Explanation

This risk was not identified. The audited financial statements for Hilton Franchise Holding LLC (Hilton LLC) show significant profitability and a strong balance sheet, with net income increasing annually from 2022 to 2024. The company's financial position appears robust, which is a positive indicator of its ability to support the franchise system and invest in the brand. There were no 'going concern' notes or other audit qualifications indicating financial distress.

Potential Mitigations

• An experienced franchise accountant should still review the complete financial statements in Exhibit C, including all footnotes, for a comprehensive understanding.
• Discuss the franchisor's financial health and capital allocation plans for the brand with your financial advisor.
• Your business advisor can help you assess how the franchisor's strong financial position translates into tangible support and resources for franchisees.

Explanation

The franchisee turnover rate appears low. In 2024, there were 3 terminations and 0 non-renewals out of 236 starting hotels, which is not an alarming figure. However, a significant disclosure in Item 20 states that some former franchisees have signed agreements restricting their ability to speak about their experiences. This could potentially mask the true reasons for franchisee exits and makes thorough due diligence with remaining former franchisees more critical.

Potential Mitigations

• Your attorney should help you formulate questions for current and former franchisees regarding their experiences, especially concerning the reasons for any departures.
• It is crucial to contact a diverse sample of the franchisees listed in the FDD to get a balanced view of the system.
• Discuss the implications of the confidentiality agreements mentioned in Item 20 with your franchise attorney.

Explanation

This risk was not identified. The data in Item 20 indicates that the Embassy Suites system is experiencing slow and stable growth, with a net increase of only one franchised hotel per year from 2022 to 2024. This measured pace suggests the franchisor is not growing faster than its ability to provide support, which is a positive sign for system stability.

Potential Mitigations

• Your business advisor can help you interpret the system growth data in the context of the overall hotel industry.
• Discuss the franchisor's strategic growth plans with them to understand their vision for the brand's future footprint.
• Have your accountant review the franchisor's financial capacity in Item 21 to ensure it aligns with its stated growth and support objectives.

Explanation

This risk was not identified. The Embassy Suites brand has been franchising since 1984, and the franchisor, as part of Hilton Worldwide, is one of the most established and experienced hotel operators globally. The FDD provides extensive information on the long history of the brand and the deep experience of its management team. This is not a new or unproven system.

Potential Mitigations

• Your business advisor can help you research the brand's long-term performance and reputation within the hotel industry.
• Review the management team's biographies in Item 2 to appreciate the depth of their industry experience.
• It is still valuable to speak with long-term franchisees to understand how the system has evolved over time.

Explanation

This risk was not identified. The Embassy Suites hotel concept is a long-established and well-recognized model within the mainstream hospitality industry. It is not based on a new or fleeting trend, but on sustained consumer demand for all-suite hotel accommodations. The business's viability is not dependent on a short-term fad.

Potential Mitigations

• Your business advisor should help you analyze the long-term market trends for all-suite hotels in your target market.
• Review the franchisor's discussion of the market and competition in Item 1 to understand their strategic positioning.
• Discuss the brand's resilience through various economic cycles with long-tenured franchisees.

Explanation

This risk was not identified. Item 2 of the FDD details the extensive backgrounds of Hilton LLC's executive team. The listed officers and directors have many years, often decades, of experience in senior roles within Hilton or other major global hospitality companies. The management team appears to be highly experienced in both the hotel industry and in managing large-scale franchise systems.

Potential Mitigations

• It can be beneficial to review the public profiles of key executives to further understand their track record and strategic focus.
• When speaking with existing franchisees, inquire about their direct experiences and the quality of leadership from the corporate team.
• Your business advisor can help contextualize the management team's experience relative to other major players in the hospitality industry.

Explanation

This risk was not identified. Item 1 discloses that the ultimate parent company, Hilton Worldwide Holdings Inc., is a publicly traded company (NYSE: HLT), not one owned by a private equity firm. While public companies face pressure to deliver shareholder returns, the specific risks associated with a short-term private equity ownership model and exit strategy are not present here.

Potential Mitigations

• Your financial advisor should review Hilton Worldwide's public filings (e.g., 10-K reports) to understand its overall financial health and strategic priorities.
• Discuss the implications of being part of a large public company system with your business advisor.
• Review Item 17 of the FDD with your attorney to understand the franchisor's right to assign the agreement in the event of a future sale of the company.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company structure, identifying Hilton Domestic Operating Company Inc. and the ultimate parent, Hilton Worldwide Holdings Inc. While parent company financials are not provided, the franchisor entity's own audited financials in Item 21 are very strong and detailed, making the disclosure adequate under the circumstances. The relationship and guarantee structure are also described in the financial statement notes.

Potential Mitigations

• Your accountant should review the franchisor's financial statements and the related party transaction notes for a full picture of the corporate structure.
• Discuss the parent company's role and any guarantees with your franchise attorney.
• It is wise to research the public filings of the ultimate parent, Hilton Worldwide Holdings Inc., with your financial advisor.

Explanation

This risk was not identified. Item 1 provides a detailed history of the brand's predecessors, including Promus Hotels, Inc. and Embassy Suites Franchise LLC. Furthermore, Item 3 explicitly states there have been no concluded litigation actions involving these predecessors that require disclosure. The franchisor appears to be transparent about the system's lineage.

Potential Mitigations

• Your attorney should review the predecessor information in the context of the overall franchise history.
• It can be useful to speak with very long-term franchisees who may have operated under a predecessor entity.
• A business advisor can help you research the public history of the predecessor companies for additional context.