Explanation

The franchisor, WHR Extended Stay, LLC (WHR ES), is a recently formed entity. However, its performance is guaranteed by its ultimate parent, Wyndham Hotels & Resorts, Inc. (WHR), a large, publicly-traded company. The audited financial statements for WHR in Exhibit D show it is a substantial, profitable enterprise. This strong parental guarantee significantly reduces the financial risk typically associated with a new franchisor entity, though your direct agreement is with the newer, less capitalized subsidiary.

Potential Mitigations

• An experienced franchise accountant should review the financial statements for both the franchisor and the guarantor, paying close attention to the terms of the guaranty in Exhibit D.
• Understanding the legal strength and enforceability of the parent guaranty is critical; this should be a key point of discussion with your franchise attorney.
• It is advisable to ask your financial advisor to assess the long-term stability and strategic direction of the parent company, WHR.

Explanation

This risk was not identified in the FDD package. As a new franchise system that only began operating in 2022, the data in Item 20 shows no terminations, non-renewals, or other cessations. High turnover is a critical indicator of potential systemic problems, so its absence here is expected but should be monitored in future FDDs as the system matures.

Potential Mitigations

• In future years, instruct your accountant to carefully analyze the turnover data in Item 20 to spot any negative trends early.
• A business advisor can help you establish relationships with other franchisees to stay informed about system health and satisfaction.
• Your attorney should advise on the importance of monitoring system growth and stability in subsequent FDDs.

Explanation

This risk was not identified in the FDD package. Rapid, uncontrolled growth can strain a franchisor's ability to provide support. Item 20 indicates the system is very new with only five franchised outlets opened in 2024. While there are 40 agreements signed for future openings, the current operational scale is small, mitigating the immediate risk of overstretched support infrastructure. However, this could become a future concern.

Potential Mitigations

• Your business advisor can help you monitor the pace of new openings against the franchisor's stated support capabilities.
• It is wise to ask the franchisor about their plans to scale support teams and infrastructure as the system grows.
• Discussing the quality of support with franchisees who open ahead of you will provide valuable insight; your attorney can help frame questions.

Explanation

This risk was not identified in the FDD package. The extended stay hotel concept is a well-established segment of the lodging industry, not a business tied to a fleeting trend. The success of the business depends on general economic conditions, travel patterns, and competitive execution rather than the short-term popularity of a novelty product or service. Therefore, the risk of the business being a fad is considered low.

Potential Mitigations

• Engaging a business advisor to research the long-term outlook for the extended-stay hotel market in your specific area is a prudent step.
• An accountant can help you model financial performance based on sustained, long-term demand rather than short-term trends.
• Your attorney can review the agreement for any unusual restrictions that might limit your ability to adapt to future market changes.

Explanation

While the franchisor entity itself is new, the management team detailed in Item 2 consists of executives from the parent company, Wyndham Hotels & Resorts. These individuals have extensive experience in the hotel and franchising industries. This significantly mitigates the risk typically associated with an inexperienced management team at a new franchisor. The risk lies in whether their experience translates effectively to this specific new brand and its unique market position.

Potential Mitigations

• A business advisor can help you assess how the management team's prior experience aligns with the specific goals and challenges of this new brand.
• It's wise to ask the franchisor direct questions about the resources and specific personnel from the parent company that are dedicated to supporting Echo Suites.
• Reviewing the support and training commitments in Item 11 with your attorney will help clarify the formal support structure.

Explanation

This risk was not identified in the FDD package. The ultimate parent company, Wyndham Hotels & Resorts, Inc., is a publicly-traded corporation, not a private equity firm. Therefore, the specific risks associated with a private equity ownership model, such as a focus on short-term returns or a quick exit strategy, are not directly applicable here. The franchisor's stability is tied to the performance of a public company.

Potential Mitigations

• It is still beneficial for your financial advisor to analyze the parent company's public financial reports and strategic priorities.
• Your attorney should review the assignment clause in the Franchise Agreement to understand what happens if the franchisor is sold.
• A business advisor can help you research the parent company's general reputation and relationship with its franchisees across its various brands.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the parent companies, Wyndham Hotel Group, LLC and Wyndham Hotels & Resorts, Inc. (WHR). Furthermore, the FDD includes a Guaranty of Performance from WHR and its full audited financial statements are provided in Exhibit D. This level of disclosure appears to be complete and transparent regarding the corporate structure and financial backing of the franchisor.

Potential Mitigations

• Your attorney should confirm that the provided Guaranty of Performance is robust and legally sound.
• It is important to have your accountant review the parent company's financials to assess the strength behind the guaranty.
• Discussing the relationship between the franchisor and its parent with a business advisor can provide additional context.

Explanation

This risk is not applicable as WHR ES is a new franchisor and Item 1 does not list any predecessors from which it acquired the system. While the franchisor entity converted from a corporation to an LLC, it did not acquire the business from another entity. Therefore, there is no predecessor history to analyze for potential inherited issues, litigation, or franchisee turnover.

Potential Mitigations

• Understanding the franchisor's own history, even if short, is crucial; your business advisor can help with this.
• Your attorney should confirm the corporate history detailed in Item 1 and ensure no predecessor information appears to be missing.
• An accountant can analyze the franchisor's financial statements from inception to assess its development.