Explanation

The franchisor entity, IHG Franchising, LLC (IHGFL), shows minimal independent financial strength in its statements. However, its parent company, Six Continents Hotels, Inc. (SCH), provides its audited financials which show significant financial strength and profitability. SCH also guarantees certain obligations, which substantially mitigates the risk of IHGFL's standalone weakness. Therefore, the overall financial stability risk appears low, but is dependent on the health and commitment of the parent company.

Potential Mitigations

• An accountant should carefully review the financial statements of both IHGFL and its parent, SCH, to confirm the parent's ability to provide support.
• It is important to have your attorney analyze the nature and enforceability of any guarantees provided by the parent company for the franchisor's obligations.
• Discuss with a business advisor the potential risks associated with a complex parent-subsidiary structure and its impact on support.

Explanation

This risk was not identified in the FDD package. The data in Item 20 does not indicate overly rapid system growth; in fact, the total number of managed and licensed hotels has seen a net decrease over the past three years. Rapid growth can strain a franchisor's ability to provide adequate support, but that specific risk does not appear to be present here.

Potential Mitigations

• Your business advisor can help you analyze the system's growth trajectory outlined in Item 20 to ensure it is stable and sustainable.
• It is wise to discuss the franchisor's future growth plans and how they intend to scale support systems with your attorney.
• Having an accountant review the franchisor's financials can help assess if they have the resources to support any future growth spurts.

Explanation

This risk was not identified. While IHGFL has only offered Kimpton licenses since 2018, the Kimpton brand itself is well-established since 1981, and the parent company, InterContinental Hotels Group, is a large, experienced global hotel franchisor. The system is mature and proven, mitigating the risks typically associated with new or unproven franchise concepts.

Potential Mitigations

• A business advisor can help you research the history and brand reputation of both Kimpton and the parent IHG.
• It is a good practice to have your attorney review the franchisor's corporate history in Item 1 to understand its background.
• Speaking with long-standing franchisees about their experience with the brand over time can provide valuable insight.

Explanation

This risk was not identified. The Kimpton brand operates in the established boutique and luxury hotel market, which is a recognized segment of the lodging industry rather than a temporary trend. The business model is based on sustained consumer demand for high-end travel and hospitality services, not a fleeting fad.

Potential Mitigations

• A business advisor can help you research the long-term trends and stability of the luxury and boutique hotel market segment.
• Reviewing the franchisor's history in Item 1 with your attorney can provide context on its longevity and market position.
• An accountant can help you assess the business model's resilience to economic cycles, a key consideration for any long-term investment.

Explanation

This risk was not identified. Item 2 of the FDD lists the franchisor's principal officers and executives, who appear to have extensive experience in the hotel and franchising industries. Management seems well-qualified to operate a large-scale, international hotel franchise system, mitigating risks associated with inexperienced leadership.

Potential Mitigations

• It is always prudent to have your business advisor research the backgrounds of the key executives listed in Item 2.
• Discussing the quality of management's support and strategic direction with current franchisees provides valuable real-world insight.
• Your attorney can help you understand the roles of the key personnel and how they relate to the support you will receive.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the ultimate parent is InterContinental Hotels Group PLC, a publicly traded company based in the United Kingdom, not a private equity firm. The risks associated with short-term profit motives and exit strategies of PE ownership do not appear to be present.

Potential Mitigations

• Your attorney can verify the franchisor's ownership structure as disclosed in Item 1 of the FDD.
• A business advisor can help you understand the potential implications of different ownership structures on a franchise system.
• Reviewing the franchisor's public filings, with the help of an accountant, can confirm its status as a publicly-held company.

Explanation

This risk was not identified. The FDD clearly discloses the parent company, Six Continents Hotels, Inc. (SCH), and the ultimate parent, InterContinental Hotels Group PLC. Furthermore, the audited financial statements for the parent, SCH, are provided as Exhibit F-2, giving you a clear view of the financial health of the entity that ultimately backstops the franchisor's obligations.

Potential Mitigations

• An accountant should review the financial statements of both the franchisor and its parent to understand their inter-company relationship.
• It is important for your attorney to review any guarantees made by the parent company in the Franchise Agreement.
• Discussing the corporate structure with a business advisor can help clarify the flow of support and accountability.

Explanation

This risk is not significantly present. The FDD discloses that the Kimpton brand was acquired from a predecessor, Kimpton Hotel & Restaurant Group, LLC, in 2015. While there is a substantial history of litigation disclosed in Item 3, it primarily involves the current franchisor's affiliates (Holiday Hospitality Franchising) rather than the predecessor, providing a clear view of recent issues under the current ownership structure.

Potential Mitigations

• Your attorney should review the predecessor information in Item 1 and the litigation history in Item 3 for any connections or lingering issues.
• Speaking with franchisees who have been with the system since before the acquisition can provide valuable historical context.
• A business advisor can help you research the public reputation and history of both the current franchisor and its predecessors.