Explanation

This risk was not identified. A review of the franchisor's audited financial statements in Exhibit H indicates a strong financial position, with substantial net worth and consistent, significant profitability reported for the past three fiscal years. No signs of financial instability were found.

Potential Mitigations

• An experienced franchise accountant should always be engaged to thoroughly review a franchisor's financial statements, including all footnotes and the auditor's opinion.
• It is wise to have your accountant assess trends in revenue sources, profitability, and cash flow over several years to gauge financial stability.
• Legal counsel can help you understand any financial performance-related disclosures or risk factors mentioned in the FDD.

Explanation

This risk was not identified. While the franchise system is small, its growth is measured. The franchisor is an affiliate of Marriott International, Inc., a global hospitality company with extensive resources, which suggests its capacity to provide support is unlikely to be strained by the current rate of expansion.

Potential Mitigations

• Engaging a business advisor to question a franchisor about its plans for scaling support infrastructure to match growth is a valuable step.
• Speaking with a range of existing franchisees about the current quality and responsiveness of franchisor support provides crucial insight.
• Your accountant can review a rapidly growing franchisor's financials to determine if they have allocated sufficient resources to support expansion.

Explanation

This risk was not identified. The business of developing and selling luxury branded residential condominiums is a well-established, albeit cyclical, segment of the high-end real estate market and is not considered a fad.

Potential Mitigations

• A business advisor can help you independently assess the long-term market demand for a franchise's products or services to gauge whether it is a sustainable concept.
• Reviewing a franchisor's plans for innovation and adaptation in Item 11 can provide insight into its resilience against changing trends.
• Consider the sustainability of any business model beyond current trends and its durability during economic downturns with your financial advisor.

Explanation

This risk was not identified. Item 2 shows the franchisor is a subsidiary of Marriott International, Inc. and that its management consists of senior executives from this parent company. These individuals possess extensive and long-standing experience in global hospitality, brand management, and franchising.

Potential Mitigations

• A thorough vetting of the management team's background in both the specific industry and in managing a franchise system should be done with a business advisor.
• It is always prudent to speak with existing franchisees about the quality of support and management's responsiveness.
• Your attorney can help assess if the franchisor has engaged experienced franchise consultants or staff if its direct management team is new to franchising.

Explanation

This risk was not identified. Item 1 indicates the franchisor is a subsidiary of Marriott International, Inc., which is a publicly-traded company listed on the NASDAQ stock market, not a private equity firm.

Potential Mitigations

• Researching a private equity owner's track record with other franchise systems can provide valuable intelligence; a business advisor can assist with this.
• It is wise to talk to franchisees about any changes in support, fees, or system direction after a private equity acquisition.
• Your attorney should assess any clauses related to the franchisor's right to sell the system, which is a common exit strategy for private equity.

Explanation

This risk was not identified. Item 1 clearly discloses that the franchisor, MIF, L.L.C., is a subsidiary of Marriott International, Inc. The franchisor entity provides its own audited financials which show a very strong financial position, making the parent's financials not essential for disclosure.

Potential Mitigations

• Your attorney should verify the corporate structure if there is any ambiguity about a controlling parent company.
• If a parent company provides a guaranty or is a key supplier, your accountant and attorney should confirm the parent's financials are provided if required by law.
• In cases where a franchisor is a thinly-capitalized subsidiary, it is important for your accountant to analyze the financial strength of the parent company.

Explanation

This risk was not identified. The FDD appropriately discloses the brand's history with predecessor entities from the Starwood acquisition. The risks associated with that history, such as litigation and franchisee turnover, are analyzed under their respective risk items.

Potential Mitigations

• An attorney should be asked to carefully review disclosures in Items 1, 3, and 4 for any information related to a predecessor entity.
• If the system was acquired, performing independent research on the predecessor's track record can be a useful due diligence step for your business advisor.
• Speaking with long-term franchisees about their experience under any prior ownership can yield valuable insights.