Explanation

The audited financial statements for the franchisor, MIF, L.L.C. (MIF), are provided in Exhibit J. A review of these documents indicates a strong financial position, with significant net income and positive member's equity reported for the past three fiscal years. No indicators of financial instability, such as a going concern note from the auditors, were identified. This financial strength suggests MIF is capable of supporting the franchise system.

Potential Mitigations

• Engage a franchise accountant to perform an independent review of the franchisor's financial statements to confirm its health and stability.
• Understanding the notes accompanying the financial statements is critical, and your accountant can provide a detailed explanation of their implications.
• A business advisor can help you assess whether the franchisor's financial capacity is sufficient to support its stated growth plans.

Explanation

The franchisee turnover rates, as calculated from the data in Item 20, appear to be very low for the past three years (approximately 1.3% in 2024). This low rate of terminations, non-renewals, and other cessations generally indicates a stable and healthy franchise system with a low level of franchisee distress or dissatisfaction. A low turnover rate is a positive indicator for prospective franchisees.

Potential Mitigations

• It is still advisable to contact a sample of former franchisees listed in Item 20 to understand their reasons for leaving the system.
• A franchise attorney can help you interpret the nuances of the different categories in the Item 20 tables.
• Comparing these turnover rates against any available industry benchmarks with a business advisor can provide additional context.

Explanation

Item 20 data indicates steady and significant growth in the number of franchised outlets. While rapid growth can sometimes strain a franchisor's support systems, this risk appears low in this case. The substantial financial resources of MIF and its parent company, Marriott International, Inc. (MII), as shown in Item 21, suggest they have the capacity to adequately support the expanding system.

Potential Mitigations

• Discuss with current franchisees whether they feel the quality and timeliness of franchisor support has been maintained during recent growth.
• A business advisor can help you question the franchisor about their specific plans for scaling support infrastructure, such as field support staff and training resources.
• An accountant can analyze the franchisor's financials to confirm that investments in support systems are keeping pace with system expansion.

Explanation

This risk was not identified. Item 1 indicates the Fairfield by Marriott brand was established in 1987. It is a large, mature, and globally recognized brand, not an unproven system. This long history and large system size reduce the risks typically associated with new or emerging franchise concepts.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the maturity and stability of the system.
• Consulting with an attorney is useful to understand the legal track record of a long-established franchisor.
• Reviewing the franchisor's history of innovation with a business advisor can help determine if a mature system is staying current.

Explanation

This risk was not identified. The Fairfield by Marriott brand offers select-service lodging, which is a foundational and long-standing segment of the hospitality industry. It is not dependent on a short-term trend or fad, suggesting long-term market viability and consumer demand.

Potential Mitigations

• Engaging a business advisor can help you evaluate the long-term market demand for any franchise concept.
• An accountant can assist in modeling financial performance under various economic conditions to test the resilience of the business model.
• It is wise to research the specific industry segment of any franchise to understand its history and future outlook.

Explanation

This risk was not identified. Item 2 of the FDD lists the directors and principal officers of the parent company, MII. The executive team consists of highly experienced professionals with extensive backgrounds in the lodging and franchising industries. This depth of experience suggests a strong capacity to manage the franchise system effectively.

Potential Mitigations

• When evaluating a franchise, a business advisor can help you research the backgrounds and track records of the key management team.
• Speaking with current franchisees can provide insight into the effectiveness and competence of the franchisor's leadership.
• An attorney can help investigate the litigation history of key executives, if any, for potential red flags.

Explanation

This risk was not identified. Item 1 states that the franchisor's parent, Marriott International, Inc., is a publicly-traded corporation. It is not owned by a private equity firm, which mitigates risks associated with short-term investment horizons that can sometimes conflict with the long-term health of a franchise system.

Potential Mitigations

• An attorney or business advisor can help you verify the ownership structure of any franchisor.
• If a franchisor is PE-owned, it is wise to research the firm's history with other franchise brands.
• Understanding the ownership structure helps in assessing the franchisor's potential long-term strategic priorities.

Explanation

This risk was not identified. Item 1 clearly identifies the franchisor, MIF, and its parent, MII. The FDD includes comprehensive, audited financial statements for MIF in Exhibit J. Given the franchisor's strong independent financial position, the absence of the parent company's financials does not appear to obscure any material risk and may not be required.

Potential Mitigations

• Your attorney can help determine if a parent company's financials should have been included based on state or federal rules.
• If a parent company guarantees the franchisor's obligations, an accountant should review both entities' financials for a complete picture.
• Always verify the legal relationship between the franchising entity and its parent company with the help of a business advisor.

Explanation

This risk was not identified. The FDD for MIF, which was formed in 2012, does not disclose any legal predecessors from which it acquired the system. While the parent company, MII, has a long history of acquiring other companies like Starwood, that history is disclosed and does not relate to a predecessor for MIF itself.

Potential Mitigations

• When a franchisor discloses a predecessor, your attorney should carefully review its litigation and bankruptcy history in Items 3 and 4.
• A business advisor can help you investigate the history and reputation of any predecessor entity.
• Speaking with long-tenured franchisees can reveal insights into the system's performance under prior ownership.