Explanation

The financial statements for Choice Hotels International, Inc. (Choice) in Exhibit C show it to be a large, profitable, publicly-traded company with significant revenues and positive net income. Although shareholders' equity has been low relative to assets, this appears due to treasury stock repurchases rather than operating losses. The company presents as financially stable and capable of supporting the franchise system. Therefore, this specific risk was not identified.

Potential Mitigations

• It is still advisable for your accountant to conduct a thorough review of the complete, audited financial statements and accompanying notes.
• Ask your accountant to assess the franchisor's financial health trends over the past three fiscal years for a comprehensive view.
• Engage a business advisor to discuss how the franchisor's large, multi-brand structure might impact resource allocation for the Radisson brand.

Explanation

This risk was not identified. While the franchise system has been shrinking, the franchisor, Choice, is a large, well-capitalized entity. Its financial statements do not indicate that it is over-extended or unable to support the existing and projected new franchisees. However, the reasons for the system's contraction, as noted in the 'High Franchisee Turnover' risk, warrant careful investigation.

Potential Mitigations

• During your discussions with existing franchisees, asking about the quality and timeliness of the support they receive from the corporate office is a key due diligence step.
• A business advisor can help you evaluate whether the franchisor's support infrastructure, as described in Item 11, is adequate for your needs.
• Your accountant should review the franchisor's allocation of resources in their financial statements to gauge their investment in franchisee support.

Explanation

This risk was not identified. The franchisor, Choice, has been in business since 1939 and is one of the world's largest lodging franchisors. It has extensive experience operating numerous hotel franchise systems. Radisson, while acquired by Choice in 2022, is also a long-established hotel brand. The system is mature and not unproven.

Potential Mitigations

• In speaking with current franchisees, inquire about any significant changes in operations or support since the 2022 acquisition by Choice.
• A business advisor can help you research the history of both the Radisson brand and Choice's performance in managing acquired brands.
• Review the management team's experience in Item 2 with your business advisor to confirm their qualifications.

Explanation

This risk was not identified. The Radisson brand and the broader hotel and lodging industry represent a well-established business sector with sustained consumer demand. The business model is not based on a fleeting trend or novelty. Success will likely depend on operational execution and market conditions rather than the sustainability of the core concept itself.

Potential Mitigations

• A business advisor can help you analyze long-term trends and competition within the specific segment of the hotel industry you plan to enter.
• Engaging a real estate professional is crucial to evaluate the long-term viability of your specific proposed location for a hotel.
• Your accountant can help you model financial performance based on historical industry data rather than short-term trends.

Explanation

This risk was not identified. Item 2 of the FDD lists the executive team for Choice, which includes individuals with extensive and long-term experience in the hospitality industry and in managing large-scale franchise systems, many with prior roles at major competitors like Marriott and Hilton. Management appears to be highly experienced.

Potential Mitigations

• It remains prudent to discuss the management team's accessibility and effectiveness with current franchisees.
• A business advisor can help you research the public track record and reputation of the key executives listed in Item 2.
• During any meetings with the franchisor, you can assess the management team's strategic vision for the Radisson brand.

Explanation

This risk is not a primary concern. Choice is a publicly-traded company, not a typical private equity holding. However, the business philosophy of a large, publicly-traded corporation can still prioritize shareholder returns, which may sometimes conflict with individual franchisee interests. The Franchise Agreement allows Choice to sell the system, but given its size and public nature, a PE-style 'flip' is less likely than with smaller franchisors.

Potential Mitigations

• Your accountant can review Choice's public financial reports to understand its long-term strategy and capital allocation priorities.
• Discuss with your attorney the implications of the franchisor's right to assign the Franchise Agreement.
• A business advisor can help you assess how a large corporate owner's priorities might affect an individual franchisee.

Explanation

This risk was not identified. Item 1 clearly identifies Choice Hotels International, Inc. as the franchisor and ultimate parent company. Item 21 provides the consolidated audited financial statements for Choice. There are no indications of a hidden or undisclosed parent entity whose financial condition is being shielded from review.

Potential Mitigations

• Your accountant should confirm that the provided financial statements in Exhibit C are for the ultimate parent company entity, Choice Hotels International, Inc.
• Your attorney can verify the corporate structure described in Item 1 through public records.
• When speaking with the franchisor, confirm that no other entities have a controlling interest or provide essential financial guarantees.