Explanation

The data presented in Item 20 for the MainStay SUITES brand does not indicate a high rate of franchisee turnover. Over the last three years, the system has experienced steady net growth, with zero terminations or non-renewals disclosed. While a small number of units ceased operations for other reasons, the overall trend suggests system stability and franchisee retention for this specific brand.

Potential Mitigations

• Your business advisor should still recommend you contact a random selection of current franchisees from the list in Exhibit P to discuss their experience and satisfaction.
• For a comprehensive view, your accountant can help you analyze the three-year trend data for all Choice brands, not just MainStay.
• Consult with your attorney to understand the definitions the franchisor uses in Item 20 for terms like 'ceased operations' versus 'termination'.

Explanation

The FDD does not indicate that the system is growing at a rate that would likely strain franchisor resources. Choice Hotels International, Inc. (Choice) is a very large, mature franchisor with extensive infrastructure. The growth rate for the MainStay SUITES brand, as shown in Item 20, appears manageable and consistent with a well-established company's expansion plans, rather than a risky, uncontrolled growth spurt.

Potential Mitigations

• A business advisor can help you assess if the franchisor’s support infrastructure, as described in Item 11, is adequate for its current size and planned growth.
• When speaking with franchisees, it is useful to ask about the quality and timeliness of the support they currently receive from the franchisor.
• Your accountant can review the franchisor's financial statements in Item 21 to confirm they have the financial resources to sustain their support systems.

Explanation

This risk was not identified in the FDD package. Choice has been franchising the MainStay SUITES brand since 1996 and has been in the hotel business since 1939. The system is well-established with a long operational history and a significant number of existing franchisees. This is not a new or unproven franchise concept.

Potential Mitigations

• When evaluating any franchise, your business advisor should help you investigate the brand's history and its performance through various economic cycles.
• It is always prudent to have your attorney review the franchisor’s history of litigation and bankruptcy in Items 3 and 4 for any signs of past instability.
• Your accountant can assess the maturity of the business model by analyzing financial data in Item 19 and Item 21.

Explanation

This risk was not identified in the FDD. The MainStay SUITES brand operates in the extended-stay hotel sector, which is a mature and established segment of the lodging industry. It is not based on a fleeting trend or novelty. The franchisor, Choice, has a long history of operating various hotel brands, indicating a focus on long-term, sustainable business models rather than fads.

Potential Mitigations

• Your business advisor can help you research the long-term industry trends for extended-stay lodging to confirm its stability.
• Review the franchisor's history in Item 1 and its advertising programs in Item 11 with a marketing consultant to assess their long-term strategic focus.
• For any franchise concept, consider its resilience to economic shifts and changing consumer tastes with your financial advisor.

Explanation

The executive team detailed in Item 2 possesses extensive and long-term experience in the hospitality industry, franchising, or both. Many key personnel have been with Choice or other major hotel corporations like Marriott and Hilton for many years. There is no indication of inexperienced management that would pose a risk to the system's operational support and strategic direction.

Potential Mitigations

• It is always a good practice to have your business advisor review the backgrounds of the key executives responsible for franchise sales and operations.
• When speaking to existing franchisees, asking about their perception of the management team's competence and vision is valuable.
• Your attorney can help you understand the roles and responsibilities of the officers listed in Item 2.

Explanation

This risk was not identified in the FDD. Choice Hotels International, Inc. is a publicly traded company, not one owned by a private equity firm. This ownership structure may suggest a focus on long-term brand health rather than the shorter investment horizons often associated with private equity ownership. Therefore, the specific risks related to private equity control do not apply here.

Potential Mitigations

• For any franchise investment, it's wise for your attorney to review Item 1 to fully understand the franchisor's ownership structure and any parent companies.
• A business advisor can help you research the reputation and history of any controlling entity to understand its typical investment strategies.
• Your attorney should analyze the Franchise Agreement's assignment clause to see how easily the franchise system can be sold to a new owner.

Explanation

This risk does not appear to be present. The FDD clearly identifies Choice Hotels International, Inc. as the franchisor and ultimate parent company. It is a publicly traded corporation, and its audited consolidated financial statements are provided in Item 21. There is no indication of an undisclosed parent or affiliate whose financials would be material to your investment decision.

Potential Mitigations

• Your attorney should always confirm the full legal name and structure of the franchisor entity you are contracting with.
• If a franchisor is a subsidiary, your accountant should verify if the parent company guarantees the franchisor's obligations.
• An attorney can help determine if the financials of a parent company should have been disclosed under franchise law if they are omitted.

Explanation

This risk was not identified. The FDD provides information on Choice's long history, dating back to 1939. It also discloses the 2022 acquisition of Radisson Hotels Americas, identifying Radisson as a predecessor. The litigation and bankruptcy history provided in Items 3 and 4 includes information related to these predecessor entities where applicable. The disclosures appear to provide a clear lineage of the company.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and cross-reference with Items 3 and 4 for any inherited legal issues.
• When speaking with long-term franchisees, a business advisor can help you formulate questions about their experiences under any previous ownership.
• Conducting independent online research on any named predecessor entities can sometimes provide additional useful context.