GlobeSt.com UPDATE: $395M Buyer Now Eyes Baymont JVs

Francis W. Cash, La Quinta's president and CEO, tells GlobeSt.com that the 16,837 rooms in the Milwaukee-based Marcus' limited service portfolio has no debt attached to the takedown. "If we do some joint ventures, there is some moderate debt," he says. "In the next few weeks, we'll begin working with Marcus and the JV partners to see if they'd like to sell. We'd like for them to do it." Another eight hotels could be had.

Marcus' execs, in a conference call yesterday, say they are under no timetable to spend the gain from the 30-year-old chain, started as Budgetel Inn and re-branded as Baymont Inns & Suites just five years ago. "We've had 30 great years in the limited service lodging industry, but the timing was right," Stephen H. Marcus, chairman and CEO, says. "We're selling out of success." For previous story, click here.

La Quinta's team says the rooms are rolling at an average of $36,000 per key or $19,000 below-replacement cost. According to Cash, the Baymont package had a 59.9% occupancy during the 2003 calendar and the average daily rate was $51.17 per room. On the average, the hotels are 15 years old.

Cash says no hotels will be closed, but a couple could be sold as La Quinta hoists its flag higher to become the largest franchise chain in the nation. The next six months will be spent integrating the portfolio, closely scrutinizing each chain's territories for multiple hotels and then deciding if re-flagging is necessary. All field-level employees will be kept as will select execs from the corporate team, according to Cash.

The Baymont and La Quinta brands are firmly tagged for growth, but the lone Budgetel in the portfolio will be held just to hold the trademark. As for the Woodfield Suites brand, Cash says he wants to "see what drives it" before deciding whether to expand the lineup although it's a recognized moneymaker.

The Dallas-based La Quinta gains inroads in six states with the acquisition, but reduces its Texas concentration from 30% to 24% since more than half of the Baymont package sits in the Midwest. David L. Rea, La Quinta's executive vice president and CFO, says upside will be gleaned by reducing Baymont's per room operating cost, now $30.28 and 7% higher than its new parent's.

Cash admits there's a lot to accomplish before the closing. "I don't anticipate any problems," he says. The hard part lies down the road. "As hard as it is to negotiate a transaction of this magnitude, it's a lot harder to put heads in the beds for the next 20 years," he says.

With $1 billion socked away for acquisitions, Cash says he's "never been so popular. Every investment banker has come through Dallas in the past year." He says he looked at several other chains, but didn't make a move on anyone than Baymont. "We think this is the best opportunity," he says.

From Marcus' perspective, it was time to expand a brand it built from scratch, "whether we'd be the owner of it or someone else. The idea was to maximize its value." The sale does not include an under-construction Baymont in Chicago, but Marcus didn't rule out its sale down the road.

The limited service chain and Marcus' hotels and resorts always operated independently, including their corporate chiefs, so there won't be any trickledown effect from the sale, according to Marcus. He's undecided about where to place the money, but all options are under review: the theater group, hotels and resorts, stock buyback and even acquisitions. He didn't rule out deploying capital for equity plays to secure management contracts, the corporation's core business. The decision, he says, will be the return on investments. The point is, he stresses, "we won't grow for sheer growth."

Lehman Bros. Inc. acted as La Quinta's adviser and Goodwin Procter LLP was its legal adviser.