La Quinta Holdings Inc. Reports First Quarter 2017 Results

IRVING, Texas, May 03, 2017 (hospitalitybusinessnews.com) — La Quinta Holdings Inc. today reported results for the quarter ended March 31, 2017.

First Quarter 2017 Highlights

  • Grew system-wide comparable RevPAR 2.8 percent and increased franchise and other fee-based revenue 8.0 percent
  • Accelerated market share growth for the third consecutive quarter
  • Realized a positive contribution from properties located in the STR-defined “oil tracts”, which added 24 basis points to system-wide comparable RevPAR results
  • Opened nine franchised hotels, totaling approximately 800 rooms, including the Company’s 9th location in Mexico
  • Increased franchise pipeline to 249 hotels, representing approximately 23,300 additional rooms, and signed 12 franchise agreements, including locations in San Francisco, California and in Frisco, Texas, one of the fastest-growing cities in the U.S., adjacent to Toyota Stadium, home of Major League Soccer’s FC Dallas
  • Continued to generate strong cash flow
  • Reported Net Income of $1.6 million and Adjusted Net Income of $4.5 million; Net Income per Share was $0.01 and Adjusted Earnings per Share was $0.04

Overview

“The year is off to a solid start at La Quinta.  We continued to make progress on our key strategic initiatives to drive consistency in our product and in the delivery of an outstanding guest experience, as well as to drive increased engagement with the La Quinta brand. We strongly believe that these initiatives put La Quinta on a path to delivering long-term profitable growth for our shareholders. During the first quarter, we grew RevPAR, including a positive contribution from our properties in the STR-defined “oil tracts,” and continued to see significant improvement in our guest satisfaction scores, which led us to our third consecutive quarter of market share growth.  We also added to a strong pipeline that will allow us to further expand our reach into new markets and take advantage of our unique growth opportunity in the industry.  Our repositioning efforts are well underway and we are encouraged by the early positive results we are seeing.  The investments we are making in our people, our product, and the overall guest experience are taking hold – and our guests are taking notice,” said Keith A. Cline, President and Chief Executive Officer of La Quinta.

Mr. Cline continued, “We announced in January that we are pursuing the separation of our real estate business from our franchise and management businesses, and we continue to make progress toward this opportunity while also keeping a keen focus on driving our key strategic initiatives.  This potential separation, which will involve the spinning off of our owned real estate assets into a separate publicly-traded company, could allow us to take advantage of growth opportunities that naturally flow from each business model and may prove to be the best path to maximizing the return on our investments in capital and people.”

Financial Overview

For the first quarter of 2017, the Company grew system-wide comparable RevPAR 2.8 percent over the same period of 2016, driven by 4.7 percent growth in its franchise locations and 0.9 percent growth in its owned hotels.  The Company’s 2017 first quarter performance was positively impacted by the performance in the STR-defined “oil tracts,” which added 24 basis points to system-wide comparable RevPAR results, as compared to the first quarter of 2016.  The Company grew franchise and other fee-based revenue 8.0 percent in the first quarter of 2017 over the prior year period and reported its third consecutive quarter of market share growth, as evidenced by a 150 basis point improvement in RevPAR index over the prior year period.

For the first quarter of 2017, the Company reported net income of $1.6 million and adjusted net income of $4.5 million.  Net Income per Share was $0.01 and Adjusted Earnings per Share was $0.04.

Total Adjusted EBITDA for the first quarter of 2017 was approximately $72 million, reflecting the sale of owned hotels in 2016 and early 2017 that contributed EBITDA of approximately $2.5 million in first quarter of 2016, which did not recur in 2017.  Consistent with Company expectations, total Adjusted EBITDA was also impacted, in large part, by competitive wage pressures and increased labor needs in its owned hotel portfolio, as well as the elevated presence of third-party booking agents in its channel mix as compared to the prior year.

The Company’s system-wide portfolio, as of March 31, 2017, is located across 48 states in the U.S., as well as in Canada, Mexico, Honduras and Colombia. The portfolio includes:

     March 31, 2017     March 31, 2016
    # of hotels     # of rooms     # of hotels     # of rooms
Owned (1) 318 40,700 340 43,400
Joint Venture 1 200 1 200
Franchised(2) 570 46,500 545 44,100
Totals 889 87,400 886 87,700
(1) As of March 31, 2017 and 2016, Owned included three hotels (400 rooms) and 14 hotels (1,500 rooms), respectively, designated as assets held for sale, which are subject to definitive purchase agreements.
(2) As of March 31, 2017 and 2016, Franchised included four hotels (500 rooms) and one hotel (100 rooms), respectively, under temporary franchise agreements related to formerly owned hotels which are in the process of leaving the system.

The results of operations for the Company for the three months ended March 31, 2017 and 2016 include the following highlights  ($ in thousands, except per share amounts):

   Three months ended March 31,    
  2017 (1)     2016     % Change    
Total Revenue $ 234,272 $ 241,771 -3.1 %
Franchise and Management Segment Adj. EBITDA 26,714 26,220 1.9 %
Owned Hotels Segment Adj. EBITDA 58,721 68,253 -14.0 %
Total Adj. EBITDA 71,950 84,297 -14.6 %
Total Adj. EBITDA margin 30.7 % 34.9 %
Operating Income (Loss) 23,972 (45,520 ) NM (2 )
Operating Income Margin 10.2 % -18.8 %
Adj. Operating Income 28,803 37,823 -23.8 %
Adj. Operating Income Margin 12.3 % 15.6 %
(1) The Company sold three owned hotels during the three months ended March 31, 2017. During the year ended December 31, 2016, the Company sold 19 owned hotels.
(2) Change in terms of percentage is not meaningful.
    Three months ended     Three months
ended
         
    March 31, 2017     March 31, 2016     % Change    
    Net
Income
    Basic
and
Diluted
EPS
    Net
(Loss)
Income
    Basic
and
Diluted
EPS
    Net (Loss)
Income
    Basic
and
Diluted
EPS
   
Net Income (Loss) Attributable to La Quinta Holdings’ stockholders $ 1,589 $ 0.01 $ (38,775 ) $ (0.31 ) NM  (1 ) NM  (1 )
Adjusted Net Income Attributable to La Quinta Holdings’ stockholders $ 4,488 $ 0.04 $ 11,231 $ 0.09 -60.0 % -55.6 %
(1) Change in terms of percentage is not meaningful.
Comparable hotel statistics   Three months
ended March 31,
2017
    Variance three
months ended
March 31, 2017 vs.
2016
   
Owned hotels
Occupancy 63.0 % -25 bps
ADR $ 86.17 1.3 %
RevPAR $ 54.32 0.9 %
Franchised hotels
Occupancy 63.1 % 220 bps
ADR $ 89.18 1.1 %
RevPAR $ 56.29 4.7 %
System-wide
Occupancy 63.1 % 98 bps
ADR $ 87.69 1.2 %
RevPAR $ 55.31 2.8 %
     Three months
ended March 31,
2017
    Variance three
months ended
March 31, 2017 vs.
2016
 
RevPAR Index(1) 95.0 %   150 bps
(1)  Information based on the STR competitive set of hotels existing as of March 31, 2017.

Development

During the first quarter of 2017, the Company opened a total of nine franchised hotels (approximately 800 rooms). These nine openings, together with five terminations, led the Company to a net increase of four franchised hotels during the quarter. The elevated level of franchise terminations was in keeping with the Company’s overall strategy to drive consistency in its product. As of March 31, 2017 the Company had a pipeline of 249 franchised hotels totaling approximately 23,300 rooms, to be located in the United States, Mexico, Colombia, Nicaragua, Guatemala, Chile, and El Salvador.

Owned Hotel Portfolio

During the first quarter of 2017, the Company completed the sale of three owned hotels. The sale of these hotels generated $22.0 million in proceeds, net of selling costs.  As of March 31, 2017, the Company had three hotels held for sale.

Balance Sheet and Liquidity

As of March 31, 2017, 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.  Total cash and cash equivalents was $161.5 million as of March 31, 2017.

 

LA QUINTA HOLDINGS INC.
BALANCE SHEETS
(in thousands, except share data)
     March 31, 2017     December 31, 2016  
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 161,495 $ 160,596
Accounts receivable, net of allowance for doubtful accounts of $4,038 and $4,022 42,723 45,337
Assets held for sale 9,048 29,544
Other current assets 13,126 9,943
Total Current Assets   226,392     245,420  
Property and equipment, net of accumulated depreciation 2,471,413 2,456,780
Intangible assets, net of accumulated amortization 176,747 177,002
Other non-current assets 13,702 13,321
Total Non-Current Assets 2,661,862 2,647,103
Total Assets $ 2,888,254   $ 2,892,523  
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt $ 17,514 $ 17,514
Accounts payable 38,114 38,130
Accrued expenses and other liabilities 68,061 64,581
Accrued payroll and employee benefits 32,905 38,467
Accrued real estate taxes 12,977 21,400
Total Current Liabilities   169,571     180,092  
Long-term debt 1,679,423 1,682,436
Other long-term liabilities 27,525 29,130
Deferred tax liabilities 346,636 343,028
Total Liabilities   2,223,155     2,234,686  
Commitments and Contingencies
Equity:
Preferred Stock, $0.01 par value; 100,000,000 shares authorized and none
outstanding as of March 31, 2017 and December 31, 2016
Common Stock, $0.01 par value; 2,000,000,000 shares authorized at
March 31, 2017 and December 31, 2016; 132,450,118 shares issued
and 117,488,784 shares outstanding as of March 31, 2017 and
131,750,715 shares issued and 116,790,470 shares outstanding
as of December 31, 2016
1,325 1,318
Additional paid-in-capital 1,169,583 1,165,651
Accumulated deficit (294,417 ) (296,006 )
Treasury stock at cost, 14,961,334 shares at March 31, 2017 and 14,960,245
shares at December 31, 2016
(209,539 ) (209,523 )
Accumulated other comprehensive loss (4,594 ) (6,372 )
Noncontrolling interests 2,741 2,769
Total Equity 665,099 657,837
Total Liabilities and Equity $ 2,888,254   $ 2,892,523  
LA QUINTA HOLDINGS INC.
STATEMENTS OF OPERATIONS
(in thousands)
     Three months ended March 31,  
    2017     2016  
(unaudited)
REVENUES:
Room revenues $ 199,744 $ 209,473
Franchise and other fee-based revenues 23,978 22,192
Other hotel revenues 4,796 4,831
228,518 236,496
Brand marketing fund revenues from franchise properties 5,754 5,275
Total Revenues     234,272       241,771  
OPERATING EXPENSES:
Direct lodging expenses 100,334 98,912
Depreciation and amortization 36,040 38,297
General and administrative expenses 35,438 25,998
Other lodging and operating expenses 14,060 15,682
Marketing, promotional and other
advertising expenses
18,536 19,784
Impairment loss 83,343
Loss on sales 138
204,546 282,016
Brand marketing fund expenses from franchise properties 5,754 5,275
Total Operating Expenses     210,300       287,291  
Operating Income (Loss)     23,972       (45,520 )
OTHER INCOME (EXPENSES):
Interest expense, net (19,980 ) (20,306 )
Other (expense) income (24 ) 983
Total Other (Expenses) Income, net (20,004 ) (19,323 )
 Income (Loss) Before Income Taxes 3,968 (64,843 )
Income tax (expense) benefit (2,290 ) 26,119
NET INCOME (LOSS)     1,678       (38,724 )
Less: net income attributable to noncontrolling interests (89 ) (51 )
Net Income (Loss) Attributable to La Quinta Holdings’
  Stockholders
$ 1,589     $ (38,775 )

 

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

     Three months
ended March 31,
2017
    Three months
ended March 31,
2016
 
Operating income (loss)   $ 23,972     $ (45,520 )
Interest expense, net (19,980 ) (20,306 )
Other (expense) income (24 ) 983
Income tax (expense) benefit (2,290 ) 26,119
Income from noncontrolling interest (89 ) (51 )
Net Income (Loss) attributable to La Quinta
  Holdings’ Stockholders
    1,589       (38,775 )
Interest expense 20,108 20,364
Income tax expense (benefit) 2,290 (26,119 )
Depreciation and amortization 36,257 38,525
Noncontrolling interest 89 51
EBITDA     60,333       (5,954 )
Impairment loss     83,343
Loss on sales   138  
Gain related to casualty disasters (1,928 ) (669 )
Equity based compensation 3,943 2,490
Amortization of software service agreements   2,359   2,147
Other losses, net 7,105 2,940
Adjusted EBITDA   $ 71,950     $ 84,297  
SEGMENT REVENUES AND ADJUSTED EBITDA RECONCILIATION
(unaudited, in thousands)
  Three months
ended March 31,
2017
    Three months
ended March 31,
2016
 
Revenues
Owned Hotels $ 205,635 $ 215,555
Franchise and management 26,714 26,220
Segment revenues 232,349 241,775
Other fee-based revenues from franchised properties 5,754 5,275
Corporate and other 28,783 29,123
Intersegment elimination (32,614 ) (34,402 )
Total revenues $ 234,272     $ 241,771  
Adjusted EBITDA
Owned Hotels $ 58,721 $ 68,253
Franchise and management 26,714 26,220
Segment Adjusted EBITDA 85,435 94,473
Corporate and other (13,485 ) (10,176 )
Total Adjusted EBITDA $ 71,950     $ 84,297  
ADJUSTED OPERATING INCOME NON-GAAP RECONCILIATION
(unaudited, in thousands)
     Three months
ended March 31,
2017
    Three months
ended March 31,
2016
 
Operating income (loss)   $ 23,972     $ (45,520 )
Impairment loss 83,343
Retention plan 2,550
Reorganization costs 2,143
Loss on sales 138
Adjusted operating  income   $ 28,803     $ 37,823  
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
NON-GAAP RECONCILIATION
(unaudited, in thousands, except per share data)
Three months ended March 31,
2017
  Three months ended March 31,
2016
 
                       
Net (Loss)
Income
  Basic and
Diluted (Loss)
Earnings
Per
Share
  Net (Loss)
Income
  Basic and
Diluted (Loss)
Earnings
Per
Share
 
Net Income (Loss) attributable to La Quinta Holdings’ Stockholders   $ 1,589       0.01     $ (38,775 )   $ (0.31 )
Impairment loss     83,343 0.67
Retention plan   2,550 0.03  
Reorganization costs 2,143 0.02
Loss on sales 138
Tax impact of adjustments (1,932 ) (0.02 ) (33,337 ) (0.27 )
Adjusted Net Income attributable to La Quinta Holdings’ Stockholders   $ 4,488       0.04     $ 11,231     $ 0.09  
Weighted average common shares outstanding, basic 115,936 123,615
Weighted average common shares outstanding, diluted 116,368 123,615
ADJUSTED EBITDA NON-GAAP RECONCILIATION
OUTLOOK: FORECASTED 2017
(unaudited, in thousands)
Year Ending December 31, 2017  
Low Case   High Case  
Adjusted Net income attributable to La Quinta Holdings’ Stockholders (1)   $ 40,020     $ 52,020  
Interest expense (2) 85,000 85,000
Income tax provision 26,680 34,680
Depreciation and amortization (3) 152,000 152,000
Noncontrolling interest 300 300
EBITDA     304,000       324,000  
Share based compensation expense (4) 16,000 16,000
Adjusted EBITDA   $ 320,000     $ 340,000  
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