LaQuinta shifts gears

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GRAPEVINE, TEXAS—While the selling of its Baymont brand to Cendant Corp. took center stage at LQ Management LLC's annual convention in March, corporate officials made it clear that they have every intention of aggressively growing and improving the La Quinta brand, and they squelched rumors that they were giving up on the brand's franchising arm.
Using the message, "If we always do what we've always done, we'll always get what we've always got," Wayne Goldberg, president and c.e.o., told conference attendees at the Gaylord Texan Resort and Convention Center that the company is on its way to being a more finely-tuned organization. He said it will be in touch with the needs of each of the about 500 existing properties, as well as ones that join down the road.
Goldberg said the company wants to significantly increase the number of La Quinta Inn & Suites properties in the system.
"We will continue to franchise, but on a much more selective basis," Goldberg said. "There has been no decision, no discussions and no plans to sell the La Quinta franchise system."
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Members of La Quinta's executive team, led by Wayne Goldberg [front left] and Alan Tallis [front right], begin the conference on a high note.
Goldberg said the initial franchisee reaction has been positive.
"Franchisees are investing a lot of money in your brand and they want to know one thing: Are you growing?" Goldberg said. "At the end of the day, you get measured by delivering what you said you would deliver."
"Growth is good for everybody in the system, regardless of the way it comes," said Rajiv Trivedi, executive v.p. of franchising.
The company will convert 84 Baymont properties it owns that were not part of the Cendant deal to the La Quinta brand, which will result in a 16-percent increase in La Quinta's size.
In addition, Blackstone will convert 13 Wellesley Inns it owns to the La Quinta brand by the end of this year, said Murry Cathlina, e.v.p. of design & construction. Seven of those are in Florida; the other six are in New Jersey and New York.
"La Quinta is Spanish for 'spreading like wildfire,'" said Alan Tallis, president and chief development officer.
LQ Management will continue to own 16 franchised Baymont properties, but is looking to sell those.
"We don't want to be a franchisee of another brand long-term," Goldberg said.

Tallis said the goal is to secure two corporate development contracts per week. La Quinta's growth strategy will focus on:

acquiring properties—particularly portfolios when possible;
new-construction projects in central-business districts and other high visibility, high barrier-to-entry markets; and
franchising on a selective basis. The company is on the lookout for portfolios of hotels.
"It's just as easy to do a portfolio with 20 hotels as it is to add one 100-room hotel," said Temple Weiss, executive v.p. of acquisitions and development.
The brand will open about 60 franchised properties in 2006 and about 60 more in 2007 before its scaled-back franchising program hits. After 2007, the goal is to add 15 to 20 franchised properties each year to complement the about 100 corporate-owned La Quinta additions each year.

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Tallis said future franchising growth will come primarily with franchisees with whom the company already has a relationship. He also said the company will consider buying La Quinta-franchised properties from owners who want to sell.

He said the company's overall growth plan is to focus on adding properties in the Northeast, in Florida and in the Los Angeles/Orange County, Calif., area.

"The biggest satisfaction in going from a public company to a private company is that we're not chasing numbers," Trivedi said. "We're focused on quality and services to franchisees."

Structural changes

There have been organizational changes since Blackstone closed the deal to acquire La Quinta in late January.

Goldberg said the company eliminated some departments, and his intent is to have decentralized operations. The company's goal is to cut $75 million in costs from the corporate level.

"It is my intent to manage this very large company with a small-company mentality," Goldberg said. "Our No. 1 priority is to be of help and support to the people in the field.

"... Everything we're doing at corporate headquarters that logically should be done in the field will be done in the field," he added. "We want to place the emphasis at the properties. That's where the revenue is."

Goldberg said the rationale is simple: "There are no cash registers in our corporate offices."

Goldberg and Tallis stressed that even with a decentralized approach, standards will not be loosened. Existing La Quinta properties will get a facelift.

"Our strategy is to spend $275 million over the next two-and-a-half years, repositioning the La Quinta product in the guestroom, in the public areas [and] in the exteriors of these properties," said Jonathan Gray, senior managing director for The Blackstone Group, LQ Management's parent company.

The $275-million investment for corporate-owned La Quinta properties will include exterior renovations that will remove the strong Southwestern influence of the décor, and new guestroom décor and signage. It will include the about 130 exterior-corridor La Quinta Inns that are in the system.

Once the corporate makeover is complete, franchisees will be asked to implement the changes, Goldberg said.

Goldberg said the brand needs to aggressively grow average daily rate to catch up with the ADR growth rates of its competitors.

Gray said supply growth in the lodging industry is at 0.3 percent—probably the lowest it has been since the Great Depression. He told the delegates that the current environment should give them courage to take risks on raising rates.