Explanation

Financial statements are for the parent, Hyatt Hotels Corporation, not the franchisor entity, Hyatt Franchising, L.L.C. (Hyatt). While the parent is large and profitable, its auditor's report notes a critical matter regarding a $110 million goodwill impairment in the management and franchising segment in 2024. This could suggest weakness in the specific business segment relevant to you. However, the parent provides a full performance guarantee, which significantly lessens the direct financial risk from the franchisor entity itself.

Potential Mitigations

• Ask your accountant to analyze the parent company's financial statements, paying close attention to the franchising segment's performance and the implications of the goodwill impairment.
• A franchise attorney should review the parent's Guarantee of Performance to confirm its strength and determine what specific obligations it covers.
• Engaging a business advisor to discuss the overall health of the hotel franchising sector can provide valuable context for the disclosed financials.

Explanation

This risk was not identified. As a new franchise system that began offering franchises in 2023, there are no operating franchised outlets yet. Therefore, the tables in Item 20 show no transfers, terminations, non-renewals, or other cessations. While this means there is no negative history of turnover, it also means there is no track record to evaluate system stability or franchisee satisfaction, which is a risk in itself and is addressed in the 'New/Unproven Franchise System' analysis.

Potential Mitigations

• A business advisor can help you analyze the projections in light of the absence of historical franchisee performance data.
• Your attorney should advise on the importance of speaking with the initial cohort of franchisees as they open to gauge early satisfaction.
• It is wise to have an accountant help you create multiple financial scenarios, given the lack of historical franchisee data.

Explanation

This risk was not identified. The franchise is for an upper-midscale, extended-stay hotel. This is a well-established segment within the lodging industry with sustained consumer demand, not a business model based on a fleeting trend or fad. The long-term viability depends on execution and competition rather than the persistence of a novelty concept.

Potential Mitigations

• A business advisor can help you research the long-term stability and competitive landscape of the extended-stay hotel market segment.
• Your financial advisor should assist in modeling the business's resilience to typical economic cycles.
• It is wise to consult with an attorney to understand your long-term obligations even if market trends were to change.

Explanation

This risk was not identified. Item 2 lists the executive team for the franchise. The individuals listed are seasoned executives from Hyatt Hotels Corporation, a major, long-standing global hotel company. Their backgrounds demonstrate extensive experience in hotel operations, global development, and franchising within the broader Hyatt system, suggesting a strong and experienced management team is in place.

Potential Mitigations

• It remains a good practice to research the backgrounds of key executives, which a business advisor can help you with.
• Your attorney can help you frame questions for the franchisor about the management team specifically dedicated to this new brand.
• Speaking with other Hyatt-brand franchisees, with your business advisor's help, can provide insight into the parent company's management culture.

Explanation

This risk was not identified in the document. The franchisor's parent, Hyatt Hotels Corporation, is a publicly-traded company. While it has a concentrated ownership structure involving the Pritzker family business interests, it is not owned by a private equity firm. Therefore, the specific risks typically associated with PE ownership, such as a focus on short-term returns and a rapid exit strategy, are not directly applicable here.

Potential Mitigations

• It is always prudent for your attorney and accountant to review the ownership structure disclosed in Item 1 and public filings for any signs of control that could negatively impact franchisees.
• A business advisor can help you research the track record and business philosophy of any controlling ownership group.
• Discussing the long-term vision for the brand with the franchisor can provide useful insights.

Explanation

This risk was not identified. The franchisor, Hyatt Franchising, L.L.C., clearly discloses its parent company, Hyatt Hotels Corporation, in Item 1. Furthermore, Item 21 provides the audited financial statements for the parent company and explicitly includes a Guarantee of Performance from the parent, ensuring its financial backing for the franchisor's obligations. This represents a high level of transparency regarding the corporate structure.

Potential Mitigations

• Your attorney should always verify that the parent company listed in Item 1 is the same entity providing the financial statements in Item 21 and the guarantee.
• An accountant should confirm the financial statements provided are complete and audited.
• It is wise to have legal counsel review the language of the parent guarantee to understand its scope and limitations.

Explanation

This risk was not identified. Item 1 of the FDD explicitly states, "We have no predecessors and no business activities that are not described here." This indicates the franchisor entity is a direct creation of Hyatt for its franchising activities and did not acquire the system from a prior entity. Therefore, there are no inherited issues or negative history from predecessors to consider.

Potential Mitigations

• Your attorney should always verify the franchisor's statements regarding predecessors by reviewing Item 1.
• A business advisor can help research the history of the brand itself, even if the franchising entity has no legal predecessors.
• Asking the franchisor about the origin and development history of the Hyatt Studios concept can provide valuable context.

Explanation

This risk was not identified. Item 3 discloses one lawsuit initiated *by* Hyatt against a franchisee for unpaid fees related to a different brand, not this one. The FDD does not disclose any pending or recent material litigation initiated *by franchisees* against the franchisor alleging fraud, misrepresentation, or breach of contract. The absence of such a pattern is a positive indicator, though it is also a reflection of the system's newness.

Potential Mitigations

• It's good practice for your attorney to review the details of any disclosed litigation, even if initiated by the franchisor.
• A business advisor can help you search for news or other public information regarding litigation involving the franchisor or its parent company.
• Asking existing franchisees about their relationship with the franchisor can provide insight into potential dispute areas.