IRVING, Texas—Growth is the top priority for La Quinta Holdings, company executives said Tuesday during an earnings call with analysts. The call and release of earnings on Tuesday were the first for the newly public company, which filed an initial public offering on 14 April.
For now, franchising will be La Quinta’s main growth path. During the first quarter, the chain opened 12 franchised properties comprising 1,200 rooms and has 186 franchised hotels and 15,000 rooms in its pipeline.
“Since 2006, we have tripled the number of franchised properties, which now represents 58% of our hotels,” said Wayne Goldberg, president and CEO. “We have a pipeline of fully executed franchise agreements that represents a 22% expansion of our system-wide portfolio and a 38% expansion of our franchise segment. We anticipate future growth of the brand will continue to come through our high-margin, capital-light franchise business.”
Part of the company’s strategy is to expand into new markets, in the United States and in Latin America.
“La Quinta was founded over 45 years ago and for many years was considered a Southwest (U.S.) regional brand. Today, we are an international company,” Goldberg said. “Currently, we have 839 hotels in the U.S., Canada and Mexico, and including hotels in our pipeline we are represented in every state in the continental U.S. and have franchised hotels under construction in Colombia and Honduras.”
US growth
Goldberg said the company has plenty of room to expand in the U.S., especially in markets that can command high room rates. He said La Quinta has no representation in 37% of the market tracts covered by STR. STR is the parent company of Hotel News Now.
“We have a sizable opportunity to expand the brand beyond current markets, and we have an opportunity to add distribution in current markets,” he said, noting that compared to its competitors La Quinta is on average underrepresented by more than one property in the defined STR market tracts in which it currently has hotels.
Urban markets are another growth target for the chain, with 15% of its pipeline in urban locations.
“Urban markets generally have higher (average daily rates), and as we penetrate these markets our ADR will increase,” Goldberg said. “We’re also under-penetrated in the Northeast, Northwest and Midwest, which are also typically higher ADR markets.”
Strong first quarter
Revenue per available room for the La Quinta system rose 6.7% during the first quarter. The performance was driven by a 4.4% increase in ADR and a rise in occupancy of 132 basis points.
Net income for the quarter was $7.7 million, compared to $3.3 million in the same quarter a year earlier. Revenues rose 7.4% to $227.7 million.
The company’s stock price closed on Tuesday at $16.71 per share, down 1.7% from its IPO price of $17 per share. The R.W. Baird/STR Hotel Stock Index is up 5% for the year.
In response to an analyst’s question, Goldberg said for the most part the company’s portfolio of hotels performed evenly during the first quarter. Properties in Miami, Houston and Denver posted the strongest numbers, he said.
He cited three markets—San Antonio, New Orleans and New York—that had lower RevPARs. He said San Antonio was affected by reduced government business, while New Orleans and New York suffered from difficult previous year comparisons with the Super Bowl in New Orleans and business from Superstorm Sandy in New York.