Explanation

The franchisor, MIF, L.L.C. (MIF), appears financially stable according to its audited financial statements, showing significant net income and positive member's equity. However, its assets consist almost entirely of money due from its parent, Marriott International, Inc. (MII), indicating it functions primarily as a subsidiary holding company. While MIF itself is solvent, its operational substance is dependent on the broader Marriott system, which presents a complex financial structure rather than a direct risk of instability.

Potential Mitigations

• An experienced franchise accountant should review the financial statements in Exhibit J, paying close attention to the nature of the assets and the relationship with the parent company.
• Discuss the financial structure and the role of the parent company with your financial advisor to understand the full context of MIF's stability.
• Ask your attorney to clarify the implications of contracting with a subsidiary entity versus the parent corporation.

Explanation

This risk, which is often a key indicator of franchisee satisfaction and system health, was not identified. The FDD, issued in May 2024, reports data for the period ending December 31, 2023, at which time no franchised outlets were operating. The absence of data is due to the franchise system being new, meaning there is no performance history to analyze for franchisee turnover. You will be one of the first franchisees in this system.

Potential Mitigations

• Since no franchisee track record exists, it is crucial to perform enhanced due diligence on the franchisor’s management team and their experience with other brands.
• Your business advisor can help you assess the risks of joining a new system with no operating history.
• An attorney can help you negotiate for protections that may offset the risks associated with being an early adopter.

Explanation

This risk was not identified in the FDD package. While the system is new, the parent company and its management team possess extensive experience in the hotel industry. However, rapid growth is a risk to monitor in any system, as it can strain support services, potentially affecting the quality of training, operational assistance, and brand management you receive.

Potential Mitigations

• It is prudent to ask the franchisor about their plans for scaling support infrastructure to match projected unit growth.
• Your business advisor can help you evaluate whether the franchisor’s support systems seem robust enough for their expansion plans.
• Consult with an attorney to understand the service level commitments detailed in the Franchise Agreement.

Explanation

This risk was not identified, as the franchise is for a hotel, a well-established business category. However, all business concepts face risks from changing consumer preferences. Evaluating whether a new brand in a competitive space has a unique, sustainable value proposition is important. The long-term success of your investment will depend on the brand's ability to build recognition and maintain relevance beyond initial market entry.

Potential Mitigations

• Consider working with a business advisor to research the specific market niche the brand intends to fill and assess its long-term consumer appeal.
• Inquire with the franchisor about their long-term strategy for brand development, innovation, and marketing to ensure sustained demand.
• Your accountant can help you model different scenarios to understand the financial impact of shifting consumer trends.

Explanation

This specific risk is low for this franchise. The franchisor entity, MIF, L.L.C. (MIF), is part of Marriott International, Inc. (MII), and the executives listed in Item 2 have extensive, high-level experience in the hotel and franchising industries. While the "Project Mid-T" system itself is new, it is backed by a management team with a deep and lengthy track record in the sector, which mitigates concerns about inexperienced leadership.

Potential Mitigations

• A business advisor can help you research the specific track records of the key executives listed in Item 2.
• It is still wise to discuss the management team's vision and strategy for this new brand directly with the franchisor.
• An attorney can help confirm that the support obligations outlined in the agreement are robust and align with industry best practices.

Explanation

This risk was not identified. The franchisor, MIF, L.L.C. (MIF), is clearly identified as a subsidiary of Marriott International, Inc. (MII), which is its parent. The financial statements for MIF are provided. Parent companies can provide stability, but it's important to understand the specific relationship and any guarantees. In this case, MIF appears financially sound, although its assets are primarily inter-company loans, making the parent's health relevant.

Potential Mitigations

• Your accountant should review the provided financials for both the franchisor and, if available, the parent company.
• It is wise to ask your attorney to clarify the legal relationship between the subsidiary you are contracting with and its parent.
• Inquire with a business advisor about the level of operational support provided by the parent to the franchisor subsidiary.

Explanation

This risk was not identified in the FDD package. Item 1 does not list any predecessors for the franchisor, MIF, L.L.C. This is consistent with the disclosure that this is a new franchise system. Generally, if a franchisor had acquired the system from a predecessor, it would be important to investigate the predecessor's history for issues like litigation, bankruptcy, or high franchisee turnover, as these could signal inherited problems.

Potential Mitigations

• A thorough review of Item 1 with your attorney is crucial to confirm the identity and history of the franchisor.
• Your business advisor can assist in researching the background of the franchisor and its principals.
• In cases with predecessors, an accountant should analyze any provided historical data for signs of trouble.