Explanation

This risk was not identified. The audited financial statements in Exhibit C for Choice Hotels International, Inc. (Choice) show a large, profitable public company with significant revenues and positive operating income over the past three years. While shareholder equity is negative, this appears to be due to substantial stock repurchases, a common corporate financial strategy. The financials do not indicate an inability to support the franchise system.

Potential Mitigations

• Your accountant should review the complete audited financial statements, including all notes, to form an independent opinion of the franchisor's financial health.
• A business advisor can help you assess whether the franchisor's financial resources are being allocated effectively towards brand growth and franchisee support.
• It is prudent to have your attorney verify if any state has required the franchisor to post a bond due to its financial condition.

Explanation

This risk was not identified. Choice Hotels is a long-established, publicly-traded hospitality company founded in 1939, and the Suburban brand has been franchised since 2005. Item 2 shows that the management team has extensive experience in the hotel and franchising industries. The system is mature and well-established, not an unproven concept.

Potential Mitigations

• A business advisor can still help you research the brand's competitive position within the extended-stay hotel segment.
• It is wise to have your attorney review the complete corporate history in Item 1 for any potential concerns.
• Discussing the long-term strategic direction of the brand with the franchisor can provide valuable insight.

Explanation

This risk was not identified. The Suburban Studios brand operates in the established extended-stay hotel market, which serves a consistent need for travelers requiring long-term accommodations. This is not a business model based on a new or fleeting trend. The concept has been in operation since 2005, indicating a history of sustained consumer demand.

Potential Mitigations

• A business advisor can help you conduct a local market analysis to confirm demand for extended-stay hotels in your specific area.
• Assessing the brand's plans for evolution and adaptation, as outlined in Item 11, is a prudent step to ensure long-term relevance.
• Your accountant can help model the business's resilience to various economic conditions.

Explanation

This risk was not identified. Item 2 of the FDD details the business experience of Choice's officers and directors. The management team is composed of individuals with many years, often decades, of experience within Choice Hotels and other major hospitality companies like Hilton and Marriott. This indicates a deep level of experience in both the hotel industry and in managing a large franchise system.

Potential Mitigations

• A thorough review of the backgrounds of the executives directly responsible for the Suburban Studios brand can be conducted with your business advisor.
• Engaging with current franchisees to gauge their opinion of the management team's competence and support is a valuable due diligence step.
• Your attorney can help you research the public record of the parent company's executive team for any additional insights.

Explanation

This risk was not identified. Choice Hotels International, Inc. is a publicly-traded company, not one owned by a private equity firm. Its business decisions are therefore more likely to be oriented towards long-term shareholder value and brand health rather than the shorter-term exit strategies often associated with private equity ownership.

Potential Mitigations

• Your business advisor can research the company's ownership structure and history to confirm the absence of private equity influence.
• It is still prudent to have your attorney review the assignment clauses in the Franchise Agreement to understand the implications if the system were sold in the future.
• Reviewing the company's public investor communications can provide insight into its long-term strategic priorities.

Explanation

This risk was not identified. Choice Hotels International, Inc. is the parent company and franchisor, and its comprehensive, audited financial statements are provided in Exhibit C as required. There are no indications of a thinly capitalized subsidiary structure or undisclosed parent entities whose financials would be necessary for a complete risk assessment.

Potential Mitigations

• Your attorney can confirm the corporate structure outlined in Item 1 to ensure all relevant parent companies are disclosed.
• An accountant's review of the provided financials in Exhibit C is sufficient to assess the financial state of the entity you are contracting with.
• It is always wise to ask the franchisor to clarify its relationship with any major affiliates mentioned in the FDD.

Explanation

Item 1 discloses that Choice acquired the Suburban brand in 2005 and later acquired Radisson Hospitality in 2022. Item 3 discloses litigation involving these acquired entities. While the disclosure appears comprehensive, you are relying on Choice's representations about the history of these predecessor companies. The full context of franchisee satisfaction or turnover under prior ownership may not be fully apparent from the FDD alone.

Potential Mitigations

• Your attorney should carefully review the information on predecessor companies in Items 1, 3, and 4.
• A business advisor could help you conduct independent research on the history and reputation of any predecessor companies, such as Radisson.
• Seeking out and speaking with franchisees who have been with the system since before the Choice acquisition could provide valuable historical context.