Explanation

The franchisor's audited financial statements are provided. As of December 31, 2024, MIF, L.L.C. (MIF) reports significant total assets and net equity, and positive net income for the last three years. However, a substantial portion of its assets consists of a receivable from its parent, Marriott International, Inc., indicating a high degree of financial intertwining. While MIF appears financially stable on paper, its health is heavily dependent on its parent.

Potential Mitigations

• Your accountant should carefully analyze the financial statements, particularly the nature of the large related-party receivable and its implications for standalone stability.
• Discuss the franchisor's capitalization and the parent company's commitment to supporting this new brand with your financial advisor.
• Ask your attorney to review any parent company guarantees or support obligations mentioned in the franchise agreement or its exhibits.

Explanation

As StudioRes is a new franchise system that only began offering franchises in August 2023, there were no operating franchised outlets as of the end of the last fiscal year (December 31, 2024). Therefore, there is no historical data on franchisee turnover, terminations, or closures to analyze. The lack of operating history is a distinct and significant risk covered under 'New/Unproven Franchise System'.

Potential Mitigations

• It is critical to speak with the franchisees who have signed agreements but have not yet opened, listed in Exhibit N, to understand their experience and expectations.
• Your business advisor should help you evaluate the risks of joining a system with no performance track record.
• An attorney should review the agreement for any protections in case the system fails to launch successfully.

Explanation

The StudioRes concept targets the mid-scale, extended-stay hotel market. This is a well-established segment of the lodging industry, not a temporary fad. The business model is based on sustained demand from travelers needing longer-term accommodations. Therefore, the risk of the business being a short-lived trend appears to be low.

Potential Mitigations

• Your business advisor can help you research the long-term health and competitiveness of the extended-stay hotel market in your specific area.
• Review the franchisor's plans for brand evolution and keeping the concept competitive with your financial advisor.
• It is still prudent to consult an attorney to understand all long-term obligations under the agreement.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is a subsidiary of a publicly-traded corporation, Marriott International, Inc., not a private equity firm. However, prospective franchisees should always understand the ownership structure, as changes in ownership can impact the franchise system's strategic direction, support levels, and overall culture.

Potential Mitigations

• When reviewing any FDD, your attorney should analyze Item 1 to identify the ultimate parent company and its business structure.
• Engaging a business advisor to research the ownership history and any potential sale rumors of a franchisor is a prudent step.
• Inquire with an accountant about the financial implications if a publicly-traded parent company is taken private by a PE firm.

Explanation

This risk was not identified in the FDD Package. MIF is a subsidiary of Marriott International, Inc. (MII), and MII's role as the parent is clearly disclosed in Item 1. Furthermore, MIF's own audited financial statements are provided in Item 21 and Exhibit K. No separate parent company guarantee or financials are offered or appear to be required.

Potential Mitigations

• When analyzing any FDD, it's wise to have your accountant review Item 1 and Item 21 to determine if the franchisor is a subsidiary and whether parent financials should be present.
• Your attorney can advise on whether the parent company has guaranteed any of the franchisor's obligations.
• A business advisor can help investigate the operational relationship between a franchisor and its parent.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates MIF, L.L.C. (MIF) was established in 2012 but only began offering StudioRes franchises in 2023. It does not list any predecessors for this specific franchise system. This aligns with the fact that StudioRes is a new brand launch. Understanding predecessor history is generally important as it can reveal inherited issues or a pattern of rebranding to escape a negative past.

Potential Mitigations

• In any franchise review, your attorney should examine Item 1 for any mention of predecessors.
• If a predecessor is listed, it is crucial to ask your business advisor to help research their history and reputation.
• You should ask existing long-term franchisees about their experience under any previous ownership or brand name.