Explanation

This risk was not identified in the FDD package. The audited financial statements for Hilton Franchise Holding LLC (Hilton) in Exhibit C show significant net income, substantial positive member's equity, and a strong balance sheet. The auditor provided an unqualified opinion with no 'going concern' notes. Strong financials suggest the franchisor has the resources to support the system and its franchisees. An accountant's review is still essential for a complete financial picture.

Potential Mitigations

• A franchise accountant should still conduct a thorough review of the franchisor's financial statements to confirm its health and stability.
• Discussing the franchisor's financial condition and its impact on support with current franchisees is a prudent step your business advisor can help facilitate.
• To gain a full picture of financial health, it is wise to have your accountant analyze cash flow statements, debt obligations, and revenue trends over several years.

Explanation

This specific risk was not identified in the FDD package. Item 20 data reflects that Hilton only began franchising the Graduate brand in May 2024 after an acquisition, and in the short period covered, there were no terminations, non-renewals, or other cessations of business reported. While this data does not show high turnover, it reflects a very new system under Hilton's management, which presents its own unique risks related to system integration and support.

Potential Mitigations

• Your business advisor should guide you in speaking with a significant number of the recently converted franchisees listed in Item 20 to understand their satisfaction levels.
• It is important to have your accountant help you track future Item 20 disclosures to monitor turnover trends as the system matures.
• A discussion with your attorney about the implications of investing in a newly acquired and converted franchise system is highly recommended.

Explanation

This risk was not identified in the FDD package. The Graduate by Hilton brand focuses on a theme of collegiate nostalgia and university town locations. The hotel and lodging industry is a long-established, fundamental part of the travel and business economy, not typically considered a fad. While themes can change in popularity, the underlying business of providing lodging services has sustained consumer demand. The franchisor's large, diversified portfolio also suggests a focus on long-term business models.

Potential Mitigations

• A business advisor can assist in researching the long-term stability and demand within the boutique and themed hotel market segment.
• It is still prudent to have your financial advisor help you assess the business model's resilience to economic downturns.
• Discuss the franchisor's strategy for keeping the brand fresh and relevant with your marketing advisor.

Explanation

This risk was not identified in the FDD package. The executives and directors listed in Item 2 have extensive, long-term experience within Hilton Worldwide and the broader hospitality industry. Many hold senior roles across multiple Hilton brands and have been with the parent company for several years. This depth of experience in franchising and hotel management suggests a knowledgeable and stable leadership team is in place, which generally reduces risks associated with inexperienced management.

Potential Mitigations

• Even with an experienced team, a business advisor should help you investigate the reputation and track record of the key individuals leading this specific brand.
• It is still worthwhile to ask current franchisees about their direct experiences and the quality of support received from the management team.
• An attorney can help you verify if the experience listed is directly relevant to managing this specific franchise system.

Explanation

Hilton Worldwide, the ultimate parent company, is a publicly traded company (NYSE: HLT), not one primarily owned by a private equity firm, though its history involves The Blackstone Group. Management decisions are subject to public company governance and shareholder interests, which may focus on long-term brand health. However, like any public company, there can be pressure for quarterly performance that could influence decisions on fees, support levels, or system changes, which might sometimes diverge from individual franchisees' best interests.

Potential Mitigations

• Your financial advisor should help you research the company's recent performance, analyst reports, and strategic priorities to understand its direction.
• A review of the franchise agreement's assignment clause with your attorney is important to understand what happens if the company is acquired.
• Talking with current franchisees about their perspective on the franchisor's long-term commitment versus short-term pressures can provide valuable insight.

Explanation

This risk was not identified in the FDD package. Item 1 clearly identifies the franchisor, Hilton Franchise Holding LLC, and its parent companies, Hilton Domestic Operating Company Inc. and Hilton Worldwide Holdings Inc. Furthermore, Item 21 provides audited financial statements for the franchisor entity itself as Exhibit C. This level of transparency meets disclosure requirements and allows for a direct assessment of the franchising entity's financial health.

Potential Mitigations

• Your accountant should still review the relationship between the franchisor and its parent companies as described in the notes to the financial statements.
• An attorney can help you examine any guarantees or support agreements from the parent entity to understand the full corporate structure.
• It remains important to ask your business advisor to research the financial health and reputation of the ultimate parent, Hilton Worldwide, as it impacts the entire system.

Explanation

This risk was not identified in the FDD package. Item 1 clearly states that Hilton became the franchisor for the Graduate Brand on May 28, 2024, after acquiring the brand from Graduate IP LLC. It also notes that 36 existing 'Project Alpha by Hilton' franchises were converted to the Graduate brand. This disclosure properly identifies the brand's lineage and the recent acquisition, providing a clear history for a prospective franchisee to evaluate.

Potential Mitigations

• Your attorney should still review the predecessor information for any potential liabilities or issues that may have been inherited by Hilton.
• A business advisor can help you research the reputation and history of the brand under its previous ownership to identify any historical challenges.
• It would be beneficial to speak with franchisees who operated under the predecessor to understand the brand's history and the transition process.