Explanation

This risk was not identified. The audited financial statements for Hilton Franchise Holding, LLC (Hilton) in FDD Exhibit C show a financially strong and highly profitable company, with a net income of approximately $1.48 billion in 2024. The balance sheet is robust and the auditor's report is unqualified, indicating no concerns about the company's ability to support the franchise system. A franchisor's financial stability is crucial for providing ongoing support, marketing, and system development.

Potential Mitigations

• An accountant should still review the financial statements, including the notes, to understand the franchisor's financial structure and revenue sources.
• It is wise to ask your business advisor to assess the franchisor’s allocation of resources towards new brands like Motto versus its established brands.
• Your attorney can confirm if any state financial assurance requirements, like bonds or escrows, apply, even with strong financials.

Explanation

This risk was not identified in the FDD package. Item 20 data shows that for the years 2022, 2023, and 2024, there were zero terminations, non-renewals, or franchises that ceased to operate for other reasons. The system is new and growing. High franchisee turnover is often a primary indicator of systemic problems, such as lack of profitability or poor franchisor support, so its absence here is a positive sign for this young brand.

Potential Mitigations

• Engage your business advisor to discuss the small sample size in Item 20 and its limited predictive power for a new brand.
• It is crucial to contact a significant percentage of the current franchisees listed in Exhibit A to discuss their satisfaction and profitability.
• Your accountant can help you model different scenarios to understand how sensitive your potential profitability is to various operational factors.

Explanation

The Motto by Hilton system is expanding, as shown in Item 20. Normally, rapid growth can strain a franchisor's ability to provide adequate support. However, the franchisor is Hilton, a global hospitality company with immense resources, vast experience, and established support infrastructure, as detailed in Item 1 and confirmed by the strong financials in Item 21. Therefore, the risk of growth outpacing support capabilities appears to be low in this specific case.

Potential Mitigations

• A discussion with your business advisor about how a large organization like Hilton allocates support to its newer, smaller brands is recommended.
• Contacting recent Motto franchisees to inquire about the quality and timeliness of the support they received during their opening process is a prudent step.
• Your attorney should review the support obligations outlined in Item 11 to understand what is contractually guaranteed versus discretionary.

Explanation

The Motto brand is positioned as a modern, lifestyle-focused hotel in the upper-midscale market, which could be subject to changing travel trends. However, the core business is lodging, a fundamental service, not a short-lived fad. The brand is operated by Hilton, a major global hospitality company, which indicates a long-term strategic commitment to the concept, making the risk that the business is merely a fleeting trend relatively low.

Potential Mitigations

• Engage a business advisor to research the long-term viability and projected growth of the lifestyle and micro-hotel segments within the broader hospitality industry.
• Ask the franchisor about their long-range plans for evolving the Motto brand to maintain its relevance and competitive edge.
• Your financial advisor can help you evaluate the business model's resilience under different economic conditions and travel trends.

Explanation

This risk was not identified in the FDD. Item 2 details the business experience of the franchisor's key officers and directors. The executive team, including individuals like Christopher Nassetta and Kevin Jacobs, possesses extensive and long-standing careers in the hospitality and franchise industries. The management team is highly experienced, which is a significant strength for the franchise system.

Potential Mitigations

• It is still beneficial to have your business advisor research the recent performance and strategic direction of the brands these executives have managed.
• During discussions with existing franchisees, it's wise to ask about their perception of the leadership team's competence and vision for the brand.
• Your attorney can help you understand the management structure and how decisions affecting franchisees are made within the larger Hilton organization.

Explanation

This risk was not identified. The FDD clearly discloses the parent companies, Hilton Domestic Operating Company Inc. and Hilton Worldwide Holdings Inc., in Item 1. Furthermore, the FDD provides audited financial statements for the franchisor entity, Hilton Franchise Holding LLC, itself in Exhibit C. The disclosure of the corporate structure appears to be complete and transparent.

Potential Mitigations

• Your accountant should review the financial statements and notes to understand the flow of funds and financial relationships between the franchisor and its parent companies.
• It's a good practice for your attorney to confirm the nature and extent of any guarantees provided by the parent company for the franchisor's obligations.
• In discussions with the franchisor, you can seek clarity on the operational relationship and support provided by the parent entities to the Motto brand.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that while the franchisor entity, Hilton Franchise Holding LLC, has predecessors for other brands it operates, the Motto brand itself does not have a predecessor. The brand was started within the Hilton system. Therefore, there is no hidden negative history from a prior, unaffiliated company.

Potential Mitigations

• Your attorney should confirm that the information in Item 1 clearly delineates the history of the Motto brand from other brands operated by the franchisor.
• Engaging a business advisor to research the origin story and development history of the Motto brand within Hilton can provide valuable context.
• When speaking with the earliest franchisees, you can inquire about their experience since the brand's inception to verify the disclosed history.