SAN DIEGO—The sale of La Quinta Holdings’ franchise and management business to Wyndham Hotel Group and the creation of real estate investment trust CorePoint Lodging haven’t closed yet, but executives from both sides of the business believe the deal will add value to all parties involved.
Keith Cline, current president and CEO of La Quinta, who will switch over to president and CEO of CorePoint Lodging if all goes as planned, said the closing of Wyndham’s acquisition of La Quinta’s franchise and management business and the execution of the plan to spin the company’s owned assets into CorePoint, is still expected to happen in the second quarter of 2018. He spoke Friday at La Quinta’s brand conference in San Diego.
CorePoint’s portfolio would start out with 315 owned La Quinta properties once the company is established, Cline said, and the REIT will continue its growth in the midscale and upper midscale segments.
“This part of the lodging chain, it’s what we know,” he said. “It’s going to be leveraged distribution; so it’s growth not just geographically, but other brands diversified.”
The creation of CorePoint also presents a unique opportunity for investors to invest in a part of the industry that’s pretty consistent, Cline said. There’s a bias in the industry that REIT properties tend to be higher-end, but Cline said there’s potential for REIT investor interest in the midscale and upper midscale segments because those investors “buy cash flow and they buy dividend yield.”
“If you really look at the numbers and let them speak for themselves, there’s one part of the lodging industry when you look over a very long period of time that has the lowest volatility in (revenue per available room), the lowest volatility in markets, the lowest volatility in cash flow required in expenses, and it’s not (higher-end) segments, it’s this one,” he said.
“So if (investors) want more consistent, predictable, sustainable cash flow, then we’ll educate them on what the investment thesis is for a company like CorePoint Lodging, which really is all of that stability that comes from being in this part of the sector combined with the fact that it really has an opportunity to grow based on how fragmented the ownership is at those price points.”
Franchise and management business
Rajiv Trivedi, EVP and chief development officer at La Quinta, will take over as brand president of La Quinta under Wyndham, Wyndham Hotel Group President and CEO Geoff Ballotti announced at the recent Hunter Hotel Investment Conference in Atlanta.
Some owners might be worried about the transition of La Quinta’s franchise and management business to Wyndham, but Trivedi said during an interview at the La Quinta brand conference that worries from franchisees will be short-lived once they start to see a positive transition.
Trivedi said this same type of reaction happened when Blackstone Group acquired the company in 2006.
“Ultimately, leadership is responsible for continuing that culture, and as you know, I’m going to continue (the brand), and I am absolutely confident, based on my interaction and based on interaction I have seen with Geoff and our franchisees, he … embraces our culture,” he said.
He added that Wyndham’s acquisition of La Quinta is unique compared to other mergers and acquisitions because La Quinta won’t be competing with another Wyndham brand.
“This brand complements most of their brands,” Trivedi said. “This brand does not conflict with the segments of other brands that they own. This brand provides an opportunity for them to introduce to their guests a new segment in the industry.
“If you look at other mergers … this is not always the scenario. This is something not that common in today’s acquisition and mergers, and that is the most intriguing part of this transition.”
Cline added that La Quinta will fit in between Tryp by Wyndham and Wyndham Garden Hotels.
La Quinta will be Wyndham’s first flagship upper midscale brand, Trivedi said, and Wyndham recognizes doing business in this segment is different from other segments it is currently in, especially since La Quinta’s hotels contain new-construction projects.
“The way of doing business with new construction is very different than the way of doing business with conversions,” he said. “So Wyndham has—as they have started reviewing our practices, our programs and our people—clearly come to recognize that there is a lot of talent at La Quinta, they have clearly come to recognize that there are a lot of great practices at La Quinta, and obviously they have come to realize that there are a lot of great programs…”
Wyndham has properties in markets La Quinta has not yet tapped into, such as international markets, and the potential to grow the La Quinta brand internationally under the Wyndham umbrella is there, Trivedi said.
“The consistency of this brand is tremendously recognized in the United States and (Wyndham’s) brands have been highly successful internationally,” he said. “…I personally feel that this La Quinta brand brings a tremendous opportunity of international growth as we go into the future.”
La Quinta President and CEO Keith Cline played the guitar to celebrate La Quinta’s 50th anniversary at the brand’s recent conference in San Diego. (Photo: La Quinta)
Role transition
Trivedi’s title might be changing, but he said his role as president of La Quinta under Wyndham will have similar duties as his role as EVP and CDO did under La Quinta. He added that La Quinta will focus on the same growth strategies as it currently does once the acquisition closes.
He said he will be focused on consistency of product, consistency of experience and making sure owners and franchise partners are getting the return on investment they anticipated.
Overall, Trivedi sees the transition as a positive experience.
“I strongly believe our culture will be preserved, our attention to relationships will be enhanced (and) our growth will have positive impact because (Wyndham) has the international infrastructure that we don’t, so brand recognition and guest recognition throughout the world for our brand is going to enhance because of this,” he said.