Explanation

This specific risk was not identified in the FDD package. The data in Item 20 for the Premier Suites brand shows steady growth with no terminations, non-renewals, or other cessations of franchised outlets over the last three years. However, high franchisee turnover is a critical indicator of systemic problems, so it is a vital area to monitor in any franchise system as it matures and a key topic to discuss with existing franchisees.

Potential Mitigations

• Speaking with current and former franchisees is a crucial step your business advisor should recommend to understand their satisfaction and reasons for any departures.
• An accountant can help you analyze the Item 20 tables for any concerning trends that might develop over time.
• It is wise to have your franchise attorney inquire about the historical turnover rates in the franchisor's other, more established brand systems.

Explanation

This risk was not identified in the FDD package. The business model, extended-stay hotels, is a well-established and recognized segment of the lodging industry. It does not appear to be based on a short-term trend or fad. In any franchise investment, it is important to assess the long-term consumer demand for the products or services to ensure the business has lasting market relevance beyond initial novelty.

Potential Mitigations

• Your business advisor can help you research the long-term economic outlook and demand drivers for the extended-stay hotel industry in your target market.
• An accountant can help you model the financial viability of the business under various economic scenarios to test its resilience.
• It is prudent to have your attorney review the franchisor's plans for system evolution and adaptation to future market changes.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives of ESH Strategies have extensive prior experience in the hospitality and lodging industry. Many have held senior positions at other major hotel and franchise companies, such as G6 Hospitality, Aimbridge Hospitality, and Radisson Hotel Group. This level of relevant industry experience is a positive factor, suggesting the management team understands the operational and franchising complexities of the business.

Potential Mitigations

• A business advisor can help you verify the backgrounds of the key executives listed in Item 2 to confirm their experience is relevant to your needs.
• When speaking to other franchisees, it is still useful to ask about their direct experiences with the management team's competence and support.
• Your attorney can help you understand the roles and responsibilities of the key personnel as they relate to franchisee support.

Explanation

This risk was not identified in the FDD package. Item 1 provides a detailed description of the franchisor’s parent companies and their ultimate ownership by affiliates of SCG and Blackstone Inc. While the structure is complex, it appears to be disclosed. In any franchise system, it is crucial to understand the full corporate structure, as the financial stability and decisions of a parent company can significantly impact the franchisor's ability to support you.

Potential Mitigations

• Your attorney should review Item 1 and any corporate organizational charts to ensure you understand the complete ownership structure.
• It is important to have your accountant review the provided financial statements to determine if a parent company guaranty is offered or necessary.
• A business advisor can help you ask the franchisor about the role the parent companies play in the franchise system's strategy and operations.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no predecessors that are required to be disclosed. When a franchisor does have a predecessor, it is important to review that entity's history for any signs of trouble, such as litigation, bankruptcy, or high franchisee turnover, as these issues could be inherited by the new franchisor.

Potential Mitigations

• Your attorney should always verify the predecessor information in Item 1 of the FDD.
• If a predecessor were listed, your business advisor could help you conduct independent research on that company's history and reputation.
• In cases involving predecessors, a franchise lawyer would recommend speaking with franchisees who operated under the previous ownership to understand any inherited issues.