La Quinta’s business spin won’t change its asset plan
 
La Quinta’s business spin won’t change its asset plan
08 AUGUST 2017 9:50 AM

La Quinta Holdings executives on the company’s second-quarter earnings call told analysts the spinoff of CorePoint Lodging won’t change the way La Quinta thinks about driving brand consistency. 

IRVING, Texas—After the recent announcement of La Quinta Holdings’ business spin of CorePoint Lodging, executives on the company’s second-quarter earnings call said they will continue to drive consistency to the brand.

“I think we’re following the same approach to the asset strategy today and spinning out CorePoint Lodging really doesn’t change that approach,” said Keith Cline, president and CEO of La Quinta.

Over time, he said, hotels that are not “consistent with the brand experience that we’re trying to create,” such as exterior-corridor properties and properties in areas not fitting the brand experience, “could find a different home.”

La Quinta announced on 27 July that it would spin its owned assets into a real estate investment trust named CorePoint Lodging. 

When asked by analysts about the longer-term plan for hotels under CorePoint, Cline said the strategy is “really no different than the one we’ve been working under.”

“Driving product consistency is at the core of our strategy, so as we think about the hotels that we own and the hotels that are within our franchise (system), they can really follow one of three different paths:

  • they either fall into the bucket of a potential reposition where they’re in a market where there’s the right kind of adjacencies, but just the wrong product and the ability to reposition the asset and elevate it upwards within the market to capture additional rate;
  • you’ve got the lion’s share of the hotels that are appropriately positioned on the right street corners and have the right asset and the right comp set and will simply be part of an asset renovation program; and
  • then you’ve got the hotels that are on the wrong street corner and maybe don’t have the right comp sets and have the opportunity to either leave the brand through an asset sale, or potentially over time, fly a different flag to drive consistency.”

Part of La Quinta’s strategy is the repositioning of assets, which Cline told analysts the management agreement would not affect.

Company forecast
La Quinta’s Q2 earnings release shows that the company did not change its revenue per available room guidance for 2017. RevPAR for systemwide comparable hotels is expected to grow between 0% and 2% for the full year. 

“I think it’s safe to say we would need to see a sharp change from our current RevPAR trend for us to perform below the midpoint of our guidance,” said Jim Forson, La Quinta EVP and CFO. “… Our displacement, the overall macrotrends of the lodging industry, et cetera, so we balanced it out and decided it was best to leave (our guidance) unchanged.”

Since the company has a number of hotels undergoing a repositioning, Forson said “it’s not unreasonable to expect that displacement will continue into Q3.”

“These hotels have finished the construction phase of the repositioning that they’re going through and now they need to be reintroduced to their markets,” he said. “We’ve got 35ish hotels that are in some phase of construction. … So I don’t think it’s unreasonable to expect (displacement impact).”

As of press time, La Quinta’s stocks were trading at $15.55 per share, up 1.7%. The Baird/STR Hotel Stock Index was up 23.3% for the same time period. 

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