Explanation

This risk was not identified. The audited financial statements for the guarantor, Wyndham Hotels & Resorts, Inc., are provided in Exhibit D. They show consistent profitability and positive net worth, with no 'going concern' notes or other significant indicators of financial instability. A strong financial position suggests the franchisor has the resources to support its system and obligations. A financially weak franchisor could jeopardize your investment by failing to provide support.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's financial statements, including all footnotes and the auditor's report.
• Ask your accountant to analyze financial trends over the past three years to assess the overall health and stability of the parent company.
• It is prudent to discuss the franchisor's capitalization and debt structure with a financial advisor to understand its long-term viability.

Explanation

This risk was not identified. The data in Item 20's tables for the past three years does not indicate a high rate of franchisee terminations, non-renewals, or other cessations of business. In 2024, only two units ceased operations for other reasons out of a starting base of 47. A low turnover rate can suggest a stable system and a healthier relationship between the franchisor and its franchisees.

Potential Mitigations

• A discussion with your accountant about the outlet data in Item 20 can help you calculate the effective turnover rate over several years.
• You should contact a sample of current and former franchisees from the lists in the FDD to discuss their experiences.
• Your attorney can help you frame questions for former franchisees to understand their reasons for leaving the system.

Explanation

Item 20 data shows the number of franchised hotels grew by over 29% in 2024. While rapid growth can sometimes strain a franchisor's ability to provide support, this risk is considered low here. The franchisor, Wyndham Franchisor, LLC (WDF), is part of a very large, experienced, and well-capitalized public hospitality company (Wyndham Hotels & Resorts, Inc.), which appears to have sufficient resources to manage this level of growth within one of its brands.

Potential Mitigations

• A conversation with your business advisor can help assess if the franchisor's support infrastructure is keeping pace with its growth.
• In your discussions with current franchisees, you should inquire about the recent quality and timeliness of the support they receive.
• Your accountant can analyze the parent company's financials in Item 21 to confirm it has the resources to sustain system growth.

Explanation

This risk was not identified. While WDF was formed in 2017, it is part of the long-established Wyndham family of brands. Its predecessor began franchising the Wyndham brand in 2005. The ultimate parent company is a large, publicly-traded hospitality leader with extensive experience. Therefore, the system is well-proven and has a long operating history. An unproven system would present a higher risk of failure due to untested models and support structures.

Potential Mitigations

• It's wise to have your business advisor review the franchisor's history and its relationship with its parent company as described in Item 1.
• Ask your attorney to confirm the nature of the guarantee provided by the parent company.
• You should still speak with long-term franchisees about the evolution and stability of the brand over time.

Explanation

This risk was not identified. The franchise is for the establishment and operation of an upscale full-service hotel. The hotel and lodging industry is a well-established, long-standing business sector, not a temporary trend or fad. Investing in a fad business carries the risk that consumer interest will decline, potentially harming the long-term viability of your investment, even as your contractual obligations continue.

Potential Mitigations

• A business advisor can help you research the long-term outlook for the specific segment of the hospitality industry in your target market.
• It is still important to analyze local market demand and competition for upscale hotels to ensure viability in your specific area.
• Your financial advisor can help model the business's resilience to typical economic cycles.

Explanation

This risk was not identified. Item 2 of the FDD details the backgrounds of the key management personnel. The executive team has extensive and long-term experience within the Wyndham system and the broader hospitality and franchising industries. Inexperienced management can pose a risk through a lack of understanding of franchisee support needs, poor strategic direction, or underdeveloped operational systems.

Potential Mitigations

• Even with an experienced team, a discussion with your business advisor about the specific roles and backgrounds of the executives in Item 2 is beneficial.
• When speaking with franchisees, you can inquire about their direct experiences with the management team's leadership and strategic direction.
• Your attorney can review any recent management changes for potential shifts in company strategy or focus.

Explanation

This risk was not identified. Item 1 indicates the ultimate parent company, Wyndham Hotels & Resorts, Inc., is a publicly-traded company, not one owned by a private equity firm. Private equity ownership can sometimes introduce risks related to short-term investment horizons, which may lead to cost-cutting in franchisee support or pressure to increase fees to maximize returns before selling the company.

Potential Mitigations

• Your attorney should always verify the ownership structure described in Item 1 of the FDD.
• Engaging a business advisor to research the franchisor's parent company can provide insight into its business strategy and history.
• You can ask current franchisees about any recent changes in ownership and the impact on their business.

Explanation

This risk was not identified. Item 1 clearly outlines the multi-layered corporate structure, identifying Wyndham Hotels & Resorts, Inc. as the ultimate parent company. Furthermore, Item 21 and Exhibit D provide the audited financial statements for this parent company, which also guarantees the franchisor's performance. Failing to disclose a parent company or provide its financials when required can obscure the true financial backing and stability of the franchisor.

Potential Mitigations

• Have your attorney review the corporate structure in Item 1 and the parent guaranty in Exhibit D to understand the relationships and obligations.
• An accountant's review of the provided parent company financials is crucial for a complete due diligence process.
• You should confirm with the franchisor that there are no other undisclosed entities that exert material control over the system.

Explanation

This risk was not identified. Item 1 discloses the franchisor's predecessor and its history. Items 3 and 4 disclose the litigation and bankruptcy history for the current franchisor and its predecessor. There is no indication that negative historical information has been hidden or obscured. Full disclosure of a predecessor's history is important for you to understand any inherited systemic issues, past disputes, or brand challenges.

Potential Mitigations

• Your attorney should carefully review the information about predecessors in the FDD to ensure it appears complete.
• Consider asking long-tenured franchisees about their experience with any predecessor entities to get a fuller picture of the system's history.
• A business advisor can help you research public information about any named predecessors for additional context.