Explanation

This risk was not identified in the FDD package. Based on the provided data, there have been no terminations, non-renewals, or other cessations of franchisees since WHG Franchisor, LLC began franchising the WaterWalk system in 2024. High franchisee turnover is a critical red flag, as it can indicate systemic issues like unprofitability or poor franchisor support. Continual monitoring of this metric in future FDDs is important for assessing system health.

Potential Mitigations

• An accountant can help you analyze future Item 20 tables to calculate the annual turnover rate and compare it to industry benchmarks.
• If future FDDs show rising turnover, it is crucial to consult a business advisor and contact former franchisees to understand the reasons for their departure.
• Your attorney can help you frame questions for former franchisees to assess whether their reasons for leaving suggest systemic problems.

Explanation

This risk was not identified. While Item 20 shows a notable increase in franchised outlets in 2024, a footnote clarifies this was from converting existing company-affiliated hotels into franchisees, not from rapid organic sales that might strain support systems. Rapid growth can sometimes stretch a franchisor's resources, leading to inadequate support for new and existing franchisees. The current growth trajectory does not appear to present this risk, given the franchisor's large existing infrastructure.

Potential Mitigations

• A business advisor can help you monitor the ratio of franchise support staff to the number of open units in future FDDs to gauge support capacity.
• It is wise to discuss the quality and responsiveness of franchisor support with both new and established franchisees.
• Your accountant should review the franchisor's financial statements annually to ensure they are reinvesting in the infrastructure needed to support growth.

Explanation

This risk does not appear to be present. The business model is focused on the upscale extended-stay hotel market, which is an established segment within the broader lodging industry. It is not based on a novel or fleeting trend. The long-term demand for both extended-stay lodging for business and leisure travel and temporary housing solutions is a recognized market need. Therefore, the business does not appear to be a short-lived fad.

Potential Mitigations

• A business advisor can help you research the long-term trends and competitive landscape of the extended-stay hotel market in your specific area.
• When reviewing the franchisor's plans, consider their strategies for innovation and adaptation to ensure long-term market relevance.
• An accountant can assist in modeling the financial viability of the business under various economic conditions, beyond current trends.

Explanation

This risk was not identified. FDD Item 2 details the business experience of the franchisor's key executives. The management team is composed of seasoned professionals from Wyndham Hotels & Resorts, Inc. and Wyndham Hotel Group, who possess extensive experience in the hotel and franchising industries. This depth of relevant experience at the parent company level suggests that the leadership understands the complexities of managing a large-scale franchise system.

Potential Mitigations

• A business advisor can still be useful for verifying the specific experience of the team members directly responsible for the WaterWalk brand.
• It is always a good practice to ask current franchisees about their direct experiences with the support and management teams.
• Reviewing the professional backgrounds of the key executives listed in Item 2 on professional networking sites can provide additional context.

Explanation

This risk is not present. FDD Item 1 indicates that the ultimate parent company, Wyndham Hotels & Resorts, Inc., is a publicly traded corporation listed on the New York Stock Exchange. The FDD does not disclose any ownership by a private equity firm. Publicly traded companies have different governance structures and reporting requirements compared to PE-owned firms, which can influence long-term strategy and franchisee relations.

Potential Mitigations

• An attorney can help you confirm the current ownership structure of a franchisor through public records.
• It's a good practice to ask a business advisor to help you research the recent history of the franchisor's ownership and any potential upcoming changes.
• Understanding the ownership structure is a key part of due diligence, as different owners can have very different priorities.

Explanation

This risk was not identified. The FDD clearly discloses the parent companies, Wyndham Hotel Group, LLC, and the ultimate parent, Wyndham Hotels & Resorts, Inc. (WHR). Furthermore, WHR provides a Guaranty of Performance and its audited financial statements are included as Exhibit D. This transparency allows you and your professional advisors to properly assess the financial strength and stability of the entity backing your franchise agreement.

Potential Mitigations

• Your accountant should always review the financial statements of both the franchisor and any guaranteeing parent entity.
• An attorney can help verify the corporate structure and ensure that any performance guarantees are legally sound and properly disclosed.
• If a franchisor is a subsidiary, it's wise to request clarification on the parent's commitment and role in supporting the franchise system.

Explanation

This risk was not identified. Item 1 of the FDD clearly names the 'Prior Franchisor,' WaterWalk Franchise Services LLC. Additionally, Item 20 provides historical data on outlet status for the years 2022 and 2023 under this predecessor. This disclosure provides a degree of historical context for the system before the current franchisor acquired the rights, allowing for a more informed analysis of the system's past performance and trends.

Potential Mitigations

• Your attorney should carefully review all information provided about a predecessor, including any past litigation or bankruptcy disclosed in Items 3 and 4.
• A business advisor can help you analyze the predecessor's performance data in Item 20 to look for any warning signs.
• Attempting to contact franchisees who operated under the predecessor can provide valuable insights into the system's history.