When news broke of La Quinta CEO Wayne Goldberg’s departure on Sept. 17, La Quinta shares began to drop. The company’s board of directors appointed CFO Keith Cline as interim president and CEO until executive search firm Korn Ferry identifies a permanent replacement. Following the announcement, La Quinta also lowered its financial guidance for the full year. The company now expects revenue per available room to grow 3.5 percent to 4.5 percent, a percentage point lower than its prior forecast, and pro forma adjusted EBITDA of $393 million to $400 million, down from its earlier guidance of $398 million to $404 million. But Raj Trivedi, EVP and chief development officer, wants to make it clear that La Quinta is still standing on solid ground.
Any time an unexpected change in leadership occurs, investors may lose confidence. What was their reaction to Wayne’s departure? Wayne was CEO for more than eight years, and he did a great job setting the culture for this company and being a big part of it. The community understands that the fundamentals of this company are very sound. The people who built the foundation are still here, and the business is in good hands. The history of what we have produced over the last 10 years, five years, or one year doesn’t go away. All of the programs and the creators of those programs are here, and everything is being implemented. We still have a 219-property pipeline at the end of June, with 85 percent new construction, so all of it is in such a strong footing.
Can you discuss the weaker than anticipated demand in August and September that led the company to lower its guidance for the year? If you look at STR numbers, the things you’re seeing are much broader—it’s an industry-wide situation. In reality, our expectations were lowered by 1 percent, so that’s not even a meaningful lowering. In our industry, particularly in the month of August and on, we have all seen a bit slower growth in RevPAR than what we have in the past, and that’s what we think attributed to it. But it is still a very healthy outline we have put out for our shareholders and investors.
The company recently announced an agreement to sell 24 hotels. How will this help improve key operating metrics? That is one of the key strategic initiatives. We started last year; we sold 44 hotels. This year, we are under contract for 24 properties, and we anticipate closing those by the end of the year. We are going to continue to evaluate future strategy for our owned real estate. Our goal is to make sure the brand becomes viable for long-term success for our shareholders, franchise partners, and our guests, most importantly.
Another property using the Del Sol prototype just broke ground in Morgan Hill, Calif. How is the prototype doing? It’s doing fantastic. We just opened a property in Pomona, Calif., so our growth in California has been quite good. Talk about Del Sol—it’s not just Morgan Hill. By the end of the second quarter, we had three new agreements signed in Manhattan, an agreement in Midtown Miami, one in Chile, and an additional agreement in Mexico. If I look at Del Sol today, we already have 53 locations in various stages, from planning to development to under construction. Out of 53, 17 are already under construction, so investors and guests are receiving our Del Sol prototype quite well. They are quite pleased with it, in terms of cost of construction, efficiency of the product, revenue producing square feet, and how well laid out it is for the guest, their convenience, and overall operational efficiency for the managers and so forth.
And you still expect to have 50 to 55 franchise hotel openings for the year? Nothing about this company has changed. We are still going to open 50 to 55 hotels. By the end of the second quarter, we still had a strong pipeline of 219, and I’m quite certain that we’ll sustain that level even after opening such a large number of hotels. All of our franchise partners are very happy. All of the agreements I just mentioned are signed into high profile markets. We are continuing our quest to increase our presence in top 25 markets, urban markets, and high barriers to entry areas. So as a brand, we still have been the fastest growing, according to data provided by STR. So all in all, I believe where we are is just the early stages of success. The future is very bright for this brand and our company.