Company Results

La Quinta Holdings Reports Second Quarter 2014 RevPAR Growth of 7.7%

Pro forma total Adjusted EBITDA increased 13.1 percent to $106.0 million, and Pro forma Adjusted EBITDA margin increased 170 basis points

La Quinta

La Quinta Holdings Inc. (NYSE: LQ) reported its second quarter 2014 results on a pro forma basis, giving effect to La Quinta's initial public offering (IPO) and the related transactions as described below, as well as the results of operations for the second quarter 2014 on a historical basis.

Second Quarter 2014 Highlights:

  • Pro forma total Adjusted EBITDA increased 13.1 percent to $106.0 million, and Pro forma Adjusted EBITDA margin increased 170 basis points
  • Pro forma net income increased 12.6 percent to $17.5 million
  • Pro forma earnings per share increased 7.7 percent to $0.14
  • System-wide comparable RevPAR increased 7.7 percent – ADR increased 5.1 percent and occupancy increased 168 basis points
  • Pro forma Franchise and Management Segment Adjusted EBITDA increased 11.9 percent to $28.3 million
  • Opened 12 franchised hotels totaling over 1,000 rooms and increased franchise pipeline to 190 hotels, which includes over 15,500 additional rooms
  • Pro forma Owned Hotels Segment Adjusted EBITDA increased 12.7 percent to $84.0 million
  • Reduced debt by voluntarily prepaying $80 million of long-term debt as part of balance sheet de-levering strategy
  • Executed three franchise agreements in two new countries—one in Nicaragua and two in Guatemala
  • Raises full year 2014 guidance

Overview

Wayne B. Goldberg, President & Chief Executive Officer of La Quinta, said, "Our second quarter results demonstrate another quarter of solid operating performance delivered across our key metrics including strong RevPAR growth, franchise unit growth, EBITDA growth, and EBITDA margin growth. Overall, the lodging industry remains healthy, with a steadily improving economy and strong transient travel demand. La Quinta is extremely well-positioned to continue to capture this demand as we capitalize on our refreshed and upgraded portfolio and our repositioned brand. With 12 new franchise openings and increased occupancy during the quarter, our geographic reach and customer base continue to grow. Franchise interest remains robust for the La Quinta brand as evidenced by a growing pipeline, including three new domestic central business district properties and two new international markets. Furthermore, we remain committed to continue de-levering the balance sheet by utilizing our strong free cash flow to prepay debt and delivering on our strategic objectives, all of which are designed to increase shareholder value."

The results of operations for the Company, on a pro forma basis and on a historical basis, for the three months ended June 30, 2014 include the following highlights(1) ($ in thousands):

Pro Forma

Historical

Three Months Ended June 30,

Three Months Ended June 30,

2014

2013

% chg

2014

2013

% chg

Total Revenue

261,807

241,914

8.2 %

260,289

233,077

11.7 %

Franchise and Management Segment Adj

EBITDA

28,333

25,326

11.9 %

26,658

14,983

77.9 %

Owned Hotels Segment Adj. EBITDA

84,036

74,550

12.7 %

85,815

87,787

(2.2 )%

Total Adj. EBITDA

106,036

93,788

13.1 %

105,511

92,445

14.1 %

Total Adj. EBITDA margin

40.5 %

38.8 %

40.5 %

39.7 %

Operating Income Margin

20.0 %

20.7 %

9.8 %

20.8 %

Net Income (Loss) attributable to La Quinta Holdings' shareholders(2)

17,461

15,508

12.6 %

(338,578)

(4,209)

       NM(4)

Earnings per share – basic and diluted

0.14

0.13

7.7 %

(2.67)

(0.03)

       NM(4)

Adjusted Net Income(3)

15,910

(4,209)

       NM(4)

 

(1)

Please see the schedules to this press release for an explanation of the basis of the pro forma presentation and reconciliation of the pro forma financial information and adjusted results of operations. Pro forma information excludes adjustments that are not expected to have a continuing effect on the company, and adjusted information is adjusted for certain special items, in each case as discussed in the schedules attached to this press release. Pro Forma Segment Adjusted EBITDA reflects intercompany fees charged to our owned hotels under new agreements entered into at the time of the IPO as if these fees had been in place for all periods presented.

(2)

Includes, on a historical basis, a one-time net tax expense which reflects the establishment of a net deferred tax liability associated with the La Quinta Predecessor Entities becoming owned by La Quinta Holdings Inc., a "C" corporation for income tax purposes as well as the other items described in note 3 below.

(3)

Adjustments include (i) one-time net tax expense, which reflects the establishment of a net deferred tax liability associated with the La Quinta Predecessor Entities becoming owned by La Quinta Holdings Inc., a "C" corporation for income tax purposes, (ii) share based compensation adjustment, which reflects the expense to exchange units that were outstanding under our long-term cash incentive plan at the time of our IPO for shares of La Quinta Holdings Inc. common stock, 80% of which vest within one year of the IPO, and (iii) loss on extinguishment of the historical debt that was refinanced on April 14, 2014.

(4)

Change in terms of percentage is not meaningful.

Development

The Company opened 12 franchised hotels with over 1,000 rooms in the second quarter and achieved net system-wide growth of 9 hotels with over 650 rooms. Year to date through June 30, 2014, the Company opened 24 franchised hotels with approximately 2,400 rooms. As of June 30, 2014, the Company had a pipeline of 190 franchised hotels totaling over 15,500 rooms, to be located in the United States, Mexico, Canada, Colombia, Honduras, Nicaragua, and Guatemala.

The Company's system-wide portfolio, as of June 30, 2014, consisted of 848 hotels representing approximately 85,000 rooms located predominantly across 47 U.S. states, as well as in Canada and Mexico. This portfolio includes 353 owned and operated hotels and 495 franchised hotels.

Balance Sheet and Liquidity

During the quarter, the Company made a voluntary prepayment of $80 million on its senior secured term loan facility. As of June 30, 2014, the Company had approximately $2.0 billion of outstanding indebtedness with a weighted average interest rate of approximately 4.4%, including the impact of an interest rate swap. Total cash and cash equivalents was $103.0 million as of June 30, 2014.

Initial Public Offering and Credit Facility

On April 14, 2014, the Company issued approximately 44 million shares of common stock at an IPO price of $17.00 per share, including the full exercise of the underwriters' option to purchase additional shares. Upon completion of the IPO, the Company had approximately 129.7 million shares outstanding on a fully diluted basis including approximately 0.35 million shares issued under the Company's omnibus incentive plan.

Concurrently with the consummation of the IPO, the Company entered into a credit agreement providing for senior secured credit facilities consisting of a $2.1 billion senior secured term loan facility, which will mature in 2021, and a $250.0 million senior secured revolving credit facility, which will mature in 2019. At closing, the Company also entered into a five year interest rate swap on $850 million of the term loan principal balance.

The Company used the net proceeds from the IPO, together with the net proceeds from the senior secured term loan facility and available cash, to repay approximately $2.7 billion of the La Quinta Predecessor Entities' outstanding debt. Any remaining net proceeds are being used for general corporate purposes.

Outlook

Based upon management's current estimates, the Company is increasing its guidance for full year 2014 and is expecting:

Updated Guidance

Prior Guidance

RevPAR growth on a system-wide comparable hotel basis

6.0 percent to 7.0 percent

5.5 percent to 7.0 percent

Pro forma Adjusted EBITDA

$367 million to $372 million

$362 million to $368 million

Capital expenditures

$71 million to $77 million

$69 million to $77 million

Franchise hotel openings

45 to 50

45 to 50

Non-GAAP Financial Measures

We refer to certain non-GAAP financial measures in this press release including Adjusted EBITDA, Adjusted EBITDA margins, Segment Adjusted EBITDA, Adjusted Net Income, and Adjusted Earnings Per Share. Please see the schedules to this press release for additional information and reconciliations of such non-GAAP financial measures.

About La Quinta Holdings Inc.

La Quinta Holdings Inc. (LQ) is a leading owner, operator and franchisor of select-service hotels primarily serving the upper-midscale and midscale segments. The Company's owned and franchised portfolio consists of more than 840 La Quinta Inn & Suites™ and La Quinta Inn™ branded hotels representing approximately 85,000 rooms located in 47 states, as well as Canada and Mexico. La Quinta's team is committed to providing guests with a refreshing and engaging experience. 

LA QUINTA HOLDINGS INC.

HISTORICAL STATEMENTS OF OPERATIONS

(unaudited, in thousands)

Three months ended 

June 30,

Six months ended 

June 30,

2014

2013

2014

2013

Revenues:

Room revenues

$       225,524

$      202,302

$       414,523

$      379,553

Franchise and other fee-based revenues

24,130

21,270

42,991

37,620

Other hotel revenues

4,967

4,459

9,731

8,993

254,621

228,031

467,245

426,166

Brand marketing fund revenues from franchise and managed properties

5,668

5,046

10,353

9,183

Total revenues

260,289

233,077

477,598

435,349

Operating expenses:

Direct lodging expenses

96,025

88,531

184,354

172,641

Depreciation and amortization

43,251

41,227

84,862

81,210

General and administrative expenses

51,610

18,812

68,612

36,735

Other lodging and operating expenses

16,042

12,959

30,535

26,320

Marketing, promotional and other advertising expenses

17,084

17,947

33,531

32,666

Impairment loss

5,157

5,157

229,169

179,476

407,051

349,572

Brand marketing fund expenses from franchise and managed properties

5,668

5,046

10,353

9,183

Total operating expenses

234,837

184,522

417,404

358,755

Operating income

25,452

48,555

60,194

76,594

Other income (expenses):

Interest expense, net

(35,805)

(36,418)

(72,765)

(72,518)

Loss on extinguishment of debt, net

(2,030)

(2,030)

Other income (loss)

(248)

479

(301)

466

Total other income (expenses)

(38,083)

(35,939)

(75,096)

(72,052)

Loss from continuing operations before income taxes

(12,631)

12,616

(14,902)

4,542

Income tax provision

(4,950)

(728)

(5,698)

(1,520)

Recognition of net deferred tax liabilities upon C-corporation conversion

(321,054)

(321,054)

Net Income (Loss) from continuing operations, net of tax

(338,635)

11,888

(341,654)

3,022

Loss on discontinued operations, net of tax

(16,056)

(503)

(16,244)

Net loss

(338,635)

(4,168)

(342,157)

(13,222)

(Income) loss from noncontrolling interests in continuing operations, net of tax

57

(41)

(3,764)

(700)

(Income) loss from noncontrolling interests in discontinued operations, net of tax

Net (income) loss attributable to noncontrolling interests

57

(41)

(3,764)

(700)

Amounts attributable to La Quinta Holdings' shareholders

Income (Loss) from continuing operations, net of tax

(338,578)

11,847

(345,418)

2,322

Loss from discontinued operations, net of tax

(16,056)

(503)

(16,244)

Net loss attributable to La Quinta Holdings' shareholders

$    (338,578)

$       (4,209)

$    (345,921)

$     (13,922)

RECONCILIATIONS

Prior to the IPO, the Company's business was conducted, and the Company's hotel properties were owned, through multiple entities including (i) the "La Quinta Predecessor Entities" which were entities under common control or otherwise consolidated for financial reporting purposes, and their consolidated subsidiaries and (ii) entities that owned 14 hotels (the "Previously Managed Portfolio") managed by the La Quinta Predecessor Entities. In connection with the IPO, among other transactions, (i) the La Quinta Predecessor Entities were contributed to the Company, (ii) the La Quinta Predecessor Entities purchased the Previously Managed Portfolio, and (iii) the Company effected the refinancing transactions described below (together with the IPO, the "IPO Transactions").

The unaudited pro forma financial data for the three-month and six month periods ended June 30, 2014 and 2013 are presented as if the IPO Transactions all had occurred on January 1, 2013 for the purposes of the unaudited pro forma combined statements of operations. The unaudited pro forma combined financial information excludes adjustments that are not expected to have a continuing effect on the Company. Excluded adjustments include the initial income tax impact of the La Quinta Predecessor Entities and the Previously Managed Portfolio being owned by a "C" corporation, gains and losses related to the debt financing transactions, and the impact of the issuance of vested and unvested restricted stock at the time of the IPO related to long term incentives, as well as that of discontinued operations. Accordingly, the unaudited pro forma financial data is not necessarily indicative of our financial position or results of operations had the transactions described above for which we are giving pro forma effect actually occurred on the dates indicated.

The tables below provide a reconciliation of the pro forma financial information, including segment information, for the Company to the Company's historical information, a reconciliation of Adjusted EBITDA to Net Income, both on a pro forma and historical basis, and a reconciliation of Adjusted Net Income and Adjusted Earnings Per Share to Net Income and Earnings Per Share. We believe this financial information provides meaningful supplemental information because it reflects the combined business of the La Quinta Predecessor Entities and the Previously Managed Portfolio and the ongoing effects of the other IPO Transactions. We further believe the presentation of Adjusted Net Income and Adjusted Earnings Per Share provides meaningful information because it excludes the impact of 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.

 

PRO FORMA FINANCIAL INFORMATION AND NET INCOME RECONCILIATION

(unaudited, in thousands)

Three months ended June 30, 2014

Three months ended June 30, 2013

Historical

Adjustments

Pro Forma

Historical

Adjustments

Pro Forma

Revenues:

Room revenues

$       225,524

$             1,634

$      227,158

$      202,302

$             9,523

$      211,825

Franchise and other fee-based revenues

24,130

(91)

24,039

21,270

(567)

20,703

Other hotel revenues

4,967

15

4,982

4,459

119

4,578

254,621

1,558

256,179

228,031

9,075

237,106

Brand marketing fund revenues from franchise and managed properties

5,668

(40)

5,628

5,046

(238)

4,808

Total revenues

260,289

1,518

261,807

233,077

8,837

241,914

Operating expenses:

Direct lodging expenses

96,025

726

96,751

88,531

4,933

93,464

Depreciation and amortization

43,251

(3)

43,248

41,227

1,655

42,882

General and administrative expenses

51,610

(26,256)

25,354

18,812

48

18,860

Other lodging and operating

expenses

16,042

200

16,242

12,959

810

13,769

Marketing, promotional and other advertising expenses

17,084

17,084

17,947

17,947

Impairment loss

5,157

5,157

229,169

(25,333)

203,836

179,476

7,446

186,922

Brand marketing fund expenses from franchise and managed properties

5,668

(40)

5,628

5,046

(238)

4,808

Total operating expenses

234,837

(25,373)

209,464

184,522

7,208

191,730

Operating income

25,452

26,891

52,343

48,555

1,629

50,184

Other income (expenses):

Interest expense, net

(35,805)

13,018

(22,787)

(36,418)

11,732

(24,686)

Loss on extinguishment of debt, net

(2,030)

2,030

Other income (loss)

(248)

(248)

479

479

Total other income (expenses)

(38,083)

15,048

(23,035)

(35,939)

11,732

(24,207)

Income (loss) from continuing operations before income taxes

(12,631)

41,939

29,308

12,616

13,361

25,977

Income tax provision

(4,950)

(6,773)

(11,723)

(728)

(9,663)

(10,391)

Recognition of net deferred tax liabilities upon C-corporation conversion

(321,054)

321,054

Income (loss) from continuing operations, net of tax

(338,635)

356,220

17,585

11,888

3,698

15,586

Net income (loss) (1)      

(338,635)

356,220

17,585

11,888

3,698

15,586

(Income) loss from noncontrolling interests in continuing operations, net of tax

57

(181)

(124)

(41)

(37)

(78)

Net (income) loss attributable to noncontrolling interests(1)

57

(181)

(124)

(41)

(37)

(78)

Amounts attributable to La Quinta Holdings' shareholders

Income (loss) from continuing operations, net of tax

(338,578)

356,039

17,461

11,847

3,661

15,508

Net income (loss) attributable to La Quinta Holdings' shareholders (1)

$    (338,578)

$         356,039

$      17,461

$      11,847

$             3,661

$      15,508

(1)

Excludes the impact of the Company's discontinued operations on a historical and pro forma basis for the periods presented

 

 

PRO FORMA FINANCIAL INFORMATION AND NET INCOME RECONCILIATION

(unaudited, in thousands)

Six months ended June 30, 2014

Six months ended June 30, 2013

Historical

Adjustments

Pro Forma

Historical

Adjustments

Pro Forma

Revenues:

Room revenues

$       414,523

$           12,814

$      427,337

$      379,553

$           20,039

$      399,592

Franchise and other fee-based revenues

42,991

(732)

42,259

37,620

(1,191)

36,429

Other hotel revenues

9,731

159

9,890

8,993

233

9,226

467,245

12,241

479,486

426,166

19,081

445,247

Brand marketing fund revenues from franchise and managed properties

10,353

(321)

10,032

9,183

(501)

8,682

Total revenues

477,598

11,920

489,518

435,349

18,580

453,929

Operating expenses:

Direct lodging expenses

184,354

5,832

190,186

172,641

9,882

182,523

Depreciation and amortization

84,862

1,605

86,467

81,210

3,262

84,472

General and administrative expenses

68,612

(26,224)

42,388

36,735

49

36,784

Other lodging and operating expenses

30,535

944

31,479

26,320

1,661

27,981

Marketing, promotional and other advertising expenses

33,531

33,531

32,666

32,666

Impairment loss

5,157

5,157

407,051

(17,843)

389,208

349,572

14,854

364,426

Brand marketing fund expenses from franchise and managed properties

10,353

(321)

10,032

9,183

(501)

8,682

Total operating expenses

417,404

(18,164)

399,240

358,755

14,353

373,108

Operating income

60,194

30,084

90,278

76,594

4,227

80,821

Other income (expenses):

Interest expense, net

(72,765)

25,143

(47,622)

(72,518)

22,997

(49,521)

Loss on extinguishment of debt, net

(2,030)

2,030

Other income (loss)

(301)

(301)

466

466

Total other income (expenses)

(75,096)

27,173

(47,923)

(72,052)

22,997

(49,055)

Income (loss) from continuing operations before income taxes

(14,902)

57,257

42,355

4,542

27,224

31,766

Income tax provision

(5,698)

(11,244)

(16,942)

(1,520)

(11,187)

(12,707)

Recognition of net deferred tax liabilities upon C-corporation conversion

(321,054)

321,054

Income (loss) from continuing operations, net of tax

(341,654)

367,067

25,413

3,022

16,037

19,059

Net income (loss) (1)

(341,654)

367,067

25,413

3,022

16,037

19,059

(Income) loss from noncontrolling interests in continuing operations, net of tax

(3,764)

3,489

(275)

(700)

429

(271)

Net (income) loss attributable to noncontrolling interests(1)

(3,764)

3,489

(275)

(700)

429

(271)

Amounts attributable to La Quinta Holdings' shareholders

Income (loss) from continuing operations, net of tax

(345,418)

370,556

25,138

2,322

16,466

18,788

Net income (loss) attributable to La Quinta Holdings' shareholders (1)

$    (345,418)

$         370,556

$      25,138

$        2,322

$           16,466

$      18,788

(1) 

Excludes the impact of the Company's discontinued operations on a historical and pro forma basis for the periods presented

 

 

PRO FORMA AND HISTORICAL ADJUSTED EBITDA NON-GAAP RECONCILIATION

(unaudited, in thousands)

Pro forma

Historical

Three months

Three months

Three months

Three months

ended

ended

ended

ended

June 30, 2014

June 30, 2013

June 30, 2014

June 30, 2013

Operating income

$         52,343

$          50,184

$          25,452

$          48,555

Interest expense, net

(22,787)

(24,686)

(35,805)

(36,418)

Other income (loss)

(248)

479

(248)

479

Loss on extinguishment of debt, net

(2,030)

Income tax expense

(11,723)

(10,391)

(4,950)

(728)

Recognition of net deferred tax liabilities upon C-corporation conversion

(321,054)

Income from noncontrolling interest

(124)

(78)

57

(41)

Loss on discontinued operations, net of tax

(16,056)

Net Income (Loss) Attributable to La Quinta Holdings' shareholders

17,461

15,508

(338,578)

(4,209)

Interest expense

22,800

24,740

35,818

36,472

Income tax provision

11,723

10,391

4,950

773

Recognition of net deferred tax liabilities upon C-corporation conversion

321,054

Depreciation and amortization

43,530

43,203

43,532

43,117

Non-controlling interest

124

78

(57)

41

EBITDA

95,638

93,920

66,719

76,194

Fixed asset impairment loss

5,157

5,157

19,913

(Income) loss from discontinued operations

(4,456)

Loss on retirement of assets

10

10

(Gain) loss related to casualty disasters

(848)

(1,310)

(845)

(2,158)

Loss on extinguishment of debt, net

2,030

Equity based compensation

4,829

31,103

Other (gains) losses, net

1,260

1,168

1,347

2,942

Adjusted EBITDA

$        106,036

$          93,788

$        105,511

$          92,445

 

 

PRO FORMA AND HISTORICAL ADJUSTED EBITDA NON-GAAP RECONCILIATION

(unaudited, in thousands)

Pro forma

Historical

Six months

Six months

Six months

Six months

ended

ended

ended

ended

June 30, 2014

June 30, 2013

June 30, 2014

June 30, 2013

Operating income

$         90,278

$          80,821

$          60,194

$          76,594

Interest expense, net

(47,622)

(49,521)

(72,765)

(72,518)

Other income (loss)

(301)

466

(301)

466

(Gain) Loss on extinguishment of debt, net

(2,030)

Income tax provision

(16,942)

(12,707)

(5,698)

(1,520)

Recognition of net deferred tax liabilities upon C-corporation conversion

(321,054)

Income from noncontrolling interest

(275)

(271)

(3,764)

(700)

Loss on discontinued operations, net of tax

(503)

(16,244)

Net Income (Loss) Attributable to La Quinta Holdings' shareholders

25,138

18,788

(345,921)

(13,922)

Interest expense

47,657

49,621

72,800

72,618

Income tax provision

16,942

12,707

5,698

1,604

Recognition of net deferred tax liabilities upon C-corporation conversion

321,054

Depreciation and amortization

86,968

85,131

85,359

86,915

Non-controlling interest

275

271

3,764

700

EBITDA

176,980

166,518

142,754

147,915

Fixed asset impairment loss

5,157

5,308

19,913

(Income) loss from discontinued operations

377

(6,887)

Loss on retirement of assets

51

51

(Gain) loss related to casualty disasters

(990)

(1,018)

(998)

(1,872)

Loss on extinguishment of debt, net

2,030

Equity based compensation

4,829

31,103

Other (gains) losses, net

646

1,639

388

3,348

Adjusted EBITDA

$        186,622

$        167,190

$        180,962

$        162,468

 

 

PRO FORMA AND HISTORICAL SEGMENT REVENUES AND ADJUSTED EBITDA RECONCILIATION

(unaudited, in thousands)

Three months ended June 30, 2014

Three months ended June 30, 2013

Historical

Adjustments 

(1)

Pro 

Forma

Historical

Adjustments

(1)

Pro

Forma

Revenues:

Owned hotels

$      231,596

$                544

$      232,140

$      207,572

$             8,831

$      216,403

Franchise and management

26,658

1,675

28,333

14,983

10,343

25,326

Segment revenues

258,254

2,219

260,473

222,555

19,174

241,729

Other fee-based revenues from franchise and managed properties

5,668

(40)

5,628

5,046

(238)

4,808

Corporate and other

31,201

629

31,830

25,688

4,237

29,925

Intersegment elimination

(34,834)

(1,290)

(36,124)

(20,212)

(14,336)

(34,548)

Total revenues

$    260,289

$             1,518

$    261,807

$    233,077

$             8,837

$    241,914

Adjusted EBITDA:

Owned hotels

$        85,815

$           (1,779)

$        84,036

$        87,787

$         (13,237)

$        74,550

Franchise and management

26,658

1,675

28,333

14,983

10,343

25,326

Segment Adjusted EBITDA

112,473

(104)

112,369

102,770

(2,894)

99,876

Corporate and other

(6,962)

629

(6,333)

(10,325)

4,237

(6,088)

Total Adjusted EBITDA

$    105,511

$                525

$    106,036

$      92,445

$    



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