Explanation

The FDD provides audited consolidated financial statements for the parent company, Hyatt Hotels Corporation, which is a large, publicly traded entity with substantial assets and revenue. Hyatt Hotels Corporation also provides an unconditional guarantee of the franchisor's performance. This strong parental guarantee and financial stability significantly reduce the risk of the franchisor failing to meet its obligations due to financial issues. The franchisor entity itself provides an unaudited balance sheet.

Potential Mitigations

• Your accountant should review the parent company's audited financial statements and the terms of the performance guarantee to confirm the financial strength backing the franchise.
• It is advisable to have your attorney verify the enforceability of the parent company guarantee in your jurisdiction.
• A business advisor can help you assess the overall stability of the broader Hyatt corporate family and its long-term commitment to this brand.

Explanation

This risk was not identified. The data in Item 20's tables for the past three years shows exceptionally low turnover. There were zero terminations, non-renewals, or outlets that ceased operation for other reasons. The system has shown slow, steady growth in the number of franchised outlets. This stability is a positive indicator, suggesting franchisees are generally remaining in the system. High turnover can signal systemic problems, so its absence here is noteworthy.

Potential Mitigations

• Although the data is positive, you should still contact a diverse sample of current franchisees from the list in Item 20 to discuss their experiences and satisfaction.
• A discussion with your business advisor can help put these stable turnover numbers into the context of the high-investment hotel industry.
• When speaking with franchisees, it is useful to ask about their relationship with the franchisor and their view on the system's long-term health.

Explanation

This risk was not identified. While the system is growing, Item 20 data shows the growth is slow and measured, not explosive. The franchisor is a subsidiary of Hyatt Hotels Corporation, a large, well-resourced parent company with extensive experience in the hotel industry. The provided financial statements suggest adequate resources are available to support the current and projected number of franchisees. The risk of support being diluted due to overly rapid expansion appears low.

Potential Mitigations

• You should discuss the franchisor's support infrastructure and scalability plans with their development team to understand how they manage growth.
• Engaging with both new and established franchisees from the list in Item 20 can provide insight into the consistency and quality of support.
• Your business advisor can help evaluate if the franchisor's staffing and support systems, as described in Item 11, are appropriate for the system's size.

Explanation

This risk was not identified. The franchisor, Hyatt Franchising, L.L.C. (Hyatt), and its parent, Hyatt Hotels Corporation, are highly experienced in the hotel industry. Item 1 shows they have been franchising various hotel brands for many years, and the Hyatt Centric brand has been operating for over a decade. The system is well-established, with dozens of operating hotels and a strong brand presence. This is not a new or unproven franchise system.

Potential Mitigations

• Review the detailed corporate history in Item 1 and the executive experience in Item 2 with your business advisor to appreciate the depth of their industry knowledge.
• A conversation with your attorney can confirm that the brand's history aligns with your investment goals.
• An accountant can analyze the provided financial statements in Item 21 to affirm the financial maturity of the parent organization.

Explanation

This risk was not identified. The Hyatt Centric brand is positioned as an upscale, full-service lifestyle hotel brand within the larger Hyatt ecosystem. As a segment of a major global hotel corporation with a long operating history, it is not considered a fad. The business model is based on established principles of the hotel and lodging industry, which has demonstrated long-term consumer demand. The risk of the business model being a short-lived trend is low.

Potential Mitigations

• To understand the brand's market position, consider discussing its long-term strategy and competitive advantages with a hospitality industry consultant.
• Your business advisor can help you analyze the hotel industry's stability and growth projections.
• A review of the franchisor's plans for brand evolution in Item 11 with your attorney can provide further confidence.

Explanation

This risk was not identified. Item 2 details the business experience of the principal officers and directors. The management team consists of individuals with extensive, multi-decade careers in the hotel and hospitality industry, many with long tenures within Hyatt Corporation or other major hotel groups. Their experience appears to be directly relevant and substantial for managing a global hotel franchise system. The risk of management inexperience appears low.

Potential Mitigations

• Review the executive biographies in Item 2 with a business advisor to fully appreciate the management team's depth of experience.
• When speaking with current franchisees, you can inquire about their interactions with and confidence in the corporate leadership team.
• Your attorney can confirm that the disclosed management structure provides a clear line of accountability for franchisor support.

Explanation

This risk was not identified. Hyatt Hotels Corporation, the ultimate parent company, is a publicly traded company, not a private equity firm. Its business decisions are subject to public company reporting and governance standards. While ownership could change in the future, the current structure does not present the typical risks associated with a short-term private equity investment horizon. The Franchise Agreement does allow the franchisor to assign the agreement upon a sale of the system.

Potential Mitigations

• Your attorney should review the assignment clause in Item 17 of the Franchise Agreement to explain your rights if the system is sold in the future.
• A financial advisor can provide information on the performance and governance of Hyatt Hotels Corporation as a public company.
• It is wise to discuss the long-term strategic vision for the brand with the franchisor's development team.

Explanation

The franchisor entity, Hyatt Franchising, L.L.C., is a subsidiary of Hyatt Hotels Corporation. The FDD includes audited financial statements for the parent company, as well as an explicit, unconditional Guarantee of Performance from the parent. This structure provides transparency and financial backing from the ultimate parent entity, mitigating the risk that a thinly capitalized subsidiary could not meet its obligations. The franchisor's own balance sheet is provided as an unaudited statement in the state addenda.

Potential Mitigations

• Your accountant should review the parent company's audited financials alongside the franchisor's unaudited balance sheet to understand the complete financial picture.
• It is crucial to have your attorney review the language of the parent company's Guarantee of Performance to confirm its strength and enforceability.
• Engaging a business advisor can help clarify the relationship between the subsidiary franchisor and the parent corporation.

Explanation

This risk was not identified in the FDD. Item 1 states that the franchisor has no predecessors. This simplifies the due diligence process, as there is no need to investigate the history, litigation, or bankruptcy of a prior entity that operated the franchise system. All relevant history, including litigation and financial performance, pertains directly to the named franchisor and its disclosed parent company.

Potential Mitigations

• Your attorney can confirm the franchisor's corporate history based on the information provided in Item 1.
• A business advisor can help you focus your due diligence on the current franchisor's track record and performance.
• Verifying the lack of a predecessor simplifies the review of litigation and bankruptcy history in Items 3 and 4 with your attorney.

Explanation

This risk was not identified. Item 3 discloses litigation history for the past fiscal year. The only case listed is one initiated by the franchisor against a franchisee for unpaid royalty fees. There are no disclosed lawsuits initiated by franchisees against the franchisor alleging fraud, misrepresentation, or other systemic issues. The absence of such a pattern is a positive indicator of the franchisor-franchisee relationship.

Potential Mitigations

• It is still prudent to ask current and former franchisees about any disputes they may have had, even if they did not result in litigation.
• Your attorney should review the details of the single disclosed case to understand the context.
• A business advisor can help you assess the overall health of the franchise relationship based on franchisee interviews.