Explanation

The audited financial statements for the franchisor, MIF, L.L.C. (MIF), are provided in Exhibit J. A review of these statements indicates that MIF is profitable, with significant net worth and positive cash flow. While a substantial portion of its assets consists of receivables from related parties, its overall financial position appears stable. Therefore, the risk of financial instability from the franchisor entity itself seems low at this time.

Potential Mitigations

• Your accountant should thoroughly review the audited financial statements, including all footnotes, to independently verify the franchisor's financial health.
• A discussion with your financial advisor about the implications of the large inter-company loans and receivables is advisable.
• It is prudent to monitor the parent company's (Marriott International, Inc.) public financial reports for any signs of broader financial distress.

Explanation

Item 20 data for the last three years shows a very low rate of franchise terminations, non-renewals, and other cessations relative to the total number of operating units. In 2024, only six outlets left the system for these reasons out of a base of 245. This low turnover rate suggests a stable franchise system and is not indicative of widespread franchisee distress or dissatisfaction.

Potential Mitigations

• Contact a diverse group of current franchisees listed in Item 20 to discuss their satisfaction with the system, profitability, and relationship with the franchisor.
• Engage a franchise attorney to help you formulate questions for former franchisees to understand their specific reasons for leaving the system.
• Your business advisor can help you compare these turnover rates to available industry benchmarks for other large hotel franchise systems.

Explanation

The risk of rapid, unsupported growth was not identified. Item 20 data indicates that the Marriott system is mature and has experienced stable, controlled growth over the last three years. This pace does not suggest that the franchisor's support resources are likely to be strained by an overly aggressive expansion strategy.

Potential Mitigations

• When speaking with franchisees, it's wise to ask about the quality and timeliness of support services to confirm they are not strained.
• A review of the franchisor's future development plans in Item 20, Table 5, with your business advisor can provide insight into the anticipated pace of growth.
• Consulting with your attorney can help clarify the franchisor's contractual obligations for providing ongoing support, regardless of system size.

Explanation

This risk was not identified. The FDD indicates that the franchisor, MIF, L.L.C. (MIF), and its parent, Marriott International, Inc., have extensive, long-term experience operating and franchising hotels globally since 1968. The Marriott brand has significant recognition and a well-established operating history, so you are not investing in an unproven concept.

Potential Mitigations

• A conversation with your business advisor about the specific history of the JW Marriott brand, as distinct from the broader Marriott portfolio, could be useful.
• It is always recommended to verify brand reputation by speaking with a wide range of existing franchisees.
• Your accountant can confirm the long-term financial performance and stability of the system through a review of the provided financial statements.

Explanation

This risk was not identified. The Marriott and JW Marriott brands are established leaders in the global hospitality industry and are not based on a short-term trend. The business model relies on sustained demand for business and leisure travel, which, while cyclical, is not considered a fad. This represents a long-term business concept.

Potential Mitigations

• A discussion with a business advisor who specializes in the hospitality industry can provide an independent assessment of the long-term market for full-service hotels.
• Examining the franchisor's history of innovation and brand adaptation as described in Item 1 and Item 11 can offer insights into its long-term strategy.
• Reviewing the brand's performance during various economic cycles with your financial advisor can help evaluate its resilience.

Explanation

This risk was not identified in the FDD. Item 2 details the business experience of the directors and principal officers of the parent company, Marriott International, Inc. The individuals listed possess extensive and long-standing careers within the hospitality industry and with the Marriott corporation itself, indicating a highly experienced management team.

Potential Mitigations

• It is always a good practice to conduct your own independent research on the background and reputation of key executives.
• When speaking with current franchisees, asking about their perception of the management team's competence and vision can provide valuable insight.
• Engaging a business advisor to review the leadership team's public statements and strategic plans can offer additional perspective.

Explanation

The franchisor, MIF, is a subsidiary of Marriott International, Inc., a publicly-traded company. This is not a typical private equity ownership structure focused on a short-term exit. However, as a franchisee, you should be aware that corporate decisions will be influenced by the parent company's obligations to its public shareholders. The Franchise Agreement also permits the franchisor to assign the agreement to an affiliate or a successor to the system.

Potential Mitigations

• Your accountant can analyze the parent company's public financial reports (10-K, 10-Q) to understand its financial priorities and health.
• Discuss the implications of being part of a large, publicly-traded system with your business advisor.
• A review of the assignment clause in the Franchise Agreement with your attorney is crucial to understand what happens if the system is sold.

Explanation

This risk was not identified. The FDD clearly discloses that the franchisor, MIF, L.L.C., is a subsidiary of Marriott International, Inc. (MII). Because MIF is a subsidiary, its own audited financial statements are provided in Exhibit J as required, and the ultimate parent is a publicly-traded company whose financials are widely available. There is no apparent attempt to obscure the corporate structure.

Potential Mitigations

• Your accountant should review the financial statements of both the franchisor subsidiary and the publicly-available reports of the parent company.
• It is beneficial to have your attorney review the nature of any guarantees or support obligations flowing from the parent to the franchisor entity.
• A discussion with your business advisor can help clarify the operational relationship between the parent and the franchising subsidiary.

Explanation

This risk was not identified in the FDD. Item 1 discusses the franchisor's history and predecessors but does not disclose any information suggesting that a predecessor entity had a troubled history, such as significant litigation, bankruptcy, or high franchisee turnover. The brand has a long and continuous operating history under the Marriott corporate umbrella.

Potential Mitigations

• It is always a good practice to research the history of the brand and speak with long-tenured franchisees about their experiences over time.
• Your attorney can conduct public records searches for any past litigation or bankruptcy proceedings involving entities related to the franchise system.
• Inquiring with a business advisor specializing in the hotel industry can provide historical context on the brand's evolution.