Explanation

This risk was not identified. The franchisor, MIF, L.L.C. (MIF), appears to be in strong financial health based on the audited financial statements in Exhibit J. These statements show significant profitability and a substantial positive member's equity, suggesting MIF has the resources to support the franchise system and meet its obligations. Financial instability, a major risk with some franchisors, was not found here.

Potential Mitigations

• It is still prudent to have an accountant review the franchisor's financial statements to understand key trends and related-party transactions.
• A franchise attorney can explain any financial-related disclosures or risk factors mentioned elsewhere in the FDD.
• Consider engaging a business advisor to assess the overall health and stability of the brand within the competitive landscape.

Explanation

This risk was not identified. Item 20 data reveals a very low rate of terminations and cessations of operation over the past three years, relative to a system size of over 500 hotels. High franchisee turnover can be a significant red flag indicating systemic problems such as lack of profitability or support, but that does not appear to be the case here.

Potential Mitigations

• An accountant can help you analyze the outlet transfer numbers in Item 20, as these can sometimes mask underlying issues.
• Speaking with former franchisees listed in Item 20 is a crucial step your business advisor can guide you through.
• Your attorney can help you understand the context of the data presented in the Item 20 tables and footnotes.

Explanation

This risk is not present. The FDD indicates that the SpringHill Suites by Marriott (MIF) brand is a large, mature system that has been franchising for decades, with a significant number of hotels in operation. Unproven systems carry higher risks related to brand recognition, operational support, and long-term viability, but this franchise is well-established.

Potential Mitigations

• A business advisor can still help you research the brand's current market position and competitive advantages.
• It's wise to have your accountant analyze financial performance data for a mature system to understand its current health.
• Consulting with a franchise attorney remains critical to understanding the complex agreements associated with an established brand.

Explanation

The select-service hotel industry is a well-established and core segment of the lodging market, not a business model based on a fleeting trend. A 'fad' business carries a higher risk of declining consumer interest over the long term, which does not appear to be a significant concern for this established hotel concept.

Potential Mitigations

• A business advisor can help you analyze long-term lodging trends to confirm the brand's sustained market relevance.
• Your accountant can review how the business model has performed through various economic cycles.
• An attorney can advise on how the franchise agreement allows for system evolution to meet changing consumer preferences.

Explanation

This risk was not identified. The executive team detailed in Item 2 for the parent company, Marriott International, Inc., possesses extensive experience in the lodging industry and in managing large-scale franchise systems. An inexperienced management team can be a significant risk, potentially leading to poor strategic decisions and inadequate support, but that does not appear to be a concern here.

Potential Mitigations

• A business advisor can help you verify the backgrounds of key operational personnel who will directly support you.
• Your attorney should still review the obligations of the franchisor in the agreement to ensure support levels are clearly defined.
• It is useful to ask current franchisees about their direct experiences with the management team's competence and responsiveness.

Explanation

The franchisor, MIF, L.L.C. (MIF), is a subsidiary of Marriott International, Inc., a publicly-traded corporation, not a private equity firm. While PE ownership is not inherently negative, it can sometimes introduce risks related to a focus on short-term returns over long-term system health. This specific risk is not applicable in this case.

Potential Mitigations

• It is still prudent for your attorney to review any clauses related to the sale or assignment of the franchise system.
• A business advisor can help you understand the current ownership structure and its potential implications for franchisees.
• Your accountant can analyze how the corporate structure affects financial reporting and inter-company transactions.

Explanation

This risk is not present. Item 1 clearly identifies the franchisor, MIF, L.L.C. (MIF), as a subsidiary of the publicly-traded parent company, Marriott International, Inc. All necessary disclosures regarding the parent company appear to have been made.

Potential Mitigations

• An attorney should always confirm that the FDD properly identifies all parent and affiliate entities.
• Your accountant should review the financial statements and notes for details on related-party transactions with the parent company.
• A business advisor can help you research the parent company's reputation and overall standing in the industry.

Explanation

This risk was not identified. Item 1 provides a clear history of the brand and the franchisor entity. There is no indication of undisclosed or problematic predecessor history that would suggest inherited issues with the franchise system.

Potential Mitigations

• An attorney should always review the predecessor information in Items 1, 3, and 4 of the FDD.
• If a system has been acquired, a business advisor can help you research the predecessor's track record if possible.
• It is always a good practice to ask long-term franchisees about their experience under any previous ownership or brand name.