La Quinta Moves Forward With Real Estate Spinoff

IRVING, TX—La Quinta Holdings Inc. has filed a Form 10 Registration Statement with the U.S. Securities and Exchange Commission (SEC) to pursue a separation of its real estate business—to be named CorePoint Lodging Inc.—from its franchise and management businesses to create two distinct, publicly traded companies.

“The filing of CorePoint Lodging’s Form 10 is an important next step as we execute against our key strategic initiatives and drive value for our stakeholders,” said Keith Cline, La Quinta Holdings Inc.’s president and CEO. “We believe this separation will result in greater strategic clarity with distinct management teams that can fully activate and run the respective businesses. In addition, we expect this will allow us to unlock growth opportunities that are embedded within each business and take advantage of capital market and tax efficiencies. We look forward to completing this spin transaction, realizing significant benefits for both companies and continuing to generate long-term value for La Quinta’s shareholders.”

Following the transaction, La Quinta plans to actively capitalize on the embedded growth opportunity of a large and growing pipeline; strong interest from developers in expanding the La Quinta brand into the more than 30% of U.S. markets where the brand is not yet represented; and a scalable property management platform, according to the brand. As a standalone company, the post-spin La Quinta’s total adjusted EBITDA for full year 2017 is estimated to be between $110 million and $115 million, including fee revenue under ongoing franchise and management agreements with CorePoint.

“This new La Quinta will be a market-leading, asset-light, fee-based franchise and management business that expects to capitalize on the growth opportunity with a large and growing pipeline and strong interest from developers to develop the La Quinta brand into new markets and a highly scalable property management platform,” Cline stated during a conference call with analysts. 

As part of the spin transaction, La Quinta also plans to enter into amended and restated franchise and management agreements with CorePoint Lodging. These agreements are expected to provide that CorePoint Lodging will pay La Quinta a management fee of 5% of gross hotel revenues in return for day-to-day management of its hotels, and a royalty fee of 5% of gross room revenues, according to the company. The management agreements are expected to have an initial term of 20 years with two additional five-year renewal options, and the franchise agreements are expected to have an initial term of 20 years with one 10-year renewal option.

In addition, CorePoint Lodging plans to qualify and elect to be treated as a real estate investment trust for federal income tax purposes. CorePoint Lodging will be the only publicly traded U.S. lodging REIT focused on serving the midscale and upper-midscale select-service segments, offering a geographically diverse portfolio of hotels with significant underlying real estate value, according to the company.

CorePoint Lodging will have a portfolio consisting of 316 hotels, excluding three hotels held for sale, with approximately 40,500 rooms located in key U.S. locations. The company stands to benefit from the continuation of a longstanding and mutually beneficial relationship with La Quinta. As a standalone public company, CorePoint’s total adjusted EBITDA for the full year 2017 is estimated to be between $200 million and $215 million. It plans to grow its portfolio primarily within the midscale and upper-midscale select-service lodging segments.