specifically.
• In discussions with existing franchisees, asking about their direct interactions with and confidence in the management team is a valuable step.
• Having your attorney review the management structure and responsibilities can provide additional clarity.

Explanation

This risk was not identified. Item 1 discloses that the franchisor's ultimate parent company, MII, is a publicly-traded corporation listed on the NASDAQ stock market. The franchise system is not owned or controlled by a private equity firm, which mitigates risks often associated with short-term investment horizons or strategies that might prioritize investor returns over the long-term health of franchisees.

Potential Mitigations

• Your attorney should still review Item 1 to fully understand the franchisor's corporate structure and affiliations.
• It is beneficial to have a financial advisor review the public filings of MII to gain a broader understanding of its overall financial health and strategic priorities.
• Discussing the long-term vision for the brand with the franchisor can provide valuable context about their commitment to the system.

Explanation

This risk was not identified. The FDD clearly discloses in Item 1 that the franchisor, MIF, is a subsidiary of MII. Item 21 provides audited financial statements for the franchising entity, MIF, which demonstrate its own strong financial health. As MIF is not a new or thinly capitalized entity and can meet its obligations, disclosure of the parent's financials is not required, and there is no indication of obfuscation.

Potential Mitigations

• Your attorney should review the corporate structure described in Item 1 to fully understand the relationship between the franchisor and its parent.
• An accountant should confirm that the provided financials for MIF meet all disclosure requirements.
• Understanding the flow of funds and services between MIF and its parent, as described in the financial statement notes, is useful for due diligence.

Explanation

This risk was not identified. Item 1 discloses that MII acquired the Delta brand in 2015 from a predecessor, but there are no negative historical issues such as litigation or bankruptcy associated with that predecessor disclosed in Items 3 and 4. The document appears transparent regarding the brand's history since its acquisition by Marriott, mitigating the risk of inheriting undisclosed systemic problems from a prior owner.

Potential Mitigations

• Your attorney should still review all disclosures related to predecessors in Items 1, 3, and 4.
• Asking long-term franchisees who may have operated under the predecessor about their experience can provide valuable historical context.
• A business advisor can assist in researching the public reputation of the predecessor entity if further diligence is desired.