La Quinta Holdings Inc. Reports Results For Second Quarter 2015

- Generated Pro Forma Adjusted Earnings per Share of $0.19

- Achieved Pro Forma Total Adjusted EBITDA growth of 5.5 percent to $111.8 million

- Repaid $74 million of long-term debt, including a $70 million voluntary prepayment

- $200 million share repurchase program announced

IRVING, Texas, July 29, 2015 // PRNewswire // -- La Quinta Holdings Inc. ("La Quinta" or the "Company") (NYSE: LQ) today reported its second quarter results on a historical basis, as well as the results of operations on a pro forma basis, giving effect to La Quinta's initial public offering (IPO) in 2014 and the related transactions as described below.

Second Quarter 2015 Highlights compared to Second Quarter 2014:

  • Pro Forma Total Adjusted EBITDA increased 5.5 percent to $111.8 million, and Pro forma Adjusted EBITDA margin increased 30 basis points
  • Pro Forma Adjusted Net Income increased 17.8 percent to $24.2 million; historical net loss was $(4.7) million
  • Pro Forma Adjusted Earnings per Share increased by $0.03 to $0.19; historical loss per share was $(0.04)
  • System-wide comparable RevPAR increased 4.0 percent, ADR increased 3.0 percent and occupancy increased 67 basis points
  • Pro Forma Franchise and Management Segment Adjusted EBITDA increased 6.4 percent to $30.1 million
  • Opened 15 franchised hotels totaling over 1,300 rooms and increased franchise pipeline to 219 hotels, which includes approximately 18,600 additional rooms, including the addition of two locations in Manhattan
  • Pro Forma Owned Hotels Segment Adjusted EBITDA increased 7.9 percent to $90.6 million
  • Board of Directors approved moving forward with a $200 million share repurchase program once net debt to Pro Forma Adjusted EBITDA ratio falls below 4.0
  • Voluntarily prepaid additional $70 million of long-term debt

Overview

Wayne B. Goldberg, President & Chief Executive Officer of La Quinta, said, "During the second quarter, we continued to execute on our key strategies designed to deliver enhanced long-term value to all of our stakeholders. We expanded our geographic footprint and loyal customer base with the opening of 15 franchise properties, bringing our system to 878 hotels with over 87,000 rooms. We signed 29 new franchise agreements, resulting in the highest number of first half signings since before the economic downturn in 2008, and we grew our pipeline to 219 hotels in the second quarter. We expanded our presence in urban and central business district locations with new franchise agreements in key locations in Manhattan, one in Times Square and one on the Upper West Side."

Mr. Goldberg continued, "We again improved our key metrics, growing RevPAR, franchise units, Adjusted EBITDA, and Adjusted EBITDA margin. We expanded our Adjusted EBITDA margin despite impacts to RevPAR from historically high levels of rainfall and flooding in Texas, a greater than expected disruption from the transition of our reservation call center, and the unexpected closure of one of our largest owned hotels for structural repairs. In addition, we entered into discussions for the sale of 24 of our owned hotels. These transactions, if successful, would have an accretive EBITDA multiple, despite the fact that most of the properties will be removed from our system. Finally, we are approaching our target leverage as we made an additional $70 million voluntary principal prepayment on our long-term debt. The economic backdrop continues to be favorable, fundamentals in our industry segments remain strong, our business is healthy, and we remain focused on our strategic objectives, all of which are designed to increase shareholder value."

The results of operations for the Company, on a pro forma basis and on a historical basis, for the three months ended June 30, 2015 include the following highlights(1) ($ in thousands, except per share amounts):



                   
 

Pro Forma (1)

 

Historical

 

Three Months Ended June 30,

 

Three Months Ended June 30,

 

2015

 

2014

 

% chg

 

2015

 

2014

 

% chg

Total Revenue

$273,888

 

$261,807

 

4.6%

 

$273,888

 

$260,289

 

5.2%

Franchise and Management Segment Adj. 
EBITDA

30,144

 

28,333

 

6.4%

 

30,144

 

26,658

 

13.1%

Owned Hotels Segment Adj. EBITDA

90,636

 

84,036

 

7.9%

 

90,636

 

85,815

 

5.6%

Total Adj. EBITDA

111,836

 

106,036

 

5.5%

 

111,836

 

105,511

 

6.0%

Total Adj. EBITDA Margin

40.8%

 

40.5%

     

40.8%

 

40.5%

   

Operating Income Margin

5.7%

 

20.0%

     

5.5%

 

9.8%

   
                   
                   
                   
 

Three Months Ended
June 30, 2015

 

Three Months Ended
June 30, 2014

 

% Change

 

Net Income (loss)

 

Basic and Diluted EPS

 

Net Income (loss)

 

Basic and Diluted EPS

 

Net Income

 

Basic and Diluted EPS

Pro Forma Adjusted Net Income Attributable to La Quinta Holdings' stockholders (1)

$24,217

 

$0.19

 

$20,555

 

$0.16

 

 17.8%

 

 18.8%

Historical Net Loss attributable to La Quinta Holdings' stockholders

$(4,663)

 

$(0.04)

 

$(338,578)

 

$(2.67)

 

 NM(2)

 

 NM(2)

                       

 

   

(1)

Please see the schedules to this press release for a reconciliation of the pro forma financial information and adjusted results of operations. Pro forma information excludes adjustments that are not expected to have a continuing effect on the Company, and adjusted information is adjusted for certain special items, in each case as discussed in the schedules attached to this press release. Pro Forma segment Adjusted EBITDA reflects intercompany fees charged to our owned hotels under new agreements entered into at the time of the IPO.

(2)

Change in terms of percentage is not meaningful.

__________

 

Comparable hotel statistics

 

Three months
ended
June 30,
2015

   

Variance three 
months ended
June 30,
2015 vs
2014

   

Six months

ended
June 30,
2015

Variance six 
months ended 
June 30,
2015 vs
2014

Owned Hotels

             

Occupancy

 

70.7%

 

         84 bps

 

67.7%

         161 bps

ADR

 

$                 82.00

 

3.0%

 

$         82.65

3.8%

RevPAR

 

$                 57.98

 

4.2%

 

$         55.97

6.3%

Franchised Hotels

             

Occupancy

 

72.1%

 

         46 bps

 

68.0%

       143 bps

ADR

 

$                 93.17

 

3.0%

 

$         90.59

3.3%

RevPAR

 

$                 67.14

 

3.7 %

 

$         61.61

5.5%

System-wide

             

Occupancy

 

71.3%

 

         67 bps

 

67.8%

       152 bps

ADR

 

$                 87.10

 

3.0%

 

$         86.25

3.6%

RevPAR

 

$                 62.11

 

4.0%

 

$         58.52

5.9%

Development

The Company opened 15 franchised hotels with over 1,300 rooms in the second quarter and achieved net franchise unit growth of nine hotels with over 750 rooms. Year to date through June 30, 2015, the Company opened 20 franchised hotels with approximately 1,750 rooms. As of June 30, 2015, the Company had a pipeline of 219 franchised hotels totaling approximately 18,600 rooms, to be located in the United States, Mexico, Canada, Colombia, Nicaragua, Guatemala and Chile. The Company believes this pipeline represents a significant embedded growth opportunity.

The Company's system-wide portfolio, as of June 30, 2015, consisted of 878 hotels representing approximately 87,200 rooms located predominantly across 47 U.S. states, as well as in Canada, Mexico and Honduras. This portfolio includes 352 owned and operated hotels and 526 franchised hotels.

                     
       

June 30, 2015

 

June 30, 2014

       

# of hotels

 

# of rooms

 

# of hotels

 

# of rooms

Owned

     

351

 

44,600

 

352

 

44,800

Joint Venture

     

1

 

200

 

1

 

200

Franchised

     

526

 

42,400

 

495

 

40,000

                     

Totals

     

878

 

87,200

 

848

 

85,000

                     

Owned Hotel Portfolio

The Company entered into discussions for the sale of 24 of its owned hotels. There is no guarantee that these sales will occur, but the Company believes that a sale of these assets would have many benefits, including an aggregate sales price with an accretive EBITDA multiple, the opening of several markets to new franchise development as the vast majority of these hotels will be removed from the La Quinta system, improvement of key operating metrics, and acceleration of the Company's debt reduction. Due to the potential reduced holding period of these assets, the Company recorded an impairment charge of approximately $42 million in the quarter.

As previously announced, during the second quarter of 2015, the Company sold one of its owned hotels for $3.0 million and recorded a loss on sale of $4.0 million related to this transaction. The purchaser subsequently signed franchise agreements to temporarily operate the existing hotel as a franchised La Quinta, while developing a brand-new Del Sol prototype hotel on the site.

Balance Sheet and Liquidity

During the quarter, the Company made a voluntary prepayment of $70 million on its senior secured term loan facility, bringing total year to date voluntary prepayments to $135 million. As of June 30, 2015, the Company had approximately $1.7 billion of outstanding indebtedness with a weighted average interest rate of approximately 4.5%, including the impact of an interest rate swap. As a result of the Company's net debt, defined as total debt less cash, to Pro Forma Adjusted EBITDA ratio dropping below 4.5, the Company will begin to realize a 25 basis point reduction in the interest rate for its long-term debt in the third quarter. Total cash and cash equivalents was $56.5 million as of June 30, 2015.

Outlook

Earlier this year, the Company provided initial 2015 financial guidance and indicated that it expected to achieve Pro Forma Adjusted EBITDA within a range of $398 million to $410 million. This guidance range was based on system-wide comparable RevPAR growth of 5.5 to 7.0 percent. Based on very strong performance in the first quarter, the Company revised its guidance at that time and indicated that it expected to achieve Pro Forma Adjusted EBITDA within a range of $402 million to $410 million based on an assumed system-wide comparable RevPAR growth of 6.0 to 7.0 percent. The Company experienced several unusual items during the second quarter, some of which will have continuing impacts in the second half of the year, which significantly impact RevPAR and Pro Forma Adjusted EBITDA. These items were inclement weather in Texas, the transition of the Company's reservation call center, and the closure of one of the Company's largest owned hotels for structural repairs. The Company believes that the effect of these disruptions will be very challenging to make up in the second half of the year. As a result, the Company is updating its guidance as set forth below.



     
 

Updated Guidance

Prior Guidance

RevPAR growth on a system-wide comparable hotel basis

4.5 percent to 5.5 percent

6.0 percent to 7.0 percent

     

Pro Forma Adjusted EBITDA

$398 million to $404 million

$402 million to $410 million

     

Interest expense

Approximately $87 million

Approximately $87 million

     

Franchise hotel openings

50 to 55

50 to 55

     

Weighted average shares of common stock outstanding

Approximately 131.7 million

Approximately 131.7 million

Webcast and Conference Call

La Quinta Holdings Inc. will host a conference call to discuss second quarter 2015 results on Wednesday, July 29, 2015 at 5:00 p.m. Eastern Daylight Time. Participants may listen to the live webcast by dialing (877) 407-3982, or (201) 493-6780 for international participants, or by logging onto the La Quinta Investor Relations website at www.lq.com/investorrelations. Participants are encouraged to dial into the call or link to the webcast at least fifteen minutes prior to the scheduled start time.

A replay of the call will be available from approximately 8 p.m. Eastern Time on July 29, 2015 through midnight Eastern Time on August 12, 2015. To access the replay, the domestic dial-in number is (877) 870-5176, the international dial-in number is (858) 384-5517, and the passcode is 13582658. The archive of the webcast will be available on the Company's website for a limited time.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements, including the statements in the "Outlook" section of this press release. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including those described under the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission ("SEC"), as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Non-GAAP Financial Measures

We refer to certain non-GAAP financial measures in this press release including Adjusted EBITDA, Adjusted EBITDA margins, Segment Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share on both a pro forma and historical basis. Please see the schedules to this press release for additional information and reconciliations of such non-GAAP financial measures.

About La Quinta Holdings Inc.

La Quinta Holdings Inc. (LQ) is a leading owner, operator and franchisor of select-service hotels primarily serving the upper-midscale and midscale segments. The Company's owned and franchised portfolio consists of more than 875 properties representing over 87,000 rooms located in 47 US states, Canada, Mexico and Honduras. These properties operate under the La Quinta Inn & Suites™, La Quinta Inn™ and LQ Hotel™ brands. La Quinta's team is committed to providing guests with a refreshing and engaging experience. For more information, please visit: www.LQ.com.

From time to time, La Quinta may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website at www.lq.com/investorrelations. In addition, you may automatically receive email alerts and other information about La Quinta when you enroll your email address by visiting the Email Notification section at www.lq.com/investorrelations.

LA QUINTA HOLDINGS INC.

HISTORICAL STATEMENTS OF OPERATIONS

(unaudited, in thousands)

 
               
 

Three months ended
June 30,

 

Six months ended
June 30,

 

2015

   

2014

   

2015

   

2014

Revenues:

             

Room revenues

$       236,420

 

$      225,524

 

$       454,135

 

$      414,523

Franchise and other fee-based revenues

26,297

 

24,130

 

47,054

 

42,991

Other hotel revenues

4,937

 

4,967

 

9,513

 

9,731

 

267,654

 

254,621

 

510,702

 

467,245

Brand marketing fund revenues from franchise and managed properties

6,234

 

5,668

 

11,292

 

10,353

Total revenues

273,888

 

260,289

 

521,994

 

477,598

Operating expenses:

             

Direct lodging expenses

100,002

 

96,025

 

197,507

 

184,354

Depreciation and amortization

44,275

 

43,251

 

87,930

 

84,862

General and administrative expenses

27,654

 

51,610

 

60,913

 

68,612

Other lodging and operating expenses

14,950

 

16,042

 

31,957

 

30,535

Marketing, promotional and other advertising expenses

19,095

 

17,084

 

37,804

 

33,531

Impairment loss

42,498

 

5,157

 

42,498

 

5,157

Loss on sale

4,003

 

 

4,003

 

 

252,477

 

229,169

 

462,612

 

407,051

Brand marketing fund expenses from franchise and managed properties

6,234

 

5,668

 

11,292

 

10,353

Total operating expenses

258,711

 

234,837

 

473,904

 

417,404

Operating income

15,177

 

25,452

 

48,090

 

60,194

Other income (expenses):

             

Interest expense, net

(22,191)

 

(35,805)

 

(44,962)

 

(72,765)

Loss on extinguishment of debt, net

 

(2,030)

 

 

(2,030)

Other income (loss)

67

 

(248)

 

579

 

(301)

Total other income (expenses)

(22,124)

 

(38,083)

 

(44,383)

 

(75,096)

Income (loss) from continuing operations before income taxes

(6,947)

 

(12,631)

 

3,707

 

(14,902)

Income tax provision

2,380

 

(4,950)

 

(1,960)

 

(5,698)

Recognition of net deferred tax liabilities upon C-corporation conversion

 

(321,054)

 

 

(321,054)

Net income (loss) from continuing operations, net of tax

(4,567)

 

(338,635)

 

1,747

 

(341,654)

Loss on discontinued operations, net of tax

 

 

 

(503)

Net income (loss)

(4,567)

 

(338,635)

 

1,747

 

(342,157)

(Income) loss from noncontrolling interests in continuing operations, net of tax

(96)

 

57

 

(268)

 

(3,764)

(Income) loss from noncontrolling interests in discontinued operations, net of tax

 

 

 

Net (income) loss attributable to noncontrolling interests

(96)

 

57

 

(268)

 

(3,764)

Amounts attributable to La Quinta Holdings' stockholders

             

Income (loss) from continuing operations, net of tax

(4,663)

 

(338,578)

 

1,479

 

(345,418)

Loss from discontinued operations, net of tax

 

 

 

(503)

Net income (loss) attributable to La Quinta Holdings' stockholders

$       (4,663)

 

$ (338,578)

 

$          1,479

 

$ (345,921)

               

RECONCILIATIONS

Prior to the consummation of the IPO on April 14, 2014, the Company's business was conducted, and the Company's hotel properties were owned, through multiple entities including (i) the "La Quinta Predecessor Entities" which were entities under common control or otherwise consolidated for financial reporting purposes, and their consolidated subsidiaries and (ii) entities that owned 14 hotels (the "Previously Managed Portfolio") managed by the La Quinta Predecessor Entities. In connection with the IPO, among other transactions, (i) the La Quinta Predecessor Entities were contributed to the Company, (ii) the La Quinta Predecessor Entities purchased the Previously Managed Portfolio, and (iii) the Company effected certain refinancing transactions (together with the IPO, the "IPO Transactions").

The unaudited pro forma financial data for the three and six months ended June 30, 2015 and 2014 are presented as if the IPO Transactions all had occurred on January 1, 2014. The unaudited pro forma combined financial information excludes adjustments that are not expected to have a continuing effect on the Company. Excluded adjustments include the gains and losses related to the debt financing transactions, and the impact of the issuance of vested and unvested restricted stock at the time of the IPO related to long term incentives, as well as the impact of discontinued operations. Accordingly, the unaudited pro forma financial data is not necessarily indicative of our financial position or results of operations had the transactions described above for which we are giving pro forma effect actually occurred on the dates indicated.

The tables below provide a reconciliation of the pro forma financial information, including segment information, for the Company to the Company's historical information, a reconciliation of Adjusted EBITDA to Net Income, both on a pro forma and historical basis, and a reconciliation of Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings Per Share to Net Income and Earnings Per Share on a historical basis. We believe this financial information provides meaningful supplemental information because it reflects the combined business of the La Quinta Predecessor Entities and the Previously Managed Portfolio and the ongoing effects of the other IPO Transactions. We further believe the presentation of Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings Per Share provides meaningful information because it gives effect to the pro forma adjustments described above and excludes the impact of certain items that are not expected to have an ongoing effect on our operations. This represents how management views the business and reviews our operating performance. It is also used by management when publicly providing the business outlook. See the definitions of "EBITDA", "Adjusted EBITDA", "Pro Forma Adjusted Net Income" and "Pro Forma Adjusted Earnings Per Share" for a further explanation of the use of these measures.

PRO FORMA FINANCIAL INFORMATION AND NET INCOME RECONCILIATION

(unaudited, in thousands)

 
                       
 

Three months ended June 30, 2015

 

Three months ended June 30, 2014

 

Historical

   

Adjustments

   

Pro Forma

   

Historical

   

Adjustments

   

Pro Forma

Revenues:

                     

Room revenues

$       236,420

 

$               —

 

$   236,420

 

$      225,524

 

$             1,634

 

$      227,158

Franchise and other fee-based revenues

26,297

 

 

26,297

 

24,130

 

(91)

 

24,039

Other hotel revenues

4,937

 

 

4,937

 

4,967

 

15

 

4,982

 

267,654

 

 

267,654

 

254,621

 

1,558

 

256,179

Brand marketing fund revenues from franchise and managed properties

6,234

 

 

6,234

 

5,668

 

(40)

 

5,628

                       

Total revenues

273,888

 

 

273,888

 

260,289

 

1,518

 

261,807

Operating expenses:

                     

Direct lodging expenses

100,002

 

 

100,002

 

96,025

 

726

 

96,751

Depreciation and amortization

44,275

 

 

44,275

 

43,251

 

(3)

 

43,248

General and administrative expenses

27,654

 

(506)

 

27,148

 

51,610

 

(26,256)

 

25,354

Other lodging and operating 
expenses

14,950

 

 

14,950

 

16,042

 

200

 

16,242

Marketing, promotional and other advertising expenses

19,095

 

 

19,095

 

17,084

 

 

17,084

Impairment loss

42,498

 

 

42,498

 

5,157

 

 

5,157

Loss on sale

4,003

 

 

4,003

 

 

 

 

252,477

 

(506)

 

251,971

 

229,169

 

(25,333)

 

203,836

Brand marketing fund expenses from franchise and managed properties

6,234

 

 

6,234

 

5,668

 

(40)

 

5,628

Total operating expenses

258,711

 

(506)

 

258,205

 

234,837

 

(25,373)

 

209,464

Operating income

15,177

 

506

 

15,683

 

25,452

 

26,891

 

52,343

Other income (expenses):

                     

Interest expense, net

(22,191)

 

 

(22,191)

 

(35,805)

 

13,018

 

(22,787)

Loss on extinguishment of debt, net

 

 

 

(2,030)

 

2,030

 

Other income (loss)

67

 

 

67

 

(248)

 

 

(248)

Total other income (expenses)

(22,124)

 

 

(22,124)

 

(38,083)

 

15,048

 

(23,035)

Income (loss) from continuing operations before income taxes

(6,947)

 

506

 

(6,441)

 

(12,631)

 

41,939

 

29,308

Income tax provision

2,380

 

196

 

2,576

 

(4,950)

 

(6,773)

 

(11,723)

Recognition of net deferred tax liabilities upon C-corporation conversion

 

 

 

(321,054)

 

321,054

 

Income (loss) from continuing operations, net of tax

(4,567)

 

702

 

(3,865)

 

(338,635)

 

356,220

 

17,585

Net income (loss) (1)

(4,567)

 

702

 

(3,865)

 

(338,635)

 

356,220

 

17,585

(Income) loss from noncontrolling interests in continuing operations, net of tax

(96)

 

 

(96)

 

57

 

(181)

 

(124)

Net (income) loss attributable to noncontrolling interests (1)

(96)

 

 

(96)

 

57

 

(181)

 

(124)

Amounts attributable to La Quinta Holdings' stockholders

                     

Income (loss) from continuing operations, net of tax

(4,663)

 

702

 

(3,961)

 

(338,578)

 

356,039

 

17,461

Net income (loss) attributable to La Quinta Holdings' stockholders(1)

$       (4,663)

 

$               702

 

$      (3,961)

 

$ (338,578)

 

$        356,039

 

$      17,461

                       

 

(1)

Excludes the impact of the Company's discontinued operations on a historical and pro forma basis for the periods presented.

 

PRO FORMA FINANCIAL INFORMATION AND NET INCOME RECONCILIATION

(unaudited, in thousands)

                       
 

Six months ended June 30, 2015

 

Six months ended June 30, 2014

 

Historical

 

Adjustments

 

Pro Forma

   

Historical

 

Adjustments

 

Pro Forma

Revenues:

                             

Room revenues

$       454,135

 

$                —

 

$      454,135

 

$      414,523

 

$           12,814

 

$      427,337

Franchise and other fee-based revenues

47,054

 

 

47,054

 

42,991

 

(732)

 

42,259

Other hotel revenues

9,513

 

 

9,513

 

9,731

 

159

 

9,890

 

510,702

 

 

510,702

 

467,245

 

12,241

 

479,486

Brand marketing fund revenues from franchise and managed properties

11,292

 

 

11,292

 

10,353

 

(321)

 

10,032

Total revenues

521,994

 

 

521,994

 

477,598

 

11,920

 

489,518

Operating expenses:

                     

Direct lodging expenses

197,507

 

 

197,507

 

184,354

 

5,832

 

190,186

Depreciation and amortization

87,930

 

 

87,930

 

84,862

 

1,605

 

86,467

General and administrative expenses

60,913

 

(5,564)

 

55,349

 

68,612

 

(26,224)

 

42,388

Other lodging and operating expenses

31,957

 

 

31,957

 

30,535

 

944

 

31,479

Marketing, promotional and other advertising expenses

37,804

 

 

37,804

 

33,531

 

 

33,531

Impairment loss

42,498

 

 

42,498

 

5,157

 

 

5,157

Loss on sale

4,003

 

 

4,003

 

 

 

 

462,612

 

(5,564)

 

457,048

 

407,051

 

(17,843)

 

389,208

Brand marketing fund expenses from franchise and managed properties

11,292

 

 

11,292

 

10,353

 

(321)

 

10,032

Total operating expenses

473,904

 

(5,564)

 

468,340

 

417,404

 

(18,164)

 

399,240

Operating income

48,090

 

5,564

 

53,654

 

60,194

 

30,084

 

90,278

Other income (expenses):

                     

Interest expense, net

(44,962)

 

 

(44,962)

 

(72,765)

 

25,143

 

(47,622)

Loss on extinguishment of debt, net

 

 

 

(2,030)

 

2,030

 

Other income (loss)

579

 

 

579

 

(301)

 

 

(301)

Total other income (expenses)

(44,383)

 

 

(44,383)

 

(75,096)

 

27,173

 

(47,923)

Income (loss) from continuing operations before income taxes

3,707

 

5,564

 

9,271

 

(14,902)

 

57,257

 

42,355

Income tax provision

(1,960)

 

(1,748)

 

(3,708)

 

(5,698)

 

(11,244)

 

(16,942)

Recognition of net deferred tax liabilities upon C-corporation conversion

 

 

 

(321,054)

 

321,054

 

Income (loss) from continuing operations, net of tax

1,747

 

3,816

 

5,563

 

(341,654)

 

367,067

 

25,413

Net income (loss) (1)

1,747

 

3,816

 

5,563

 

(341,654)

 

367,067

 

25,413

(Income) loss from noncontrolling interests in continuing operations, net of tax

(268)

 

 

(268)

 

(3,764)

 

3,489

 

(275)

Net (income) loss attributable to noncontrolling interests(1)

(268)

 

 

(268)

 

(3,764)

 

3,489

 

(275)

Amounts attributable to La Quinta Holdings' stockholders

                     

Income (loss) from continuing operations, net of tax

1,479

 

3,816

 

5,295

 

(345,418)

 

370,556

 

25,138

Net income (loss) attributable to La Quinta Holdings' stockholders (1)

$          1,479

 

$             3,816

 

$        5,295

 

$ (345,418)

 

$         370,556

 

$      25,138

                       

 

   

(1)

Excludes the impact of the Company's discontinued operations on a historical and pro forma basis for the periods presented.

 

 

PRO FORMA AND HISTORICAL ADJUSTED EBITDA NON-GAAP RECONCILIATION

(unaudited, in thousands)

               
 

Pro forma

 

Historical

 

Three months

   

Three months

   

Three months

   

Three months

 

ended

 

ended

 

ended

 

ended

 

June 30, 2015

 

June 30, 2014

 

June 30, 2015

 

June 30, 2014

Operating income

$          15,683

 

$          52,343

 

$          15,177

 

$          25,452

Interest expense, net

(22,191)

 

(22,787)

 

(22,191)

 

(35,805)

Other income (loss)

67

 

(248)

 

67

 

(248)

Loss on extinguishment of debt, net

 

 

 

(2,030)

Income tax expense

2,576

 

(11,723)

 

2,380

 

(4,950)

Recognition of net deferred tax liabilities upon C-corporation conversion

 

 

 

(321,054)

(Income) loss from noncontrolling interest

(96)

 

(124)

 

(96)

 

57

Net income (loss) Attributable to La Quinta Holdings' stockholders

(3,961)

 

17,461

 

(4,663)

 

(338,578)

Interest expense

22,251

 

22,800

 

22,251

 

35,818

Income tax provision

(2,576)

 

11,723

 

(2,380)

 

4,950

Recognition of net deferred tax liabilities upon C-corporation conversion

 

 

 

321,054

Depreciation and amortization

44,489

 

43,530

 

44,489

 

43,532

Non-controlling interest

96

 

124

 

96

 

(57)

EBITDA

60,299

 

95,638

 

59,793

 

66,719

Fixed asset impairment loss

42,498

 

5,157

 

42,498

 

5,157

Loss on sale

4,003

 

 

4,003

 

Loss on retirement of assets

 

 

 

Gain related to casualty disasters

(134)

 

(848)

 

(134)

 

(845)

Loss on extinguishment of debt, net

 

 

 

2,030

Equity based compensation

3,669

 

4,829

 

4,175

 

31,103

Other losses, net

1,501

 

1,260

 

1,501

 

1,347

Adjusted EBITDA

$        111,836

 

$        106,036

 

$        111,836

 

$        105,511

               
 

PRO FORMA AND HISTORICAL ADJUSTED EBITDA NON-GAAP RECONCILIATION

(unaudited, in thousands)

               
 

Pro forma

 

Historical

 

Six months

 

Six months

 

Six months

 

Six months

 

ended

 

ended

 

ended

 

ended

 

June 30, 2015

 

June 30, 2014

 

June 30, 2015

 

June 30, 2014

Operating income

$          53,654

 

$          90,278

 

$          48,090

 

$          60,194

Interest expense, net

(44,962)

 

(47,622)

 

(44,962)

 

(72,765)

Other income (loss)

579

 

(301)

 

579

 

(301)

Loss on extinguishment of debt, net

 

 

 

(2,030)

Income tax provision

(3,708)

 

(16,942)

 

(1,960)

 

(5,698)

Recognition of net deferred tax liabilities upon C-corporation conversion

 

 

 

(321,054)

Income from noncontrolling interest

(268)

 

(275)

 

(268)

 

(3,764)

Loss on discontinued operations, net of tax

 

 

 

(503)

Net income (loss) Attributable to La Quinta Holdings' stockholders

5,295

 

25,138

 

1,479

 

(345,921)

Interest expense

45,033

 

47,657

 

45,033

 

72,800

Income tax provision

3,708

 

16,942

 

1,960

 

5,698

Recognition of net deferred tax liabilities upon C-corporation conversion

 

 

 

321,054

Depreciation and amortization

88,350

 

86,968

 

88,350

 

85,359

Non-controlling interest

268

 

275

 

268

 

3,764

EBITDA

142,654

 

176,980

 

137,090

 

142,754

Fixed asset impairment loss

42,498

 

5,157

 

42,498

 

5,308

Loss on sale

4,003

 

 

4,003

 

377

Loss on retirement of assets

161

 

 

161

 

(Gain) loss related to casualty disasters

671

 

(990)

 

671

 

(998)

Loss on extinguishment of debt, net

 

 

 

2,030

Equity based compensation

7,580

 

4,829

 

13,144

 

31,103

Other (gains) losses, net

4,273

 

646

 

4,273

 

388

Adjusted EBITDA

$        201,840

 

$        186,622

 

$        201,840

 

$        180,962

               

 

 

PRO FORMA AND HISTORICAL SEGMENT REVENUES AND ADJUSTED EBITDA RECONCILIATION

(unaudited, in thousands)

                       
 

Three months ended June 30, 2015

 

Three months ended June 30, 2014

 

Historical

   

Adjustments

   

Pro
Forma

   

Historical

   

Adjustments
(1)

   

Pro
Forma

Revenues:

                     

Owned hotels

$      242,443

 

$                —

 

$      242,443

 

$      231,596

 

$                544

 

$      232,140

Franchise and management

30,144

 

 

30,144

 

26,658

 

1,675

 

28,333

Segment revenues

272,587

 

 

272,587

 

258,254

 

2,219

 

260,473

Other fee-based revenues from franchise and managed properties

6,234

 

 

6,234

 

5,668

 

(40)

 

5,628

Corporate and other

33,696

 

 

33,696

 

31,201

 

629

 

31,830

Intersegment elimination

(38,629)

 

 

(38,629)

 

(34,834)

 

(1,290)

 

(36,124)

Total revenues

$    273,888

 

$                —

 

$    273,888

 

$    260,289

 

$             1,518

 

$    261,807

                       

Adjusted EBITDA:

                     

Owned hotels

$        90,636

 

$                —

 

$        90,636

 

$        85,815

 

$          (1,779)

 

$        84,036

Franchise and management

30,144

 

 

30,144

 

26,658

 

1,675

 

28,333

Segment Adjusted EBITDA

120,780

 

 

120,780

 

112,473

 

(104)

 

112,369

Corporate and other

(8,944)

 

 

(8,944)

 

(6,962)

 

629

 

(6,333)

Total Adjusted EBITDA

$    111,836

 

$                —

 

$    111,836

 

$    105,511

 

$                525

 

$    106,036

                       

 

   

(1)

Adjustments include (i) reflection of the results of operations of the 14 previously managed hotels which were acquired in connection with the IPO as if the acquisition had occurred on January 1, 2014; and (ii) reflection of franchise and management fees that we charge our owned hotels as if the rates put in place pursuant to new agreements dated April 14, 2014 had been in effect beginning on January 1, 2014. On a historical basis, prior to April 14, 2014, we charged aggregate fees of 2.0% (0.33% license fees for trademark rights and 1.67% management fee for management services) to our owned hotels. Effective April 14, 2014, we terminated the existing franchise and management agreements with our owned hotels and entered into new agreements, which provide for a franchise fee of 4.5% of gross room revenues and a management fee of 2.5% of total hotel revenues, which are reflected as revenue in the franchise and management segment. The agreements we entered into with our owned hotels upon effectiveness of the IPO also includes a reservations fee of 2.0% of gross room revenues, which is reflected as revenue in corporate and other after April 14, 2014.

 

PRO FORMA AND HISTORICAL SEGMENT REVENUES AND ADJUSTED EBITDA RECONCILIATION

(unaudited, in thousands)

                       
 

Six months ended June 30, 2015

 

Six months ended June 30, 2014

 

Historical

   

Adjustments

   

Pro
Forma

   

Historical

   

Adjustments
(1)

   

Pro
Forma

Revenues:

                     

Owned hotels

$      465,893

 

$                 —

 

$      465,893

 

$      426,298

 

$           10,929

 

$      437,227

Franchise and management

55,897

 

 

55,897

 

39,923

 

11,729

 

51,652

Segment revenues

521,790

 

 

521,790

 

466,221

 

22,658

 

488,879

Other fee-based revenues from franchise and managed properties

11,292

 

 

11,292

 

10,353

 

(321)

 

10,032

Corporate and other

63,105

 

 

63,105

 

54,028

 

4,633

 

58,661

Intersegment elimination

(74,193)

 

 

(74,193)

 

(53,004)

 

(15,050)

 

(68,054)

Total revenues

$    521,994

 

$                 —

 

$   521,994

 

$    477,598

 

$           11,920

 

$    489,518

Adjusted EBITDA:

                     

Owned hotels

$      166,824

 

$                 —

 

$      166,824

 

$      161,275

 

$        (10,702)

 

$      150,573

Franchise and management

55,897

 

 

55,897

 

39,923

 

11,729

 

51,652

Segment Adjusted EBITDA

222,721

 

 

222,721

 

201,198

 

1,027

 

202,225

Corporate and other

(20,881)

 

 

(20,881)

 

(20,236)

 

4,633

 

(15,603)

Total Adjusted EBITDA

$    201,840

 

$                 —

 

$    201,840

 

$    180,962

 

$             5,660

 

$    186,622

                       

 

   

(1)

Adjustments include (i) reflection of the results of operations of the 14 previously managed hotels which were acquired in connection with the IPO as if the acquisition had occurred on January 1, 2014; and (ii) reflection of franchise and management fees that we charge our owned hotels as if the rates put in place pursuant to new agreements dated April 14, 2014 had been in effect beginning on January 1, 2014. On a historical basis, prior to April 14, 2014 we charged aggregate fees of 2.0% (0.33% license fees for trademark rights and 1.67% management fee for management services) to our owned hotels. Effective April 14, 2014, we terminated the existing franchise and management agreements with our owned hotels and entered into new agreements, which provide for a franchise fee of 4.5% of gross room revenues and a management fee of 2.5% of total hotel revenues, which are reflected as revenue in the franchise and management segment. The agreements we entered into with our owned hotels upon effectiveness of the IPO also includes a reservations fee of 2.0% of gross room revenues, which is reflected as revenue in corporate and other after April 14, 2014.

 

ADJUSTED NET INCOME AND

PRO FORMA AND ADJUSTED EARNINGS PER SHARE

NON-GAAP RECONCILIATION

(unaudited, in thousands, except per share data)

 
 

Three months ended June 30, 2015

 

Three months ended June 30, 2014

   

Basic and Diluted

   

Basic and Diluted

 

Net Income

Earnings Per Share

 

Net Income (loss)

Earnings Per Share

 

Net Loss Attributable to La Quinta Holdings' stockholders

$          (4,663)

$       (0.04)

 

  $  (338,578)

$         (2.67)

Pro Forma Adjustments(1)        

702

0.01

 

356,039

2.81

Pro Forma Net Income (Loss) Attributable to La Quinta Holdings' stockholders

$          (3,961)

 $       (0.03)

 

$       17,461

 $            0.14

         Secondary offering expenses, net of tax (2)

277

-

 

-

-

         Impairment loss, net of tax

25,499

0.20

 

3,094

0.02

         Loss on sale, net of tax

2,402

0.02

 

-

-

Pro Forma Adjusted Net Income Attributable to La Quinta Holdings' stockholders

$           24,217

 $          0.19

 

$       20,555

 $            0.16

Weighted average common shares outstanding, basic     

 

129,544

   

126,832

          Weighted average common shares outstanding, diluted

 

130,680

   

127,710

 

   

(1)

Refer to Pro Forma Financial Information and Net Income Reconciliation on page 9

(2)

Expense was recognized in general and administrative expenses during the three months ended June 30, 2015 related to costs incurred in connection with a secondary equity offering by certain selling stockholders

 

       
 

Six months ended June 30, 2015

 

Six months ended June 30, 2014

   

Basic and Diluted

   

Basic and Diluted

 

Net Income

Earnings Per Share

 

Net Income (loss)

Earnings Per Share

Net Income (Loss) Attributable to La Quinta Holdings' stockholders(3)

$             1,479

 $       0.01

 

$     (345,921)

 $     (2.78)

Pro Forma Adjustments(4)        

3,816

0.03

 

370,556

2.98

          Loss from discontinued operations, net of tax

-

-

 

503

-

Pro Forma Net Income Attributable to La Quinta Holdings' stockholders

$             5,295

$       0.04

 

$          25,138

 $        0.20

         Secondary offering expenses, net of tax (5)

827

0.01

 

-

-

         Impairment loss, net of tax

25,499

0.20

 

3,094

0.02

         Loss on sale, net of tax

2,402

0.02

 

-

-

Pro Forma Adjusted Net Income Attributable to La Quinta Holdings' stockholders

$          34,023

 $       0.27

 

$          28,232

 $        0.22

Weighted average common shares outstanding, basic     

 

128,971

   

124,427

          Weighted average common shares outstanding, diluted

 

130,310

   

124,739

 

   

(3)

Includes the impact of the Company's discontinued operations on a historical basis for the periods presented.

(4)

Refer to Pro Forma Financial Information and Net Income Reconciliation on page 10.

(5)

Expense was recognized in general and administrative expenses during the three months ended June 30, 2015 related to costs incurred in connection with the secondary equity offering by certain selling stockholders.

 

PRO FORMA ADJUSTED EBITDA NON-GAAP RECONCILIATION

OUTLOOK: FORECASTED 2015

(unaudited, in thousands)

         
   

Year Ended December 31, 2015

   

Low Case

 

High Case

Adjusted  Pro Forma Net Income attributable to La Quinta Holdings' stockholders (1)

 

$72,000

 

$75,600

Interest expense (2)

 

87,000

 

87,000

Income tax provision

 

48,000

 

50,400

Depreciation and amortization

 

176,200

 

176,200

Non-controlling interest

 

500

 

500

         

EBITDA

 

383,700

 

389,700

Share based compensation expense (3)

 

14,300

 

14,300

         

Adjusted EBITDA

 

$398,000

 

$404,000

         

 

________________

 

(1)

This table provides a reconciliation of forward-looking forecasted Adjusted EBITDA to net income attributable to La Quinta Holdings' stockholders before adjustments that excluded the impact of certain items that are not expected to have an ongoing effect on our operations and for a certain portion of our equity based compensation which reflects the exchange of ownership units that were outstanding under our long-term cash incentive plan at the time of our IPO for shares of La Quinta Holdings Inc. common stock, 100% of which vested within one year of the IPO.

(2)

Includes interest expense for $1.7 billion of outstanding indebtedness with a weighted average interest rate of approximately 4.5%, including the impact of an interest rate swap, commitment fees for the undrawn balance of our revolving credit facility, and amortization of deferred financing costs.

(3)

Reflects share based compensation expense other than compensation expense related to exchange of ownership units that were outstanding under our long-term cash incentive plan at the time of our IPO for shares of La Quinta Holdings Inc. common stock.

 

LA QUINTA HOLDINGS INC.
DEFINED TERMS

"EBITDA" and "Adjusted EBITDA." Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a commonly used measure in many industries. We adjust EBITDA when evaluating our performance because we believe that the adjustment for certain items, such as restructuring and acquisition transaction expenses, impairment charges related to long-lived assets, non-cash equity-based compensation, discontinued operations, and other items not indicative of ongoing operating performance, including other items relating to the IPO Transactions, provides useful supplemental information to management and investors regarding our ongoing operating performance. We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors, lenders and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP, have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under GAAP. Some of these limitations are:

  • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
  • EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
  • EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;
  • EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
  • EBITDA and Adjusted EBITDA do not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
  • other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

"Pro Forma Adjusted Net Income" and "Pro Forma Adjusted Earnings Per Share" are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss), earnings per share, or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, the Company's definitions of Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings Per Share may not be comparable to similarly titled measures of other companies.

Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings Per Share are included to assist investors in performing meaningful comparisons of past, present and future operating results and as a means of highlighting the results of the Company's ongoing operations in a comparable format.

"ADR" or "average daily rate" means hotel room revenues divided by total number of rooms sold in a given period.

"comparable hotels" means hotels that: (i) were active and operating in our system for at least one full calendar year as of the end of the applicable period and were active and operating as of January 1st of the previous year; and (ii) have not sustained substantial property damage or business interruption or for which comparable results are not available. Management uses comparable hotels as the basis upon which to evaluate ADR, occupancy, RevPAR and RevPAR Index on a system-wide basis and for each of our reportable segments.

"occupancy" means the total number of rooms sold in a given period divided by the total number of rooms available at a hotel or group of hotels.

"RevPAR" or "revenue per available room" means the product of the ADR charged and the average daily occupancy achieved.

"RevPAR Index" measures a hotel's fair market share of its competitive set's revenue per available room.

"system-wide" refers collectively to our owned, franchised and managed hotel portfolios.

SOURCE La Quinta Holdings Inc.

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