La Quinta reportedly considering sale following real estate spin-off

exterior of a La Quinta hotel

La Quinta Holdings may be up for sale as part of a plan to divide its business and improve revenue.

In January, La Quinta announced that it would spin off its real estate business from its franchise and management businesses into a separate publicly listed REIT. 

Now, the company is considering a sale, and hoping for a high valuation. According to sources, La Quinta believes that proceeds from the potential sale would help justify to its shareholders the tax hit that it will incur as a result of the spin-off, the sources said. 

Once it files a Form 10 with the U.S. Securities and Exchange Commission registering the spin-off—expected to be completed before June—La Quinta is expected to start meeting with potential purchasers. Sources told Reuters that the timing of the spinoff was uncertain and that the sale may not happen. La Quinta representatives did not comment on the reports.

Spinning, Spinning...

"The reason we are doing this is because it's the best way to lead to maximum created value," La Quinta CEO Keith Cline said when the plan to separate its owned real estate assets into a REIT was announced. "Our next logical step in creating more value is to unlock both companies and let them float independently where each can focus on their own strategy with a distinct management team."

The plans follow Hilton's spin-off of its real estate assets last year. In between Hilton's announcement and La Quinta's, the Protecting Americans from Tax Hikes Act was enacted, eliminating the tax-free status of REITs. Hilton was able to keep its spinoff tax free under a grandfather provision.

La Quinta's Shares

The rumors could already be helping the company: La Quinta's shares were up over 10 percent during the final hour of trading on Monday after the initial rumors of a sale broke.

According to Reuters, La Quinta shares have lost almost 40 percent of their value since 2015, as lower oil prices hurt the economies of the states where La Quinta has a strong presence, including the brand's home state of Texas.

La Quinta operates 889 hotels, 319 of which are owned, in 48 U.S. states. It also has a presence in Canada, Mexico, and Honduras.