Explanation

This risk was not identified in the FDD package. The data presented in Item 20's tables do not indicate a high rate of franchisee turnover. Over the last three years, there were only two terminations and no non-renewals or franchisor reacquisitions out of a base of approximately 40 franchised outlets. Low turnover can suggest a stable and potentially healthy franchise system where franchisees are generally staying in the business.

Potential Mitigations

• As a best practice, a business advisor can help you calculate the annual turnover rates from the data in Item 20 to confirm system stability.
• Contacting former franchisees listed in the FDD is a valuable step your attorney can help you prepare for, to understand their reasons for leaving.
• You should still discuss the stability of the franchisee base with current franchisees to gain their perspective on system health.

Explanation

This specific risk was not identified in the FDD. Item 20 data shows very slow and controlled growth in the number of franchised units, adding only one or two per year. This suggests the franchisor is not growing at a rate that would strain its support systems. The substantial resources of the parent company, as shown in Item 21, further indicate it has the capacity to support its current franchise network.

Potential Mitigations

• Confirm with existing franchisees whether they feel the franchisor's support systems are robust and well-funded; a business advisor can help you formulate questions.
• Your accountant can assess the franchisor's investment in support infrastructure by reviewing the parent company's financial statements.
• It is wise to ask the franchisor about their future growth strategy to understand how they plan to scale support systems.

Explanation

This risk is not present. Hyatt Franchising, L.L.C. (Hyatt Franchising) and its parent, Hyatt Hotels Corporation, are highly experienced in the hotel industry, with a history dating back to 1957. The Hyatt Regency brand is well-established, and the franchise system has been operating for decades with dozens of outlets, as shown in Item 20. The system is mature and supported by a large, publicly-traded parent company with extensive operational experience and strong brand recognition.

Potential Mitigations

• Even with an established system, it is beneficial to have a business advisor help you review the management team's specific experience with the franchise model.
• Engaging with a range of franchisees, both new and long-standing, can provide insight into how the system has evolved.
• Your accountant should review the financial statements to confirm the long-term stability and performance of the experienced franchisor.

Explanation

This risk is not present in the FDD package. The Hyatt Regency brand is a long-established, internationally recognized name in the full-service hotel industry. The underlying business of hotel lodging has sustained consumer demand. The franchisor is not capitalizing on a short-term trend, but rather offers a franchise in a mature and proven market segment, reducing the risk that your business's viability is tied to a temporary fad.

Potential Mitigations

• With your business advisor, analyze local long-term demand for upscale hotel accommodations to ensure market viability.
• It is still important to review the franchisor's plans for brand innovation and adaptation to stay competitive in the evolving hospitality industry.
• An accountant can help you assess the business model's resilience to economic cycles, even for an established industry.

Explanation

This risk was not identified. The executive team described in Item 2 possesses extensive and long-term experience within Hyatt Hotels Corporation and the broader hospitality industry. Many executives have held multiple senior roles within the company for several years, indicating deep familiarity with the brand, its operations, and the franchising model. This level of management experience suggests a stable and knowledgeable leadership team is in place to support the franchise system.

Potential Mitigations

• A business advisor can help you research the public reputation and track record of the key executives mentioned in Item 2.
• During discussions with existing franchisees, you should inquire about their direct experiences and the quality of support they receive from the management team.
• It's a good practice to ask the franchisor about management stability and succession planning.

Explanation

This risk is not applicable. Hyatt Hotels Corporation, the parent company of the franchisor, is a publicly-traded company (NYSE: H), not a private equity firm. This ownership structure may imply a focus on long-term brand health and shareholder value rather than the shorter-term exit strategies often associated with private equity ownership. Public accountability and reporting requirements may also provide greater transparency into the company's financial health and strategic direction.

Potential Mitigations

• Your financial advisor can help you analyze the risks and benefits of partnering with a publicly-traded company, including shareholder pressures.
• It is always prudent to have your accountant review the company's public financial filings (10-K, 10-Q) for a deeper understanding of its strategy.
• Consulting your attorney on the implications of the franchisor's assignment rights is wise, regardless of the ownership structure.

Explanation

This risk is not present. The FDD clearly identifies Hyatt Hotels Corporation as the parent company in Item 1. Furthermore, Item 21 explicitly states that the audited consolidated financial statements of the parent company are included as Exhibit A-1 and that the parent absolutely and unconditionally guarantees the franchisor's performance. This provides the necessary financial transparency of the entity that ultimately backs the franchise obligations.

Potential Mitigations

• Your accountant should thoroughly review the provided parent company financial statements and the accompanying auditor's report.
• A legal review of the wording and enforceability of the parent company guarantee by your franchise attorney is a critical step.
• It is wise to ask the franchisor if there are any other material affiliated entities that provide critical services to franchisees.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD states, "We have no predecessors and no business activities that are not described here." This indicates that the current franchisor, Hyatt Franchising, is the original entity offering this franchise system and has not acquired it from a prior company. Therefore, there is no hidden history of litigation, bankruptcy, or franchisee turnover associated with a predecessor that you need to be concerned about.

Potential Mitigations

• Even without predecessors, it's beneficial to ask long-tenured franchisees about the history and evolution of the franchise system.
• Your attorney can confirm the corporate history of the franchisor entity through public record searches.
• A business advisor can help you assess the risks and benefits of a system that has not undergone major ownership changes.

Explanation

This risk does not appear to be present. Item 3 discloses only one litigation matter initiated by the franchisor against a franchisee in the last fiscal year for unpaid royalty fees. It does not disclose any litigation initiated by franchisees against the franchisor alleging fraud, misrepresentation, or similar claims. The absence of such franchisee-initiated lawsuits, which are a major red flag, suggests a potentially healthier and less contentious franchisor-franchisee relationship.

Potential Mitigations

• Your attorney should still review the details of the litigation disclosed in Item 3 to understand the franchisor's approach to enforcement.
• It is a good practice to conduct independent online searches for any news or reports of litigation involving the franchisor that may not require FDD disclosure.
• Asking current and former franchisees about their experiences with disputes is a critical part of due diligence your attorney can guide.