Explanation

This specific risk was not identified in the FDD package. The data in Item 20 for the Park Inn brand shows no terminations, non-renewals, or other cessations in the most recent year. However, as this brand is new to the Choice Hotels system, this data may not reflect the stability of the broader franchise network. High turnover can be a sign of systemic franchisee distress or dissatisfaction, making Item 20 a critical due diligence tool.

Potential Mitigations

• An accountant can help you analyze the Item 20 tables for all Choice brands if available to gauge overall system health.
• Engaging a business advisor to cross-reference Item 20 data with the extensive litigation history in Item 3 provides a more complete picture of franchisee relations.
• Your attorney can help you frame questions for current and former franchisees about their satisfaction levels and reasons for any departures you find.

Explanation

This risk was not identified in the FDD package. The Park Inn by Radisson brand operates within the established hotel and lodging industry. A fad business is often tied to a short-term trend with a high risk of declining consumer interest, which could leave you with a worthless business and ongoing contractual obligations. This does not appear to be the case here.

Potential Mitigations

• A business advisor can help you research the long-term consumer demand and competitive landscape for the specific hotel segment.
• Evaluating a business model's resilience to economic cycles and changing trends is a key discussion to have with your financial advisor.
• Your attorney should review the franchise agreement term to ensure it aligns with a reasonable period to achieve a return on investment.

Explanation

This risk was not identified in the FDD package. Item 2 details the business experience of the directors and executive officers of Choice Hotels International, Inc. The management team appears to have extensive and long-standing experience in the hotel and franchising industries. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support.

Potential Mitigations

• A business advisor can help you conduct independent research on the reputation and track record of the key executives listed in Item 2.
• It is prudent to ask current franchisees about their direct experiences and perception of the management team's competence and support.
• An accountant can analyze the company's financial performance under the current leadership team to gauge their effectiveness.

Explanation

This risk was not identified in the FDD package. Choice Hotels International, Inc., the franchisor, is a publicly traded company. It does not appear to be owned or controlled by a private equity firm. When a franchisor is owned by a private equity firm, there can be a risk that management decisions prioritize short-term returns for investors over the long-term health of the brand and its franchisees.

Potential Mitigations

• Your attorney can help you verify the corporate ownership structure disclosed in Item 1 through public records.
• A financial advisor can analyze the company's public filings to understand its capital structure and shareholder base.
• It is useful for a business advisor to research the company's history for any past private equity ownership and its effects on the system.

Explanation

This risk was not identified in the FDD package. Item 1 clearly identifies Choice Hotels International, Inc. as the franchisor and parent company. Item 21 includes the audited consolidated financial statements for this entity. There is no indication of a thinly capitalized subsidiary being used as the franchisor while relying on an undisclosed parent, which would be a significant concern as it could obscure the true financial stability of the entity backing your franchise.

Potential Mitigations

• Your attorney can confirm that the entity signing the franchise agreement is the same entity whose financial statements are provided in Item 21.
• An accountant should verify that the financial statements provided are for the parent company and meet all disclosure requirements.
• In cases of ambiguity, a business advisor can help investigate the corporate structure to ensure there are no undisclosed parent entities.