Explanation

The financial statements for Hilton Franchise Holding LLC (Hilton) and its ultimate parent do not indicate financial instability. The franchisor is a large, well-established entity with significant revenue and assets. The audited financials do not present a going concern note or other immediate solvency risks. However, the complexity of inter-company finances with the parent, Hilton Worldwide Holdings Inc., warrants careful review.

Potential Mitigations

• An experienced franchise accountant should review the audited financial statements in Exhibit C, paying close attention to the notes and the statement of cash flows.
• It is prudent to discuss the overall financial health of the parent company, Hilton Worldwide (NYSE: HLT), with your financial advisor.
• Verify with your attorney that no state-mandated financial assurances, such as bonds or escrows, have been required due to financial performance, which would be a red flag.

Explanation

As Tempo by Hilton is a new franchise system with only four operational franchised units at the end of 2024, there is insufficient data to establish a pattern of franchisee turnover. Item 20 tables show no terminations, non-renewals, or other cessations for the period. While this means no negative history exists, it also means there is no track record of franchisee longevity or satisfaction to evaluate.

Potential Mitigations

• A business advisor can help you understand the risks inherent in joining a new system with no turnover data to analyze.
• In your discussions with the few existing franchisees listed in Item 20, inquire about their satisfaction and future intentions regarding the franchise.
• Your attorney should advise on the importance of the non-existent track record when evaluating the overall franchise opportunity.

Explanation

The Tempo by Hilton brand is positioned as an upscale, lifestyle hotel concept. While it incorporates modern trends, the core business of lodging is not a fad. The primary risk is not that the industry is a fad, but rather whether this specific new brand concept will achieve long-term consumer acceptance and profitability, which is addressed in the 'New/Unproven Franchise System' risk.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand for this specific type of 'lifestyle' hotel concept.
• Analyze the brand's positioning against its competitors with a marketing consultant to gauge its potential for sustained market share.
• Your financial advisor should be consulted to evaluate the business model's resilience to potential shifts in travel trends or economic downturns.

Explanation

This risk was not identified in the FDD. Item 2 lists the executive team, including the CEO and other key leaders, who have extensive, long-term experience with Hilton Worldwide and in the hospitality and franchising industries. The management team appears to be highly experienced and qualified to manage a large hotel franchise system.

Potential Mitigations

• It is still wise to conduct your own research on the key executives listed in Item 2 to verify their track record and reputation in the industry with your business advisor.
• When speaking with existing franchisees, you should inquire about their direct experiences and the quality of their interactions with the management team.
• Your attorney can confirm that the experience listed meets the requirements and standards expected for a franchisor of this scale.

Explanation

This risk was not identified. The ultimate parent company, Hilton Worldwide Holdings Inc., is a publicly traded corporation (NYSE: HLT), not a private equity firm. While public companies face pressure for quarterly returns, the specific risks associated with a typical private equity ownership model, such as a short-term exit strategy, do not apply here.

Potential Mitigations

• A financial advisor can help you analyze the parent company's public filings (10-K, 10-Q) to understand its financial strategies and priorities.
• It is useful to discuss the implications of being part of a large, publicly traded system with your business advisor.
• Your attorney can review the Franchise Agreement for clauses related to a change in control of the franchisor.

Explanation

This risk was not identified. Item 1 clearly discloses the parent companies, up to the ultimate parent, Hilton Worldwide Holdings Inc. The FDD includes audited financial statements for the franchisor entity, Hilton Franchise Holding LLC. As the parent is a publicly traded company and does not guarantee the Franchise Agreement, its financials are not required to be included in the FDD.

Potential Mitigations

• Review the corporate structure detailed in Item 1 with your attorney to ensure you understand the relationship between the franchisor and its parent.
• Your accountant can confirm that the provided financial statements in Item 21 are for the correct legal entity you are contracting with.
• A financial advisor can easily access the public financial reports for the parent company, Hilton Worldwide Holdings Inc., for a broader picture of the entire enterprise.

Explanation

This risk is not applicable. Item 1 of the FDD clearly states, "We do not have any predecessor that has offered franchises for Tempo Brand hotels in the US." Therefore, there is no predecessor history to evaluate for this specific franchise offering.

Potential Mitigations

• Confirmation of the newness of the brand with your business advisor is important for context.
• Your attorney can verify the franchisor's statements regarding predecessors through corporate records if deemed necessary.
• Focus due diligence on the risks of a new system rather than on a predecessor's history, as advised by your accountant.