Blackstone's La Quinta Repackaging Triggers Baymont Brand Sale

The news surfaced at yesterday's opening session of La Quinta's national conference, which is being held this year in the Gaylord Texas Resort & Convention Center. "They want us to own more real estate," Wayne Goldberg, president of day-to-day operations and CEO, said during a press conference. But, he adds, "the philosophy's changed. We want to be a single-brand operator."

La Quinta bought the Milwaukee-based Baymont about two years ago. Goldberg says the upfront changes resulted in Baymont's best performance in its history last year, but still it failed to outperform the La Quinta brand for any industry metrics. In fact, he says, the performances were "dramatically" different.

LQ will re-brand 84 corporate-owned Baymonts and effectively become a franchisee for 16 Baymont properties that can't be re-flagged for a variety of reasons. Goldberg says a short-term agreement has been struck with the still-unidentified buyer until LQ can decide what to do with the package.

Blackstone has pushed the La Quinta flag into its extended-stay operation, driving immediate cost savings via shared services and opening up opportunities like Santa Ana, CA, where the New York City-based capital powerhouse closed a one-off, 183-room hotel acquisition under LQ's banner. It's also just closed on a 278-room hotel near the Los Angeles International Airport. In the shift toward an owned portfolio, LQ's highly touted franchise system will be drastically curtailed. Existing contracts will be honored, adding about 120 franchised sites in the next two years, and limiting new deals to a select group of predominately existing franchisees.

The expansion calls for acquisitions in the northeastern states, Florida and California. Purchase contracts are pending for hotels in Newark, Westchester County, Boston, Myrtle Beach, SC and Fort Myers, FL. "We're going to grow," Alan Tallis, also an LQ president and chief development officer, told the near 1,000 attendees of the four-day conference. "We're going to grow rapidly and we're going to grow aggressively."

LQ's development team has opened talks with prospective franchisees for China and India while making plans to expand in Canada and readying to cut the ribbon on its first flag in Mexico, also a franchise location. At February's close, LQ had 358 corporate-owned hotels and 160 franchise properties. The development pipeline holds 147 franchise contracts and 15 to-be-built, corporate-owned properties. To get the portfolio into balance, LQ will shed some of its 150 Texas locations.

The acquisition strategy also calls for LQ to buy select properties from franchisees in top markets. Talks are under way with a couple franchisees, but the LQ team's not identifying which markets until the deals gel.

Blackstone sent a contingent of its top executives to the conference, including senior managing director Jonathan D. Gray. Little news surfaced about Blackstone's hard push in the past six months for hotel companies although the rumor mill is speculating that an IPO play could emerge.

Goldberg speculated to reporters that the Blackstone-LQ marriage probably has a five-year window. But, he stresses, that's pure speculation on his part. Another source of speculation is how the two came together. His best guess is Blackstone started eyeing La Quinta when both were chasing another local hotel company, Wyndham International Inc.

After paying $3.4 billion for La Quinta, Blackstone plans to pump another $275 million in 2.5 years into "simplifying and strengthening the brand story," Gray says. "Selling Baymont lets us focus on La Quinta. We have no intention of selling that brand."

The cap-ex pool will fund a re-imaging of the La Quinta brand, including its decor inside and out, as the hospitality sector gains more ground in what is being touted as the strongest cycle in its history. LQ plans to use the new packaging to justify a hike in its average room rate, which hovers $72. The industry average now surpasses $100 per day. Goldberg says the hike will be "significant" and market driven. And when the dust settles this year, he's predicting the changes will result in $364 million of EBITDA and $738 million in revenue. "There is nothing we can't accomplish if we put our minds to it," he told the conference goers.

To seed the incentive to soar higher than ever before, the LQ team has eliminated the bonus ceiling for this year. Last year, corporate GMs raked in $2.4 million in bonuses.