La Quinta May Be Headed For Troubled Times As Meditrust Looks To Improve Performance

SAN ANTONIO, TX? It hasn?t been the best of times for La Quinta Inns of late and, for that reason, Needham Heights, MA-based parent organization Meditrust Cos. seems prepared to move properties and personnel in an effort to improve its own cash-flow condition and market position. A number of industry executives and analysts have been less-than-averse to making mention of La Quinta?s (and its paired-share REIT parent?s) sagging fortunes. ?It?s no secret that the brand hasn?t been performing well,? said one strategically placed observer of the hotel company?s recent operations. ?This has only served to worsen the situation for Meditrust and its shareholders,? he added, ?since the price it paid to purchase the hotel company? and its accompanying heavy debt load? was far too steep in the first place.? And it?s not like these haven?t been trying times for REITs. ?Weaker-than-expected performance by La Quinta, combined with a sinking stock value, has resulted in making the corresponding debt load a particularly onerous burden,? said Clay Dickinson, partner with KPMG?s Real Estate and Hospitality Consulting Group. A number of options may be open to Meditrust? including a decision on its part to ride out the bad times and wait for the next improvement in the economy as well as in the industry. Howeverexacerbating that scenario is the fact local market conditions look to be far from conducive to any immediate and dramatic turnaround. Accordingly, many market-watchers believe Meditrust may have little choice but to shed La Quinta properties and/or personnel. To this end, the REIT could find itself squarely on the horns of a dilemma: How can it recoup a nearly $400-million investment less than a year-and-a-half later by selling off properties when the hotel real estate market has noticeably slipped? Hinting at the obvious response to that question was the admission of Clive Bode, a spokesman for Meditrust. ?One doesn?t sell at the bottom of a market,? Bode said. As others point out, even if Meditrust was inclined to sell-off the brand, or possibly dispose of the real estate property-by-property, it?s not likely the REIT would be overwhelmed by potential suitors. ?With virtually the entire lodging sector experiencing stock-value problems, one has to wonder who would step forward with the interest? and the capitalization? to make such an acquisition,? one market-analyst explained. Other observers have their own take. For instance, KPMG?s Dickinson said, ?No matter how you slice it, La Quinta doesn?t shape up as an especially attractive acquisition at this time…particularly in light of the the heavy debt load it carries.? Meanwhile, Arthur Adler, managing director for Sonnenblick-Goldman Co.?s Lodging & Leisure Group, pointed out that ?there seem to be very few non-strategic assets to sell.? If, in fact, the disposition of real estate assets is not a viable alternative for Meditrust, then some have reasoned that a general shake-out of La Quinta?s top executives may well be in the offing, perhaps sooner than some may expect. Along these lines, Bode said, ?We are always looking at management and operational options.? How did La Quinta? and Meditrust? work themselves into this depressed situation when for so long so much was going right for the lodging industry? According to Adler, the problems for Meditrust may have begun back in 1998 when it initially acquired its paired-share REIT structure for something reportedly in the neighborhood of $400 million. ?Then,? he said, ?the onus fell on Meditrust to make its newly acquired structure work.? As he and others surmised, this ?enthusiasm to get going? culminated in the investment trust?s overly costly purchase of La Quinta. ?This was compounded by several other unfortunate developments,? Adler added. ?Perhaps most daunting was the construction boom that swept through the limited-service segment, seemingly catching Meditrust by surprise. However, other equally pertinent factors to conside