La Quinta Holdings changed its outlook for the year because of unexpected market factors such as poor performance at hotels in oil tracts.
IRVING, Texas—La Quinta Holdings executives believe revenue per available room could possibly contract for full-year 2016 because of an unexpected slowing of corporate business and worse-than-expected performance at properties in oil markets.
The company’s original guidance for the year said revenue per available room would increase 1% to 3%, according to the company’s earnings release, but La Quinta executives who spoke during the company’s second-quarter earnings call said RevPAR could either decrease or increase 0.75% for the full year.
“Coming into the quarter, we certainly didn’t expect to see the pullback in corporate transient demand that had occurred and has been widely talked about during earnings season, and as I mentioned, we also didn’t expect the see a continued softening in the STR oil markets,” La Quinta CEO Keith Cline said.
RevPAR at properties in STR oil tracts fell about 12% in Q2. Cline said that is an improvement over the 18% drop those properties saw in the first quarter. (STR is the parent company of Hotel News Now).
He said current economic issues and oil industry problems have lasted longer than expected.
“I would describe the weakness in the STR oil markets versus expectations to be fairly evenly spread throughout the quarter, and in our business, we began to see the impact of slowing in business transient demand right around the first or second week of May,” Cline said.
Wage, hiring pressure
La Quinta executives said the company is experiencing pressure when it comes to providing competitive wages.
“The pool of talent that we want and need in order to deliver the type of guest experience that we want to do is tighter,” said EVP and CFO Jim Forson. “We need to be sure we’re paying the right rates to get the right people in-house to deliver that experience.”
Hotels sale still in the works
La Quinta entered an agreement in Q3 of 2015 to sell 24 hotels owned by the company, according to the earnings release, and as of Q2 2016, the company is still working to close the sale of 10 of those hotels. The buyers are expected to finalize the deal by the end of this year’s third quarter, and La Quinta executives said they’re confident that will happen.
“We actually do have hard money down, and we’re dealing with partners that we’ve dealt with in the past, so we do have confidence that they’ll close those deals,” Cline said. “It’s a matter of them finding the right flags and the right homes for these assets in the market that they’ll (reside in.)”
Systemwide RevPAR for Q2 2016 grew by 0.2% and average daily rate increased 1.5% to $89.25, according to the earnings release. Occupancy decreased 0.9% to 70.3%. Excluding hotels in oil tracts, RevPAR was up 1.6%.
As of press time, La Quinta’s stock price was down 12.6% year to date. The Baird/STR Hotel Stock Index was up 7% for the same time period.