Explanation

This risk was not identified. The audited financial statements for the franchisor, MIF, L.L.C. (Marriott), in Exhibit J show a very strong financial position, with significant net worth and profitability. A financially stable franchisor is generally better positioned to support its franchisees, invest in the brand, and fulfill its contractual obligations. An unstable franchisor can pose an existential threat to its franchisees.

Potential Mitigations

• Even with strong financials, having your accountant review the audited statements and footnotes is a standard part of due diligence.
• A business advisor can help you assess the franchisor's overall health and ability to support the system long-term.
• Ask your attorney to confirm if any state has required a financial assurance bond despite the strong financials.

Explanation

Item 20 data for the last three years shows a number of terminations, non-renewals, and other cessations of business. In 2024, there were 7 terminations out of a base of 787 franchised outlets. While any turnover warrants investigation, the rate does not appear unusually high for a system of this size. You should still investigate the reasons for these departures through direct contact with former franchisees.

Potential Mitigations

• It is crucial to contact former franchisees listed in Item 20 to understand their reasons for leaving the system; your attorney can help prepare questions.
• Have your accountant analyze the turnover rates presented in the Item 20 tables over the past three years to identify any negative trends.
• In discussions with the franchisor, asking for context regarding the disclosed terminations can provide valuable insight.

Explanation

This risk was not identified. Item 20 data indicates a large, mature system with steady, rather than dangerously rapid, growth. Uncontrolled growth can strain a franchisor's ability to provide adequate support, training, and quality control to new and existing franchisees. Marriott's established infrastructure appears capable of supporting its current growth trajectory.

Potential Mitigations

• It is still prudent to ask the franchisor about their capacity and infrastructure for supporting new franchisees.
• Contacting a mix of new and established franchisees with guidance from your business advisor can help verify the quality of support.
• Your accountant can review the financial statements in Item 21 to confirm that the franchisor is allocating resources to support services.

Explanation

This risk was not identified. The Residence Inn by Marriott brand has been franchising since 1984, as disclosed in Item 1. This represents a very mature and well-established franchise system with extensive operational history and brand recognition, which typically reduces the risks associated with unproven business models.

Potential Mitigations

• A business advisor can still help you research the brand's current market position and competitive landscape despite its long history.
• Consult with your attorney to understand how the system's age and evolution are reflected in the current franchise agreement.
• Discuss the brand's long-term strategic direction with the franchisor and existing franchisees.

Explanation

This risk was not identified. The Residence Inn by Marriott brand is a long-established concept in the extended-stay hotel sector, an established segment of the lodging industry. The business model is not based on a new or fleeting trend, which reduces the risk of a sudden decline in consumer demand that can affect fad-based businesses.

Potential Mitigations

• Engaging a business advisor to research the long-term outlook for the extended-stay hotel market is a prudent step.
• Discuss the brand's strategies for innovation and staying competitive with the franchisor and current operators.
• Your accountant can help you model financial scenarios based on various economic conditions to test the business's resilience.

Explanation

This risk was not identified. Item 2 discloses the executive team of the parent company, Marriott International, Inc., which consists of individuals with extensive experience in the hospitality industry and in managing one of the world's largest franchise systems. Experienced management is crucial for providing effective support, training, and strategic leadership.

Potential Mitigations

• A review of the management team's background and tenure in Item 2 with your business advisor is still a valuable part of due diligence.
• When speaking with current franchisees, inquire about their direct experiences with the management team's responsiveness and strategic direction.
• It's wise to ask your attorney to confirm there are no concerning legal actions against key executives disclosed in Item 3.

Explanation

This risk was not identified. Item 1 indicates the franchisor is a subsidiary of Marriott International, Inc., a publicly-traded company, not a private equity firm. This ownership structure may suggest a focus on long-term brand health rather than the shorter-term investment horizons sometimes associated with private equity ownership.

Potential Mitigations

• Confirming the ownership structure detailed in Item 1 with your attorney is a standard due diligence step.
• A business advisor can help you understand the implications of being part of a large, publicly-traded family of brands.
• Reviewing the assignment clauses in the franchise agreement with your attorney is important to understand what happens if the system is sold.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, Marriott International, Inc. Furthermore, the FDD includes audited financial statements for the franchisor entity, MIF, L.L.C. Proper disclosure of parent companies and their financials, when required, is essential for a complete assessment of the franchise system's overall stability and resources.

Potential Mitigations

• Your accountant should review the provided financials for the franchisor entity (MIF, L.L.C.).
• A business advisor can help you research the publicly available financial information for the parent company, Marriott International, Inc.
• Your attorney can confirm that the relationship between the parent and the franchisor entity is adequately disclosed.

Explanation

This risk was not identified. Item 1 details the franchisor's history but does not indicate any problematic history related to predecessors for the Residence Inn brand itself. While Marriott has acquired other companies like Starwood, the core Residence Inn system has a long and direct lineage within Marriott, minimizing risks from undisclosed predecessor issues.

Potential Mitigations

• It remains good practice to ask your attorney to review the predecessor disclosures in Items 1, 3, and 4.
• In conversations with long-tenured franchisees, you could inquire about their experiences during any major corporate acquisitions or transitions.
• A business advisor can help you research the history of the brand to confirm there are no hidden red flags.