Explanation

The franchisor, WHR Extended Stay, LLC (WHR Extended Stay), is a new entity with a limited financial history. However, this risk is significantly mitigated because its ultimate parent, Wyndham Hotels & Resorts, Inc. (WHR), a large, publicly-traded company, explicitly guarantees its performance. The parent's audited financial statements provided in Exhibit D show substantial assets and revenue, indicating a strong financial backing for the new franchise system. This reduces concerns about the franchisor's ability to provide support.

Potential Mitigations

• An accountant should review the parent company's audited financial statements in Exhibit D, including all footnotes, to confirm its financial health.
• Discuss the strength and enforceability of the parent company's performance guarantee with your franchise attorney.
• Ask your business advisor to assess the long-term strategic commitment of the parent company to this new brand.

Explanation

This specific risk was not identified. As a new system that began franchising in late 2022, Item 20 data shows no terminations, non-renewals, or other forms of franchisee turnover have occurred yet. While this means there is no negative turnover data, the lack of a long-term operational history for a large number of units is an inherent risk of joining a new system, which should be considered separately.

Potential Mitigations

• A business advisor can help you monitor future Item 20 disclosures from the franchisor to track turnover rates as the system matures.
• It is wise to discuss with your attorney the termination and non-renewal clauses in the franchise agreement to understand your rights.
• Consult with an accountant to model the financial impact if you were to become a turnover statistic in the future.

Explanation

This risk was not identified. The franchise concept is for an extended stay hotel, a well-established segment of the lodging industry. While the specific brand is new, the underlying business model is not based on a fad or fleeting trend. The business caters to a consistent demand for affordable, long-term accommodation, suggesting a durable market presence rather than a temporary one.

Potential Mitigations

• A business advisor can help you research the long-term trends and competitive landscape within the extended-stay hotel market.
• It is prudent to have an accountant help you develop a business plan that accounts for normal economic cycles.
• Discussing the brand's specific value proposition with your attorney can help clarify its position against established competitors.

Explanation

The direct franchisor entity, WHR Extended Stay, is new and its dedicated management team consequently has a short history with this specific brand. However, this risk is substantially mitigated because the key executives hold similar, senior positions within the parent company, Wyndham Hotels & Resorts, Inc. These individuals have extensive experience in the lodging and franchising industries, reducing the risk associated with an inexperienced team leading the new venture.

Potential Mitigations

• A business advisor can help you research the professional backgrounds and track records of the key executives listed in Item 2.
• Discuss with current franchisees of other Wyndham brands their experience with the parent company's management and support systems.
• Your attorney can help clarify the roles and responsibilities of the executives as they relate to both the new brand and the parent company.

Explanation

This risk was not identified in the FDD package. The franchisor is a subsidiary of Wyndham Hotels & Resorts, Inc., a publicly-traded company, 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, do not apply here. Franchisee business decisions are typically influenced by the long-term strategic goals of the public parent company.

Potential Mitigations

• An accountant can help you review the parent company's public filings (10-K, 10-Q) to understand its financial health and strategic priorities.
• It is always wise to ask your attorney to review any clauses in the franchise agreement related to the sale or transfer of the franchise system.
• A business advisor can help you assess the long-term stability and reputation of any publicly-traded parent company.

Explanation

This risk was not identified. The franchisor is disclosed as a direct subsidiary of Wyndham Hotel Group, LLC, which is wholly owned by Wyndham Hotels & Resorts, Inc. (WHR). The FDD correctly includes a Guaranty of Performance from WHR and provides WHR's audited consolidated financial statements in Exhibit D. This provides appropriate transparency into the ultimate parent company's financial condition, which is crucial as it backs the franchisor's obligations.

Potential Mitigations

• Your accountant should review the provided parent company financials in Exhibit D to confirm the entity's ability to support the franchisor.
• It is prudent for your attorney to verify the structure of the parent company guarantee and its enforceability.
• A business advisor can help you understand the relationship between the franchisor and its parent to assess where key decisions are made.

Explanation

This risk was not identified in the disclosure documents. Item 1 indicates the franchisor is a new entity and does not list any predecessors from which it acquired the business. Therefore, there is no predecessor history to analyze for potential issues like past litigation, bankruptcy, or franchisee failures. The risks associated with this franchise are those of a new system, not of one with an undisclosed or problematic past.

Potential Mitigations

• A business advisor can help you understand the unique risks of joining a new franchise system without a predecessor.
• You should still ask your attorney to confirm the corporate history of the franchisor entity itself.
• In any franchise review, it's wise for an accountant to analyze the franchisor's own financial statements for stability, even without a predecessor.