IRVING, Texas—La Quinta Holdings Inc. filed a Form 10 Registration Statement with the U.S. Securities and Exchange Commission for the planned separation of its real estate business, the newly-announced CorePoint Lodging Inc., from its franchise and management businesses, La Quinta. The move will lighten assets as it creates two distinct, publicly traded companies. Following the spin transaction, CorePoint Lodging plans to become the only publicly-traded U.S. lodging REIT focused on the midscale and upper-midscale select-service segments.
The registration statement provides information regarding the business, strategy and historical financial results of the deemed predecessor entity to CorePoint Lodging, as well as further details on the anticipated terms of license and management agreements between CorePoint and new La Quinta following the planned spin-off. CorePoint Lodging expects to update its registration statement in subsequent amendments as additional information on the transactions is finalized prior to the separation.
“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 chief executive officer. “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 the 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 spin transaction, the new La Quinta will continue to benefit from the growth opportunities that currently exist within its franchise and management businesses. The new company expects 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 percent of U.S. markets where the brand is not yet represented, and a highly scalable property management platform.
As a stand-alone company, post-spin La Quinta’s Total Adjusted EBITDA for 2017 is estimated to be between $110 million and $115 million, including fee revenue under ongoing franchise and management agreements with CorePoint.
As part of the spin transaction, it is expected that new La Quinta will enter into amended and restated franchise and management agreements with CorePoint Lodging. These agreements are expected to provide that CorePoint Lodging will pay new La Quinta a management fee of 5.0 percent of gross hotel revenues in return for day-to-day management of its hotels, and a royalty fee of 5.0 percent of gross room revenues. The management agreements are expected to have an initial term of 20 years with two additional 5-year renewal options, and the franchise agreements are expected to have an initial term of 20 years with one 10 year renewal option.
Following the spin transaction, CorePoint Lodging will have a portfolio of 316 hotels, excluding three hotels held for sale, with approximately 40,500 rooms located in attractive U.S. locations, including 32 percent of its rooms located within the Top 25 markets as defined by STR. The hotel portfolio contains assets that are located near major employment centers, airports, and transportation corridors. As a stand-alone public company, CorePoint’s Total Adjusted EBITDA for the full year 2017 is estimated to be between $200 million and $215 million. CorePoint Lodging will have significant scale and plans to grow and enhance its portfolio primarily within the highly desirable midscale and upper-midscale select-service lodging segments.
During 2016, La Quinta identified approximately 50 hotels that will be part of CorePoint’s portfolio that, with the appropriate scope of capital investment and renovation, have the opportunity to be repositioned upward within their respective markets, capturing additional occupancy and rate. Beginning in the fourth quarter of 2016 and continuing through 2017, La Quinta expects to invest more than $180 million in these assets with a focus on enhancing guestrooms, expanding public areas and upgrading exterior elements. With the majority of these renovations scheduled to be completed throughout the second half of 2017, CorePoint Lodging will be a primary beneficiary of these strategic investments by La Quinta.
Subsequent to the spin transaction, CorePoint Lodging’s focus will be to generate attractive long-term total returns by enhancing the value of its properties and utilizing its scale to efficiently allocate capital while maintaining a strong and flexible balance sheet.