La Quinta Holdings will renovate 50 of its owned assets in the first half of 2017 as part of a strategic initiative started in the first quarter of 2016.
IRVING, Texas—La Quinta Holdings executives on a fourth-quarter earnings call with analysts reported that the company’s pipeline hit its highest level since 2008 in 2016, and announced that La Quinta would be renovating 50 of its owned assets in 2017.
CEO Keith Cline focused the call on La Quinta’s performance and renovation plans, declining to talk much about the company’s announcement in January that it was considering splitting its real estate business from its franchise and management businesses.
La Quinta put strategic initiatives in place in the first quarter of 2016 to “drive consistency of product and an outstanding guest experience,” Cline said. The company exited franchised properties and sold owned assets as part of this strategy in 2016, and the renovations are also part of this strategy.
“Since we launched this strategy in the first quarter of 2016, we have exited 25 franchised properties from the brand,” he said. “In addition, over 100 franchised properties have either undergone or begun a renovation.
“On the owned side of our business, we have disposed of 19 owned properties in the last year and approximately 50 are undergoing a significant renovation in 2017.”
He added that the strategy will “meaningfully impact” more than 20% of La Quinta’s hotels, “by either removing them from the chain or by significantly improving the property through renovations.”
Since quite a few hotels will be closed for renovations in the first part of the year and will affect performance, Cline said La Quinta is forecasting revenue per available room for full-year 2017 to be between flat performance and 2% growth. He added that hotels in oil tracts are stabilizing, but they’re still expecting to see some impact from those hotels on 2017 results.
In the fourth quarter, La Quinta increased its franchise pipeline to 248 hotels, which is the highest level since 2008, according to a news release. The company now has a total pipeline of 22 hotels in Mexico and signed franchise agreements in key locations such as Indianapolis and Seattle. La Quinta also opened 12 franchised hotels in the fourth quarter.
As of press time, La Quinta’s stocks were down 2.5% year to date. The Baird/STR Hotel Stock Index was up 18.3% at the same time.
Proposed business split
In January, La Quinta announced plans to pursue a separation of its franchise and management businesses from its owned real estate business, which could potentially lead to spinning out owned real estate assets into a separate company.
On the call, Cline said they could not “provide many additional details on the proposed separation transaction,” but said the company is working on filing the necessary Form 10, which could be filed early in the second quarter of 2017.
“The Form 10 would include historical and certain pro forma information around the strategy and the financial performance of our real estate business,” he said.
La Quinta’s RevPAR increased 1.8% in the fourth quarter, occupancy declined 0.25% and average daily rate increased 2.2%, according to the earnings release. For the full year, RevPAR was flat, occupancy decreased 1% and ADR increased 1.5%.