Explanation

This risk was not identified. The FDD package includes audited financial statements for the ultimate parent and guarantor, Wyndham Hotels & Resorts, Inc. (WHR). The auditor's report is unqualified, and the financial statements show WHR to be profitable with substantial positive net worth. This indicates the entity guaranteeing the franchisor's obligations is financially stable.

Potential Mitigations

• You should still have an accountant review the financial statements, including all footnotes, to form an independent opinion of the guarantor's financial health.
• A business advisor can help you assess the overall stability of the broader Wyndham hotel group and its market position.
• Ask your attorney to confirm the strength and enforceability of the parent company's performance guaranty.

Explanation

This risk was not identified in the FDD. Analysis of Item 20 data for 2024 shows a very low turnover rate. Out of 68 outlets at the start of the year, there were zero terminations or non-renewals, and only three units that ceased operations for other reasons. This suggests a relatively stable and satisfied franchisee base.

Potential Mitigations

• It is still advisable to contact a random sampling of current and former franchisees from the lists in Item 20 to discuss their experiences.
• Engaging a business advisor can provide context on typical turnover rates within the hotel industry for comparison.
• Your accountant can help you analyze the multi-year trends in outlet numbers to confirm the system's stability.

Explanation

This risk appears to be low. Item 20 data shows the system has experienced slow but steady net growth over the past two years, from 67 to 71 U.S. outlets. This indicates a mature, stable system rather than one undergoing potentially unsustainable rapid expansion that could strain support services.

Potential Mitigations

• It is beneficial to ask current franchisees about their perception of the quality and timeliness of franchisor support.
• A discussion with your business advisor can help evaluate if the franchisor's support infrastructure is appropriate for its current size and growth rate.
• Your accountant should review the franchisor's financials in Item 21 to assess if they have the resources to support continued growth.

Explanation

This risk is not present. Hawthorn Suites Franchising, Inc. (HSF) began franchising in 1996 and is part of the large, publicly-traded Wyndham Hotels & Resorts system. The FDD discloses extensive franchising history and an experienced management team. The brand has significant recognition and a long operating history, indicating a well-established and proven franchise system.

Potential Mitigations

• It is still valuable for your business advisor to research the brand's competitive position within the extended-stay hotel market.
• You should review the management team's biographies in Item 2 to understand their specific experience with this brand and parent company.
• Contacting franchisees with your attorney can provide insight into the brand's evolution and current standing in the marketplace.

Explanation

This risk seems low. The Hawthorn brand operates in the established extended-stay hotel sector, which caters to long-term business and leisure travelers. This business model is not based on a new or fleeting trend but on consistent lodging demand. The franchisor is a subsidiary of Wyndham Hotels & Resorts, a major, long-standing player in the global hospitality industry.

Potential Mitigations

• Engaging a business advisor to research the long-term trends and competitive landscape of the extended-stay hotel market is recommended.
• An accountant can help you analyze how the business model might perform under various economic conditions, such as travel downturns.
• Discuss the brand's strategies for innovation and maintaining market relevance with existing franchisees.

Explanation

This risk was not identified. Item 2 of the FDD details the business experience of the executive team. The officers hold senior positions within the parent company, Wyndham Hotel Group, and have extensive experience in the hospitality and franchising industries. This suggests a seasoned management team is in place to support the franchise system.

Potential Mitigations

• You should still review the specific backgrounds of the key personnel listed in Item 2 who are most directly involved with brand operations.
• Asking current franchisees about their interactions with and confidence in the management team can provide valuable insight.
• Your business advisor can help research the public reputation and track record of the key executives.

Explanation

The franchisor is part of Wyndham Hotels & Resorts, Inc. (WHR), a large, publicly-traded company. While public companies prioritize shareholder returns, WHR has a long history of managing franchise brands. The risk of short-term decisions harming the system may be lower than with a typical private equity owner focused on a quick exit. However, large corporate priorities could still influence system-wide changes.

Potential Mitigations

• Your business advisor should research Wyndham's overall strategy and reputation within the franchise community.
• Discuss with current franchisees how corporate ownership has impacted the brand in terms of support, fees, and system changes.
• Your attorney should review any clauses in the Franchise Agreement related to the franchisor's right to sell or assign the system.

Explanation

This risk appears to be low. The FDD discloses in Item 1 that Hawthorn Suites Franchising, Inc. (HSF) is a subsidiary of Wyndham Hotels & Resorts, Inc. (WHR). Importantly, WHR provides a full performance guaranty, and its audited financial statements are included in Exhibit D. This provides financial transparency for the ultimate parent entity responsible for backing the franchisor's obligations.

Potential Mitigations

• It is prudent for your attorney to review the parent company guaranty to understand its scope and any limitations.
• An accountant should analyze the parent company's financial statements to confirm its capacity to support its subsidiaries.
• You should confirm with the franchisor that there are no other undisclosed parent entities that exert significant control.

Explanation

This risk is not present. Item 1 indicates the franchisor, HSF, is a subsidiary of U.S. Franchise Systems, Inc. (USFS), which itself is a subsidiary of the Wyndham Hotel Group. The FDD provides franchising history for these entities. A review of Items 3 (Litigation) and 4 (Bankruptcy) does not reveal any undisclosed negative history related to predecessors that would appear to be a current risk to you.

Potential Mitigations

• It is still a good practice to ask long-term franchisees about their experiences under any previous ownership structures.
• Your attorney can help you understand the corporate history detailed in Item 1 and its implications.
• A business advisor can assist in researching the public history and reputation of any predecessor entities mentioned.