Growth on La Quinta's agenda

Orlando -- La Quinta Corp. plans to continue to grow this year through franchising, by investing in top 25 markets and perhaps by acquiring another brand, as it did in 2004 when it acquired the Baymont and Woodfield Suites brands by purchasing Marcus Corp.'s limited-service lodging division for $412 million.

Butch Cash, La Quinta chairman and c.e.o., said the company is financially strong enough to make another acquisition of that amount or larger this year, but making such an acquisition is "hard to predict."

"We believe there are a number of opportunities for our company to acquire additional lodging brands and/or real-estate to enhance shareholder value and leverage the investments we have made in our people, systems and programs," Cash said during the 2005 La Quinta annual business conference in March.

"It's a strong environment for buying and we have manageable debt. It is a question of when, not if, we get other brands," he said in a private interview.

"We would like to continue to grow through acquisition, and we are engaged in an ongoing process of evaluating various acquisition alternatives," said David Rea, president and c.o.o. "We will continue to look for acquisitions that can leverage our existing investments. As with the Baymont acquisition, we would go through a methodical process to make sure any acquisition makes sense for our customers, employees and shareholders."

Cash said he was proud that the company did not lose any top executives after La Quinta acquired Baymont.

"Of the top 50 members of our executive team, 25 are new to the company in the last five years," he said. "We did not lose any executives who could not handle their new duties due to the acquisition. We have a deep management team that can handle acquisitions of scale."

Rea said the company could leverage its corporate infrastructure by acquiring another limited-service brand, or move into a different segment, such as extended-stay, or even take the company international.

Cash said he believes the company can grow its 400 La Quintas and 182 Baymonts to at least 1,000 hotels each, but did not specify a time frame.

"We also remain opportunistic on the development and acquisition front to penetrate new markets," he said. "We plan to grow to meet the needs of our customers, but we also want to create a growth culture. That culture is here more this year than last year because of our Baymont acquisition."

La Quinta entered the New England market at the end of 2004 by acquiring Tage Inns and its three hotels in the greater Boston market.

"We are willing to put capital out there to develop in central business districts by acquiring smaller portfolios, as we did in Boston," Rea said. "We have lots of room for growth in the top 25 markets. We can go it alone with our own capital or with a partner."

Cash said that many times, developers prefer to have a parent company involved in developing hotels in top metropolitan markets because of the excessive time and expense it often takes to get things done in high-barrier-to-entry markets.

"It takes more lead time to develop in top 25 markets, but we need to be there because 70 percent of the travelers go there," Cash said. "Our hotels in those markets can be co- owned or franchised."

Other examples of La Quinta's central business district growth initiative are in New York and San Francisco.

"We think, if these types of projects are done correctly, they are not only profitable projects in and of themselves, but also act as halos around the brand," Rea said. "Halos that can also help us obtain a pricing edge in non-CBD areas."

In fact, the Tage acquisition allowed La Quinta to sign additional franchise agreements in the Northeast, according to Alan Tallis, chief development officer and president of franchising.

The company plans to add at least 50 La Quintas and 25 Baymont-branded hotels this year, he said. It opened 33 La Quinta franchised properties in 2004.

La Quinta started its franchise program in 2001 with three people and now has 35 employees, Tallis said. At the end of 2004, there were 125 open La Quinta franchised hotels and 86 franchised Baymont properties.

"In the fourth quarter alone we added six Baymonts, ending the year with 92 operating [franchised] Baymont locations--keeping our commitment to the Baymont franchise community to begin growing the Baymont brand aggressively," Tallis said.

The company's pipeline of franchise development activity consists of 106 La Quinta properties and 30 Baymont hotels, he said. Construction has begun on a 205-room hotel in the Chicago O'Hare airport market, which is scheduled to open in 2006.

"Within the next five to six years, we will be in all of the top 25 central business district markets and airports," Tallis said.

TOP FOUR

La Quinta's keys to being a successful lodging company

[1] Have strong brands

[2] Be in multiple segments

[3] Have ubiquitous distribution

[4] Recruit, train and develop individuals who know how to serve the guest, how to operate hotels and brands in multiple segments, and how, where and when to grow.

Butch Cash's four values:

* Never be satisfied

* Try to have fun

* Do the right thing

* Family first

badams@advanstar.com

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