Versus Net Loss of $12 million in 2004; Both La Quinta and Baymont
Brands Provided Strong Operating Results
Lodging Operating Statistics
|DALLAS, Oct. 28, 2005 - La Quinta Corporation (NYSE: LQI) today announced
financial results for the third quarter ended September 30, 2005.
"We are very pleased with our excellent third quarter financial results," stated Francis W. ("Butch") Cash, chairman and chief executive officer. "For the quarter, RevPAR growth for total company owned hotels exceeded the upper end of our guidance by three percentage points and adjusted EBITDA exceeded our guidance by $5 million. Our July and August results were ahead of our expectations, followed by very strong occupancy increases in September due in part to Hurricanes Katrina and Rita. As a result, both our La Quinta and Baymont brands provided strong operating results.
"We continue to be impressed by the talents and compassion our people displayed in the aftermath of the devastating hurricanes we have experienced.
"The third quarter marks the one-year anniversary of our ownership of Baymont. We are very pleased that we are already producing results at the anticipated levels of return on our original investment, a year earlier than we expected.
"Our business fundamentals continue to improve and we are encouraged by the healthy operating environment for the lodging industry with favorable pricing trends and limited increases in supply. Our development activities will be focused on central business district and airport locations because of the returns we can realize and the ability to display our brands ever more prominently to help stimulate growth for our franchisees and ourselves. We anticipate commencing at least three such projects in 2006.
"While we continue to explore acquisition opportunities, we recognize the competitive market for hotel assets. As a result, in addition to using our capital for our central business district projects, we are also looking more actively at other uses of our balance sheet capacity including redeeming the $200 million of preferred stock," concluded Mr. Cash.
FINANCIAL AND OPERATING HIGHLIGHTS
For the third quarter ended September 30, 2005, the Company reported:
The 10% RevPAR growth for company owned hotels for the third quarter was driven by a 12% RevPAR growth for La Quinta branded hotels. The RevPAR growth for the La Quinta branded hotels was due to an occupancy increase of 2.4 percentage points and an average rate increase of 8%. Prior to September, which was impacted by Hurricanes Katrina and Rita, company owned La Quinta branded hotels were already trending at 9% RevPAR growth with particular strength in the Northwest with 13% RevPAR growth. After the hurricanes, occupancy at hotels in Texas and the Gulf Coast significantly increased. RevPAR for La Quinta owned hotels in Dallas, Austin, San Antonio and Houston metropolitan areas were up 20% for the quarter in part due to evacuees from the New Orleans area as well as evacuees from Hurricane Rita. RevPAR for company owned Baymont branded hotels increased approximately 7% during the quarter and also contributed to improved adjusted EBITDA margin.
"Prior to the hurricanes, our results were tracking above the top end of our RevPAR and Adjusted EBITDA expectations for the quarter due to continuing improvements in our business," added David L. Rea, president and chief operating officer. "In addition, the hurricanes brought significant increases in occupancy at our properties in Texas and the Gulf Coast during the months of September and October. As a result of our strong RevPAR growth and the positive impact of the Baymont acquisition, Adjusted EBITDA and profit margins continued to improve."
During the third quarter, the Company added seven La Quinta and eight Baymont franchise hotels to its system. As of September 30, 2005, the Company had 11,443 La Quinta branded franchise rooms (139 hotels) and 9,239 Baymont branded franchise rooms (106 hotels). In addition, the Company also executed a record number of franchise agreements (39 agreements) during the quarter. System-wide La Quinta branded hotel RevPAR, which includes the results of our La Quinta franchisees, increased 13% in the third quarter. This performance is yet another indicator of the very positive momentum and success of our franchising program.
Asset Sales and Assets Held for Sale
During the quarter, the Company sold four hotels, three of which were classified as continuing operations and one in discontinued operations, for gross proceeds of approximately $12 million and recognized gains on sales of approximately $4 million. At September 30, 2005, the Company had 12 hotels classified as held for sale. Eight hotels are included in discontinued operations while four are in continuing operations as we expect the buyer to convert the hotels to the Baymont brand. The net book value of assets held for sale is approximately $32 million.
As previously reported, the Company has eight company owned hotels (2%
of total company owned properties) in the greater New Orleans area that
were affected by Hurricane Katrina. Two properties suffered severe damage
and may not be restored to service. The six remaining hotels suffered significant
damage, however, the Company believes these six properties will be substantially
returned to service by year-end.
Based on preliminary assessments, the Company estimates property damage as a result of the hurricanes will approximate $30 million to $40 million. The Company believes these damages will be substantially recovered from insurance proceeds. Third quarter net income reflects charges related to the hurricanes of approximately $2 million.
Revenues include an estimated $5 million due to increased occupancy attributable to the aftermath of the hurricanes, which compares with approximately $2 million of additional revenue due to hurricanes in third quarter 2004. The amount and timing of business interruption recoveries are uncertain and will be recorded in future periods, in addition to potential property gains and losses, as claims are settled with insurance carriers.
In addition to the company owned hotels damaged by the hurricanes, 11 of the Company's franchises, including five under construction, were damaged. Damage to the units under construction will likely affect those properties' scheduled opening dates.
THIRD QUARTER FINANCIAL RESULTS
Revenue: Total revenues for the third quarter 2005 increased 32% over the third quarter 2004. Franchise fees increased 88% for the third quarter 2005. Other revenue (including healthcare interest income and restaurant rental income) increased 4% for the third quarter 2005. Approximately 60% of the total revenue increase was attributable to the Baymont acquisition while approximately 30% of the total revenue increase was due to the 12% increase in company owned La Quinta branded RevPAR. The remaining revenue increase was primarily due to an increase in franchise fees.
Net income: For the third quarter 2005, net income was $14 million, or $0.07 per share versus a net loss of $12 million, or ($0.07) per share, for the third quarter 2004. The improvement from 2004 to 2005 was primarily the result of the Baymont acquisition, improved operating performance at La Quinta owned hotels, an increase in franchise income and a loss of approximately $21 million in the prior year period related to the early retirement of debt. Third quarter 2005 financial results include income of $0.2 million from hotels classified as discontinued operations.
Adjusted EBITDA: Adjusted EBITDA for the third quarter 2005 was $77 million, a 42% increase compared to $54 million in the third quarter 2004. The increase in Adjusted EBITDA was primarily driven by income from the Baymont acquisition, revenue increases at company owned hotels, strong cost management as well as an increase in franchise income. Adjusted EBITDA margins improved 270 basis points year-over-year to 37.6% for the third quarter 2005, reflecting strong flow through from average rate increases, the increased demand caused by the hurricanes and the favorable results of the Baymont acquisition. Adjusted EBITDA excludes approximately $4 million of gains on sales of three properties previously classified as held for sale, as well as, other expense of approximately $0.6 million primarily related to Baymont integration expenses and fees related to abandoned transaction costs.
Capital Structure: During the third quarter, the Company repaid $116 million of debt, including $100 million of 7.40% Senior Notes and $16 million of medium term notes. After the repayment of these Notes, the Company's total indebtedness at September 30, 2005 was $810 million. At September 30, 2005, the Company had $213 million in cash and cash equivalents and no borrowings under its $150 million credit facility, other than $16.5 million in letters of credit. The Company's net debt (total indebtedness less cash and cash equivalents) was $597 million at September 30, 2005. In addition, the Company has $200 million of 9% preferred stock outstanding which is currently redeemable at the Company's option. Finally, the Company had approximately 203 million fully diluted equivalent paired shares outstanding during the third quarter.
THIRD QUARTER YEAR-TO-DATE FINANCIAL RESULTS
Revenue: Revenues for the nine months ended September 30, 2005 increased 34% over the same period in 2004. Approximately 70% of the total revenue increase was attributable to the Baymont acquisition while approximately 25% was due to a 10% increase in company owned La Quinta branded RevPAR. The remaining revenue increase was primarily due to an increase in franchise fees, partially offset by reduced interest income from a healthcare note receivable, which was paid off in 2004.
Net income: Net income was $14 million, or $0.07 per share, for the nine months ended September 30, 2005, versus a net loss of $31 million, or ($0.18) per share, for the same period in 2004. The improvement from 2004 to 2005 was primarily the result of the Baymont acquisition, improved operating performance at La Quinta owned hotels, an increase in franchise income and a loss of approximately $21 million related to the early retirement of debt and an impairment charge of approximately $13 million, each in the prior-year period. The year-to-date financial results include income of approximately $1 million from hotels classified as discontinued operations.
Adjusted EBITDA: Adjusted EBITDA for the nine months ended September 30, 2005 was $196 million, a 44% increase compared to $136 million in the same period in 2004. The increase in Adjusted EBITDA was primarily driven by the addition of income from the Baymont acquisition; revenue increases at company owned hotels, strong cost management as well as an increase in franchise income. Adjusted EBITDA for the nine months ended September 30, 2005 excludes approximately $3 million of gains on sales of assets as well as other expense of approximately $3 million principally related to Baymont integration expenses.
The Company currently expects continued strength in both lodging demand and room rate improvements for the fourth quarter of 2005 as well as 2006. With continued growth in fee based revenues and rate improvements, profit margins should also continue to increase. The following guidance excludes any gains or losses associated with asset sales.
For the fourth quarter 2005, total company owned hotel RevPAR is estimated
to increase approximately 10% to 12% compared to the prior year fourth
quarter, reflecting continued increases in average daily rates as well
as unusually high occupancy attributable to the hurricanes which is anticipated
to decline to normal seasonal levels by mid November. The Company anticipates:
Accordingly, for the full year 2005, the Company estimates total revenue of approximately $745 million to $748 million and Adjusted EBITDA of approximately $247 million. Net income is anticipated to be approximately $10 million.
Capital expenditures for 2005 are anticipated to be approximately $120 million, which includes a partial year of funding for the redevelopment of the La Quinta Arlington, Texas property, conversions between the La Quinta and Baymont brands, corporate capital expenditures and maintenance and renovation capital expenditures for our owned Baymont and La Quinta hotels.
The franchise pipeline is strong and continues to grow with more than 150 contracts executed for future franchise openings. Due to damage from the hurricanes to certain franchise properties under construction as well as delays in some new construction franchise projects, the Company now expects to open 60 to 70 franchises in 2005.
Preliminary 2006 Outlook
Preliminary expectations for 2006 are for RevPAR growth of approximately
6% to 7% for company owned hotels after adjusting 2005 results for the
effects of the hurricanes. This RevPAR increase will be driven primarily
by rate increases. Revenue is estimated to range from $780 million to $790
million and Adjusted EBITDA is anticipated to range from $265 million to
$270 million and net income is estimated to range from $15 million to $18
million. The Adjusted EBITDA and net income ranges are on a comparable
basis to 2005 and do not reflect the implementation of expensing stock
options in 2006. Capital expenditures for 2006 are currently anticipated
to be approximately $150 million. This includes $80 million of funding
for construction of three new central business district properties, two
redevelopment projects, and continued conversions of properties between
the La Quinta and Baymont brands. The remaining $70 million consists of
$60 million of maintenance and renovation capital expenditures for our
company owned hotels and $10 million of corporate capital expenditures.
The Company expects to add at least 85 hotels to its franchise system in
La Quinta Corporation (NYSE: LQI - News), is one of the largest owner/operators of limited-service hotels in the United States. Based in Dallas, Texas, the Company owns, operates or franchises more than 600 hotels in 39 states under the La Quinta Inns, La Quinta Inn & Suites®, Baymont Inn & Suites®, Woodfield Suites® and Budgetel® brands.
Certain matters discussed in this press release may constitute "forward- looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
La Quinta Corporation
|Also See:||La Quinta Corporation Reports 3rd Qtr Net Loss of $9 million versus Net Loss of $27 million in 2002, RevPAR for Company Owned Hotels Up 8% / La Quinta Summary Lodging Statistics / November 2003|
|La Quinta Recognizes the Best of 2004; La Quinta Inn & Suites-Stockbridge, Georgia Honored for Receiving the Best Quality Control Score in the Company’s History / April 2005|