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La Quinta Holdings: Spin-Off For The Better

Alex Middleton profile picture
Alex Middleton


  • Interesting spin-off opportunity.
  • Working at reestablishing brand.
  • Valuation looks promising.

After reading about La Quinta's (NYSE:LQ) upcoming spin-off of its 319 hotels, I decided to try and learn a bit about the hotel industry in order to see if I could better understand if this special event was going to be a good investment opportunity. When I first sat down to think about the economics of the industry, nothing exciting really jumped out at me. All I could imagine was the many run-down or abandoned motels I used to see on drives up into Northern Ontario or on a vacation to the Florida Keys six years ago. Luckily, I didn't let these limited data points skew my analysis. To my surprise, many of La Quinta's competitors have done reasonably well in the past decade.

Marriott International (MAR) has appreciated from a pre-2008 crash price in the low $70/share to $120/share today (Google Finance). During the financial crisis, you could have purchased the stock for even lower at $14/share (Google Finance). Choice Hotels International (CHH) had a pre-2008 price of around $50/share to $70/share today (Google Finance). However, during the financial crisis, you could have purchased it in the low $20s (Google Finance).

Comparing all these companies to each other equally would be a mistake, though. Some operate under a franchise model, some operate and own 100% of their hotels, and some have a mixture of both. LQ currently falls into the bucket of having a mixture of both owned and franchised hotels. As of September 30, 2017, it had 891 system-wide hotels of which it owns 315, with the remaining being operated through franchise or licensing agreements (LQ Q3 10-Q). LQ's current spin-off proposal is to separate the ownership of the remaining hotels it owns and limit itself to managing the marketing/branding of the La Quinta which in return

This article was written by

Alex Middleton profile picture
My name is Alex Middleton and I am a Certified Professional in Supply Management (CPSM) who made my first investment by buying 4 shares of Home Depot (NYSE: HD) in 1996. Quickly afterwards investing morphed into a passion and I have been investing my savings in various securities since. I believe investing requires one to carefully study publicly available information in an attempt to develop a thesis based on reason and logic. It also requires one to properly account for the unknown by applying probabilities and margin of safety to their thesis. Benjamin Graham and David Dodd said it best in a quote from their book Security Analysis: “Analysis connotes the careful study of available facts with the attempt to draw conclusions there from based on established principles and sound logic. It is part of the scientific method. But in applying analysis to the field of securities we encounter the serious obstacle that investment is by nature not an exact science. The same is true; however, of law and medicine, for here also both individual skill (art) and chance are important factors in determining success or failure. Nevertheless, in these professions analysis is not only useful but indispensable; so that the same should probably be true in the field of investment and possible that of speculation“ There are no short cuts to becoming a good investor. You have to expose your theses to a group that can provide identify gaps in your logic. I want to engage with the larger community of like-minded investors, so please contact me!

Analyst’s Disclosure: I am/we are long LQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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