Explanation

The FDD does not indicate a high rate of franchisee turnover. Item 20 tables show zero terminations and zero non-renewals for the past three years. The system has experienced steady growth in the number of franchised outlets. A low turnover rate can be an indicator of a healthy franchise system and franchisee satisfaction. However, you should still verify this by speaking with current and former franchisees.

Potential Mitigations

• It is still advisable to contact a range of current and former franchisees from the lists in Item 20 to discuss their experiences.
• Your business advisor can help you compare the system's growth and stability against others in the upscale hotel industry.
• Consult with your accountant to understand the outlet data in the context of the overall system size and growth trajectory.

Explanation

This risk was not identified. Although the Tapestry Collection brand is relatively new (founded 2016), the franchisor is Hilton Franchise Holding LLC, a subsidiary of Hilton Worldwide Holdings Inc., one of the world's largest and most experienced hospitality companies. The extensive experience, established systems, and brand recognition of the parent company significantly mitigate the risks typically associated with a new or unproven franchise system.

Potential Mitigations

• You should still confirm with your business advisor that the support systems for this specific brand are well-established within the larger Hilton organization.
• Speaking with the earliest Tapestry franchisees listed in Item 20 can provide insight into the brand's early development and support.
• Your attorney can help you understand the relationship between the franchisor and its parent company and the obligations of each.

Explanation

This risk was not identified in the FDD package. The business model is operating hotels in the upscale and upper-upscale market, which is a well-established industry with a long history of consumer demand. This is not a business model that appears to be based on a short-term trend or fad. Its long-term viability depends on broader economic and travel industry trends rather than fleeting consumer interests.

Potential Mitigations

• A business advisor can help you assess the long-term outlook for the specific segment of the hotel industry in which this brand operates.
• Reviewing the franchisor's history of adapting its various brands to changing market conditions with a financial advisor can provide insight into their long-term strategic planning.
• It is always prudent to develop a business plan with your accountant that accounts for cycles in the travel and hospitality industry.

Explanation

This risk was not identified. Item 2 lists the directors and officers of the franchisor, who are part of the larger Hilton Worldwide organization. The management team possesses extensive and long-standing experience in the hotel and franchising industries, with many executives having served for years with Hilton or other major hospitality corporations. This depth of experience suggests a strong capacity for managing the franchise system and supporting franchisees.

Potential Mitigations

• It is still beneficial to research the public profiles and track records of the key executives listed in Item 2 with the help of your business advisor.
• When speaking with franchisees, you can inquire about their direct experiences with the leadership team and their perception of the company's direction.
• Your attorney can confirm the roles and responsibilities of the key personnel as they relate to the franchise relationship.

Explanation

This risk was not identified in the FDD package. Hilton Worldwide Holdings Inc., the ultimate parent company, is a publicly traded corporation (NYSE: HLT). While it has a history involving private equity ownership (The Blackstone Group), it is not currently controlled by a private equity firm in the typical sense. However, a director on the board is also the President of Blackstone, indicating a continuing relationship and potential influence that you should be aware of.

Potential Mitigations

• Understanding the ownership structure and the board of directors is crucial; a business advisor can help you research the background of board members.
• Your attorney should review any clauses in the Franchise Agreement related to the sale or transfer of the franchise system.
• Discuss with your financial advisor the potential influence of major shareholders or directors on the company's long-term strategy.

Explanation

This risk was not identified. Item 1 of the FDD clearly states that the franchisor does not have any predecessor that offered franchises for the Tapestry Brand. While other Hilton brands have extensive predecessor histories, which are disclosed, the Tapestry brand itself is presented as originating within the current Hilton structure. This avoids the risk of inheriting historical issues from a prior, unrelated operator of the brand.

Potential Mitigations

• Your attorney should verify the information in Item 1 regarding the franchisor's history and lack of predecessors for this specific brand.
• When conducting due diligence, you can confirm with long-standing Hilton franchisees their understanding of the Tapestry brand's origins within the Hilton portfolio.
• A business advisor can help you understand the difference between a brand's history and a franchisor's corporate history.