Jun. 20--IRVING, Texas--Talk about a turnaround. 

More than three years ago, Irving-based Meditrust Cos. -- a major real estate investment trust specializing in health care properties -- began searching for investments outside its core business. It invested in golf courses, a horse racing track and hotels, piling up hundreds of millions of dollars in debt. 

The investments in horse racing and golf were short-lived. But the plunge into lodging -- Meditrust purchased La Quinta Inns, a national mid-priced hotel chain, in 1998 -- turned out to be exactly what the company needed. 

In the past 18 months, Meditrust has forged a financial turnaround by bringing in fresh management, focusing on the cash-producing lodging business, selling its health care properties and slashing debt. Meditrust shares reached a 52-week high of $6.05 a week ago, up from a low of $1.81 in March 2000. 

And with a total return of 222 percent since March 2000, Meditrust is the top performing real estate investment trust this year, said Paul Penney, an analyst who follows the company for the Robertson Stephens investment banking firm. 

Meditrust executives have aggressively promoted the company. 

Today, Meditrust Cos. -- made up of Meditrust Corp., which owns real estate, and Meditrust Operating Co., which operates the company's lodging properties -- will change its name and stock market ticker symbol. 

Meditrust will become La Quinta Properties to reflect its new business focus: 300 La Quinta Inns and La Quinta Inns & Suites in 29 states. The sister company will be named La Quinta Corp. and the shares of the two companies will trade together as one unit on the New York Stock Exchange under the symbol LQI. 

"La Quinta represents the focus of the new companies," says Butch Cash, a veteran lodging and health care executive hired as CEO in April 2000 to turn Meditrust around. "Over 80 percent of our assets and revenues now come from lodging." 

To analysts who follow Meditrust, the company's strategies these days make sense. 

"It's easier to make money in the lodging industry than health care," says Michael Schneider, an analyst with Standard & Poor's. 

Meditrust's financial condition today stands in stark contrast to its condition a year ago. 

The balance sheet was depressed by debt from acquisitions, and its health care business was in financial distress because of changes in Medicare reimbursements and rising labor costs. President Clinton signed Medicare changes into law in 1997, and they were implemented in 1998 and early 1999. 

Meditrust, as a traditional REIT, had leased company-owned nursing homes and assisted-living facilities and financed mortgages for others. 

But in late 1997, Meditrust purchased the Santa Anita Cos., which owned and operated a racetrack. The strategy: to operate the businesses on Meditrust properties. 

Under federal tax laws then, traditional REITs could own real estate but could not run the businesses on their properties. But Santa Anita was a REIT with "paired share" status, allowing it to own real estate and run businesses. 

After the Santa Anita purchase, "things got crazy," Penney says. "They started moving away from their core business." 

Meditrust bought Cobblestone Holdings, which owned and leased golf courses, in May 1998. Meditrust envisioned mixed-use developments with lodging, golf courses and health care facilities. 

Two months later, Meditrust purchased La Quinta Inns for $3 billion, including $851.4 million of debt. 

Struggling under its debt, Meditrust jettisoned the track in 1998 but kept the paired-share status. In 1999, Meditrust got rid of the golf courses. 

Even so, Meditrust ended 1999 with $2.6 billion of debt and a 49 percent debt-to-capitalization ratio. 

Meditrust found the lodging business attractive. La Quinta generated about $250 million in free cash flow annually, and Meditrust began focusing on that business. La Quinta also brought high-profile investors: members of Fort Worth's Bass family owned 27.9 percent of La Quinta, and they retain one of the largest stakes, 8.5 percent, in Meditrust. 

In January 2000, Meditrust's board approved a reorganization plan. The company suspended its common stock dividend and announced that it would sell a large part of its $2.2 billion in health care assets to drastically cut debt. 

By cutting its dividend, the company saved about $260 million last year but triggered an exodus of investors who owned the stock in part for its payouts. 

Meditrust "had $1.4 billion of debt coming due in 2001," Cash said. "The board wanted to be sure the company did everything it could to survive." 

Meditrust recruited Cash, a former CEO of Red Roof Inns, in April 2000. In the next 90 days, he hired an executive team for La Quinta; many members of the team had worked for him at Red Roof, a highly profitable market leader in economy lodgings. 

Under Cash, the company has sold two-thirds of its health care assets and plans to sell the rest. 

Cash and his team also set out to revamp La Quinta's management structure, reservation and pricing procedures, information systems and marketing strategies. 

For example, they eliminated centralized management and let inn managers control pricing and room availability. On the marketing front, weekend and holiday season promotions and a national $10 cash-back offer were put in place. 

The efforts are paying off. 

In the last quarter of 2000, Meditrust recorded its first rise in revenue per available room -- an industry benchmark -- since the first quarter of 1999. 

Meditrust reported a 2.8 percent increase in revenue per available room in the last quarter of 2000 and a 3.1 percent increase in the first quarter this year. 

Meditrust's year-end balance sheet also showed signs of recovery. Total debt was down by more than $1 billion over the previous twelve months. And debt-to-total capitalization has decreased to a healthy 33 percent. 

Now Meditrust is spending $75 million to refurbish existing properties and is expanding through franchising. 

"The management team that came on board didn't come to pay down debt and refinance the company," Cash says. "That wasn't the main reason we were attracted. In the long term, we want to grow La Quinta and create more shareholder value." 

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(c) 2001, Fort Worth Star-Telegram, Texas. Distributed by Knight Ridder/Tribune Business News. MT,