Explanation

The franchisor entity, Hyatt Franchising, L.L.C., presents an unaudited balance sheet in the state addenda showing a significant negative net worth. However, this risk appears to be substantially mitigated. The parent company, Hyatt Hotels Corporation, provides its own audited, healthy financial statements and includes an absolute and unconditional Guarantee of Performance, backing all of the franchisor's obligations. This strong parent guarantee provides significant financial stability to the franchise system.

Potential Mitigations

• Your attorney should review the parent company's Guarantee of Performance to confirm its scope and enforceability.
• Discuss the franchisor's balance sheet and the parent guarantee's implications with your accountant to understand the overall financial structure.
• A business advisor can help assess if the parent company's strategic goals align with the long-term health of this specific brand.

Explanation

This risk was not identified in the FDD package. The tables in Item 20 show no franchised outlets were terminated, ceased operation, or were not renewed during the last three years. This can be a positive sign, but it is important to recognize that the Destination by Hyatt franchise system is very new, with only four franchised outlets at the end of 2024. Therefore, the lack of turnover may not be statistically significant yet.

Potential Mitigations

• Speaking with current and former franchisees listed in Item 20 is a crucial step your business advisor can help you prepare for.
• Your attorney should help you ask the franchisor about any informal disputes or disagreements that would not appear in the turnover tables.
• An accountant can help you monitor future FDDs for any changes in franchisee turnover rates as the system matures.

Explanation

This risk was not identified in the FDD. Item 20 data shows very slow and deliberate franchise growth, from one to four units over three years, which does not suggest expansion is outpacing support resources. The parent company, Hyatt Hotels Corporation, is a large, established global hotel company with extensive resources, which further mitigates the risk of being unable to support new franchisees. The detailed support structure in Item 11 appears robust.

Potential Mitigations

• It is wise to ask the franchisor about their planned growth trajectory and the corresponding scaling of support staff and systems.
• Discussing the quality and timeliness of franchisor support with existing franchisees can provide valuable real-world insight.
• A business advisor can help you evaluate if the support infrastructure described in Item 11 is adequate for your hotel's specific needs.

Explanation

This risk was not identified in the FDD package. The franchised business is to operate a high-end resort hotel affiliated with the globally recognized Hyatt brand. The hotel industry is a mature and established market with sustained consumer demand. This business model does not appear to be based on a short-term trend or fad, but rather on a well-established hospitality concept, reducing the risk of a sudden decline in consumer interest.

Potential Mitigations

• A business advisor can help you analyze long-term trends in the luxury and resort travel industry to confirm sustained demand.
• Reviewing the franchisor's plans for brand evolution and adaptation in Item 11 can provide insight into their long-term strategy.
• An accountant can help model the business's potential resilience to various economic cycles.

Explanation

This risk was not identified in the FDD. Item 2 lists the key personnel of the franchisor, who appear to have extensive and long-term experience within Hyatt Hotels Corporation and the broader hospitality industry. This depth of experience in hotel operations, development, and franchising suggests a strong and knowledgeable leadership team is in place to support the franchise system, which is a significant positive factor for a prospective franchisee.

Potential Mitigations

• It's still valuable to ask your business advisor to help research the recent track record and reputation of the key executives listed.
• When speaking with existing franchisees, you should inquire about their direct experiences with the management team's competence and responsiveness.
• Your attorney can help you understand the management structure and confirm that key operational roles are filled by experienced individuals.

Explanation

This risk was not identified. The franchisor's parent, Hyatt Hotels Corporation, is a publicly traded company, not one owned by a private equity firm. This structure often implies a focus on long-term brand health and operational stability rather than a short-term exit strategy that could be detrimental to franchisees. The risk of sudden, drastic changes in fees or support to maximize short-term returns for a PE sale appears low in this context.

Potential Mitigations

• A financial advisor can analyze the parent company's public filings and investor reports to understand its long-term strategy.
• Your attorney should still review the assignment clause in the Franchise Agreement to understand your rights if the system is ever sold.
• Discussing the stability of the franchisor's ownership with long-term franchisees can provide valuable historical context.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses that Hyatt Franchising, L.L.C. (Hyatt) is a subsidiary of Hyatt Hotels Corporation. Furthermore, Item 21 and its exhibit provide both the franchisor's unaudited balance sheet and the parent company's audited consolidated financial statements, along with a Guarantee of Performance from the parent. This level of disclosure appears to meet or exceed regulatory requirements, providing a clear view of the financial structure.

Potential Mitigations

• Your accountant should review the provided financial statements for both the franchisor and the parent company.
• The scope and enforceability of the parent company's guarantee should be confirmed by your attorney.
• It remains prudent to ask your attorney to verify that no other controlling entities exist that should have been disclosed.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that the franchisor has no predecessors. The business activity related to the Destination by Hyatt brand began within the Hyatt corporate structure following an asset acquisition. Therefore, there is no history from prior entities that could obscure past issues such as litigation, bankruptcy, or high franchisee turnover under a different ownership structure.

Potential Mitigations

• Your attorney should confirm the corporate history detailed in Item 1 to ensure no predecessor entities were overlooked.
• Inquiring with the earliest franchisees about the system's history can provide additional context, and your business advisor can help frame these questions.
• A thorough review of all disclosures with your legal and financial advisors remains the best practice for identifying any historical risks.

Explanation

This risk was not identified. Item 3 discloses only one recent litigation case, which was initiated by the franchisor against a franchisee for unpaid fees. The FDD does not disclose any pending or recent litigation brought by franchisees against the franchisor alleging fraud, misrepresentation, or breach of contract. The absence of such franchisee-initiated lawsuits is a positive indicator and suggests a lack of systemic issues in the franchise sales or relationship process.

Potential Mitigations

• Your attorney should still conduct an independent search for any litigation involving the franchisor or its parent that may not have required disclosure.
• When speaking with former franchisees, it is useful to ask about any disputes they may have had, even if they did not result in litigation.
• A business advisor can help you assess whether the franchisor-initiated litigation indicates an overly aggressive enforcement style.