Explanation

This risk was not identified. The audited financial statements for Hilton Franchise Holding LLC (Hilton) in Item 21 show it is highly profitable with substantial positive net worth. The independent auditor's report contains a clean opinion with no 'going concern' warning. Hilton's financial position appears very strong, suggesting it has the resources to support its system and franchisees effectively.

Potential Mitigations

• An accountant should always be engaged to review a franchisor's financial statements for signs of instability, such as declining revenue or negative net worth.
• In any franchise review, it's wise to ask your business advisor to assess whether the franchisor's primary income is from ongoing royalties versus one-time franchise fees.
• Discussing the financial health of the system with existing franchisees can provide valuable real-world context beyond the numbers.

Explanation

This risk was not identified. As a new franchise system, Item 20 reports zero operating, transferred, or terminated outlets. While this means there is no history of high turnover, it also signifies a lack of an operational track record. Prospective franchisees should note that the absence of negative data is due to the system's newness, not a proven history of stability.

Potential Mitigations

• For any established franchise, have an accountant carefully analyze the turnover rates in the Item 20 tables.
• It is critical to contact the initial franchisees listed in Exhibit A who are currently in development to gauge their early experiences and outlook.
• A franchise attorney can help you understand the significance of turnover data—or the lack thereof—for a new versus established system.

Explanation

Item 20 indicates that 73 franchise agreements have been signed for hotels that are not yet open, signaling rapid initial growth. While this can sometimes strain a new franchisor's resources, Hilton is a highly experienced global operator with the financial strength and infrastructure to manage large-scale brand launches. The risk of support being outpaced by growth appears to be low in this context.

Potential Mitigations

• Engaging a business advisor to question the franchisor about its specific plans for scaling support for this new brand is a useful step.
• It is prudent to discuss the quality of pre-opening support with other franchisees who are also in the development pipeline.
• A thorough review of Item 11 with your attorney will clarify the support services Hilton is contractually obligated to provide during this growth phase.

Explanation

This risk was not identified. As described in Item 1, the LivSmart Studios brand operates in the midscale extended-stay hotel market. This is a well-established and durable segment of the lodging industry that caters to consistent demand from business, leisure, and relocation-based travelers. The business model is not based on a temporary or fleeting trend.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you research the long-term viability and historical trends of its specific industry.
• It is always wise to assess whether a business concept relies on a temporary trend or addresses a lasting consumer need.
• An accountant can assist in modeling how potential shifts in consumer trends might affect a business's financial performance over the long term.

Explanation

This risk was not identified. Item 2 details the extensive experience of the franchisor's directors and officers. The management team consists of long-tenured executives from Hilton Worldwide, a global hospitality leader with decades of experience in franchising and hotel operations. This indicates that a highly experienced and capable management team is in place to support the new brand.

Potential Mitigations

• It is always good practice to research the backgrounds of the key executives listed in Item 2 of any FDD with your business advisor.
• A business advisor can help you evaluate whether the management team's experience is relevant to both the specific industry and to franchising.
• Discussing the management team's accessibility and effectiveness with other franchisees in the system can provide important insights.

Explanation

This risk was not identified. Item 1 indicates the ultimate parent company is Hilton Worldwide Holdings Inc., a publicly traded corporation (NYSE: HLT), not a private equity firm. While a director has historical ties to a private equity group, this does not represent current private equity ownership or control of the franchisor.

Potential Mitigations

• For any franchise, your attorney should help you research the ownership structure disclosed in Item 1 to identify any influence from private equity firms.
• When PE ownership is present, speaking with franchisees about changes since the acquisition is a critical due diligence step for your business advisor to lead.
• A business advisor can help assess a PE firm's track record with other franchise brands it may own or have owned.

Explanation

This risk was not identified. Item 1 clearly discloses the franchisor's parent companies, Hilton Domestic Operating Company Inc. and Hilton Worldwide Holdings Inc. The corporate structure is transparent, and there is no indication of an undisclosed parent entity that would materially affect your risk assessment.

Potential Mitigations

• Your attorney should always verify that the ownership structure in Item 1 is clear and that any required parent financial statements are included in Item 21.
• If a franchisor is a new or thinly capitalized subsidiary, an accountant's review of parent company financials is crucial for assessing overall stability.
• It is a key part of due diligence to question any ambiguity in the corporate structure disclosed in Item 1.

Explanation

This risk was not identified. Item 1 indicates that LivSmart Studios is a new brand and does not have a business predecessor from which it acquired substantial assets. The brand was previously known by a temporary project name, which does not constitute a predecessor history with potential inherited issues.

Potential Mitigations

• For any franchise opportunity, your attorney should carefully review Item 1 for any disclosed predecessors.
• If a predecessor is identified, a business advisor can help you research its history for any red flags, such as litigation or high franchisee turnover.
• Speaking with long-term franchisees who operated under a predecessor can provide invaluable historical context.