Explanation

The franchisor, La Quinta Franchising LLC (La Quinta), is a subsidiary of Wyndham Hotels & Resorts, Inc. (WHR), a large, publicly-traded company. The financial statements provided in Exhibit D are for WHR, which shows significant revenue and profitability. WHR provides a full financial guaranty of La Quinta's performance. This strong parental backing significantly reduces the risk of franchisor instability, even though this is a critical risk area to evaluate.

Potential Mitigations

• An accountant should review the parent company's financial statements, including all footnotes, to confirm its financial health and ability to support the system.
• A franchise attorney should examine the specific language of the parent company's guaranty to understand its scope and enforceability.
• Ask the franchisor about its own operational budget and how it is capitalized, separate from the parent company's overall finances.

Explanation

The system is mature and has not experienced excessively rapid growth in the last three years; in fact, it shows a slight net decline in total U.S. outlets. Therefore, the risk of the franchisor's support systems being strained by growing too quickly does not appear to be present. The franchisor's parent company, WHR, is a large, established operator with significant resources, further mitigating this concern.

Potential Mitigations

• Your business advisor should still assess whether the franchisor's support infrastructure is adequately funded and staffed to serve the existing system.
• Engaging with current franchisees to inquire about the quality and timeliness of the support they receive is a valuable due diligence step.
• An accountant's review of the franchisor's parent company financials can provide insight into resource allocation for brand support.

Explanation

The La Quinta brand and the Wyndham system have been operating for many years and are well-established. The franchisor's management team, as detailed in Item 2, has extensive experience in the hospitality industry and franchising. The financial statements for the parent company, WHR, indicate a large, stable enterprise. This is not an unproven or startup franchise system, which significantly mitigates the risks associated with a new venture.

Potential Mitigations

• A business advisor can help you research the brand's competitive position and history within its specific market segment.
• It is still prudent to have an accountant review the parent company's financial statements to confirm its long-term stability.
• Discussing the brand's history and evolution with long-standing franchisees provides valuable context for your decision.

Explanation

The La Quinta brand operates in the established and competitive mid-priced and upper-midscale hotel industry. This is a mature market segment, not a business model based on a new or fleeting trend. While subject to economic cycles and competition, the core business of providing lodging services is not considered a fad, which reduces the risk of a sudden collapse in consumer demand due to novelty wearing off.

Potential Mitigations

• Your business advisor should help you analyze the specific competitive landscape and long-term demand drivers in your target market.
• It is wise to assess the brand’s efforts in innovation and adaptation to modern travel trends, such as technology and guest experience enhancements.
• An accountant can assist in modeling the financial impact of potential economic downturns on a business in this established industry.

Explanation

The franchisor's management team, as described in Item 2, consists of individuals with extensive experience in the hospitality industry, many with long tenures at Wyndham Hotels & Resorts or other major hotel companies. The risk associated with inexperienced management appears to be low, as the leadership team has a substantial track record in both the specific industry and in managing large-scale franchise systems.

Potential Mitigations

• Your attorney or business advisor can help you research the public reputations and track records of the key executives listed.
• During discussions with current franchisees, it is useful to inquire about their direct experiences with the management team's competence and support.
• A review of the management team's history of managing brands through different economic cycles can provide additional insight.

Explanation

La Quinta is owned by Wyndham Hotels & Resorts, Inc., a publicly-traded company, not a private equity firm. While public companies are accountable to shareholders, their operational and strategic timelines are typically longer-term than the defined exit horizons often associated with private equity ownership. This structure may reduce risks related to short-term cost-cutting or rapid strategic shifts aimed at a quick sale of the company.

Potential Mitigations

• Your financial advisor should analyze the parent company's public financial reports and investor calls to understand its long-term strategy and health.
• A franchise attorney can review the Franchise Agreement for any terms that would be concerning if the system were sold in the future.
• Discussing any changes in brand direction or support levels with current franchisees provides valuable real-world context.

Explanation

The franchisor is a subsidiary of Wyndham Hotels & Resorts, Inc. (WHR). The FDD properly discloses this relationship and includes the audited financial statements and a performance guaranty from WHR. This transparency provides a clear view of the financial backing of the system and the legal entity responsible for guaranteeing the franchisor's obligations. Therefore, the risk of non-disclosure is not present.

Potential Mitigations

• An accountant's review of the parent company's financials is crucial for understanding the stability of the entire system.
• It is important for your attorney to confirm the scope and enforceability of the parent guaranty provided in the exhibits.
• Always verify that the entities named in the FDD, Franchise Agreement, and guaranty documents are consistent.

Explanation

Item 1 of the FDD identifies the franchisor, its predecessors, and affiliates. A review of this section did not reveal any undisclosed predecessor entities or attempts to obscure a problematic history. The lineage of the La Quinta brand and its acquisition by Wyndham is a matter of public record and appears to be adequately disclosed. Therefore, this specific risk was not identified.

Potential Mitigations

• A business advisor can help you research the public history of the brand to confirm the information disclosed in Item 1.
• Asking long-term franchisees about their experience with the brand before and after its acquisition by the current franchisor can provide valuable insight.
• Your attorney should verify that the predecessor information in Item 1 is consistent with disclosures in other FDD items like Item 3 (Litigation) and Item 4 (Bankruptcy).