LAS VEGAS — La Quinta is making a strong push on the development front, evidenced by a robust pipeline that is almost purely new development.
The company has 228 hotels in its global pipeline, and 86 percent of these hotels are new-construction, said La Quinta CEO Keith Cline at the company's brand conference, here at The Cosmopolitan of Las Vegas. "The Urban and Del Sol prototypes have made us a new-construction’ brand.
Meanwhile, La Quinta Chief Development Officer and EVP Raj Trivedi explained why new construction is the smarter play versus conversions. He noted that hotels can cost up to $30,000 per room to convert, making new-builds the more attractive option.
A total of 62 Del Sol prototype hotels are in the pipeline, 19 of which are under construction.
Latin America Focus and Challenges
In an attempt to make its hotel brand more recognizable in Latin America, and with consumers apt to recognize the word “hotel” more than the phrase “Inn and Suites,” La Quinta has renamed its Latin American properties as LQ Hotels by La Quinta. New hotels will open under the new name, and existing hotels will reidentify. “The change will let our hotels more effectively compete in their markets,” Trivedi said.
Eight hotels are open in Latin America, and the region’s pipeline has 27 properties in various stages of development. Hotels are slated to open soon in Guatemala City; Managua, Nicaragua; and near the Santiago airport in Chile. Cartagena and Medellin, Colombia, are also on the development docket.
While La Quinta is expanding ever further into Latin America, each country poses different challenges to overcome.
Consider Argentina, where the country's political shifts have made growing a business there very difficult, Trivedi said, but the new government seems likely to make things easier. “The largest American brand in Argentina is Howard Johnson,” Trivedi said of the Wyndham brand.
Similarly, Brazil’s taxation system makes foreign expansion in the country difficult. Chile, which Trivedi described as “affluent in terms of capitalistic growth in market,” and Peru are also lucrative markets ripe for development. “The other large market none of us have been able to penetrate is Venezuela,” he added.
La Quinta currently has a total of 886 hotels, Trivedi said. 545 of these are franchised properties, while the remaining 341 are corporate-owned hotels. “The number of corporate-owned assets is reducing, and franchises are increasing,” Trivedi said. Still, in terms of earnings, corporate-owned properties are still “fairly significant” for La Quinta’s future.
107 new franchise agreements were signed in 2015, and 50 percent of those were signed with existing franchise partners.
“Franchisees understand that having a partnership with a company that has skin in the game protects their best interests,” Trivedi said. “They’re getting vetted, tested, proven programs. They’re not a test ground for a company. We are also cost-conscious to make sure that they are not an additional burden on the cost side.”
La Quinta also eliminated 25 hotels from its portfolio last year, and the company plans to continue eliminating properties that don’t “fit the future,” as Trivedi described it. “After that, we will remain opportunistic.” In total, 55-60 hotels are likely to open by the end of 2016.
La Quinta has also decided to spend an additional $120 million on hotel renovation over the next two years, accelerating their existing renovation program. “On average, we renovate 25 to 30 hotels [per year]. We’re going to add to that list an additional 100 to 110 hotels over the next two years,” Trivedi said, adding that the ultimate goal is product consistency.