MORE THAN THREE years after going public, La Quinta Holdings Inc. reportedly is exploring a sale.
The 50-year-old Texas-based company owns and franchises limited-service hotels in the midscale and upper midscale chain scale segments. Its market cap is at $1.6 billion. Blackstone Group, which wholly owned the chain until the 2014 IPO, retains a third of its ownership.
In a May 3 earnings call with analysts, La Quinta CEO Keith Cline said the company’s “bias continues to be the path of least resistant to create the most value for all of our stakeholders.” He said he could not speculate on whether a competitor was interested in “a total company sale.”
Nevertheless, La Quinta has taken steps since its IPO in 2014 increase its market value.
- In January, the company announced it was considering separating its 300 corporate-owned hotels from its managed and franchised properties, creating two separate publicly traded companies. The owned assets would become a REIT.
- In the third quarter 2016, La Quinta separated its operations group into two divisions – one for the inns and another for the inns & suites, the younger of the two asset groups it owns.
- Since 2015, the company has spent or earmarked nearly $200 million to renovate and reposition 80 company-owned hotels, which make up more than a third of its portfolio. It renovated 29 hotels in 2015, and started work in November on the next wave of 50 hotels. The whole guts – costing about $25,000 a key – are aimed at increasing occupancy and rate and boosting value.
- In 2015 and 2016, the company spent $200 million on stock buybacks.
- The company is combing through its fleet of owned hotels, determining whether to maintain, improve or divest. In the first quarter of 2017, La Quinta identified 14 hotels for divestiture. At the end of last year, it earmarked five properties for sale, selling three of them in the first quarter for $22 million.
In late 2015 and in 2016, it sold 35 hotels for approximately $56.4 million. A partnership of Asian American hotel developers – Champion Hotels, NewcrestImage and Baywood Hotels – acquired most of the assets. As part of the deal, the hoteliers agreed to each build several new La Quinta Inns & Suites.
- La Quinta also is taking a harder line with its franchised hotels. Last year, for the first time in its franchising history, the company terminated or did not renew 25 licenses. In the first quarter of this year, four more exited. Raj Chudasama, a member of the owners advisory council, has said the properties were two-story exterior-corridor hotels without elevators, and owners could not afford or did not want to spend money on improvements on an aged box.
The company has 570 franchised hotels and another 250 in the pipeline. Of the hotels in the pipeline a little more than half are existing owners.
Of the 629 market tracts carved out by STR, the brand is not present in a third of them. And in markets where it does have a presence, it is underpenetrated.
“We can roughly double the size of the La Quinta brand today,” Cline said in cover story in February’s issue of Asian Hospitality. “The market opportunity for us is to go to 1,800 or 1,900 properties in the U.S. It will take a little while; I wish we could do it overnight, but we have to prove our concept is more than a Southwest brand.”