Explanation

The franchisor, Hilton Franchise Holding LLC (Hilton), exhibits strong financial stability. The audited financial statements in Item 21 show a large, profitable company with substantial assets and revenues. In 2024, Hilton reported net income of over $1.4 billion. This financial strength suggests it has ample resources to support the franchise system and meet its obligations to you, which is a significant positive factor for a prospective franchisee considering this major investment.

Potential Mitigations

• It is beneficial to have your accountant review the audited financial statements in Item 21, including the notes, to confirm the company's financial health.
• Discuss the franchisor's financial stability and its capacity to support the system during your due diligence calls with existing franchisees.
• Engage a business advisor to assess how Hilton's robust financial position can be leveraged for brand growth and support.

Explanation

This risk was not identified in the FDD package. Item 20 data shows extremely low franchisee turnover for the Home2 Suites brand. In 2024, there was only one termination and zero non-renewals or other cessations out of 595 franchised outlets. This is a strong indicator of franchisee satisfaction and system stability. A high turnover rate would typically suggest systemic problems, so its absence here is a significant positive factor for your consideration.

Potential Mitigations

• A discussion with your business advisor about the positive implications of low turnover on system health is recommended.
• You should still contact a diverse group of current and former franchisees from the lists in Item 20 to confirm their experiences and reasons for staying or leaving.
• Your accountant can help you analyze the three-year trend data in Item 20 to verify the consistent stability of the franchise system.

Explanation

The franchise system is experiencing steady growth, expanding from 514 to 663 franchised hotels in the US between the start of 2022 and the end of 2024. While rapid growth can sometimes strain a franchisor's support resources, Hilton is a very large and experienced operator with significant financial capacity, as shown in Item 21. Therefore, the risk that this growth will negatively impact the support you receive appears to be low.

Potential Mitigations

• During due diligence calls, you should ask franchisees who opened recently about the quality and timeliness of the support they received from Hilton.
• A consultation with your business advisor can help assess whether Hilton's corporate infrastructure, as suggested by the FDD, is sufficient to manage this growth.
• Your accountant should review the franchisor's financials in Item 21 to confirm it has the resources to sustain both growth and franchisee support.

Explanation

This risk was not identified in the FDD package. Home2 Suites by Hilton is a well-established brand within the larger Hilton Worldwide portfolio. Item 1 shows that the brand has been franchising since 2009 (through a predecessor) and is part of one of the world's largest and most experienced hospitality companies. The system has hundreds of operating units, indicating a proven and mature business model, not a new or untested concept.

Potential Mitigations

• It is still valuable to discuss the brand's history and evolution with long-tenured franchisees to understand how the system has matured.
• A business advisor can help you evaluate the benefits of joining a large, established system versus a smaller, emerging one.
• Your attorney can review the history of the franchisor and its predecessors as disclosed in Item 1 for any potential concerns.

Explanation

This risk was not identified. The extended-stay hotel concept, which Home2 Suites operates within, is an established and recognized segment of the lodging industry. It is not based on a new or fleeting trend. The business model caters to consistent travel needs such as business travel, relocations, and long-term leisure, suggesting long-term market viability rather than being a fad that could quickly lose consumer interest.

Potential Mitigations

• Engaging a business advisor with hospitality industry experience can help you analyze the long-term market trends for extended-stay hotels in your specific area.
• You could research market reports on the lodging sector to confirm the stability and growth prospects of the extended-stay segment.
• Discuss the brand's adaptability and history of innovation with the franchisor to understand their plans for future market changes.

Explanation

This risk was not identified. Item 2 of the FDD details the business experience of Hilton's executive team. The listed officers and directors have extensive, long-term careers in the hospitality industry, with most having served for many years within Hilton itself or other major hotel corporations. This high level of experience in both the specific industry and in managing large-scale franchise systems is a significant positive factor, suggesting competent leadership and support.

Potential Mitigations

• A review of the management team's biographies in Item 2 with your business advisor is still a useful exercise to understand the depth of their experience.
• When speaking with current franchisees, you can inquire about their direct experiences with the leadership team and the quality of strategic direction.
• You might independently research the public profiles of key executives to further confirm their track record in the industry.

Explanation

This risk was not identified. The FDD clearly discloses the franchisor's parent companies in Item 1, up to the publicly traded Hilton Worldwide Holdings Inc. The FDD also includes detailed, audited financial statements for the contracting entity, Hilton Franchise Holding LLC, in Item 21. There is no indication that a material parent company's financial information, necessary for a full risk assessment, has been withheld.

Potential Mitigations

• An accountant's review of the corporate structure disclosed in Item 1 and the financials in Item 21 can confirm that the appropriate entities are disclosed.
• Your attorney can verify if any guarantees are provided by parent companies and whether the associated financial disclosures are adequate.
• You could ask the franchisor to explain the relationship between the franchising entity and the parent company during due diligence calls.

Explanation

This risk was not identified as a significant concern. The FDD discloses a predecessor entity in Item 1, HLT ESP Franchise LLC. However, a review of the litigation and bankruptcy history in Items 3 and 4 does not reveal any negative information, past disputes, or financial instability associated with this predecessor that would suggest inherited problems for the current system. The transition appears to have been straightforward.

Potential Mitigations

• It is good practice for your attorney to review the disclosures regarding predecessors in Items 1, 3, and 4.
• If you speak with long-tenured franchisees, asking about their experience before and after the transition from the predecessor can provide valuable context.
• A business advisor can help you research public records for any information on the predecessor entity if you have specific concerns.