La Quinta Holdings Inc. Reports Results For First Quarter 2016

IRVING, Texas, April 27, 2016 (hospitalitybusinessnews.com)  — La Quinta Holdings Inc.  today reported its first quarter 2016 results.

First Quarter 2016 Highlights

  • Solidified key senior leadership positions with the permanent appointments of the Chief Executive Officer and the Chief Financial Officer and, subsequent to quarter end, the Chief Operating Officer
  • Cash flow generation remained strong, as demonstrated by $84.3 million of Total Adjusted EBITDA
  • Adjusted Earnings per Share increased by $0.01 to $0.09; GAAP Net Loss per Share was $0.31, including the impact of a non-cash impairment charge of $0.40 per share, net of tax
  • Adjusted Net Income increased 14.5 percent to $11.2 million; GAAP Net Loss was $38.8 million, including the impact of a non-cash impairment charge of $50.0 million, net of tax
  • System-wide comparable RevPAR decreased 2.5 percent, ADR remained unchanged and occupancy decreased 165 basis points; excluding properties located in STR-defined “oil tracts”, RevPAR decreased 0.5 percent
  • Opened 5 franchised hotels totaling approximately 650 rooms, including the eighth location in Mexico
  • Increased franchise pipeline to 232 hotels, the highest level since 2008, representing over 20,500 additional rooms, including new franchise agreements for key locations in Lake Buena Vista, Florida and downtown Chattanooga, Tennessee
  • Commenced a second $100 million share repurchase program, acquiring a total of $25 million of shares as of March 31, 2016 and a total of $61 million of shares through April 22, 2016

Overview

Keith A. Cline, President & Chief Executive Officer of La Quinta, said, “As expected, the first quarter of 2016 was impacted by the pullback in oil pricing and production.  During the first quarter, system-wide comparable RevPAR decreased 2.5 percent compared to the strong 8.2 percent RevPAR growth that we realized in the first quarter of last year.  Excluding the STR-defined oil tracts, our first quarter RevPAR would have been down 50 basis points as compared to last year.  We continue to expect RevPAR comparisons to become more favorable as we move through the remainder of 2016.”

Also during the first quarter, we began to execute on our strategic initiatives which are designed to drive consistency in our hotels and guest experience, and drive engagement with our brand. Most significantly, during the first quarter, we identified approximately 50 owned hotels as candidates for disposition in the near-term. We are also excited to add John Cantele to our leadership team as Executive Vice President and Chief Operating Officer.  With his extensive experience in growing multiple select service brands at Hyatt, we are confident that John will be instrumental in advancing our strategy.”

Mr. Cline continued, “On the development front, we continued to grow our footprint by opening five hotels, including key locations at the Atlanta airport and our eighth open location in Mexico. Interest in growing the La Quinta brand from our franchise partners remains strong with the signing of 12 new franchise agreements during the quarter, growing our pipeline to 232 hotels. We remain focused on delivering strong performance through the quality and consistency of our guest experience, as well as on creating long-term shareholder value.”

The results of operations for the Company for the three months ended March 31, 2016 and 2015 include the following highlights (1) ($ in thousands, except per share amounts):

Three months ended March 31,

2016

2015

% chg

Total Revenue

$

241,771

$

248,106

-2.6

%

Franchise and Management Segment Adj. EBITDA

26,220

25,753

1.8

%

Owned Hotels Segment Adj. EBITDA

68,253

76,188

-10.4

%

Total Adj. EBITDA

84,297

90,004

-6.3

%

Total Adj. EBITDA margin

34.9

%

36.3

%

Operating Income Margin

-18.8

%

13.3

%

Adj. Operating Income Margin

15.6

%

15.3

%

Three Months Ended

Three Months
Ended

March 31, 2016

March 31, 2015

% Change

Net

Income

Basic

and

Diluted

EPS

Net

Income

Basic

and

Diluted

EPS

Net

Income

Basic

and

Diluted

EPS

Adjusted Net Income Attributable to La Quinta Holdings’ stockholders(1)

$

11,231

$

0.09

$

9,805

$

0.08

14.5

%

12.5

%

Net (Loss) Income Attributable to La Quinta Holdings’ stockholders (2)

(38,775)

(0.31)

6,142

0.05

NM(3)

NM(3)

(1)

Please see the schedules to this press release for a reconciliation of the adjusted results of operations to the most directly comparable financial measures calculated in accordance with Generally Accepted Accounting Principles, as well as a discussion of the adjustments made.

(2)

Net (loss) income for the three month period ended March 31, 2016, includes an impairment charge of $83.3 million related to the reduced holding period of the one hotel identified as held for sale and of the approximately 50 hotels identified as candidates for sale in the near-term.

(3)

Changes in terms of percentages is not meaningful.

Comparable hotel statistics

Three months
ended March 31,
2016

Variance three
months ended
March 31, 2016
vs. 2015

Owned Hotels

Occupancy

62.9

%

-237 bps

ADR

$

84.06

0.2

%

RevPAR

$

52.84

-3.4

%

Franchised Hotels

Occupancy

62.0

%

-86 bps

ADR

$

87.86

-0.2

%

RevPAR

$

54.48

-1.6

%

System-wide

Occupancy

62.5

%

-165 bps

ADR

$

85.85

0.0

%

RevPAR

$

53.62

-2.5

%

Development

During the first quarter, the Company opened five franchised hotels with approximately 650 rooms, with net franchise units remaining unchanged. As of March 31, 2016, the Company had a pipeline of 232 franchised hotels totaling over 20,500 rooms, to be located in the United States, Mexico, Colombia, Nicaragua, Guatemala and Chile. The Company believes this pipeline represents a significant embedded growth opportunity for the brand.

The Company’s system-wide portfolio, as of March 31, 2016, is located across 48 states in the U.S., as well as in Canada, Mexico and Honduras. The portfolio includes:

March 31, 2016

March 31, 2015

# of hotels

# of rooms

# of hotels

# of rooms

Owned (1)

340

43,400

352

44,800

Joint Venture

1

200

1

200

Franchised

545

44,100

517

41,700

Totals

886

87,700

870

86,700

(1)

For March 31, 2016, Owned includes 14 hotels (1,700 rooms) designated as assets held for sale, which are subject to a definitive purchase agreements.

Owned Hotel Portfolio

During the third quarter of 2015, the Company entered into a definitive purchase and sale agreement for the sale of 24 of its owned hotels. Of these 24 hotels, 11 were sold during the fourth quarter of 2015, three have closed since the end of the first quarter, and the Company currently expects to close the sale of the remaining 10 before the end of the second quarter of 2016.  In addition, during the first quarter of 2016, the Company entered into a definitive purchase and sale agreement for the sale of one of its owned hotels located in Orlando, Florida, recorded an associated impairment charge of approximately $3 million related to the reduced assumed holding period and classified this hotel as held for sale.

At the end of the first quarter of 2016, the Company identified approximately 50 additional owned hotels as candidates for sale in the near-term and, as such, the Company recorded an impairment charge of $80 million related to the reduced assumed holding period for these assets. The Company believes that a sale of these hotels will have many benefits, including improvement of the consistency of the product and various key operating metrics; the opening of markets to new franchise development as the vast majority of these hotels will be removed from the La Quinta system; and provision of additional available cash.

Balance Sheet and Liquidity

As of March 31, 2016, the Company had approximately $1.7 billion of outstanding indebtedness with a weighted average interest rate of approximately 4.3%, including the impact of an interest rate swap. During the first quarter of 2016, the Company repurchased 2.0 million of its shares for an aggregate purchase price of approximately $25 million, with $75 million authorized for future repurchases.  Since the end of the first quarter, the Company has repurchased additional shares, bringing the current program total to approximately 4.9 million shares for an aggregate purchase price of approximately $61 million as of April 22, 2016.  Total cash and cash equivalents was $83.3 million as of March 31, 2016.

Outlook

Based upon management’s current estimates, the Company is reaffirming its guidance for full year 2016:

Guidance

RevPAR growth on a system-wide comparable hotel basis

1.0 percent to 3.0 percent

Adjusted EBITDA

$367 million to $384 million

Franchise hotel openings

55 to 60

This outlook does not reflect the impact of any additional sales of owned hotels beyond the 13 remaining properties from the group of 24 properties previously discussed under “Owned Hotel Portfolio” above.  In particular, it does not reflect the sale of the approximately 50 additional assets discussed under “Owned Hotel Portfolio” above.

LA QUINTA HOLDINGS INC.
HISTORICAL STATEMENTS OF OPERATIONS
(unaudited, in thousands)

Three months ended March 31,

2016

2015

Revenues:

Room revenues

$

209,473

$

217,715

Franchise and other fee-based revenues

22,192

20,757

Other hotel revenues

4,831

4,576

236,496

243,048

Brand marketing fund revenues from franchise properties

5,275

5,058

Total revenues

241,771

248,106

Operating expenses:

Direct lodging expenses

98,912

97,505

Depreciation and amortization

38,297

41,763

General and administrative expenses

25,998

35,151

Other lodging and operating expenses

15,682

17,007

Marketing, promotional and other advertising expenses

19,784

18,709

Impairment loss

83,343

282,016

210,135

Brand marketing fund expenses from franchise properties

5,275

5,058

Total operating expenses

287,291

215,193

Operating (loss) income

(45,520)

32,913

Other income (expenses):

Interest expense, net

(20,306)

(22,771)

Other income

983

512

Total other income (expenses)

(19,323)

(22,259)

 (Loss) Income before income taxes

(64,843)

10,654

Income tax benefit (expense)

26,119

(4,340)

Net (loss) income

(38,724)

6,314

Less: net income attributable to noncontrolling interests

(51)

(172)

Net (loss) income attributable to La Quinta Holdings’

   stockholders

$

(38,775)

$

6,142

RECONCILIATIONS

The tables below provide a reconciliation of EBITDA and Adjusted EBITDA to Net Income, a reconciliation of Adjusted Operating Income to Operating Income, a reconciliation of Adjusted Net Income and Adjusted Earnings Per Share to Net Income and Earnings Per Share, and a reconciliation of Adjusted EBITDA to Adjusted Net Income with respect to our outlook. We believe this financial information provides meaningful supplemental information. We further believe the presentation of Adjusted EBITDA, Adjusted Operating Income, Adjusted Net Income and Adjusted Earnings Per Share provides meaningful information because it excludes the impact of certain special items and/or certain items that are not expected to have an ongoing effect on our operations. This represents how management views the business and reviews our operating performance. It is also used by management when publicly providing the business outlook.  See the definitions of “EBITDA”, “Adjusted EBITDA”, “Adjusted Net Income” and “Adjusted Earnings Per Share” for a further explanation of the use of these measures.

ADJUSTED EBITDA NON-GAAP RECONCILIATION
(unaudited, in thousands)

Three months
ended March 31,
2016

Three months
ended March 31,
2015

Operating (loss) income

$

(45,520)

$

32,913

Interest expense, net

(20,306)

(22,771)

Other income

983

512

Income tax benefit (expense)

26,119

(4,340)

Income from noncontrolling interest

(51)

(172)

Net (Loss) Income Attributable to La Quinta Holdings’ stockholders

(38,775)

6,142

Interest expense

20,364

22,782

Income tax (benefit) expense

(26,119)

4,340

Depreciation and amortization

38,525

41,969

Non-controlling interest

51

172

EBITDA

(5,954)

75,405

Fixed asset impairment loss

83,343

Loss on retirement of assets

161

(Gain) loss related to casualty disasters

(669)

805

Equity based compensation

2,490

8,969

Amortization of software service agreements

2,147

1,892

Other losses, net

2,940

2,772

Adjusted EBITDA

$

84,297

$

90,004

SEGMENT REVENUES AND ADJUSTED EBITDA RECONCILIATION

(unaudited, in thousands)

Three months ended
March 31, 2016

Three months ended
March 31, 2015

Revenues:

Owned hotels

$

215,555

$

223,450

Franchise and management

26,220

25,753

Segment revenues

241,775

249,203

Other fee-based revenues from franchised properties

5,275

5,058

Corporate and other

29,123

29,409

Intersegment elimination

(34,402)

(35,564)

Total revenues

$

241,771

$

248,106

Adjusted EBITDA:

Owned hotels

$

68,253

$

76,188

Franchise and management

26,220

25,753

Segment Adjusted EBITDA

94,473

101,941

Corporate and other

(10,176)

(11,937)

Total Adjusted EBITDA

$

84,297

$

90,004

ADJUSTED OPERATING INCOME NON-GAAP RECONCILIATION

(unaudited, in thousands)

Three months ended
March 31, 2016

Three months ended
March 31, 2015

Operating (loss) income

$

(45,520)

$

32,913

   Expense for the conversion of long term incentives (1)

5,058

   Impairment loss

83,343

Adjusted operating  income

$

37,823

$

37,971

(1)

During the three months ended March 31, 2015, we incurred $5.1 million in General and administrative expenses related to the issuance of unvested restricted stock related to long term incentives on April 14, 2014, the date of the Company’s initial public offering.  These shares fully vested on April 14, 2015.   

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE

NON-GAAP RECONCILIATION

(unaudited, in thousands, except per share data)

Three months ended March 31,
2016

Three months ended March 31,
2015

Net (Loss)
Income

Basic and

Diluted

Earnings

Per

Share

Net Income

Basic and

Diluted

Earnings

Per

Share

Net Income Attributable to La Quinta Holdings’ stockholders

$

(38,775)

$

(0.31)

$

6,142

$

0.05

      Expense for the conversion of long term incentives, net of tax (1)

3,113

0.02

Secondary offering expenses, net of tax (2)

550

0.01

Impairment loss, net of tax

50,006

0.40

Adjusted Net Income Attributable to La Quinta Holdings’ stockholders

$

11,231

$

0.09

$

9,805

$

0.08

Weighted average common shares outstanding, basic

123,615

128,390

Weighted average common shares outstanding, diluted

123,615

129,951

(1)

During the three months ended March 31, 2015, we incurred $5.1 million in General and administrative expenses related to the issuance of unvested restricted stock related to long term incentives on April 14, 2014, the date of the Company’s initial public offering.  These shares fully vested on April 14, 2015.    

(2)

Expense was recognized in general and administrative expenses during the three months ended March 31, 2015 related to costs incurred in connection with the secondary equity offering by certain selling stockholders.

ADJUSTED EBITDA NON-GAAP RECONCILIATION

OUTLOOK: FORECASTED 2016

(unaudited, in thousands)

Year Ending December 31, 2016

Low Case

High Case

Adjusted Net income Attributable to La Quinta Holdings’ stockholders (1)

$

67,080

$

77,280

Interest expense (2)

82,000

82,000

Income tax provision

44,720

51,520

Depreciation and amortization (3)

158,000

158,000

Non-controlling interest

500

500

EBITDA

352,300

369,300

Share based compensation expense (4)

14,700

14,700

Adjusted EBITDA

$

367,000

$

384,000

(1)

This table provides a reconciliation of forward-looking forecasted Adjusted EBITDA to adjusted net income attributable to La Quinta Holdings’ stockholders that excludes the impact of certain items that are not expected to have an ongoing effect on our operations.

(2)

Includes interest expense for $1.7 billion of outstanding indebtedness with a weighted average interest rate of approximately 4.3%, including the impact of an interest rate swap, commitment fees for the undrawn balance of our revolving credit facility, and amortization of deferred financing costs.

(3)

Includes the amortization of software service agreements.

(4)

Reflects equity based compensation expense.

LA QUINTA HOLDINGS INC.
DEFINED TERMS

“EBITDA” and “Adjusted EBITDA.” Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is a commonly used measure in many industries. We adjust EBITDA when evaluating our performance because we believe that the adjustment for certain items, such as restructuring and acquisition transaction expenses, impairment charges related to long-lived assets, non-cash equity-based compensation, discontinued operations, and other items not indicative of ongoing operating performance, provides useful supplemental information to management and investors regarding our ongoing operating performance. We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors, lenders and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP, have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under GAAP. Some of these limitations are:

  • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
  • EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
  • EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;
  • EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
  • EBITDA and Adjusted EBITDA do not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
  • other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

“Adjusted operating (loss) income” represents the Company’s reported operating (loss) income, adjusted to exclude the impact of items not indicative of ongoing operating performance. Adjusted operating income (loss) is presented to provide additional perspective on underlying trends in the Company’s operating results.

“Adjusted Net Income” and “Adjusted Earnings Per Share” are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss), earnings per share, or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, the Company’s definitions of Adjusted Net Income and Adjusted Earnings Per Share may not be comparable to similarly titled measures of other companies.

Adjusted Net Income and Adjusted Earnings Per Share are included to assist investors in performing meaningful comparisons of past, present and future operating results and as a means of highlighting the results of the Company’s ongoing operations in a comparable format.

“ADR” or “average daily rate” means hotel room revenues divided by total number of rooms sold in a given period.

“comparable hotels” means hotels that: (i) were active and operating in our system for at least one full calendar year as of the end of the applicable period and were active and operating as of January 1st of the previous year; and (ii) have not sustained substantial property damage or business interruption or for which comparable results are not available. Management uses comparable hotels as the basis upon which to evaluate ADR, occupancy, RevPAR and RevPAR Index on a system-wide basis and for each of our reportable segments.

“occupancy” means the total number of rooms sold in a given period divided by the total number of rooms available at a hotel or group of hotels.

“RevPAR” or “revenue per available room” means the product of the ADR charged and the average daily occupancy achieved.

“RevPAR Index” measures a hotel’s fair market share of its competitive set’s revenue per available room.

“system-wide” refers collectively to our owned, franchised and managed hotel portfolios.

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