Explanation

The franchisor entity, Hyatt Franchising, L.L.C. (Hyatt Franchising), is a subsidiary whose financials are presented on an unaudited basis. However, its ultimate parent, Hyatt Hotels Corporation, provides audited consolidated financial statements and an absolute, unconditional Guarantee of Performance. The parent company is a large, stable, publicly-traded corporation, which significantly mitigates the risk of franchisor financial instability. Therefore, this risk is considered low.

Potential Mitigations

• Your accountant should review the parent company's audited financial statements and the terms of the Guarantee of Performance to confirm the financial strength backing the franchisor's obligations.
• It is prudent to have your attorney verify the enforceability and scope of the parent company's Guarantee of Performance.
• Ongoing monitoring of the parent company's public financial reporting should be part of your long-term strategy, a task for which your financial advisor can assist.

Explanation

This risk was not identified in the FDD package. Item 20 data for the years 2022 through 2024 shows zero terminations, non-renewals, or other cessations for cause for the small but growing number of franchised outlets. High franchisee turnover is a critical red flag indicating systemic problems, so its absence here is a positive sign, although the franchise system is still very young.

Potential Mitigations

• Engage a business advisor to help you contact a significant number of current franchisees listed in Item 20 to discuss their satisfaction and profitability.
• Your accountant should analyze the outlet tables in Item 20 each year to monitor for any future negative trends in turnover.
• An attorney can help you understand the contractual reasons that could lead to termination or non-renewal in the future.

Explanation

This risk was not identified. The FDD's Item 20 data indicates that the franchised system is growing very slowly, from one to four outlets over a three-year period. This measured pace suggests the franchisor is not expanding faster than its ability to provide franchisee support. Rapid, unsupported growth can strain a franchisor's resources, leading to inadequate assistance for franchisees.

Potential Mitigations

• A discussion with your business advisor about the franchisor's future growth plans and support infrastructure scaling is still recommended.
• It is wise to ask existing franchisees about the current quality and responsiveness of the franchisor's support system.
• Your accountant can review the franchisor's financial statements in Item 21 to assess its capacity to support future growth.

Explanation

This risk was not identified. The franchise operates in the lifestyle resort and hospitality sector, a well-established segment of the lodging industry. The franchisor, Hyatt Franchising, is part of Hyatt Hotels Corporation, a global company with a long history of operating hotels since 1957. The business concept is not tied to a short-term trend and is based on a durable consumer demand for travel and lodging.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm sustained consumer demand for this type of hotel in your specific location.
• Review the franchisor's history of innovation and brand adaptation with your business advisor to gauge its long-term strategic planning.
• It is prudent to assess the business model’s resilience to economic downturns with your financial advisor.

Explanation

This risk was not identified in the FDD package. Item 2 details the extensive experience of the executive team of the parent company, Hyatt Hotels Corporation. The listed individuals have long and senior-level careers in the global hospitality, real estate, and franchise industries. This deep management experience is a significant strength and mitigates the risk of poor strategic direction or inadequate support.

Potential Mitigations

• It is still beneficial to discuss the specific support team you will interact with by speaking to other franchisees.
• Your business advisor can help you research the recent performance of the brands and divisions managed by the key executives listed.
• During any meetings with the franchisor, your business advisor can help you assess the capabilities of the operational team that supports franchisees.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchise system is owned by Hyatt Franchising, L.L.C., a subsidiary of the publicly-traded Hyatt Hotels Corporation. Item 16 discloses that the Pritzker family business interests retain significant voting power. This structure does not align with a typical private equity model focused on short-term returns and a quick exit, but rather suggests a long-term strategic approach.

Potential Mitigations

• Your financial advisor can help you review the parent company's public filings and investor calls to understand its long-term strategy.
• Speaking with existing franchisees about their experience with the corporate culture and strategic direction is advisable.
• An attorney should review the assignment clauses in the Franchise Agreement to understand your rights if the system is sold in the future.

Explanation

This risk is not present. The franchisor's parent company, Hyatt Hotels Corporation, is clearly identified in Item 1 of the FDD. Furthermore, the FDD package includes the parent company's audited consolidated financial statements and a full, unconditional Guarantee of Performance as part of Exhibit A-1. This provides a clear picture of the financial strength and backing of the entity guaranteeing the franchisor's obligations.

Potential Mitigations

• It is important for your accountant to review the parent company's financial statements to understand the overall health of the enterprise.
• Your attorney should confirm the scope and validity of the Guarantee of Performance provided by the parent company.
• A business advisor can help you research the relationship and history between the parent company and its franchising subsidiary.

Explanation

This risk was not identified. Item 1 of the FDD does not disclose any predecessors for the franchisor, Hyatt Franchising, L.L.C., for this specific line of business. The document explains that an affiliate acquired the Destination brand, but the franchisor entity itself is presented without a predecessor, meaning there is no hidden history of litigation or bankruptcy from a prior entity to assess.

Potential Mitigations

• Your attorney should still confirm the corporate history outlined in Item 1 through independent verification if possible.
• It is wise to ask long-term employees or executives, if the opportunity arises, about the history of the brand before its acquisition by Hyatt.
• Speaking with franchisees who may have operated under the brand prior to Hyatt's involvement can provide historical context, a task for which your business advisor can assist.

Explanation

This risk was not identified in the FDD package. Item 3 discloses only one recent case, which was initiated by Hyatt Franchising against a franchisee for unpaid royalty fees. This type of collection action is common for a large franchisor and does not indicate a pattern of litigation where franchisees are alleging fraud, misrepresentation, or other systemic wrongdoing by the franchisor.

Potential Mitigations

• Your attorney should still review the details of the single disclosed case to understand the franchisor's approach to enforcement.
• It is prudent to conduct an independent search for litigation involving the franchisor or its parent company, which your attorney can perform.
• Asking current and former franchisees about their experiences with disputes, whether they resulted in litigation or not, is a valuable due diligence step.