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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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(Mark One) |
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended March 31, 2005 |
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or |
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
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Commission file number 0-9110
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Commission file number 0-9109 |
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LA QUINTA CORPORATION |
|
LA QUINTA PROPERTIES, INC. |
(Exact Name of Registrant as Specified in Its Charter) |
|
(Exact Name of Registrant as Specified in Its Charter) |
|
Delaware |
|
Delaware |
(State or Other Jurisdiction of Incorporation or
Organization) |
|
(State or Other Jurisdiction of Incorporation or
Organization) |
|
95-3419438 |
|
95-3520818 |
(I.R.S. Employer Identification No.) |
|
(I.R.S. Employer Identification No.) |
|
909 Hidden Ridge, Suite 600 |
|
909 Hidden Ridge, Suite 600 |
Irving, TX 75038 |
|
Irving, TX 75038 |
(Address of Principal Executive Offices, |
|
(Address of Principal Executive Offices, |
Including Zip Code) |
|
Including Zip Code) |
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(214) 492-6600 |
|
(214) 492-6600 |
(Registrants Telephone Number, Including Area Code) |
|
(Registrants Telephone Number, Including Area Code) |
Indicate by check mark whether the registrants (1) have
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and
(2) have been subject to such filing requirements for the
past
90 days. Yes þ No o
Indicate by check mark whether the registrants are accelerated
filers (as defined in Exchange Act
Rule 12b-2). Yes þ No o
As of April 19, 2005, La Quinta Corporation had
181.5 million shares of common stock outstanding (excluding
9.4 million shares held by La Quinta Properties, Inc.)
and La Quinta Properties, Inc. had 100,000 shares of
class A common stock and 181.5 million shares of
class B common stock outstanding.
TABLE OF CONTENTS
i
About this Joint Quarterly Report
This joint quarterly report on Form 10-Q, which we
sometimes refer to as this Joint Quarterly Report, is filed by
both La Quinta Corporation, a Delaware corporation
(LQ Corporation), and its controlled
subsidiary, La Quinta Properties, Inc., a Delaware
corporation (LQ Properties), that has elected
to be treated as a real estate investment trust
(REIT) for federal income tax purposes. Both
LQ Corporation and LQ Properties have securities that
are publicly traded and listed on the New York Stock Exchange.
Accordingly, this Joint Quarterly Report includes information,
including financial statements, about LQ Corporation on a
consolidated basis with its controlled subsidiary,
LQ Properties, as well as financial statements for
LQ Properties on a consolidated basis.
In this Joint Quarterly Report, unless the context otherwise
requires, the term LQ Corporation includes those entities
owned or controlled by LQ Corporation (including its
controlled subsidiaries, LQ Properties and La Quinta
Inns, Inc.); the term LQ Properties includes those entities
owned or controlled by LQ Properties; and the terms
we, us, our, the
companies, La Quinta or The
La Quinta Companies refer to LQ Corporation, LQ
Properties and their respective subsidiaries, collectively. The
terms paired shares and paired common
shares mean the shares of common stock of
LQ Corporation, par value $0.01 per share, that are
attached and trade as a single unit with the shares of
Class B common stock, par value $0.01 per share, of
LQ Properties.
In September 2004, we acquired substantially all the assets of
the limited service lodging division of The Marcus Corporation
(the Acquisition), including 90 Baymont
Inn & Suites (including one management contract), seven
Woodfield Suites and one Budgetel Inn. In addition, we acquired
all the trade rights associated with the Baymont, Woodfield
Suites and Budgetel brands, and the Baymont franchise system of
87 hotels. In December 2004, we acquired three additional
hotels. Unless otherwise noted, all financial and operational
information in this Joint Quarterly Report includes the acquired
properties and their results of operations from the dates of
acquisition.
Forward-Looking Statements
Certain statements in this Joint Quarterly Report that are not
historical facts constitute forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange
Act), and the Private Securities Litigation Reform Act of
1995. Words such as believes,
anticipates, expects,
intends, estimates, projects
and other similar expressions, which are predictions of or
indicate future events and trends, typically identify
forward-looking statements.
We have used forward-looking statements in a number of parts of
this Joint Quarterly Report, including, without limitation,
Item 2 Managements Discussion and
Analysis of Financial Condition and Results of Operations.
These forward-looking statements may include statements
regarding the intent, belief or current expectations of the
companies or their respective directors or officers with respect
to the matters discussed in this Joint Quarterly Report. Our
forward-looking statements are subject to a number of risks and
uncertainties that could cause actual results or the timing of
events to differ materially from those described in the
forward-looking statements.
Please see the risks identified in our Joint Annual Report on
Form 10-K (Joint Annual Report) filed with the
Securities and Exchange Commission (the SEC) on
March 15, 2005 and other risks described from time to time
in our annual, quarterly and current reports filed with the SEC.
The risks and uncertainties described in these reports include
those related to our lodging business, our investments in real
estate, LQ Properties status as a REIT, our capital
expenditures and requirements, our corporate structure, our debt
and liquidity needs, our acquisition-related risks, including
our ability to identify candidates that meet our financial and
strategic criteria, our ability to successfully complete any
acquisitions that we may enter into, and to effectively
integrate the business of any company that we may acquire, as
well as risks and uncertainties related to our industry, the
economy, weather conditions, the aftermath of United States
military action in Iraq, the possibility of further terrorist
attacks on the United States and global affairs. We have
discussed
ii
these risks and uncertainties in detail in our Joint Annual
Report and we encourage you to read those risk factors in their
entirety in order to understand the risks and uncertainties that
can affect our forward-looking statements as well as our
business generally.
Given the risks and uncertainties, you are cautioned not to
place undue reliance on the forward-looking statements that may
be made in this Joint Quarterly Report. We undertake no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events
or other changes.
iii
PART I FINANCIAL INFORMATION
LA QUINTA CORPORATION
CONSOLIDATED BALANCE SHEETS
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Item 1. |
Financial Statements |
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March 31, | |
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December 31, | |
|
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2005 | |
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2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
par value) | |
|
|
(Unaudited) | |
|
|
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
80,263 |
|
|
$ |
103,339 |
|
|
Fees, interest and other receivables, net of allowances of
$3,446 and $3,355, respectively
|
|
|
33,497 |
|
|
|
26,517 |
|
|
Deferred income taxes, net
|
|
|
20,484 |
|
|
|
20,484 |
|
|
Assets of discontinued components held for sale
|
|
|
38,850 |
|
|
|
39,015 |
|
|
Other current assets
|
|
|
9,841 |
|
|
|
8,919 |
|
|
|
|
|
|
|
|
|
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Total current assets
|
|
|
182,935 |
|
|
|
198,274 |
|
Intangible assets, net
|
|
|
116,754 |
|
|
|
117,286 |
|
Restricted cash
|
|
|
6,950 |
|
|
|
4,150 |
|
Property and equipment, net
|
|
|
2,402,435 |
|
|
|
2,429,031 |
|
Mortgages and other notes receivable, net of allowances of
$1,084 and $1,094, respectively
|
|
|
26,423 |
|
|
|
26,431 |
|
Other non-current assets
|
|
|
38,135 |
|
|
|
37,629 |
|
|
|
|
|
|
|
|
|
|
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Total assets
|
|
$ |
2,773,632 |
|
|
$ |
2,812,801 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$ |
135,996 |
|
|
$ |
115,993 |
|
|
Accounts payable
|
|
|
24,423 |
|
|
|
35,326 |
|
|
Accrued payroll and employee benefits
|
|
|
31,195 |
|
|
|
35,814 |
|
|
Accrued expenses and other current liabilities
|
|
|
59,218 |
|
|
|
78,879 |
|
|
Liabilities of discontinued components held for sale
|
|
|
721 |
|
|
|
1,111 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
251,553 |
|
|
|
267,123 |
|
Long-term debt
|
|
|
789,624 |
|
|
|
809,624 |
|
Deferred income taxes, net
|
|
|
124,473 |
|
|
|
128,145 |
|
Other non-current liabilities
|
|
|
12,737 |
|
|
|
12,352 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,178,387 |
|
|
|
1,217,244 |
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Minority interest (including preferred stock liquidation
preference of $200,000)
|
|
|
205,650 |
|
|
|
205,856 |
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
LQ Corporation Common Stock, $0.01 par value;
500,000 shares authorized; 183,569 and 183,128 shares
issued and 181,497 and 181,077 shares outstanding at
March 31, 2005 and December 31, 2004, respectively
|
|
|
1,836 |
|
|
|
1,831 |
|
|
LQ Properties Class B Common Stock, $0.01 par value;
500,000 shares authorized; 183,569 and 183,128 shares
issued and 181,497 and 181,077 shares outstanding at
March 31, 2005 and December 31, 2004, respectively
|
|
|
1,836 |
|
|
|
1,831 |
|
|
Treasury Stock, at par; 2,072 and 2,051 paired common shares at
March 31, 2005 and December 31, 2004, respectively
|
|
|
(40 |
) |
|
|
(40 |
) |
|
Additional paid-in-capital
|
|
|
3,690,665 |
|
|
|
3,688,018 |
|
|
Unearned compensation
|
|
|
(5,691 |
) |
|
|
(6,701 |
) |
|
Accumulated other comprehensive income
|
|
|
447 |
|
|
|
458 |
|
|
Accumulated deficit
|
|
|
(2,299,458 |
) |
|
|
(2,295,696 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,389,595 |
|
|
|
1,389,701 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
2,773,632 |
|
|
$ |
2,812,801 |
|
|
|
|
|
|
|
|
The accompanying condensed notes, together with the Notes to the
Consolidated Financial Statements
contained within The La Quinta Companies
Form 10-K for the year ended
December 31, 2004, are an integral part of these financial
statements.
1
LA QUINTA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
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Three Months Ended | |
|
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March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share data, | |
|
|
unaudited) | |
REVENUE:
|
|
|
|
|
|
|
|
|
|
Hotel operations
|
|
$ |
162,481 |
|
|
$ |
122,123 |
|
|
Franchise fees
|
|
|
6,025 |
|
|
|
2,845 |
|
|
Other
|
|
|
2,636 |
|
|
|
3,626 |
|
|
|
|
|
|
|
|
|
|
|
171,142 |
|
|
|
128,594 |
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Direct lodging operations
|
|
|
76,497 |
|
|
|
58,349 |
|
|
Other lodging and operating expenses
|
|
|
22,797 |
|
|
|
17,594 |
|
|
General and administrative
|
|
|
18,606 |
|
|
|
16,173 |
|
|
Interest, net of interest income of $507 and $3,022, respectively
|
|
|
18,354 |
|
|
|
15,538 |
|
|
Depreciation and amortization
|
|
|
34,334 |
|
|
|
28,622 |
|
|
Impairment of property and equipment
|
|
|
489 |
|
|
|
5,014 |
|
|
Other expense (income)
|
|
|
2,057 |
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
173,134 |
|
|
|
141,155 |
|
|
|
|
|
|
|
|
Loss before minority interest, income taxes and discontinued
operations
|
|
|
(1,992 |
) |
|
|
(12,561 |
) |
|
Minority interest
|
|
|
(4,375 |
) |
|
|
(4,568 |
) |
|
Income tax benefit
|
|
|
2,466 |
|
|
|
4,955 |
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
|
(3,901 |
) |
|
|
(12,174 |
) |
|
Income (loss) from discontinued operations, net
|
|
|
139 |
|
|
|
(121 |
) |
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3,762 |
) |
|
$ |
(12,295 |
) |
|
|
|
|
|
|
|
EARNINGS PER SHARE BASIC AND ASSUMING DILUTION
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
Income (loss) from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
The accompanying condensed notes, together with the Notes to the
Consolidated Financial Statements
contained within The La Quinta Companies
Form 10-K for the year ended
December 31, 2004, are an integral part of these financial
statements.
2
LA QUINTA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, | |
|
|
unaudited) | |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3,762 |
) |
|
$ |
(12,295 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
34,334 |
|
|
|
28,622 |
|
|
Minority interest
|
|
|
4,375 |
|
|
|
4,568 |
|
|
Amortization of debt issuance costs
|
|
|
709 |
|
|
|
544 |
|
|
Stock based compensation
|
|
|
604 |
|
|
|
482 |
|
|
Impairment of property and equipment
|
|
|
489 |
|
|
|
5,014 |
|
|
Loss on sale of assets
|
|
|
149 |
|
|
|
|
|
|
Deferred tax benefit
|
|
|
(2,897 |
) |
|
|
(4,761 |
) |
|
(Income) loss from discontinued operations, net
|
|
|
(139 |
) |
|
|
121 |
|
|
Net change in other assets and liabilities
|
|
|
(44,843 |
) |
|
|
(27,494 |
) |
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(10,981 |
) |
|
|
(5,199 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(8,797 |
) |
|
|
(8,492 |
) |
Other
|
|
|
(1,219 |
) |
|
|
(66 |
) |
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,016 |
) |
|
|
(8,558 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(19,541 |
) |
Dividends to preferred shareholders (characterized as minority
interest)
|
|
|
(4,500 |
) |
|
|
(4,500 |
) |
Proceeds from employee stock purchase and stock option exercises
|
|
|
2,510 |
|
|
|
1,761 |
|
Other
|
|
|
(89 |
) |
|
|
(168 |
) |
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,079 |
) |
|
|
(22,448 |
) |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(23,076 |
) |
|
|
(36,205 |
) |
Cash and cash equivalents at:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
103,339 |
|
|
|
327,068 |
|
|
|
|
|
|
|
|
End of period
|
|
$ |
80,263 |
|
|
$ |
290,863 |
|
|
|
|
|
|
|
|
The accompanying condensed notes, together with the Notes to the
Consolidated Financial Statements
contained within The La Quinta Companies
Form 10-K for the year ended
December 31, 2004, are an integral part of these financial
statements.
3
LA QUINTA PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
par value) | |
|
|
(Unaudited) | |
|
|
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
31,226 |
|
|
$ |
33,368 |
|
|
Fees, interest and other receivables, net of allowances of $53
and $42, respectively
|
|
|
5,154 |
|
|
|
4,960 |
|
|
Assets of discontinued components held for sale
|
|
|
35,353 |
|
|
|
35,455 |
|
|
Other current assets
|
|
|
266 |
|
|
|
1,014 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
71,999 |
|
|
|
74,797 |
|
Note receivable from La Quinta Corporation
|
|
|
|
|
|
|
3,165 |
|
Restricted cash
|
|
|
400 |
|
|
|
400 |
|
Deferred income taxes, net
|
|
|
8,631 |
|
|
|
8,636 |
|
Intangible assets, net
|
|
|
58,241 |
|
|
|
58,236 |
|
Property and equipment, net
|
|
|
2,243,209 |
|
|
|
2,266,740 |
|
Mortgages and other notes receivable, net of allowances of
$1,061 and $1,071, respectively
|
|
|
30,692 |
|
|
|
30,700 |
|
Other non-current assets
|
|
|
14,799 |
|
|
|
15,472 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
2,427,971 |
|
|
$ |
2,458,146 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$ |
135,996 |
|
|
$ |
115,993 |
|
|
Accounts payable
|
|
|
11,968 |
|
|
|
24,990 |
|
|
Accrued expenses and other current liabilities
|
|
|
25,062 |
|
|
|
47,539 |
|
|
Liabilities of discontinued components held for sale
|
|
|
461 |
|
|
|
846 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
173,487 |
|
|
|
189,368 |
|
Long-term debt
|
|
|
789,624 |
|
|
|
809,624 |
|
Payable to La Quinta Corporation
|
|
|
9,110 |
|
|
|
|
|
Other non-current liabilities
|
|
|
658 |
|
|
|
682 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
972,879 |
|
|
|
999,674 |
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
25,114 |
|
|
|
25,027 |
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
LQ Properties Preferred Stock, $0.10 par value;
6,000 shares authorized; 800 shares issued and
outstanding
|
|
|
80 |
|
|
|
80 |
|
|
LQ Properties Class A Common Stock, $0.01 par value;
1,000 shares authorized; 100 shares issued and
outstanding
|
|
|
1 |
|
|
|
1 |
|
|
LQ Properties Class B Common Stock, $0.01 par value;
500,000 shares authorized; 183,569 and 183,128 shares
issued and 181,497 and 181,077 shares outstanding at
March 31, 2005 and December 31, 2004, respectively
|
|
|
1,836 |
|
|
|
1,831 |
|
|
Treasury Stock, at par; 2,072 and 2,051 paired common shares at
March 31, 2005 and December 31, 2004, respectively
|
|
|
(20 |
) |
|
|
(20 |
) |
|
Additional paid-in-capital
|
|
|
3,310,013 |
|
|
|
3,309,736 |
|
|
Equity investment in La Quinta Corporation
|
|
|
(41,595 |
) |
|
|
(41,595 |
) |
|
Accumulated deficit
|
|
|
(1,840,337 |
) |
|
|
(1,836,588 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,429,978 |
|
|
|
1,433,445 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
2,427,971 |
|
|
$ |
2,458,146 |
|
|
|
|
|
|
|
|
The accompanying condensed notes, together with the Notes to the
Consolidated Financial Statements
contained within The La Quinta Companies
Form 10-K for the year ended December 31, 2004,
are an integral part of these financial statements.
4
LA QUINTA PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, | |
|
|
unaudited) | |
REVENUE:
|
|
|
|
|
|
|
|
|
|
Rent from La Quinta Corporation
|
|
$ |
53,850 |
|
|
$ |
43,270 |
|
|
Royalty from La Quinta Corporation
|
|
|
1,943 |
|
|
|
1,781 |
|
|
Other
|
|
|
1,715 |
|
|
|
2,861 |
|
|
|
|
|
|
|
|
|
|
|
57,508 |
|
|
|
47,912 |
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Direct lodging expenses
|
|
|
108 |
|
|
|
103 |
|
|
Other lodging expenses
|
|
|
8,545 |
|
|
|
6,955 |
|
|
General and administrative
|
|
|
365 |
|
|
|
373 |
|
|
Interest, net of interest income of $266 and $3,197, respectively
|
|
|
18,550 |
|
|
|
15,334 |
|
|
Depreciation and amortization
|
|
|
29,077 |
|
|
|
25,553 |
|
|
Impairment of property and equipment
|
|
|
|
|
|
|
5,014 |
|
|
Other expense (income)
|
|
|
137 |
|
|
|
(356 |
) |
|
|
|
|
|
|
|
|
|
|
56,782 |
|
|
|
52,976 |
|
|
|
|
|
|
|
|
Income (loss) before minority interest, income taxes and
discontinued operations
|
|
|
726 |
|
|
|
(5,064 |
) |
|
Minority interest
|
|
|
(815 |
) |
|
|
(436 |
) |
|
Income tax (expense) benefit
|
|
|
(156 |
) |
|
|
146 |
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
|
(245 |
) |
|
|
(5,354 |
) |
|
Income from discontinued operations, net
|
|
|
996 |
|
|
|
454 |
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
751 |
|
|
|
(4,900 |
) |
|
Preferred stock dividends
|
|
|
(4,500 |
) |
|
|
(4,500 |
) |
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$ |
(3,749 |
) |
|
$ |
(9,400 |
) |
|
|
|
|
|
|
|
The accompanying condensed notes, together with the Notes to the
Consolidated Financial Statements
contained within The La Quinta Companies
Form 10-K for the year ended
December 31, 2004, are an integral part of these financial
statements.
5
LA QUINTA PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, | |
|
|
unaudited) | |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
751 |
|
|
$ |
(4,900 |
) |
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
29,077 |
|
|
|
25,553 |
|
|
Minority interest
|
|
|
815 |
|
|
|
436 |
|
|
Amortization of debt issuance costs
|
|
|
709 |
|
|
|
544 |
|
|
Impairment of property and equipment
|
|
|
|
|
|
|
5,014 |
|
|
Loss on sale of assets
|
|
|
149 |
|
|
|
|
|
|
Deferred tax expense
|
|
|
5 |
|
|
|
92 |
|
|
Income from discontinued operations, net
|
|
|
(996 |
) |
|
|
(454 |
) |
|
Net change in other assets and liabilities
|
|
|
(22,028 |
) |
|
|
(28,366 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
8,482 |
|
|
|
(2,081 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(5,306 |
) |
|
|
(6,946 |
) |
Other
|
|
|
(91 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,397 |
) |
|
|
(6,959 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(19,541 |
) |
Dividends to preferred shareholders
|
|
|
(4,500 |
) |
|
|
(4,500 |
) |
Dividends/distributions to La Quinta Corporation
|
|
|
(727 |
) |
|
|
(1,153 |
) |
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(5,227 |
) |
|
|
(25,194 |
) |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,142 |
) |
|
|
(34,234 |
) |
Cash and cash equivalents at:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
33,368 |
|
|
|
228,040 |
|
|
|
|
|
|
|
|
End of period
|
|
$ |
31,226 |
|
|
$ |
193,806 |
|
|
|
|
|
|
|
|
The accompanying condensed notes, together with the Notes to the
Consolidated Financial Statements
contained within The La Quinta Companies
Form 10-K for the year ended
December 31, 2004, are an integral part of these financial
statements.
6
LA QUINTA CORPORATION
LA QUINTA PROPERTIES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
1. |
Nature of Business and Summary of Significant Accounting
Policies |
Nature of Business
La Quinta Corporation (LQ Corporation) and
its controlled subsidiary, La Quinta Properties, Inc.
(LQ Properties), primarily focus on the lodging
business. La Quintas lodging real estate assets are
primarily owned by LQ Properties or one or more of its
direct and indirect subsidiaries. LQ Corporation operates
all of its owned lodging properties through its subsidiary,
La Quinta Inns, Inc.
The common stock of LQ Corporation and the class B common
stock of LQ Properties are attached and trade together as a
single unit. The term LQ Corporation includes those
entities owned or controlled by LQ Corporation (including
its controlled subsidiaries LQ Properties and
La Quinta Inns, Inc.); the term LQ Properties includes
those entities owned or controlled by LQ Properties; and
the terms we, us, our,
the companies, La Quinta, or
The La Quinta Companies refer to
LQ Corporation, LQ Properties and their respective
subsidiaries, collectively.
Our trade names, trademarks and service marks include
La Quinta®, La Quinta Inns®, La Quinta
Inn & Suites®, Returns®, Baymont®,
Baymont Inn & Suites®, Woodfield®, Woodfield
Suites® and Budgetel®. We franchise our La Quinta
and Baymont brands to independent owner/operators. As of
March 31, 2005, our system of owned, managed and franchised
hotels contained 578 hotels (including 15 hotels
located on land all or part of which we lease from third
parties), representing approximately 63,550 rooms located
across the U.S. and approximately 50 rooms in Canada. As of
March 31, 2005, we owned and operated 357 hotels,
representing approximately 44,600 rooms, and our
franchisees operated 221 hotels, representing approximately
19,000 rooms (including one managed Baymont Inn &
Suites representing 95 rooms), under our brands. Our
lodging properties are particularly sensitive to adverse
economic and competitive conditions and trends and such
conditions could adversely affect our business, financial
condition and results of operations.
Summary of Significant Accounting Policies
|
|
|
Basis of Presentation and Consolidation |
Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
(GAAP), have been condensed or omitted in this Joint
Quarterly Report on Form 10-Q (this Joint Quarterly
Report), in accordance with the Rules and Regulations of
the Securities and Exchange Commission (the SEC). We
believe the disclosures contained in this Joint Quarterly
Report, together with the disclosures contained in our Joint
Annual Report on Form 10-K filed with the SEC on
March 15, 2005 (Joint Annual Report), are
adequate to make the information presented not misleading. See
our Joint Annual Report for additional information relevant to
significant accounting policies that we follow.
We believe the accompanying unaudited consolidated financial
statements reflect all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
of the financial statements. The results of operations for the
three months ended March 31, 2005 are not necessarily
indicative of the results that may be expected for any other
interim period or for the entire year.
The accompanying consolidated financial statements represent the
financial position and results of operations and cash flows of
LQ Corporation on a consolidated basis with its controlled
subsidiary, LQ Properties and LQ Properties on a
consolidated basis. In each case, the consolidated financial
statements include the assets, liabilities, revenues and
expenses of entities (in the absence of other factors
determining control) where LQ Corporation and/ or
LQ Properties own over 50% of the voting shares of another
company or, in the case of partnership investments, where
LQ Corporation and/ or LQ Properties controls or is the
7
primary beneficiary of the general partnership interest. In
addition, we currently manage one hotel under a management
agreement with a third party. We determined that we do not:
(1) maintain an equity ownership position, (2) have
the ability to exercise significant influence or (3) have
exposure to risks of operations that are sufficient to require
consolidation of the managed hotel. Separate financial
statements have been presented for LQ Properties because
LQ Properties has securities that are publicly traded on
the New York Stock Exchange. All significant intercompany
balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from these
estimates. Certain prior year amounts have been reclassified to
conform to the current year presentation. These reclassified
amounts principally relate to discontinued operations (see
Note 3 Discontinued Operations).
The lodging industry is seasonal in nature. The periods during
which our lodging properties experience higher revenues vary
from property to property, depending principally upon location.
Generally, hotel revenues are greater in the second and third
quarters than in the first and fourth quarters. This seasonality
can be expected to cause quarterly fluctuations in revenue,
profit margins and net earnings. In addition, the opening of
newly constructed hotels and the timing of any hotel
acquisitions or sales may cause a variation of revenue, profit
margins and net earnings from quarter to quarter.
|
|
|
Valuation of Long-Lived Assets |
La Quinta regularly reviews the performance of long-lived
assets on an ongoing basis for impairment as well as when events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. La Quinta identifies
properties it intends to sell and properties it intends to hold
for use. For each lodging asset held for use, if the sum of
expected future cash flows (undiscounted and without interest
charges) is less than the net book value of the asset, the
excess of the net book value over La Quintas estimate
of fair value of the asset is charged to current earnings. We
estimate fair value primarily (1) by discounting expected
future cash flows or (2) based on expected liquidated sales
proceeds, relying on common hotel valuation methods such as
multiples of room revenues or per room valuations.
La Quintas estimate of fair value of the asset then
becomes the new cost basis of the asset and this new cost basis
is then depreciated over the assets remaining life. When
management identifies an asset as held for sale, has obtained
authority to sell the property, is actively marketing the
property, and expects to sell the asset within twelve months,
the asset is classified as held for sale. Depreciation of the
asset is discontinued and the carrying value is reduced, if
necessary, to the estimated fair value less costs to sell by
recording a charge to current earnings. All assets held for sale
are monitored through the date of sale for potential adjustment
based on offers La Quinta is willing to take under serious
consideration and continued review of facts and circumstances. A
gain or loss on disposition is recorded to the extent that the
amounts ultimately received for the sale of assets differ from
the adjusted book values of the assets. Gains on sales of assets
are recognized at the time the assets are sold provided there is
reasonable assurance the sales price will be collected and any
future activities to be performed by the companies relating to
the assets sold are expected to be insignificant.
We continue to evaluate the assets in our total portfolio as
well as to pursue an orderly disposition of our held for sale
assets. There can be no assurance if, or when, sales will be
completed or whether such sales will be completed on terms that
will enable us to realize the full carrying value of such assets.
La Quinta has various stock-based employee compensation
plans and accounts for those plans using the intrinsic value
method as prescribed under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25). No stock-based
employee compensation cost is charged to earnings for options,
as all options granted under those plans had an exercise price
equal to or greater than the market value of the underlying
common stock on the date of grant. The companies grant
restricted stock awards to
8
certain employees. The difference between the price to the
employee and the market value at grant date is charged to
unearned compensation, carried as a component of equity and
amortized over the related vesting period.
Had compensation cost for the companies stock option-based
compensation plans been determined based on the fair value at
the grant dates for awards under the plans consistent with the
method pursuant to Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation, the companies net loss and
loss per share would have increased to the pro forma amounts
indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions, except | |
|
|
per share data) | |
Net loss, as reported
|
|
$ |
(3.8 |
) |
|
$ |
(12.3 |
) |
Deduct:
|
|
|
|
|
|
|
|
|
|
Total stock option compensation expense determined under fair
value based method for all awards
|
|
|
(0.9 |
) |
|
|
(1.1 |
) |
|
Tax effect
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(4.4 |
) |
|
$ |
(13.0 |
) |
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
Basic and assuming dilution as reported
|
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
|
Basic and assuming dilution pro forma
|
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
The fair value of each option grant is estimated on the date of
grant using a Black-Scholes option-pricing model. No stock
options were granted during the three months ended
March 31, 2005.
In December 2004, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 123R,
Share-Based Payment (SFAS 123R),
that requires an entity to measure the cost of employee services
received in exchange for an award of equity instruments based on
the grant-date fair value of the award (with limited
exceptions). That cost will be recognized in the consolidated
statements of operations over the period during which an
employee is required to provide service in exchange for the
award the requisite service period (usually the
vesting period). No compensation cost is recognized for equity
instruments for which employees do not render the requisite
service. Presently, we record stock-based compensation expense
attributable to restricted stock performance awards; however, we
present pro forma disclosures with respect to the compensation
cost associated with stock options in lieu of recording stock
option related expense. On April 14, 2005, the SEC adopted
a rule that amends the effective date of SFAS 123R. The new
effective date is the beginning of the fiscal year that begins
after June 15, 2005. We plan to adopt SFAS 123R
effective January 1, 2006, using the modified-prospective
transition method. Consequently, we will recognize compensation
expense related to outstanding unvested stock-based performance
awards commencing January 1, 2006 over the remaining
requisite service period. We currently are assessing the
financial statement impact of implementing SFAS 123R. The
actual impact in 2006 of implementing SFAS 123R will be
directly affected by any additional stock-based performance
awards granted.
During September 2004, we determined that the La Quinta
trademarks have an indefinite useful life based on changes in
circumstances of factors used to determine the useful lives
primarily as a result of the establishment and growth of our
franchise program. In accordance with SFAS No. 142
Goodwill and Other Intangible Assets
(SFAS 142), these assets are no longer
amortized and will be tested for impairment annually, or more
frequently if events or changes in circumstances indicate that
the asset might be impaired. The effect of this change in the
third quarter of 2004 was accounted for on a prospective basis.
The impact of the change in useful life was a decrease in
amortization expense and net loss during the three months ended
9
March 31, 2005 of approximately $1.0 million and
$0.6 million, respectively. Management determined that the
Baymont trademarks have an indefinite useful life. These assets
will be tested for impairment annually, or more frequently if
events or changes in circumstances indicate that these assets
might be impaired. The intangible asset related to the Baymont
franchising agreements is deemed to have a finite life and will
be amortized over the average life of the associated franchise
agreements, including potential renewals, based on the interest
method of amortization.
In September 2004, La Quinta acquired substantially all of
the assets of the limited service lodging division of The Marcus
Corporation for a total purchase price of approximately
$419.2 million, including estimated transaction costs and
net working capital adjustments (the Acquisition).
As of March 31, 2005, approximately $22.0 million of
the total purchase price was being held in escrow pending
completion of certain transfer requirements. As part of the
agreement, La Quinta acquired 90 Baymont Inn &
Suites (including one management contract), seven Woodfield
Suites and one Budgetel Inn. In addition, La Quinta
acquired all of the trade rights associated with the Baymont,
Woodfield Suites, and Budgetel brands, and the Baymont franchise
system of 87 hotels. The 185 hotels (containing
approximately 17,700 rooms) are located across
33 states, with approximately one-half of the hotels in the
midwestern region of the United States. With this acquisition,
we gained an additional limited service lodging brand and
increased our geographic diversity.
|
|
3. |
Discontinued Operations |
In January 2005, 17 hotels, including one hotel that is
subject to full condemnation, met the criteria for
classification as held for sale in accordance with
SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144). At
March 31, 2005 and December 31, 2004, we have
classified the related assets and liabilities of 17 hotels
as discontinued components under the provisions of
SFAS 144. During the three months ended March 31, 2005
and 2004, we have presented the separately identifiable results
of operations and cash flows of 17 hotels and 13 hotels
(excluding four Baymont hotels acquired during September 2004),
respectively, as discontinued operations. The decision to sell
certain of these hotels was based on (1) local market
conditions, (2) historical operating and financial results
associated with the hotel, and (3) future capital
expenditure requirements. The sales or condemnation proceedings
of the 17 hotels are expected to close or otherwise be
concluded during 2005. Aggregate impairment charges of
$8.4 million were recorded in December 2004 and during the
three months ended March 31, 2005 to write down 9 of the
total 17 hotels to estimated fair value less costs of sale.
The following is a summary of balance sheet information for
discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Current assets
|
|
$ |
1.1 |
|
|
$ |
0.8 |
|
Property and equipment, net
|
|
|
35.3 |
|
|
|
35.4 |
|
Other
|
|
|
2.5 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
38.9 |
|
|
$ |
39.0 |
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
0.7 |
|
|
|
1.1 |
|
Total La Quinta Companies investment
|
|
|
38.2 |
|
|
|
37.9 |
|
|
|
|
|
|
|
|
Total liabilities and La Quinta Companies investment
|
|
$ |
38.9 |
|
|
$ |
39.0 |
|
|
|
|
|
|
|
|
10
The following is a summary of consolidated statements of
operations information for discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Revenues
|
|
$ |
4.2 |
|
|
$ |
3.7 |
|
Income (loss) before income taxes
|
|
$ |
0.2 |
|
|
$ |
(0.2 |
) |
Income tax (expense) benefit
|
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$ |
0.1 |
|
|
$ |
(0.1 |
) |
|
|
|
|
|
|
|
|
|
4. |
Property and Equipment |
The following is a summary of our investment in property and
equipment (excluding property and equipment classified as
discontinued operations):
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Land
|
|
$ |
395.9 |
|
|
$ |
396.2 |
|
Buildings and improvements, net of accumulated depreciation of
$361.9 and $361.1, respectively
|
|
|
1,858.5 |
|
|
|
1,874.8 |
|
Furniture, fixtures, equipment and other, net of accumulated
depreciation of $233.3 and $221.1, respectively
|
|
|
142.5 |
|
|
|
152.5 |
|
Land held for sale
|
|
|
5.5 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
$ |
2,402.4 |
|
|
$ |
2,429.0 |
|
|
|
|
|
|
|
|
The following summarizes the changes in the net book value of
property and equipment for the three months ended March 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lodging | |
|
Corporate | |
|
Held for sale | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Property and equipment, net at December 31, 2004
|
|
$ |
2,373.8 |
|
|
$ |
49.7 |
|
|
$ |
5.5 |
|
|
$ |
2,429.0 |
|
|
Capital improvements
|
|
|
6.1 |
|
|
|
1.9 |
|
|
|
|
|
|
|
8.0 |
|
|
Depreciation expense
|
|
|
(30.5 |
) |
|
|
(3.3 |
) |
|
|
|
|
|
|
(33.8 |
) |
|
Sale of real estate, net
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
Retirements, net
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
Impairments
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
Other adjustments
|
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net at March 31, 2005
|
|
$ |
2,348.6 |
|
|
$ |
48.3 |
|
|
$ |
5.5 |
|
|
$ |
2,402.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2005 and December 31, 2004, a land parcel
continues to be classified as held for sale; however, the land
parcel is not included in discontinued operations as it does not
meet the definition of a component of an entity under the
provisions of SFAS 144. At both March 31, 2005 and
December 31, 2004, the estimated fair market value less
costs of sale of this land parcel was approximately
$5.5 million.
We regularly review the performance of long-lived assets on an
ongoing basis for impairment as well as when events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. For each lodging asset held for use, if
the sum of expected future cash flows (undiscounted and without
interest charges) is less than the net book value of the asset,
the excess of the net book value over La Quintas estimate
of fair value of the asset is charged to current earnings. We
estimate fair value primarily (1) by discounting expected
future cash flows or (2) based on expected liquidated sales
proceeds, relying on common
11
hotel valuation methods such as multiples of room revenues or
per room valuations. For each asset held for sale, the carrying
value is reduced, if necessary, to the expected sales proceeds
less costs to sell by recording a charge to current earnings.
During the three months ended March 31, 2005, we changed
our estimate of the remaining useful life related to a hotel
that is scheduled to be redeveloped beginning in the second
quarter of 2005. The impact of the change in useful life during
the three months ended March 31, 2005 was an increase in
depreciation expense and net loss of approximately
$2.4 million and $1.3 million, or $0.01 per share,
respectively.
During the three months ended March 31, 2004, we changed
our estimate of the remaining useful life related to a hotel
that completed redevelopment during 2004. The impact of the
change in useful life during the three months ended
March 31, 2004 was an increase in depreciation expense and
net loss of approximately $2.0 million and
$1.2 million, or $0.01 per share, respectively.
Indebtedness at March 31, 2005 and December 31, 2004
was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Notes payable:
|
|
|
|
|
|
|
|
|
Principal payments aggregating $100 due in September 2005,
bearing interest at 7.40%
|
|
$ |
100.0 |
|
|
$ |
100.0 |
|
Principal payments aggregating $41 due from September 2005 to
September 2015, bearing interest at rates between 7.3% and 8.625%
|
|
|
40.5 |
|
|
|
40.5 |
|
Principal payments aggregating $50 due in February 2007, bearing
interest at 7.27%
|
|
|
50.0 |
|
|
|
50.0 |
|
Principal payments aggregating $160 due in August 2007, bearing
interest at 7%
|
|
|
160.0 |
|
|
|
160.0 |
|
Principal payments aggregating $50 due in April 2008, bearing
interest at 7.33%
|
|
|
50.0 |
|
|
|
50.0 |
|
Principal payments aggregating $325 due in March 2011, bearing
interest at 8.875%
|
|
|
325.0 |
|
|
|
325.0 |
|
Principal payments aggregating $200 due in August 2012, bearing
interest at 7%
|
|
|
200.0 |
|
|
|
200.0 |
|
Principal payments aggregating $0.1 due in September 2026,
bearing interest at 7.82%
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Total indebtedness
|
|
|
925.6 |
|
|
|
925.6 |
|
Less current portion
|
|
|
(136.0 |
) |
|
|
(116.0 |
) |
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
789.6 |
|
|
$ |
809.6 |
|
|
|
|
|
|
|
|
In November 2003, we refinanced our previous credit agreement
with a bank group to provide a $150 million revolving line
of credit (the 2003 Credit Facility). The 2003
Credit Facility, which matures in April 2007, is secured by a
pledge of stock of our subsidiaries, intercompany debt evidenced
by promissory notes and our mortgage notes receivable. The 2003
Credit Facility is not subject to a lockbox arrangement, but
does contain a subjective acceleration clause contingent upon a
material adverse effect. LQ Properties is the borrower
under the facility and LQ Corporation is the guarantor.
Approximately $130 million (net of $20.1 million in
outstanding letters of credit) was available under the 2003
Credit Facility at March 31, 2005. Borrowings under the
2003 Credit Facility currently bear interest at the London
Interbank Offered Rate (LIBOR) plus 2.25%.
Commitment fees are based on 0.5% per annum of the unused
balance for any period where utilization is less than 50% and
0.375% per annum if utilization is greater than 50%. During
the three
12
months ended March 31, 2005, there were no borrowings under
the 2003 Credit Facility other than the letters of credit.
On January 23, 2004, LQ Properties exchanged
1,000 shares of LQ Properties Series B Cumulative
Redeemable Preferred Stock (the Series B Preferred
Stock), which represented all of the outstanding
Series B Preferred Stock, for 1,000,000 depositary
shares, which represent 100,000 shares of LQ Properties
Series A Cumulative Redeemable Preferred Stock
(Series A Preferred Stock). The Series B
Preferred Stock exchanged stood pari passu with the
Series A Preferred Stock and the Series A Preferred
Stock issued pursuant to an exchange agreement collects the same
aggregate dividends ($2.25 million per year) and has the
same aggregate liquidation preference as did the Series B
Preferred Stock.
During each of the three months ended March 31, 2005 and
2004, LQ Properties paid dividends of $4.5 million or
$0.5625 per depositary share on its 9% Series A
Preferred Stock.
LQ Corporation is a C-corporation for U.S. federal income
tax purposes and, as such, pays taxes on its taxable income as
determined under the Internal Revenue Code of 1986 (the
Code). The taxable income or loss of LQ Properties
is not included in the income tax return of LQ Corporation
except to the extent that LQ Properties pays taxable dividends
with respect to its class A common shares held by LQ
Corporation. Therefore, any separate company annual tax
liability of LQ Corporation is based on its current taxable
income (including any taxable dividends received from
LQ Properties), reduced by any net operating loss
(NOL) carryforwards available to offset taxable
income.
LQ Properties has elected to be treated as a real estate
investment trust (REIT) for federal income tax
purposes and believes it has met all the requirements for
qualification. Accordingly, LQ Properties generally will
not be taxed on that portion of its REIT taxable income that it
distributes to its common and preferred shareholders, provided
that it continues to comply with the requirements of the Code
and regulations thereunder. LQ Properties utilizes
subsidiaries taxable as C-corporations (taxable REIT
subsidiaries) to hold certain assets that could otherwise
adversely affect its status as a REIT.
For financial reporting purposes, the consolidated income tax
expense or benefit is based on consolidated reported financial
accounting income or loss before income taxes and discontinued
operations. Deferred income tax assets and liabilities reflect
the temporary differences between consolidated assets and
liabilities recognized for financial reporting and the analogous
consolidated amounts recognized for tax purposes using the tax
rates in effect for the year in which the differences are
expected to reverse. The separate financial statements for
LQ Properties reflect only a tax provision and related
balance sheet accounts recorded for its taxable REIT
subsidiaries and taxes payable with respect to recognized
built-in gains and alternative minimum taxes currently payable.
For interim financial reporting purposes, tax expense or benefit
is calculated based on the estimated annual effective tax rate,
adjusted to give effect to anticipated permanent differences and
amounts attributable to minority interest. The results
associated with discontinued operations are reported net of
federal and state income taxes applicable to those operations.
Due to the payment of tax deductible preferred dividends (which
are shown as minority interest on the LQ Corporation
consolidated financial statements) and the existence of net
operating loss carryforwards, the companies do not expect to pay
substantial income taxes in 2005.
13
LQ Corporations consolidated income tax benefit consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Current income tax (expense) benefit
|
|
$ |
(0.4 |
) |
|
$ |
0.2 |
|
Deferred income tax benefit
|
|
|
2.9 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
Total income tax benefit
|
|
$ |
2.5 |
|
|
$ |
5.0 |
|
|
|
|
|
|
|
|
Earnings per share (EPS) for the companies is
computed as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions, except | |
|
|
per share data) | |
Loss before discontinued operations
|
|
$ |
(3.9 |
) |
|
$ |
(12.2 |
) |
Income (loss) from discontinued operations, net
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3.8 |
) |
|
$ |
(12.3 |
) |
|
|
|
|
|
|
|
Average outstanding equivalent of paired common shares
|
|
|
179.4 |
|
|
|
176.3 |
|
Dilutive effect of stock options and unvested restricted shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average outstanding equivalent of paired common shares
|
|
|
179.4 |
|
|
|
176.3 |
|
|
|
|
|
|
|
|
Basic and assuming dilution
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
Income (loss) from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
Options to purchase the following paired common shares were
outstanding but were not included in the computation of diluted
earnings per share because the options exercise prices
were equal to or greater than the average market price of the
paired common shares and because the inclusion would result in
an antidilutive effect in periods where a loss was incurred. The
options, which expire on dates ranging from December 2008 to
August 2009, were still outstanding at March 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions, except per | |
|
|
share prices) | |
Stock options:
|
|
|
|
|
|
|
|
|
Paired common shares
|
|
|
0.2 |
|
|
|
0.4 |
|
Highest exercise price
|
|
$ |
16.06 |
|
|
$ |
25.07 |
|
Lowest exercise price
|
|
$ |
9.94 |
|
|
$ |
7.33 |
|
14
In addition, unvested restricted shares and options to purchase
the following paired common shares were outstanding and were not
included in the computation of diluted EPS because their
inclusion would result in an antidilutive per share amount as
the companies reported a loss from continuing operations for the
periods presented. The unvested restricted shares and options,
which expire on dates ranging from September 2009 to November
2014, were still outstanding at March 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions, except | |
|
|
per share prices) | |
Stock options:
|
|
|
|
|
|
|
|
|
Paired common shares
|
|
|
9.8 |
|
|
|
12.4 |
|
Weighted-average effect
|
|
|
2.8 |
|
|
|
3.5 |
|
Highest exercise price
|
|
$ |
8.88 |
|
|
$ |
7.29 |
|
Lowest exercise price
|
|
$ |
2.00 |
|
|
$ |
1.94 |
|
Unvested restricted shares:
|
|
|
|
|
|
|
|
|
Paired common shares
|
|
|
1.9 |
|
|
|
1.8 |
|
Weighted-average effect
|
|
|
1.2 |
|
|
|
1.4 |
|
Highest exercise price
|
|
$ |
0.02 |
|
|
$ |
0.20 |
|
Lowest exercise price
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
|
9. |
Commitments and Contingencies |
We are party to certain claims involving healthcare facilities
formerly owned by LQ Properties that were leased to and
operated by third party operators. Although we required our
third party operators to maintain insurance coverage insuring
LQ Properties interests in the facilities as well as
their own, this insurance coverage may not be adequate to fully
protect us. We have been notified that one of the companies
providing such insurance coverage, Reliance Insurance Company,
was ordered into liquidation in October 2001. Although we cannot
predict what effect the liquidation of Reliance Insurance
Company will have on pending claims, we do not consider our
ultimate liability with respect to any one of these claims or
lawsuits, as well as any other uninsured claim or lawsuit
involving healthcare facilities formerly owned by LQ Properties
that were leased to and operated by third party operators, to be
material in relation to our consolidated financial position or
operations.
We are party to certain insurance policy contracts for
workers compensation, commercial general liability and
automobile liability exposures inclusive of the period June 1990
through May 2003. The financial strength ratings for the
insurance carrier underwriting these insurance programs have
been significantly downgraded by various industry rating
agencies. The carrier subsequently ceased all underwritings and
submitted to voluntary oversight by the Illinois Insurance
Commission and filed a formal runoff plan with the Commissioner.
The carrier continues to operate under this runoff plan and pay
claims filed under these insurance programs. We cannot predict
the success or failure of this plan nor can we predict the
ability of the insurance carrier to pay pending claims; however,
we believe that any failure by the insurance carrier to pay our
pending claims will not have a material adverse impact on our
consolidated financial position or operations.
In addition, we are party to a number of other claims and
lawsuits arising out of the normal course of business relating
to our lodging operations. We regularly evaluate our ultimate
liability and attendant costs with respect to these claims and
lawsuits. We do not consider our ultimate liability with respect
to any single claim or lawsuit to be material in relation to our
consolidated financial position or operations.
Under certain franchise agreements or joint venture agreements,
we have committed to provide certain incentive payments, loans,
reimbursements, rebates and other payments to help defray the
cost of construction, marketing and other costs associated with
opening and operating a La Quinta or Baymont hotel. Our
obligation to fund these commitments is contingent upon certain
conditions set forth in the respective franchise or joint
venture agreements. As of March 31, 2005, we had
approximately $16.4 million in
15
outstanding commitments of financial assistance to various
franchisees, of which approximately $9.0 million has been
funded and approximately $2.7 million has been repaid by
franchisees or amortized. The unamortized balance of amounts
funded on incentive payments is included in other non-current
assets. These agreements generally require that, in the event
that the franchise relationship is terminated, the franchisee
either repays the outstanding loan balance or unamortized
portion of the incentive payment, or transfers to us any
equipment, computer or other property purchased by the
franchisee with the incentive payment.
We have provided a letter of credit in connection with a 1995
health care transaction, which guarantees the payment of certain
industrial revenue bonds aggregating approximately
$4.5 million that are the obligation of an unrelated third
party. As of March 31, 2005, we continued to provide this
standby letter of credit under our 2003 Credit Facility for the
benefit of the trustee of the bonds in the amount of
$4.7 million (consisting of $4.5 million of principal
and $0.2 million of interest). As part of the agreement to
provide the letter of credit, the unrelated third party has
provided La Quinta with collateral consisting of all
property and equipment of the related healthcare facility,
currently estimated to have a fair value of approximately
$0.5 million. Due to concern that the unrelated third party
will not be able to meet its obligations as they become due and
stay in operation, there is a probability that La Quinta
will be required to perform under the obligation. The
March 31, 2005 consolidated balance sheet included a
liability of approximately $4.2 million in connection with
the obligation.
|
|
10. |
Transactions between LQ Properties and
LQ Corporation |
LQC Leasing, LLC, a direct subsidiary of LQ Corporation,
leases hotel facilities from LQ Properties and its
subsidiaries. The lease agreements provide for a percentage of
rent payments in amounts equal to 36% of the gross room revenues
of the hotel facilities, initial lease terms ranging from four
to six years and require LQ Properties to pay property
taxes and insurance and to fund certain capital expenditures.
LQ Properties and LQC Leasing, LLC have entered into leases
for the Baymont properties owned by LQ Properties with
substantially the same terms and conditions as the existing
La Quinta leases, except that the rent payments are 29% of
the gross room revenues provided by the Baymont properties.
LQ Properties rent income from LQ Corporation
for the three months ended March 31, 2005 and 2004 was
approximately $53.9 million and $43.3 million,
respectively.
A subsidiary of LQ Corporation also has a royalty
arrangement with a subsidiary of LQ Properties for the use
of the La Quinta brand name. The royalty agreement provides
for royalties of 1.5% of gross revenue, as defined in the
royalty agreement. LQ Properties royalty income from
LQ Corporation for the three months ended March 31,
2005 and 2004 was approximately $1.9 million and
$1.8 million, respectively.
Minority interest distributions to LQ Corporation from a
subsidiary of LQ Properties for the three months ended
March 31, 2005 and 2004 were approximately
$0.7 million and $1.2 million, respectively.
LQ Corporation provides certain management services to
LQ Properties primarily related to executive management,
general tax preparation and consulting, legal, accounting and
certain aspects of human resources. LQ Properties
compensates LQ Corporation for the direct costs of
providing such services.
During April 2005, we entered into a settlement and assignment
agreement (the Agreement) with respect to a hotel
that is subject to full condemnation proceedings and included in
discontinued operations during the periods presented in these
financial statements. The hotel is located on land that is
subject to a ground lease with a third party (the
Landlord). The Agreement provides that
(1) Landlord will pay $2.7 million to La Quinta,
(2) the ground lease will be terminated and
(3) La Quinta assigns to the Landlord all interests,
claims, rights, and causes of action La Quinta has or may
have in the condemnation proceedings. During the second quarter
of 2005, we will record a pre-tax gain on settlement of
approximately $1.1 million.
16
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
You should read the following discussion together with the
financial statements and related notes included elsewhere in
this Joint Quarterly Report. The results discussed below are not
necessarily indicative of the results to be expected in future
periods. This discussion contains forward-looking statements
based on current expectations, which involve risks and
uncertainties. Actual results and the timing of certain events
may differ significantly from those projected in such
forward-looking statements due to a number of factors. You
should read the discussion about forward-looking statements in
this Joint Quarterly Report under the heading
Forward-Looking Statements. That section will also
direct you to our Joint Annual Report and other risks described
from time to time in our annual, quarterly and current reports
filed with the SEC. We undertake no obligation to publicly
update or revise any forward-looking statement whether as a
result of new information, future events or other changes,
including those described in our Joint Annual Report.
Overview
La Quinta is one of the largest owner/operators of limited
service hotels in the United States. We strive to offer hotels
that attract both business and leisure travelers seeking
consistently clean and comfortable rooms that generally are
comparable to those of mid-priced, full service hotels, but at
lower average room rates.
In September 2004, we acquired substantially all the assets of
the limited service lodging division of The Marcus Corporation
(the Acquisition), including 90 Baymont
Inn & Suites (including one management contract), seven
Woodfield Suites and one Budgetel Inn. In addition, we acquired
all the trade rights associated with the Baymont, Woodfield
Suites and Budgetel brands, and the Baymont franchise system of
87 hotels. In December 2004, we acquired three additional
hotels that have been or will be converted to our brands or
sold. The hotels acquired in September 2004, excluding four
Baymont hotels currently reported in discontinued operations,
and the hotels acquired in December 2004 are referred to as the
Acquired Hotels.
La Quinta derives its revenue by owning and operating
hotels under our proprietary La Quinta, Baymont, Woodfield
Suites and Budgetel brands. In addition, we franchise our
La Quinta and Baymont brands to independent
owner/operators. Our trade names, trademarks and service marks
include La Quinta®, La Quinta Inns®,
La Quinta Inn & Suites®, Returns®,
Baymont®, Baymont Inn & Suites®,
Woodfield®, Woodfield Suites® and Budgetel®. As
of March 31, 2005, our system of owned, managed and
franchised hotels contained 578 hotels (including
15 hotels located on land all or part of which we lease
from third parties), representing approximately
63,550 rooms located across the U.S. and approximately
50 rooms in Canada. As of March 31, 2005, we owned and
operated 357 hotels, representing approximately
44,600 rooms, and our franchisees operated 221 hotels,
representing approximately 19,000 rooms (including one
managed Baymont Inn & Suites representing
95 rooms), under our brands.
Our growth strategy includes improving the profitability of our
existing company owned hotels, continuing expansion of our
La Quinta and Baymont brands through franchising, and
investing a portion of our available capital in the lodging
business including, but not limited to, the acquisition of other
lodging assets and/or brands. We believe that we benefit from
certain competitive strengths that support implementation of our
growth strategy, including significant brand awareness,
operational expertise, experienced management team, capital
structure and strong infrastructure.
We also believe the overall lodging industry environment today
is positive. In 2001, the U.S. lodging industry experienced
a substantial downturn as a result of a slowing national economy
and the impact on the U.S. of the terrorist attacks on
September 11, 2001, as well as the aftermath. Toward the
end of 2003, however, year-over-year revenue per available room,
or RevPAR, changes turned positive for the industry as leisure
travel began to increase. Based on data provided by Smith Travel
Research, RevPAR in the
17
U.S. lodging industry experienced a year-over-year increase
of 7.8% in 2004, as leisure travel continued to increase and was
accompanied by improvement in business travel.
Discontinued Operations
In January 2005, 17 hotels, including one hotel that is
subject to full condemnation, met the criteria for
classification as held for sale in accordance with
SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144). At
March 31, 2005 and December 31, 2004, we have
classified the related assets and liabilities of 17 hotels
as discontinued components under the provisions of
SFAS 144. During the three months ended March 31, 2005
and 2004, we have presented the separately identifiable results
of operations and cash flows of 17 hotels and
13 hotels (excluding four Baymont hotels acquired during
September 2004), respectively, as discontinued operations. The
decision to sell certain of these hotels was based on
(1) local market conditions, (2) historical operating
and financial results associated with the hotel, and
(3) future capital expenditure requirements. The sales or
condemnation proceedings of the 17 hotels are expected to
close or otherwise be concluded during 2005. Aggregate
impairment charges of $8.4 million were recorded in
December 2004 and the three months ended March 31, 2005 to
write down 9 of the 17 hotels to estimated fair value less
costs of sale.
Key Indicators of Financial Condition and Operating
Performance
We use a variety of financial and other information in
monitoring the financial condition and operating performance of
our business. Some of this information is financial information
that is prepared in accordance with accounting principles
generally accepted in the U.S., or GAAP, while other information
may be financial in nature and may not be prepared in accordance
with GAAP. Our management also uses other information that may
not be financial in nature, including statistical information
and comparative data. Our management uses this information to
measure the performance of individual hotel properties, groups
of hotel properties within a geographic region and/or our
business as a whole. Historical information is periodically
compared to our internal budgets as well as against
industry-wide information. We use this information for planning
and monitoring our business, as well as in determining employee
compensation.
Average Daily Rate (ADR), Occupancy Percentage
and RevPAR. Room revenue comprises approximately 93% of our
revenues and is dictated by demand, as measured by occupancy
percentage, pricing, as measured by ADR, and our available
supply of hotel rooms. RevPAR, which is the result of the
combined impact of ADR and occupancy, is another important
statistic for monitoring operating performance at the individual
hotel property level and across our business as a whole. RevPAR
performance is evaluated on an absolute basis, with comparison
to budgeted and prior period performance, as well as on a
company wide and regional basis. Additionally, RevPAR
performance is compared and tracked against industry data for
our defined competitive set within each local market as
aggregated by Smith Travel Research.
Our ADR, occupancy percentage and RevPAR performance may be
impacted by macroeconomic factors such as regional and local
employment growth, personal income and corporate earnings,
office vacancy rates and business relocation decisions, airport
and other business and leisure travel levels and new hotel
construction by our competitors, as well as the pricing
strategies of our limited service and full service lodging
competitors. Our ADR, occupancy percentage and/or RevPAR
performance is also impacted by factors specific to
La Quinta, including our guest satisfaction scores, our
choice of locations for our hotels, the expenditures that we
incur to maintain and improve our hotel properties and the
quality of the benefits that we offer our guests, such as our
customer loyalty program. Our available room supply is impacted
by our access to third party financing, the amount we spend to
develop or acquire hotels and our sale of existing hotels.
Inn Operating Contribution (IOC). IOC is a
non-GAAP measure of an individual hotel propertys level of
profitability before fixed costs. IOC focuses on revenues and
expenses that management considers to be controllable components
of the hotel property level operations. As part of IOC, we track
and manage our cost per rented room as a measure of the variable
cost to offer a room night.
18
Guest Satisfaction. Guest satisfaction scores are an
important indicator of how our products and services are being
received and viewed by our customers. We believe guest
satisfaction is a driver of repeat and referral business that
leads to increased revenue. Guest satisfaction scores are
monitored through a number of initiatives including surveys
conducted by an independent market research company. We believe
that high levels of guest satisfaction are important to
maintaining and growing our brands reputation and
recognition.
Franchise Monitoring. We also monitor and track the
number of franchise units opened and the overall growth in our
franchise revenues to measure the performance of our brands, as
well as our franchise programs, which we believe are important
to increase our presence in key geographic markets and enter
additional geographic markets. In addition, our management uses
ADR, occupancy percentage, RevPAR and guest satisfaction scores
to monitor franchisee operating performance.
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Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization |
We use a variety of measures at the corporate level to monitor
the performance of our business as a whole. Some of these
measures are prepared in accordance with GAAP, while others,
such as adjusted earnings before interest, taxes, depreciation
and amortization, or Adjusted EBITDA, are non-GAAP measures. We
use Adjusted EBITDA as a supplemental measure of performance
because we believe it gives us a more complete understanding of
our financial condition and operating results. We use this
metric to calculate various financial ratios and to measure our
performance, and we believe some debt and equity investors also
utilize this metric for similar purposes. Adjusted EBITDA
includes adjustments for non-cash income or expenses such as
depreciation, amortization and other non-cash items. Adjusted
EBITDA is also adjusted for discontinued operations, income
taxes, interest expense and minority interest (which includes
the preferred stock dividends of LQ Properties), as well as
certain cash income or expense that we believe otherwise distort
the comparability of the measure. Adjusted EBITDA is intended to
show unleveraged, pre-tax operating results. This is one of the
measures we use to set management and executive incentive
compensation. Adjusted EBITDA is not intended to represent any
measure of performance in accordance with GAAP and our
calculation and use of this measure may differ from our
competitors. This non-GAAP measure should not be used in
isolation or as a substitute for a measure of performance or
liquidity prepared in accordance with GAAP.
La Quinta Corporation Consolidated Results
of Operations
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Comparison of the Three Months Ended March 31, 2005
and 2004 |
Net loss was approximately $3.8 million or $0.02 per
diluted common share and $12.3 million or $0.07 per
diluted common share during the three months ended
March 31, 2005 and 2004, respectively. Net loss decreased
by $8.5 million or $0.05 per diluted common share
during the three months ended March 31, 2005 compared to
the three months ended March 31, 2004.
The decrease in net loss during the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004 was primarily due to:
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an increase in revenues from hotel operations of approximately
$40.4 million; |
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an increase in franchise fees of approximately
$3.1 million; and |
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a decrease in impairment of property and equipment of
approximately $4.5 million. |
The foregoing changes were partially offset by:
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an increase in direct lodging operations expense of
approximately $18.1 million; |
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an increase in other lodging and operating expense of
approximately $5.2 million; |
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an aggregate increase in general and administrative expense,
interest expense, net and other expense of approximately
$7.4 million; |
19
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an increase in depreciation and amortization expense of
approximately $5.7 million; and |
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a decrease in income tax benefit of approximately
$2.5 million. |
The following table summarizes statistical lodging data for the
three months ended March 31, 2005 and 2004:
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|
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|
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As of and for the | |
|
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Three Months Ended | |
|
|
March 31, | |
|
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| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Number of Hotels in Operation
|
|
|
|
|
|
|
|
|
Comparable Hotels(1)
|
|
|
260 |
|
|
|
260 |
|
Company Owned Hotels(2)
|
|
|
|
|
|
|
|
|
|
La Quinta Inns
|
|
|
185 |
|
|
|
188 |
|
|
La Quinta Inn & Suites(4)
|
|
|
77 |
|
|
|
75 |
|
|
Baymont Inn & Suites
|
|
|
85 |
|
|
|
|
|
|
Other
|
|
|
10 |
|
|
|
|
|
Franchised/ Managed Hotels(3)
|
|
|
|
|
|
|
|
|
|
La Quinta Inns
|
|
|
67 |
|
|
|
52 |
|
|
La Quinta Inn & Suites
|
|
|
59 |
|
|
|
47 |
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|
Baymont Inn & Suites
|
|
|
95 |
|
|
|
|
|
|
|
|
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|
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Total
|
|
|
578 |
|
|
|
362 |
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Occupancy Percentage
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|
|
|
|
|
|
|
Comparable Hotels(1)
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65.5 |
% |
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64.8 |
% |
Company Owned Hotels(2)
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|
|
|
|
|
|
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La Quinta Inns
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62.6 |
% |
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62.7 |
% |
|
La Quinta Inn & Suites(4)
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|
71.7 |
% |
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69.9 |
% |
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|
Composite (La Quinta brand owned hotels)
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|
65.4 |
% |
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64.8 |
% |
|
Baymont Inn & Suites(5)
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|
59.3 |
% |
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N/A |
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|
Composite all owned hotels(6)
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63.9 |
% |
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64.8 |
% |
|
ADR
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|
|
|
|
|
|
|
Comparable Hotels(1)
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|
$ |
63.53 |
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|
$ |
58.97 |
|
Company Owned Hotels(2)
|
|
|
|
|
|
|
|
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|
La Quinta Inns
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|
$ |
59.01 |
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|
$ |
55.51 |
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La Quinta Inn & Suites(4)
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|
$ |
73.59 |
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|
$ |
66.63 |
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|
Composite (La Quinta brand owned hotels)
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|
$ |
63.88 |
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|
$ |
59.01 |
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|
Baymont Inn & Suites(5)
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|
$ |
54.84 |
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N/A |
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Composite all owned hotels(6)
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|
$ |
62.45 |
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|
$ |
59.01 |
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RevPAR
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|
|
|
|
|
|
|
|
Comparable Hotels(1)
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|
$ |
41.64 |
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$ |
38.23 |
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Company Owned Hotels(2)
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|
|
|
|
|
|
|
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La Quinta Inns
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|
$ |
36.96 |
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|
$ |
34.81 |
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La Quinta Inn & Suites(4)
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|
$ |
52.77 |
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$ |
46.56 |
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Composite (La Quinta brand owned hotels)
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|
$ |
41.78 |
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$ |
38.24 |
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Baymont Inn & Suites(5)
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$ |
32.50 |
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N/A |
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Composite all owned hotels(6)
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$ |
39.90 |
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$ |
38.24 |
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20
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As of and for the | |
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Three Months Ended | |
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March 31, | |
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2005 | |
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2004 | |
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Room Night Data
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Total Hotels(2,7)
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Available Room-Nights
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4,007 |
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3,139 |
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Room-Nights Sold
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2,560 |
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2,034 |
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Comparable Hotels(1,7)
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Available Room-Nights
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3,069 |
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|
|
3,104 |
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Room-Nights Sold
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|
|
2,011 |
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|
|
2,012 |
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(1) |
Comparable hotels represent hotels owned and open for both of
the comparable periods, excluding hotels under redevelopment.
Comparable hotels for the three months ended March 31, 2005
and 2004 excludes 13 hotels (1,476 rooms) reported in
discontinued operations and one hotel undergoing redevelopment.
The three months ended March 31, 2004 also excludes two
hotels classified as held for sale, representing 250 rooms
in aggregate. |
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(2) |
Excludes franchised operations and 17 hotels
(1,868 rooms) and 13 hotels (1,476 rooms)
reported in discontinued operations for the three months ended
March 31, 2005 and 2004, respectively. |
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(3) |
The three months ended March 31, 2005 includes one managed
Baymont Inn & Suites representing 95 rooms. |
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(4) |
Includes one hotel acquired on December 9, 2004 that was
converted to a La Quinta Inn & Suites. |
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(5) |
Represents operating statistics for 85 Baymont
Inn & Suites acquired on September 3, 2004. |
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(6) |
Includes results for seven Woodfield Suites and one Budgetel
property acquired on September 3, 2004 and two hotels
acquired on December 9, 2004. |
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(7) |
Represents available room-night count and room-nights sold in
thousands. |
Revenues and Expenses
Hotel operations revenues were $162.5 million and
$122.1 million during the three months ended March 31,
2005 and 2004, respectively. Hotel operations revenues include
revenues from room rentals and other hotel revenues, such as
charges to guests for services and vending commissions. Room
revenues, which accounted for 98% of hotel operations revenues
during both the three months ended March 31, 2005 and 2004,
is dictated by demand, measured as occupancy percentage,
pricing, measured as ADR, and the level of available room
inventory. Operating statistics such as occupancy percentage,
ADR and RevPAR are calculated based on all company owned hotels,
excluding franchised hotels for all reporting periods and
17 hotels during the three months ended March 31, 2005
and 13 hotels during the three months ended March 31,
2004 reported as discontinued operations.
The increase in hotel operations revenues of $40.4 million,
or 33.1%, during the three months ended March 31, 2005
compared to the three months ended March 31, 2004 was due
to several factors, including but not limited to:
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hotel operations revenues from the Acquired Hotels of
approximately $30.4 million during the three months ended
March 31, 2005; and |
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an increase in ADR for La Quinta branded hotels of $4.87,
or 8.3%, to $63.88 during the three months ended March 31,
2005 compared to $59.01 for the three months ended
March 31, 2004. The increase in ADR for La Quinta
branded hotels contributed approximately $9.9 million room
revenue during the three months ended March 31, 2005. |
RevPAR from company owned La Quinta branded hotels
increased $3.54, or 9.3%, to $41.78 during the three months
ended March 31, 2005 compared to $38.24 during the three
months ended March 31, 2004. The
21
increase in RevPAR for the La Quinta branded hotels was
driven by an increase in ADR of $4.87, or 8.3%, and by a slight
increase in occupancy of 0.6 percentage points. During the
three months ended March 31, 2005, for company owned
La Quinta branded hotels (1) we experienced average
daily rate increases across all of our revenue channels,
(2) revenues for our proprietary website,
www.lq.com, increased over 50%, (3) our southern
Florida region had a RevPAR gain of over 20% and (4) our
hotels in Texas showed mixed RevPAR results, with our Dallas and
San Antonio hotels up modestly, our Austin region up over
15% and our Houston region showing a decline.
We believe this positive RevPAR trend will continue during 2005,
and be driven primarily by rate increases for the company owned
La Quinta branded hotels and by both rate and occupancy
increases for company owned Baymont hotels. However,
approximately 50% of our business is booked within zero to seven
days of the stay; therefore, forecasting such a trend is
difficult and declines in business and leisure traveler demand
could impact our future results. We can give no assurance that
the trends experienced during the quarter will continue for the
remainder of 2005.
During February and March 2005, we replaced the third party
property management and central reservation systems used by the
Baymont hotel properties with our own systems. The migration to
our systems is expected to improve effectiveness of the Baymont
hotel and central reservations sales activities, enhance
customer service and facilitate management and analysis of
customer data across brands. Additionally, we migrated Baymont
customer reservations from a third-party call center to our own
call center. We also migrated Baymonts website to the
design we use for the La Quinta brand. We believe this
migration will facilitate the growth of our website reservations
for the Baymont brand as it has for the La Quinta brand.
Franchise fees increased approximately $3.1 million,
or 106.9%, to $6.0 million during the three months ended
March 31, 2005 compared to $2.9 million during the
three months ended March 31, 2004 (including
$1.8 million in franchise revenue generated by franchise
arrangements acquired as part of the Acquisition). Franchise
fees include fees charged to franchisees for operating under the
La Quinta and Baymont brands and for using our hotel
designs, operating systems and procedures and central
reservations system, as well as for participating in our
national marketing and advertising campaigns. We anticipate
continuing increases in 2005 franchise fee revenue compared to
2004 franchise fee revenue as a result of the impact of the
Acquisition, new La Quinta and Baymont branded hotel
openings projected during 2005, and revenue improvements at
existing franchised hotels.
Other revenues decreased approximately $1.0 million,
or 27.8%, to $2.6 million during the three months ended
March 31, 2005 compared to $3.6 million during the
three months ended March 31, 2004. Other revenues primarily
include rent revenues from restaurants leased to third parties
and other revenue from mortgage financing on healthcare real
estate. The decrease was primarily due to the full repayment
during the three months ended September 30, 2004 of a
subordinated note previously issued in connection with the sale
of certain healthcare assets. Interest income on this
subordinated note was approximately $1.0 million during the
three months ended March 31, 2004.
Direct lodging operations expenses were approximately
$76.5 million, or $29.88 per occupied room, and
$58.4 million, or $28.69 per occupied room, during the
three months ended March 31, 2005 and 2004, respectively.
Direct lodging expenses include costs directly associated with
the operation of the hotels such as direct labor, utilities and
hotel supplies. Direct lodging operations expenses during the
three months ended March 31, 2005 for the Acquired Hotels
were approximately $16.0 million.
The increase in direct lodging operations expenses of
approximately $18.1 million, or 31.0%, during the three
months ended March 31, 2005 compared to the three months
ended March 31, 2004 was primarily due to an increase in
certain variable expenses such as:
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salaries and related taxes and benefits, which increased
approximately $9.1 million, or 30.7%. Salaries and related
taxes and benefits expense during the three months ended
March 31, 2005 for the Acquired Hotels was approximately
$8.3 million; and |
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other variable expenses, including utilities, supplies, repair
and maintenance, credit card discounts and other, which
increased by approximately $9.0 million, or 31.6%. Other
variable expenses during the |
22
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three months ended March 31, 2005 for the Acquired Hotels
were approximately $7.7 million. Continuing energy price
increases as well as increases in phone line expense resulting
from the roll-out of high speed internet access to certain of
our hotels also contributed to an increase in other variable
expenses during the three months ended March 31, 2005. |
Other lodging and operating expenses were approximately
$22.8 million and $17.6 million during the three
months ended March 31, 2005 and 2004, respectively. Other
lodging and operating expenses include property taxes,
insurance, costs of the franchise programs, and corporate
allocations charged to our owned hotel operations based on a
percentage of room revenue. During the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004, other lodging and operating expenses
increased by approximately $5.2 million, or 29.6%. Other
lodging and operating expenses during the three months ended
March 31, 2005 for the Acquired Hotels were approximately
$3.9 million.
The net increase during the three months ended March 31,
2005 compared to the three months ended March 31, 2004, was
primarily due to:
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an increase in property taxes of approximately
$2.0 million, of which approximately $1.9 million is
attributable to the Acquired Hotels; |
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an increase in corporate overhead allocations of approximately
$1.9 million, of which approximately $1.4 million is
attributable to the Acquired Hotels and approximately
$0.5 million is attributable to an increase in corporate
allocations as a result of the increase in room revenue from
company owned La Quinta branded hotels; |
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an increase in insurance costs of approximately
$0.4 million attributable to the Acquired Hotels; and |
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an increase in our customer loyalty program and other direct
expenses of approximately $0.9 million of which
approximately $0.2 million of expense is attributable to
the Acquired Hotels and approximately $0.6 million is
attributable to an increase in customer loyalty fees and
expenses of our 2005 spring promotion. |
General and administrative expenses were approximately
$18.6 million and $16.2 million during the three
months ended March 31, 2005 and 2004, respectively. General
and administrative expenses include, among other costs,
information technology services, legal, finance and accounting,
sales, marketing, reservations, human resources and operations.
Additionally, general and administrative expenses include the
costs incurred to support the franchise operations. Generally
accepted accounting principles require that we recognize all
franchise income, including pass through expenses such as
advertising and reservation fees, as revenues. The pass through
amounts are offset by the costs included in general and
administrative expense.
The increase in general and administrative expenses during the
three months ended March 31, 2005 compared to the three
months ended March 31, 2004 was primarily due to increases
in corporate employee compensation, advertising and marketing
expenses associated with certain branding studies, our 2005
spring promotion and customer loyalty programs, corporate
expenses incurred to support the franchise operations, as well
as the Acquisition. Additionally, we experienced an increase in
expenses related to our annual system-wide conference and
professional and consulting fees. We anticipate that general and
administrative expenses may continue to increase during the
remainder of 2005 in comparison to prior periods due to
continuing expenses to support the franchise operations and
Acquired Hotels and continuing marketing initiatives.
23
Interest, net was approximately $18.3 million and
$15.5 million during the three months ended March 31,
2005 and 2004, respectively. Interest, net is comprised of the
following:
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Three Months Ended | |
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March 31, | |
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2005 | |
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2004 | |
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|
(In millions) | |
Interest income
|
|
$ |
(0.5 |
) |
|
$ |
(3.0 |
) |
Interest expense
|
|
|
18.1 |
|
|
|
18.0 |
|
Amortization of debt discount
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
Interest, net
|
|
$ |
18.3 |
|
|
$ |
15.5 |
|
|
|
|
|
|
|
|
The $2.5 million decrease in interest income during the
three months ended March 31, 2005 compared to the three
months ended March 31, 2004 was primarily attributable to
the August 2004 retirement of our investments in the 7.114%
Exercisable Put Option Securities (the Securities)
and a decrease in cash and cash equivalents. The
$0.1 million increase in interest expense for the three
months ended March 31, 2005 compared to the three months
ended March 31, 2004 was primarily attributable to the
August 2004 issuance of our $200 million 7% senior
notes, partially offset by a decrease in interest expense as a
result of the March 2004 repayment of the $19.5 million
7.25% senior notes and the redemption in August 2004 of our
$150 million 7.114% senior notes.
|
|
|
Depreciation and Amortization |
Property and equipment are recorded at cost and depreciated
using the straight-line method over the estimated useful lives
of the assets. We periodically re-evaluate fixed asset lives
based on current assessments of remaining utility that may
result in changes in estimated useful lives. Such changes are
accounted for prospectively and will increase or decrease
depreciation expense.
Depreciation and amortization expense was approximately
$34.3 million and $28.6 million during three months
ended March 31, 2005 and 2004, respectively. Depreciation
and amortization expense increased by $5.7 million, or
19.9%, for the three months ended March 31, 2005 compared
to the three months ended March 31, 2004. The increase in
depreciation and amortization expense is primarily the result of
approximately $1.0 million of depreciation and amortization
expense related to additions to computer equipment and related
software, approximately $2.4 million of accelerated
depreciation recorded during the three months ended
March 31, 2005 related to a hotel that is scheduled to be
redeveloped beginning in the second quarter of 2005, as well as
depreciation expense of approximately $4.5 million related
to the Acquired Hotels. The increase in depreciation and
amortization expense was partially offset by a net decrease of
approximately $0.5 million in amortization expense
associated with the La Quinta trademark (that is no longer
amortized) net of approximately $0.5 million of
amortization expense on intangibles associated with the
Acquisition, as well as approximately $2.0 million of
accelerated depreciation recorded during the three months ended
March 31, 2004 related to a hotel that completed
redevelopment during 2004.
|
|
|
Impairment of Property and Equipment |
Impairment of property and equipment was approximately
$0.5 million and $5.0 million during the three months
ended March 31, 2005 and 2004, respectively. During the
three months ended March 31, 2005, we recorded impairments
of approximately $0.5 million related to a property that is
currently under a condemnation proceeding. We recorded
impairments on properties held for use of approximately
$5.0 million during the three months ended March 31,
2004 where facts, circumstances and analysis indicated that the
assets were potentially impaired.
24
For the three months ended March 31, 2005 and 2004, other
expense (income) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Loss on sale of assets and related costs
|
|
$ |
0.2 |
|
|
$ |
|
|
Gain on settlement(1)
|
|
|
|
|
|
|
(0.3 |
) |
Acquisition, retirement plan and other(2)
|
|
|
1.9 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
Total other expense (income)
|
|
$ |
2.1 |
|
|
$ |
(0.1 |
) |
|
|
|
|
|
|
|
|
|
(1) |
During the three months ended March 31, 2004, we settled
obligations related to assets previously sold that resulted in a
net gain of approximately $0.3 million. |
|
(2) |
During the three months ended March 31, 2005, we recognized
expense of approximately $1.9 million primarily for
integration costs related to the Acquisition. |
For interim financial reporting purposes, tax expense or benefit
is calculated based on the estimated annual effective tax rate,
adjusted to give effect to anticipated permanent differences and
amounts attributable to minority interest. The results
associated with discontinued operations are reported net of
federal and state income taxes applicable to those operations.
Due to the payment of tax deductible preferred dividends (which
are shown as minority interest on the LQ Corporation
consolidated financial statements) and the existence of net
operating loss carryforwards, the companies do not expect to pay
substantial income taxes in 2005.
|
|
|
Income (Loss) from Discontinued Operations, net |
For the three months ended March 31, 2005, income from
discontinued operations was approximately $0.1 million, net
of income tax expense and represents the revenues and expenses
related to the results of ownership and operation of
17 hotels reclassified as held for sale. For the three
months ended March 31, 2004, loss from discontinued
operations was approximately $0.1 million, net of tax
benefit and represents the revenues and expenses related to the
ownership and operation of 13 hotels (excluding four
Baymont hotels acquired in September 2004) reclassified as held
for sale.
LQ Properties Consolidated Results of
Operations
|
|
|
Comparison of the Three Months Ended March 31, 2005
and 2004 |
Net loss attributable to common shareholders was
approximately $3.8 million and $9.4 million during the
three months ended March 31, 2005 and 2004, respectively.
The decrease in net loss attributable to common shareholders
during the three months ended March 31, 2005 compared to
the three months ended March 31, 2004 of approximately
$5.6 million, or 59.6%, was primarily attributable to a
$10.6 million increase in rent from LQ Corporation and
a $5.0 million decrease in impairments, partially offset by
increases in depreciation and amortization and interest, net of
approximately $3.5 million and $3.2 million,
respectively.
Rent from La Quinta Corporation was approximately
$53.9 million and $43.3 million during the three
months ended March 31, 2005 and 2004, respectively. The
increase in rental income from LQ Corporation of
approximately $10.6 million, or 24.5%, during the three
months ended March 31, 2005 is primarily due to rent from
LQ Corporation related to the Acquired Hotels of
approximately $7.1 million and an increase of
25
approximately $3.5 million in rent from company owned
La Quinta branded hotels as a result of an increase in
gross room revenues of the underlying hotel facilities.
Royalty from La Quinta Corporation was approximately
$1.9 million and $1.8 million during the three months
ended March 31, 2005 and 2004, respectively. The increase
in royalty revenues of approximately $0.1 million, or 5.6%,
in 2005 is due to an increase in La Quinta branded hotel
revenues experienced by LQ Corporation during the three
months ended March 31, 2005.
Other revenues were approximately $1.7 million and
$2.9 million during the three months ended March 31,
2005 and 2004, respectively. Other revenues primarily include
rent revenues from restaurants leased to third parties and other
revenue from mortgage financing on healthcare real estate. Other
revenues decreased by approximately $1.2 million, or 41.4%,
during the three months ended March 31, 2005 compared to
the three months ended March 31, 2004. The decrease was
primarily due to the full repayment during the three months
ended September 30, 2004 of a subordinated note previously
issued in connection with the sale of certain healthcare assets.
Interest income on this subordinated note was approximately
$1.0 million during the three months ended March 31,
2004.
Other lodging expenses were approximately
$8.5 million and $7.0 million during the three months
ended March 31, 2005 and 2004, respectively. Other lodging
expenses increased by approximately $1.5 million, or 21.4%,
during the three months ended March 31, 2005 compared to
the three months ended March 31, 2004 primarily due to
increases in property tax expense of approximately
$1.4 million attributable to the Acquired Hotels.
Interest, net was approximately $18.5 million and
$15.3 million during the three months ended March 31,
2005 and 2004, respectively. Interest, net is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Interest income
|
|
$ |
(0.3 |
) |
|
$ |
(3.2 |
) |
Interest expense
|
|
|
18.1 |
|
|
|
18.0 |
|
Amortization of debt discount
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$ |
18.5 |
|
|
$ |
15.3 |
|
|
|
|
|
|
|
|
The $2.9 million decrease in interest income during the
three months ended March 31, 2005 compared to the three
months ended March 31, 2004 was primarily attributable to
the retirement of our investments in the Securities and a
decrease in cash and cash equivalents. The $0.1 million
increase in interest expense during the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004 was primarily attributable to the August
2004 issuance of our $200 million 7% senior notes,
partially offset by a decrease in interest expense as a result
of the March 2004 repayment of the $19.5 million
7.25% senior notes and the redemption in August 2004 of our
$150 million 7.114% senior notes.
|
|
|
Depreciation and Amortization Expense |
Property and equipment are recorded at cost and depreciated
using the straight-line method over the estimated useful lives
of the assets. We periodically re-evaluate fixed asset lives
based on current assessments of remaining utility that may
result in changes in estimated useful lives. Such changes are
accounted for prospectively and will increase or decrease
depreciation expense.
Depreciation and amortization expense was approximately
$29.1 million and $25.6 million during the three
months ended March 31, 2005 and 2004, respectively.
Depreciation and amortization expense increased by approximately
$3.5 million, or 13.7%, during the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004. The increase in depreciation and
amortization expense is primarily the
26
result of approximately $2.4 million of accelerated
depreciation recorded during the three months ended
March 31, 2005 related to a hotel that is scheduled to be
redeveloped beginning in the second quarter of 2005, as well as
depreciation expense of approximately $3.6 million related
to the Acquired Hotels. The increase in depreciation and
amortization expense was partially offset by a decrease in
amortization expense of approximately $0.8 million
associated with the La Quinta trademark (that is no longer
amortized), as well as approximately $2.0 million of
accelerated deprecation recorded during the three months ended
March 31, 2004 related to a hotel that completed
redevelopment during 2004.
|
|
|
Impairment of Property and Equipment |
No impairments were recorded during the three months ended
March 31, 2005. During the three months ended
March 31, 2004, we recorded impairments of
$5.0 million on lodging properties held for use where
analysis of facts and circumstances indicated that the assets
were impaired.
|
|
|
Income from Discontinued Operations, net |
During the three months ended March 31, 2005 and 2004,
income from discontinued operations was approximately
$1.0 million and $0.5 million, respectively, net of
income tax expense and represents rent and royalty income, as
well as property insurance, real estate taxes and impairment
expenses from 17 hotels and 13 hotels (excluding four
Baymont hotels acquired in September 2004), respectively,
reclassified as held for sale.
Consolidated Liquidity and Capital Resources
As of March 31, 2005, we had approximately
$210 million of liquidity, which was comprised of
$80 million of cash and cash equivalents and
$130 million of unused capacity under our $150 million
senior credit facility (the 2003 Credit Facility),
after giving effect to approximately $20.1 million of
letters of credit issued under the 2003 Credit Facility. Of the
$20.1 million of letters of credit, approximately
$15.4 million supports insurance arrangements and
$4.7 million guarantees the payment of principal and
interest on industrial revenue bonds, which are the obligation
of an unrelated third party. The $4.7 million letter of
credit is a remaining obligation from a 1995 healthcare
transaction.
Borrowings under the 2003 Credit Facility, which matures in
April 2007, currently bear interest at LIBOR plus 2.25%. During
the three months ended March 31, 2005, there were no
borrowings under the 2003 Credit Facility other than the letters
of credit.
We have $136 million of debt maturing during the period
from April 1, 2005 through March 31, 2006. As of
March 31, 2005, none of our debt obligations were floating
rate obligations.
As of March 31, 2005, our gross investment in property and
equipment totaled approximately $3 billion, consisting of
hotels in service and corporate assets. We had
shareholders equity of approximately $1.4 billion and
our net debt (total indebtedness less cash and cash equivalents)
constituted approximately 35% of our total capitalization (total
shareholders equity plus minority interest plus total
indebtedness less cash and cash equivalents) as of
March 31, 2005. LQ Properties had shareholders equity
of approximately $1.4 billion as of March 31, 2005.
|
|
|
Cash Flows from Operating Activities |
The lodging industry is seasonal in nature. Generally, hotel
revenues are greater in the second and third quarters than in
the first and fourth quarters. This seasonality and the timing
of working capital changes can be expected to cause quarterly
fluctuations in revenue and operating cash flows.
Cash used in operating activities was approximately
$11.0 million during the three months ended March 31,
2005. Cash used in operating activities relates in large part to
changes in other assets and liabilities. The net change in other
assets and liabilities of approximately $44.8 million
during the three months ended
27
March 31, 2005 was the result of (1) payments that
reduced trade accounts payable by $10.0 million, accrued
interest by $17.8 million, accrued payroll by
$4.4 million and accrued property taxes by
$4.8 million and (2) a $7.3 million increase in
accounts receivable.
Cash used in operating activities increased during the three
months ended March 31, 2005 compared to the three months
ended March 31, 2004 primarily due to greater reductions in
accounts payable and other liabilities, as well as higher
accounts receivable that more than offset the impact of a lower
net loss.
|
|
|
Cash Flows from Investing and Financing Activities |
During the three months ended March 31, 2005, we had cash
outlays of approximately $8.8 million for capital
improvements and renovations to existing hotels, redevelopment
and corporate expenditures.
During the three months ended March 31, 2005,
LQ Properties paid total dividends of $4.5 million, or
$0.5625 per depositary share, on its
9.0% Series A Cumulative Redeemable Preferred Stock.
The following is a summary of our future debt maturities as of
March 31, 2005:
|
|
|
|
|
|
Year |
|
Total | |
|
|
| |
|
|
(In millions) | |
2005
|
|
$ |
116 |
|
2006
|
|
|
20 |
|
2007
|
|
|
210 |
|
2008
|
|
|
50 |
|
2009
|
|
|
|
|
2010 and thereafter
|
|
|
530 |
|
|
|
|
|
|
Total debt
|
|
$ |
926 |
|
|
|
|
|
We believe that our current sources of capital, including cash
on hand, operating cash flows, and expected proceeds from the
sale of certain assets are adequate to finance our current
operations, including 2005 capital expenditures which we
currently expect to be approximately $120 million. We also
believe that our current sources of capital, including the
unused capacity under the 2003 Credit Facility, are adequate to
fund the $116 million scheduled debt maturities during the
three months ended September 30, 2005.
On a continuing basis we evaluate and may pursue other
opportunities such as: construction of hotels in urban centers;
redevelopment of existing hotel properties; and acquisition of
hotels from third parties. Also, we may elect to pursue a
strategic acquisition of another hotel company or chain of
hotels. The amounts and sources of capital needed to pursue such
opportunities will be dependent on the specific opportunities.
We expect to obtain funding for new investments through a
combination of long-term and short-term financing, including
debt and equity, internally generated cash flow and the sale of
selected assets.
Our Board of Directors previously approved a $20 million
share repurchase program to allow us to repurchase common and/or
preferred stock in the open market or in privately negotiated
transactions. As of March 31, 2005, we had repurchased
approximately $9.1 million (or approximately
1.9 million shares) of our equity securities under the
program. No shares were repurchased during the three months
ended March 31, 2005.
|
|
|
Effects of Certain Events on Lodging Demand |
The combination of terrorist attacks and the impact of the war
with Iraq and its aftermath and the downturn in the national
economy, along with our concentration of hotels in certain
markets, resulted in substantial declines in demand for lodging
for both business and leisure travelers across all lodging
segments and increased price competition during 2002 and the
first half of 2003. Although we continually and actively manage
the operating costs of our hotels in order to respond to changes
in demand at our lodging properties, we must also continue to
provide the level of service that our guests expect. Our
operating results and cash flow from operating activities
improved during 2004 and the improvement in operating results
continued
28
during the three months ended March 31, 2005; however, our
operating results and cash flow from operating activities could
be adversely impacted should such events occur again.
RevPAR results for company owned hotels for the three months
ended March 31, 2005 were favorable. We believe this trend
will continue in 2005, and will be driven by both rate and
occupancy increases as a result of higher demand from business
travelers, increased margins from various Internet travel sites,
including our websites, www.LQ.com and
www.baymontinns.com, increased national sales revenue,
growth in membership of our customer loyalty program, our
advertising and promotion campaigns and rate increases. In
addition, we believe the RevPAR performance of the Acquired
Hotels will improve over time, with the completion of
implementation of La Quintas systems and programs.
However, approximately 50% of our business is booked within zero
to seven days of the stay; therefore, forecasting such a trend
is difficult and declines in business and leisure traveler
demand could impact our results. We can give no assurance that
the trends experienced in the first quarter of 2005 will
continue.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to investors. As
discussed in Note 9 to the consolidated financial
statements, under certain franchise agreements or joint venture
agreements, we have committed to provide certain incentive
payments, loans, reimbursements, rebates and other payments to
help defray the costs of construction, marketing and other costs
associated with opening and operating a La Quinta or
Baymont hotel.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from these
estimates. Additional information regarding key financial
accounting estimates, assumptions and policies is contained in
the Critical Accounting Policies and Estimates
discussion in our Joint Annual Report.
Recent Accounting Standard
In December 2004, the FASB issued SFAS 123R that requires
an entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions).
That cost will be recognized in the consolidated statements of
operations over the period during which an employee is required
to provide service in exchange for the award the
requisite service period (usually the vesting period). No
compensation cost is recognized for equity instruments for which
employees do not render the requisite service. Presently, we
record stock-based compensation expense attributable to
restricted stock performance awards; however, we present pro
forma disclosures with respect to the compensation cost
associated with stock options in lieu of recording stock option
related expense. On April 14, 2005, the SEC adopted a rule
that amends the effective date of SFAS 123R. The new
effective date is the beginning of the fiscal year that begins
after June 15, 2005. We plan to adopt SFAS 123R
effective January 1, 2006, using the modified-prospective
transition method. Consequently, we will recognize compensation
expense related to outstanding unvested stock-based performance
awards commencing January 1, 2006 over the remaining
requisite service period. We currently are assessing the
financial statement impact of implementing SFAS 123R. The
actual impact in 2006 of implementing SFAS 123R will be
directly affected by any additional stock-based performance
awards granted.
Seasonality
The lodging industry is seasonal in nature. Generally, hotel
revenues are greater in the second and third quarters than in
the first and fourth quarters. This seasonality can be expected
to cause quarterly fluctuations
29
in revenue, profit margins and net earnings. In addition, the
opening of newly constructed hotels and the timing of any hotel
acquisitions or sales may cause a variation of revenue from
quarter to quarter.
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market
Risk |
As of March 31, 2005, we had no variable rate debt for the
reported period.
|
|
Item 4. |
Controls and Procedures |
|
|
(a) |
Evaluation of disclosure controls and procedures. |
As required by Rule 13a-15 under the Exchange Act, we
carried out an evaluation under the supervision and with the
participation of our management, including our principal
executive officer and acting principal financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as of March 31, 2005. In designing
and evaluating our disclosure controls and procedures, we and
our management recognize that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives. Based upon the required evaluation, our principal
executive officer and acting principal financial officer believe
that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective at the
reasonable assurance level to ensure that information required
to be disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods and in the manner specified in the
SECs rules and forms.
|
|
(b) |
Changes in internal controls. |
We completed the implementation of a new enterprise-wide
financial and accounting software system during the three months
ended March 31, 2005. The new system, which was developed
by a third-party vendor, includes general ledger, property
accounting, financial reporting, purchasing, accounts payable
and accounts receivable functionality. Except for the
implementation of the new enterprise-wide financial and
accounting system, there was no change in our internal control
over financial reporting that occurred during the three months
ended March 31, 2005 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
On September 3, 2004 we acquired substantially all of the
assets of the limited service lodging division of The Marcus
Corporation, which included the Baymont, Woodfield Suites and
Budgetel hotel properties. In connection with this business
combination, we assumed various contracts with third party
providers for services such as the property management and
reservation systems. We have replaced the third party property
management and reservation systems used by the Baymont,
Woodfield Suites and Budgetel hotel properties with our own
systems and related control procedures. The Woodfield Suites
hotel properties were migrated to our own systems in December
2004 and the Baymont and Budgetel hotel properties were migrated
to our own property management and reservation systems during
the three months ended March 31, 2005.
30
PART II OTHER INFORMATION
|
|
Item 1. |
Legal Proceedings |
Incorporated by reference to the description of legal
proceedings is Note 9, Commitments and
Contingencies, in the condensed notes to the consolidated
financial statements set forth in Part I, Item I,
Financial Statements.
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of
Proceeds |
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | |
|
(b) | |
|
(c) | |
|
(d) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
Total Number of | |
|
Maximum Number (or | |
|
|
|
|
|
|
Shares (or Units) | |
|
Approximate Dollar Value) of | |
|
|
Total Number of | |
|
Average Price | |
|
Purchased as Part of | |
|
Shares (or Units) that May | |
|
|
Shares (or Units) | |
|
Paid per Share | |
|
Publicly Announced | |
|
Yet Be Purchased Under the | |
Period |
|
Purchased(1) | |
|
(or Unit)(2) | |
|
Plans or Programs | |
|
Plans or Programs(3) | |
|
|
| |
|
| |
|
| |
|
| |
January 1-31, 2005
|
|
|
4,000 |
|
|
$ |
0.02 |
|
|
|
|
|
|
$ |
10.9 million |
|
February 1-28, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.9 million |
|
March 1-31, 2005
|
|
|
16,846 |
|
|
|
0.02 |
|
|
|
|
|
|
|
10.9 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,846 |
|
|
$ |
0.02 |
|
|
|
|
|
|
$ |
10.9 million |
|
|
|
(1) |
All of the shares relate to the repurchase of unvested
restricted paired shares of resigning employees. |
|
(2) |
The price paid for the resigning employees shares was the
par value of the paired shares. |
|
(3) |
Our Board of Directors previously approved a $20 million
share repurchase program to allow us to repurchase common and/
or preferred stock in the open market or in privately negotiated
transactions. We did not repurchase any equity securities under
the program during the three months ended March 31, 2005.
As of March 31, 2005, we had repurchased approximately
$9.1 million (or approximately 1.9 million shares) and
could repurchase up to approximately $10.9 million of our
equity securities under our share repurchase program. |
Please see the list of exhibits found on the page following the
signatures in this Joint Quarterly Report.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrants have duly caused this Joint Quarterly
Report to be signed on their behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
By: |
/s/ Mark W. Osterberg |
|
|
|
|
|
Mark W. Osterberg |
|
Vice President and Chief Accounting Officer |
|
(Acting Principal Financial Officer) |
Dated: April 29, 2005
|
|
|
La Quinta
Properties, Inc. |
|
|
|
|
By: |
/s/ Mark W. Osterberg |
|
|
|
|
|
Mark W. Osterberg |
|
Vice President and Chief Accounting Officer |
|
(Acting Principal Financial Officer) |
Dated: April 29, 2005
32
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
10 |
.1 |
|
La Quinta Corporation 2005 Bonus Program (revised
April 22, 2005). |
|
31 |
.1 |
|
Certification of the Chairman and Chief Executive Officer of
La Quinta Corporation and La Quinta Properties, Inc.
pursuant to section 302 of the Sarbanes-Oxley Act of 2002
and Securities Exchange Act Rule 13a-14(a) or 15d-14(a). |
|
31 |
.2 |
|
Certification of the Vice President and Chief Accounting Officer
(acting principal financial officer) of La Quinta
Corporation and La Quinta Properties, Inc. pursuant to
section 302 of the Sarbanes-Oxley Act of 2002 and
Securities Exchange Act Rule 13a-14(a) or 15d-14(a). |
|
32 |
.1 |
|
Certification of the Chairman and Chief Executive Officer and
the Vice President and Chief Accounting Officer (acting
principal financial officer) of La Quinta Corporation and
La Quinta Properties, Inc. pursuant to section 906 of
the Sarbanes-Oxley Act of 2002 and 18 U.S.C.
Section 1350. |