EX-99.1 2 d313441dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

 

LOGO

                    ,

Dear La Quinta Holdings Inc. Stockholder:

I am pleased to inform you that the board of directors of La Quinta Holdings Inc. (“La Quinta Parent” and, together with its consolidated subsidiaries, “La Quinta”) approved a plan designed to enhance long-term stockholder value by separating La Quinta into two independent, publicly traded companies. Under the plan, La Quinta Parent will execute a taxable spin-off of CorePoint Lodging Inc. (“CorePoint Parent” and, together with its consolidated subsidiaries, “CorePoint Lodging”), which will hold a portfolio of La Quinta’s hotels. Upon completion of the spin-off, La Quinta Parent stockholders will own 100% of the outstanding shares of common stock of CorePoint Parent, and will continue to own 100% of the outstanding shares of common stock of La Quinta Parent. CorePoint Lodging Inc. intends to elect to qualify as a real estate investment trust (“REIT”) in 2018. Once this election is made, we believe that CorePoint Parent will be the only publicly traded U.S. lodging REIT strategically focused on serving the midscale and upper-midscale select-service lodging segments. CorePoint Lodging will have a geographically diverse portfolio of hotels with significant underlying real estate value. La Quinta Parent will retain its management and franchise business and continue to trade on the New York Stock Exchange under the symbol “LQ”.

We believe that this separation is in the best interests of La Quinta Parent and its stockholders, as it will result in two pure-play companies, enabling management teams to fully activate their respective businesses, take advantage of both organic and inorganic growth opportunities, and align their structures and capital allocation strategies with a dedicated investor base.

The spin-off will be completed by way of a pro rata distribution of CorePoint Parent common stock to our stockholders of record as of 5:00 p.m., Eastern time, on                 ,                 , the spin-off record date (the “record date”). Each La Quinta Parent stockholder will receive              shares of CorePoint Parent common stock for every              shares of La Quinta Parent common stock held by such stockholder as of 5:00 p.m., Eastern time, on the record date. The distribution of these shares will be made in book-entry form, which means that no physical share certificates will be issued. The transaction is subject to certain customary conditions. Stockholder approval of the distribution is not required, and you are not required to take any action to receive your shares of CorePoint Parent common stock. Immediately following the spin-off, you will own common stock in La Quinta Parent and CorePoint Parent. CorePoint Parent intends to have its common stock listed on the New York Stock Exchange under the symbol “CPLG.” We expect the distribution of CorePoint Parent common stock to be taxable to the stockholders of La Quinta Parent as dividend income, although a portion of the distribution may constitute a return of capital or taxable gain.

We have prepared the enclosed information statement, which describes the spin-off in detail and contains important information about CorePoint Lodging, including pro forma financial statements. We are mailing to all La Quinta Parent stockholders a notice with instructions informing holders how to access the information statement online. We urge you to read the information statement carefully.

Thank you for your continued support of La Quinta, and we look forward to your support of La Quinta and CorePoint Lodging in the future.

Sincerely,

Keith A. Cline

President and Chief Executive Officer

La Quinta Holdings Inc.


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                    ,

Dear CorePoint Lodging Inc. Stockholder:

It is our pleasure to welcome you as a stockholder of our company, CorePoint Lodging Inc. (“CorePoint Parent” and, together with its consolidated subsidiaries, “CorePoint Lodging”). Following the distribution of all of the outstanding shares of CorePoint Parent common stock by La Quinta Holdings Inc. (“La Quinta Parent”) and our election, subject to the then current corporate income tax environment, to qualify as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes beginning in the 2018 taxable year, we expect CorePoint Parent will be the only publicly traded U.S. lodging REIT strategically focused on serving the midscale and upper-midscale select-service lodging segments with a geographically diverse portfolio of hotels with significant underlying real estate value.

Our objective is to generate premium long-term returns for our stockholders. As an independent company, our management team will focus on diligent asset management and strategic capital allocation to enhance performance, growth and value creation over time. As a pure-play select-service portfolio with direct access to capital and independent financial resources, we believe compelling return on investment initiatives exist within our portfolio representing an attractive growth opportunity. In addition, we believe that we will be able to successfully execute on our strategy of opportunistically acquiring and disposing of properties to further enhance the value and diversification of our portfolio throughout the lodging cycle, including potentially taking advantage of the economies of scale that could come from consolidation in the midscale and upper-midscale select-service lodging segments.

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. We believe our election of REIT status combined with the strong income generation of our assets will enhance our ability to pay an attractive dividend, offering a compelling value proposition for investors seeking current income, as well as long-term growth.

We expect to have CorePoint Parent common stock listed on the New York Stock Exchange under the symbol “CPLG” in connection with the distribution of CorePoint Parent common stock by La Quinta Parent.

We invite you to learn more about CorePoint Lodging by reviewing the enclosed information statement. We look forward to our future as an independent, publicly traded company and to your support as a holder of CorePoint Parent common stock.

Sincerely,

 

 

CorePoint Lodging Inc.


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

SUBJECT TO COMPLETION, DATED SEPTEMBER 6, 2017

INFORMATION STATEMENT

CorePoint Lodging Inc.

Common Stock

(par value $0.01 per share)

 

 

This information statement is being sent to you in connection with the separation of CorePoint Lodging Inc. (“CorePoint Parent” and, together with its consolidated subsidiaries, “CorePoint Lodging”) from La Quinta Holdings Inc. (“La Quinta Parent” and, together with its consolidated subsidiaries, “La Quinta”), following which CorePoint Parent will be an independent, self-administered, publicly traded company. As part of the separation, La Quinta will undergo an internal reorganization, after which it will complete the separation by distributing all of the outstanding shares of CorePoint Parent common stock on a pro rata basis to the holders of La Quinta Parent common stock in a taxable transaction. See “Material U.S. Federal Income Tax Considerations.” We refer to this pro rata distribution as the “distribution” and we refer to the separation, including the internal reorganization and distribution, as the “spin-off.”

Each La Quinta Parent stockholder will receive              shares of CorePoint Parent common stock for every              shares of La Quinta Parent common stock held by such stockholder as of 5:00 p.m., Eastern time, on                 ,                , the spin-off record date (the “record date”). The distribution of shares will be made in book-entry form only. La Quinta Parent will not distribute any fractional shares of CorePoint Parent common stock. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from such sales pro rata to each holder who would otherwise have been entitled to receive a fractional share in the spin-off. The distribution will be effective as of                 , Eastern time, on                 ,    . Immediately after the distribution becomes effective, we will be an independent, self-administered, publicly traded company.

No vote or other action of La Quinta Parent stockholders is required in connection with the spin-off. We are not asking you for a proxy and you should not send us a proxy. La Quinta Parent stockholders will not be required to pay any consideration for the shares of CorePoint Parent common stock they receive in the spin-off, and they will not be required to surrender or exchange shares of their La Quinta Parent common stock or take any other action in connection with the spin-off.

All of the outstanding shares of CorePoint Parent common stock are currently owned, directly or indirectly, by La Quinta Parent. Accordingly, there is no current trading market for CorePoint Parent common stock. We expect, however, that a limited trading market for CorePoint Parent common stock, commonly known as a “when-issued” trading market, will develop at least two trading days prior to the record date for the distribution, and we expect “regular-way” trading of CorePoint Parent common stock will begin the first trading day after the distribution date. We intend to list CorePoint Parent common stock on the New York Stock Exchange under the ticker symbol “CPLG.”

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes beginning in the 2018 taxable year. Shares of our common stock will be subject to limitations on ownership and transfer that are primarily intended to assist us in qualifying as a REIT. Our charter will contain certain restrictions relating to the ownership and transfer of our common stock, including, subject to certain exceptions, a 4.9% limit, in value or by number of shares, whichever is more restrictive, on the ownership of outstanding shares of our common stock. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings. See “Summary—Implications of Being an Emerging Growth Company.”

 

 

In reviewing this information statement, you should carefully consider the matters described in “Risk Factors” beginning on page 29 of this information statement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement is not an offer to sell, or a solicitation of an offer to buy, any securities.

The date of this information statement is                 ,    .

A Notice of Internet Availability of Information Statement Materials containing instructions describing how to access this Information Statement was first mailed to La Quinta Parent stockholders on or about                 ,    .


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TABLE OF CONTENTS

 

     Page  

Summary

     1  

Risk Factors

     29  

Special Note About Forward-Looking Statements

     70  

The Spin-Off

     71  

Trading Market

     83  

Distribution Policy

     85  

Capitalization

     87  

Selected Historical Consolidated Financial Data

     88  

Unaudited Pro Forma Consolidated Financial Statements

     91  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     101  

Business and Properties

     140  

Management

     155  

Executive and Director Compensation

     157  

Certain Relationships and Related Party Transactions

     168  

Investment Policies and Policies With Respect to Certain Activities

     173  

Description of Certain Indebtedness

     177  

Security Ownership of Certain Beneficial Owners and Management

     178  

Description of Capital Stock

     181  

Certain Provisions of Maryland Law and of Our Charter and Bylaws

     187  

Material U.S. Federal Income Tax Considerations

     195  

Where You Can Find More Information

     220  

Index to Financial Statements

     F-1  

 

 

Unless otherwise indicated or the context otherwise requires, references herein to:

 

    “CorePoint Lodging,” “we,” “our,” “us” and the “Company” refer to CorePoint Lodging Inc. and its consolidated subsidiaries, and references to “CorePoint Parent” refer only to CorePoint Lodging Inc., exclusive of its subsidiaries, and

 

    “La Quinta” refer to La Quinta Holdings Inc. and its consolidated subsidiaries, and references to “La Quinta Parent” refer only to La Quinta Holdings Inc., exclusive of its subsidiaries,

in each case giving effect to the spin-off, including the internal reorganization and distribution; and references herein to:

 

    “LQH” refer to La Quinta Holdings Inc. and its consolidated subsidiaries before giving effect to the spin-off.

 

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FINANCIAL STATEMENT PRESENTATION

This information statement includes certain historical consolidated financial and other data for LQH. When we refer to “our business” in this information statement, we are referring to the business of CorePoint Lodging Inc. and its subsidiaries following the spin-off. Following the spin-off, we will be an independent publicly traded company and financial reporting entity and La Quinta Parent will not retain any ownership interest in us. Notwithstanding the legal form of the spin-off described elsewhere in this information statement, for accounting and financial reporting purposes, LQH will be presented as being spun-off from CorePoint Parent (the reverse of its legal form—a “reverse spin”). This presentation is in accordance with generally accepted accounting principles in the U.S. (“GAAP”), specifically Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 505-60, “Spinoff and Reverse Spinoffs”, and is primarily a result of the relative significance of CorePoint Lodging’s business to LQH’s business, as measured in terms of revenues, profits, and assets. Further, LQH has been determined to best represent the predecessor entity to CorePoint Parent. As such, the historical audited and unaudited consolidated financial statements included in this information statement are LQH’s historical financial statements. LQH’s historical results are not representative of the results that we would have achieved as a separate, publicly traded company nor indicative of the results expected for any future period.

Other than an inception date balance sheet, financial statements of CorePoint Lodging Inc. have not been included in this information statement as it is a newly incorporated entity and has no business transactions or activities to date. In connection with the internal reorganization, CorePoint Lodging Inc. will become the parent of the entities which conduct the Separated Real Estate Business (as defined herein).

This information statement includes an unaudited pro forma consolidated balance sheet for LQH, as well as unaudited pro forma consolidated statements of operations, which present our financial position and results of operations to give pro forma effect to the spin-off, including the internal reorganization and distribution, the Financing Transactions (as defined herein) and the other transactions described under “Unaudited Pro Forma Consolidated Financial Statements.” The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the dates indicated, nor are they indicative of future operating results.

You should read our selected historical consolidated financial information and unaudited pro forma consolidated financial statements and the accompanying notes in conjunction with, and each is qualified in their entirety by reference to, the audited consolidated historical financial statements and unaudited condensed consolidated historical financial statements and related notes included elsewhere in this information statement and the financial and other information appearing elsewhere in this information statement, including information contained in “Risk Factors,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

INDUSTRY AND MARKET DATA

Within this information statement, we reference information and statistics regarding the hotel industry and various segments within such industry. We have obtained this information and statistics from various independent third-party sources, including independent industry publications, reports by market research firms and other independent sources. The forecasts and projections are based on industry surveys and the preparers’ experience in the industry, and there is no assurance that any of the projected amounts will be achieved. STR, Inc. (“STR”) is the primary source for third-party market data and industry statistics. STR does not guarantee the performance of any company about which it collects and provides data. The reproduction of STR’s data without their written permission is strictly prohibited. Nothing in the STR data should be construed as advice. Some data and other information are also based on our good faith estimates, which are derived from our review of internal surveys and independent sources. We believe that these external sources and estimates are reliable, but have not independently verified them.

 

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RevPAR Index, which measures a hotel’s market share of its competitive set’s revenue per available room, is stated as a percentage and is calculated for a hotel by comparing the hotel’s RevPAR to the aggregate RevPAR of a group of competing hotels generally in the same market (referred to as a “competitive set”); and when presented for a group of hotels is a weighted average of the individual hotel results. The general manager for each of our hotels exercises discretion, subject to (i) adherence to certain guidelines published by STR and described below and (ii) review by La Quinta and other third-party hotel managers to ensure consistency, in identifying the competitive set of properties for each such hotel. They may consider such factors as physical proximity, competition for similar customers, services and amenities, quality and average daily rate, with location being the most significant factor. Competitive set makeup is initially determined when a new hotel enters our portfolio and is reviewed for continuing appropriateness as competitive hotels enter and leave our markets. Each hotel’s competitive set complies with the following four STR published guidelines, each of which places limitations on properties that may be included in a competitive set: (1) each competitive set must include a minimum of four participating properties, excluding the subject property; (2) no single property or brand can account for more than 50% of the total participating room supply of a competitive set, excluding the rooms of the subject property; (3) no single company can account for more than 70% of the total participating room supply of a competitive set, excluding the rooms of the subject property; and (4) each competitive set must include a minimum of two companies other than that of the subject property. We may include certain competitors in a hotel property’s competitive set and those competitors may or may not include our hotel in their competitive set. For each hotel in our portfolio, we provide the proposed competitive set to STR for publication. STR confirms that each proposed competitive set complies with their published guidelines and then uses that information, along with ADR and RevPAR for each such hotel (which ADR and RevPAR may be calculated differently than we or our competitors do for internal purposes) to calculate RevPAR Index. STR calculates RevPAR Index for the current period and prior periods based on the competitive sets existing as of the date of the STR report for the current period of such report. Accordingly, our future filings may disclose historical RevPAR Index for prior periods that differ from those disclosed in this information statement.

CERTAIN DEFINED TERMS

Except where the context suggests otherwise, we define certain terms in this information statement as follows:

 

    “Adjusted EBITDA” means EBITDA as further adjusted for certain items, such as restructuring and acquisition transaction expenses, impairment charges related to long-lived assets, non-cash equity-based compensation, discontinued operations, and other items not indicative of ongoing operating performance, provides useful supplemental information to management and investors regarding our ongoing operating performance. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key indicators of financial condition and operating performance” for information regarding our use of Adjusted EBITDA, which is a non-GAAP financial measure;

 

    “Adjusted EBITDA margin” means Adjusted EBITDA as a percentage of total revenue. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key indicators of financial condition and operating performance” for information regarding our use of Adjusted EBITDA margin, which is a non-GAAP financial measure;

 

    “ADR” or “average daily rate” means hotel room revenues divided by total number of rooms sold in a given period;

 

    “Blackstone” means The Blackstone Group L.P. and its affiliates;

 

   

“comparable hotels” means hotels that: were active and operating in our system for at least one full calendar year as of the end of the applicable period and were active and operating as of January 1st of the previous year, except for (i) hotels that sustained substantial property damage or other business interruption, (ii) hotels that become subject to a purchase and sale agreement, or (iii) hotels in which

 

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comparable results are otherwise not available. Management uses comparable hotels as the basis upon which to evaluate ADR, occupancy, RevPAR and RevPAR Index on a portfolio-wide basis;

 

    “EBITDA” means earnings before interest, taxes, depreciation and amortization. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for information regarding our use of EBITDA, which is a non-GAAP financial measure;

 

    “occupancy” means the total number of rooms sold in a given period divided by the total number of rooms available at a hotel or group of hotels;

 

    “Pre-IPO Entities” means the entities that conducted La Quinta’s and our business, and owned our properties, prior to the reorganization in connection with the initial public offering of La Quinta Parent;

 

    “Pre-IPO Transactions” means the series of transactions that resulted in the reorganization of La Quinta’s business to effectuate the initial public offering of La Quinta Parent;

 

    “RevPAR” or “revenue per available room” means the product of the ADR charged and the average daily occupancy achieved; and

 

    “RevPAR Index” measures a hotel’s market share of its competitive set’s revenue per available room. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key indicators of financial condition and operating performance.”

 

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SUMMARY

This summary highlights information contained in this information statement and provides an overview of our company, our separation from La Quinta and the distribution of CorePoint Parent common stock by La Quinta Parent to its stockholders. For a more complete understanding of our business and the spin-off, you should read this entire information statement carefully, particularly the discussion set forth under “Risk Factors” and LQH’s historical financial statements, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, our unaudited pro forma consolidated financial statements and the respective notes to those statements included in this information statement.

CorePoint Lodging

Upon our election to qualify as a REIT, we believe that we will be the only publicly traded U.S. lodging REIT strategically focused on serving the midscale and upper-midscale select-service lodging segments. As of June 30, 2017, our geographically diverse portfolio consisted of 319 hotels with approximately 41,000 rooms located in 41 U.S. states. Our hotels provide clean and comfortable guest rooms at affordable prices in convenient locations. Our hotels typically include common areas with amenities such as a great room (including breakfast seating area, lobby with seating area and business center), swimming pool and vending areas and generally offer a complimentary breakfast. In addition, we benefit from our long-standing and mutually beneficial relationship with La Quinta, a highly-recognized and successful brand with a 49-year history of owning and operating hotels. We are focused on generating premium long-term risk-adjusted returns for our stockholders by enhancing the value of our properties and efficiently allocating capital to drive growth while building and maintaining a strong and flexible balance sheet. For the year ended December 31, 2016, we generated $        million of revenue, $        million of net income and $        million of Adjusted EBITDA after giving pro forma effect to the consummation of the spin-off and the Financing Transactions (as defined below). For the six months ended June 30, 2017, we generated $        million of revenue, $        million of net income and $        million of Adjusted EBITDA after giving pro forma effect to the consummation of the spin-off and the Financing Transactions.

We have a geographically diverse portfolio of hotels with significant underlying real estate value primarily located in markets with strong underlying economic and lodging fundamentals. Approximately 74% of our hotel rooms are located in states that experienced job growth rates above the national average in 2016, and over 70% of our rooms are located in states which are projected to have compound annual job growth rates through 2022 that exceed the national average. Our hotels are typically well-positioned competitively within their markets, located near major employment centers, airports and transportation corridors. We believe the nature of the markets in which our hotels are located, with only 8% located in urban markets and 3% located in resort markets, significantly mitigates the potential impact of competition from home and apartment sharing services, which are more prevalent in urban and resort settings. In addition, we believe that the fact that no single property in 2016 accounted for more than 2% of our Adjusted EBITDA and our top ten properties accounted for 11% of our Adjusted EBITDA in 2016 helps protect us from significant disruptions in any single market.

In the fourth quarter of 2016, we began execution of a plan to invest more than $180 million in approximately 50 of our properties with a focus to reposition these assets upward within their local markets, capturing additional market share and rate while being measured against higher quality competitive sets. The scope of these repositioning projects includes, but is not limited to, enhancing guestrooms, expanding public areas and upgrading exterior elements. As of June 30, 2017, we have spent approximately $110 million towards this plan, and currently expect the vast majority of the projects to be completed in 2017. We believe our portfolio continues to present significant opportunities for strategic value-enhancing investment over time, including the potential for the repositioning of additional hotels in our portfolio.

 



 

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As an independent company, we believe our management team will be able to focus on diligent asset management and strategic capital allocation to enhance performance, growth and value creation over time. As a pure-play select-service portfolio with direct access to capital and independent financial resources, we believe that we will be able to successfully execute on our strategy of opportunistically acquiring and disposing of properties to further enhance the value and diversification of our portfolio throughout the lodging cycle, including potentially taking advantage of the economies of scale that could come from consolidation in the midscale and upper-midscale select-service lodging segments.

We enjoy a mutually beneficial relationship with La Quinta, one of the fastest growing select-service hotel brands in the U.S. in terms of percentage growth in number of hotels. La Quinta’s award-winning and growing loyalty program, La Quinta Returns, with over fourteen million total members as of June 30, 2017, provides our hotels with a large and growing base of loyal guests, representing approximately 45% of our room nights sold in 2016. We believe La Quinta has the expertise and track record to effectively manage our hotels to maximize their operating performance and profitability, and as La Quinta’s largest property owner, we accounted for approximately 49% of La Quinta’s total franchise fee revenue in 2016 before giving effect to eliminations upon consolidation. Furthermore, our relationship with La Quinta allows us to benefit from La Quinta’s national, regional and local brand marketing strategy.

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. See “Material U.S. Federal Income Tax Considerations.” We believe our expected election of REIT status, combined with the strong income generation of our assets, will enhance our ability to pay an attractive dividend, offering a compelling value proposition for investors seeking current income as well as long-term growth.

Our Competitive Strengths

We believe the following competitive strengths distinguish us from other lodging real estate companies and effectively position us to execute on our business plan and growth strategies:

 

    Pure-Play Investment Portfolio Serving the Midscale and Upper-Midscale Select-Service Lodging Segments. We believe that we will be able to elect and qualify to operate as a REIT. Once that election has been made, we believe that we will be the only publicly traded U.S. lodging REIT strategically focused on serving the midscale and upper-midscale select-service lodging segments. Based on the data provided by STR, we concluded that the midscale and upper-midscale select-service lodging segments have experienced less volatility in RevPAR growth than the U.S. lodging market as a whole as measured by standard deviation of annual growth rates since collection of this data began in 1987. In addition, RevPAR for the midscale and upper-midscale select-service lodging segments grew at 2.5% and 2.3% in 2016, respectively, both of which were faster growth rates than the luxury, upper upscale, and upscale lodging segments. These higher growth rates are expected to continue for the next several years according to CBRE Hotels’ Americas Research, with compound annual growth rates through 2021 of 2.4% and 2.1% for the midscale and upper-midscale select-service lodging segments, respectively, versus 1.7% for luxury and 1.9% for upper upscale. We believe the midscale and upper-midscale select-service lodging segments are also attractive segments because they cater to both business and leisure travelers, provide travelers’ most desired amenities and represent an attractive price and value proposition. In addition, we believe the more than $180 million in capital investments we are currently making in approximately 50 of our properties will allow us to reposition these assets upward within their local markets, capturing additional market share and rate while being measured against higher quality competitive sets.

 

   

Efficient Select-Service Model with Attractive Cash Flow Characteristics. As a select-service hotel portfolio, our hotels require fewer costly services, employees, amenities and maintenance capital

 



 

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expenditures than full-service hotels, resulting in what we believe to be a more efficient hotel-level cost structure, strong Adjusted EBITDA margins and more stable cash flows. Nearly 99% of our hotel revenue in 2016 was derived solely from room rentals, as compared to approximately 71% for full-service hotels, according to CBRE Hotels’ Americas Research, and our gross operating profit margins in 2016 were 45% as compared to gross operating profit margins of approximately 37% for full-service hotels over the same period according to CBRE Hotels’ Americas Research. Even during the height of the recent economic downturn in 2009, our Adjusted EBITDA margins remained above 32%, as compared to approximately 20% for full-service hotels based on data provided by STR. We believe that our stable cash flows will help to support meaningful future cash distributions to our stockholders.

 

    Scaled Platform with Strong Growth Potential in Attractive Markets. Our hotels are geographically diverse with 319 hotels located in 41 states across the U.S. as of June 30, 2017. We own 96 hotels located in 21 of the top 25 U.S. hotel markets according to STR, with no more than 10 hotels in any individual top 25 market. Our hotels are concentrated in markets that have exhibited strong population and employment growth. Approximately 74% of our hotel rooms are located in states that experienced job growth rates above the national average in 2016, and over 70% of our rooms are located in states which are projected to have compound annual job growth rates through 2022 that exceed the national average. Additionally, the vast majority of our hotels are located outside of high-competition urban centers, with approximately 59% of our hotels in the suburban location segment and approximately 23% of our hotels in the airport and interstate location segments. According to an October 2016 report published by Green Street Advisors, these markets face less competition from alternative apartment and room-sharing accommodation options, with only 2.7% of available room nights coming from services in “low cost” markets as compared to 5.3% in “high cost” markets.

The following graphic shows the locations of our hotels as of June 30, 2017:

 

LOGO

We believe that there remains significant opportunity for geographic growth and diversification of our hotel portfolio, and we are focused on enhancing our investment in attractive, growing markets with multiple demand drivers, such as proximity to major employment centers, airports and transportation corridors. With $        million of net income and $        million of Adjusted EBITDA in 2016 after giving pro forma effect to the consummation of the spin-off and the Financing Transactions, we expect that our significant scale and anticipated access to capital will allow us to opportunistically expand and enhance our hotel portfolio. We believe that we will have an advantage competing for opportunities to invest in properties and portfolios of hotels in the midscale to upper-midscale select-service lodging segments, both as a result of our access to capital and our expertise as an owner of this type of lodging properties.

 

   

Strategic Relationship with La Quinta. We enjoy a strong and mutually beneficial relationship with La Quinta. As an independent company, we will be La Quinta’s largest property owner and franchisee. We believe this relationship will continue to drive significant benefits and mutual alignment of strategic

 



 

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interests. La Quinta is a highly recognizable brand in the select-service market, established over a 49-year history of owning and operating hotels. La Quinta’s award-winning and growing loyalty program, La Quinta Returns, with over fourteen million total members as of June 30, 2017, provides our hotels with a large and growing base of loyal guests, representing approximately 45% of our room nights sold in 2016. La Quinta has the experience and expertise managing select-service hotels and knows our hotels well, having managed them for many years. La Quinta has a sales team of 72 sales professionals as of June 30, 2017 driving demand and accounting for 24% of our revenues in 2016. Furthermore, our relationship with La Quinta allows us to benefit from their brand marketing strategy to drive brand awareness, bookings and loyalty.

 

    Highly Experienced and Successful Management Team. We expect to engage a senior management team that will identify and lead a highly skilled team of asset management professionals who will have a deep understanding of our portfolio and how to best position our portfolio through lodging cycles and maximize market positioning and potential investment opportunities. We expect that the extensive experience of our team will enable us to achieve superior operational efficiency and pursue active asset management and value creation strategies.

Our Business and Growth Strategies

Our objective is to generate premium long-term returns for our stockholders through proactive asset management, leveraging our relationship with La Quinta, value-enhancing investment and disciplined capital allocation. We intend to pursue this objective through the following strategies:

 

    Maximizing Hotel Profitability through Proactive Asset Management. We are focused on continually improving the operating performance and profitability of each of our hotels through our proactive asset management efforts. Although we will not directly manage our hotels, we intend to structure our hotel management agreements with La Quinta Parent or another third-party manager to allow us to closely monitor the performance of each of our hotels. We will collaborate with our third-party managers to continue to identify opportunities to increase market share, employ active revenue management strategies and increase our ADR, thereby enhancing the operating performance, cash flow and value of each property. We also expect to work with our third-party managers to enhance the profitability of our hotels by improving the guest experience, maximizing the cost efficiencies through disciplined cost control and focusing on operational enhancements. Following the spin-off, we believe we will be in an improved position to provide oversight that is solely focused on enhancing the performance of our properties as real estate investments.

 

    Identifying and Executing Value Enhancement Opportunities and Repositioning Portfolio. We have a demonstrated record of identifying and executing on strategic plans for our properties. As an example, in 2016, we reviewed our hotel portfolio and identified approximately 50 properties that, with the appropriate scope of capital investment and renovation, have the opportunity to be repositioned upwards within their relevant market, which we believe will capture occupancy and additional rate while being measured against new, higher-quality competitive sets. In the fourth quarter of 2016, we launched a plan to invest more than $180 million on such repositioning and believe we will see near-term returns on such investment. As of June 30, 2017, we have invested approximately $110 million under this plan. We also believe we have a limited number of additional hotels in our portfolio that could benefit from similar repositioning investment in the future. We also may create value through repositioning select hotels across brands or chain scale segments and exploring adaptive reuse opportunities to ensure our assets achieve their highest and best use. Further, we are continually focused on maintaining our properties and adapting to evolving customer preferences by making ongoing capital expenditures that will provide an acceptable ROI.

 

   

Pursuing Growth and Diversification through Disciplined Acquisitions and Selective Dispositions. As a pure-play lodging real estate company in the select-service market with a portfolio focused on the

 



 

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midscale and upper-midscale select-service lodging segments, we believe we will be well-positioned to be a consolidator given our scale, expected liquidity and balance sheet flexibility and intend to create value through accretive acquisitions. The midscale and upper-midscale select-service segments are amongst the largest segments of the lodging industry by property count and developers who realize the potential for attractive cash-on-cash returns are actively deploying capital in these segments, accounting for approximately 48% of all hotels in construction according to STR. In addition, we believe that these segments are highly fragmented and could benefit from consolidation. We believe there is a significant opportunity to acquire hotels from smaller owner-operators with a higher cost of capital. We also may identify opportunities to acquire hotels or portfolios in additional lodging segments in the future. We expect to develop a disciplined acquisition strategy which will allow us to expand our presence in target markets and further diversify over time, including through the acquisition of hotels that are affiliated with other respected hotel brands and operators. We also have a consistent record of disposing of hotel properties that did not meet our long-term investment criteria, including 78 properties since 2013, the majority of which were exterior corridor hotels, in order to optimize our portfolio and redeploy capital into more attractive investment opportunities.

 

    Building and Maintaining a Strong and Flexible Balance Sheet. We intend to build and maintain a strong and flexible balance sheet with a focus on targeting appropriate leverage levels throughout the lodging cycle. We will also focus on maintaining sufficient liquidity with minimal short-dated debt maturities, and intend to have a mix of debt that will provide us with the flexibility to prepay when desired, dispose of assets, pursue our value enhancement strategies within our existing portfolio, and support acquisition activity. Additionally, we expect to reduce our leverage over time, which will provide additional balance sheet flexibility.

Market Opportunity

The U.S. lodging industry is highly fragmented. As of June 30, 2017, there were 21 publicly traded lodging REITs with over 316,000 rooms and approximately 1,400 hotels, which in total generated approximately $23.4 billion in total revenues during the 2016 fiscal year. We believe that we will be able to elect and qualify to operate as a REIT. Once that election has been made, we believe that we will be the only publicly traded U.S. lodging REIT strategically focused on serving the midscale and upper-midscale select-service lodging segments. According to data provided by STR, the midscale and upper-midscale select-service segments have experienced less volatility in RevPAR growth than the U.S. lodging market as a whole as measured by standard deviation of annual growth rates since collection of this data began in 1987. In addition, these segments grew at faster growth rates than the luxury, upper upscale and upscale segments and are expected to continue growing at higher growth rates for the next several years. Developers who realize the potential for very attractive cash-on-cash returns in the midscale and upper-midscale lodging segments are actively deploying capital in these segments, accounting for approximately 48% of hotels in construction according to STR. In addition, we believe that these segments are highly fragmented and could benefit from consolidation. Given our significant scale and our expertise as an owner of this type of lodging properties, we believe there is a significant opportunity to be an active consolidator of hotel assets within these segments and to further utilize efficiencies achieved through owning a broad portfolio of assets.

Summary Risk Factors

There are a number of risks related to our business and the spin-off and related transactions, including:

 

    we are subject to the business and financial risks inherent to the lodging industry, any of which could reduce our profits, the value of our properties and our ability to make distributions and limit opportunities for growth;

 

    macroeconomic and other factors beyond our control can adversely affect and reduce lodging demand;

 



 

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    contraction in the global economy or low levels of economic growth could adversely affect our revenues and profitability as well as limit or slow our future growth;

 

    our hotels are geographically concentrated, which exposes our business to the effects of regional events and occurrences;

 

    our hotels operate and we compete for acquisitions in a highly competitive industry;

 

    we are subject to risks associated with the concentration of our portfolio in the La Quinta brand. Any deterioration in the quality or reputation of the La Quinta brand could have an adverse effect on our financial condition or results of operations;

 

    our efforts to renovate, redevelop or develop our hotels could be delayed or become more expensive, which could reduce profits or impair our ability to compete effectively;

 

    the lodging industry is subject to seasonal and cyclical volatility, which may contribute to fluctuations in our financial condition and results of operations;

 

    we are exposed to the inherent risks resulting from our investments in real estate, including the relative illiquidity of such investments, which could increase our costs, reduce our profits and limit our ability to respond to market conditions;

 

    we are dependent on the performance of La Quinta and other third-party hotel managers and could be materially and adversely affected if La Quinta or such other third-party hotel managers do not properly manage our hotels or otherwise act in our best interests;

 

    costs associated with, or failure to maintain, brand operating standards may materially and adversely affect our results of operations and profitability;

 

    our substantial indebtedness could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry and our ability to pay our debts and could expose us to interest rate risk to the extent of our variable rate debt and divert our cash flow from operations to make debt payments;

 

    we do not have a recent operating history as an independent company and our historical financial information does not predict our future results;

 

    we may be unable to achieve some or all of the benefits that we expect to achieve from the spin-off;

 

    we may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements with La Quinta Parent related to the spin-off;

 

    we may be responsible for U.S. federal income tax liabilities that relate to the distribution;

 

    if we do not eventually qualify or maintain our qualification as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability;

 

    complying with REIT requirements may cause us to forego otherwise attractive investments, force us to liquidate or restructure otherwise attractive investments or force us to borrow to make distributions to stockholders; and

 

    Blackstone owns approximately 30% of the outstanding common stock of LQH and, upon consummation of the spin-off, will own approximately 30% of the outstanding common stock of CorePoint Parent, and its interests may conflict with ours or yours in the future.

These and other risks related to our business and the spin-off are discussed in greater detail under the heading “Risk Factors” in this information statement. You should read and consider all of these risks carefully.

 



 

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REIT Qualification

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year, and expect to continue to operate thereafter so as to maintain our qualification as a REIT. So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on net taxable income that we distribute annually to our stockholders. To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the real estate qualification of sources of our income, the composition and values of our assets, the amounts we distribute to our stockholders and the ownership of our stock, including certain ownership limitations and restrictions on our stock. Qualification as a REIT involves the interpretation and application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”), for which no or only a limited number of judicial or administrative interpretations exist. To comply with REIT requirements, we may need to forego otherwise attractive opportunities and limit our expansion opportunities and the manner in which we conduct our operations. See “Risk Factors—Risks Related to our REIT Status and Certain Other Tax Items.”

Prior to our election to be treated as a REIT, we will be subject to tax as a regular corporation and will account for income taxes using the asset and liability approach for financial accounting and reporting purposes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical accounting policies and estimates—Income taxes.”

Distribution Policy

The Code generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, and imposes tax on any taxable income retained by a REIT, including capital gains. To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise taxes, upon our election to be treated as a REIT for U.S. federal income tax purposes, we intend to make quarterly distributions of all or substantially all of our REIT taxable income to holders of our common stock out of assets legally available for such purposes. Our future distributions will be at the sole discretion of our board of directors.

To the extent we are prevented by provisions of our financing arrangements or otherwise from distributing 100% of our REIT taxable income or otherwise do not distribute 100% of our REIT taxable income, we will be subject to income tax, and potentially excise tax, on the retained amounts. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, borrow funds, raise additional equity capital, sell assets or reduce such distributions. See “Risks Related to our REIT Status and Certain Other Tax Items—Complying with REIT requirements may force us to borrow to make distributions to stockholders.”

Except to the extent intended to reduce any accumulated earnings and profits attributable to the period between the spin-off and the date our election to be treated as a REIT becomes effective (as discussed below under “The Spin-Off—The Purging Distribution”), we have no current plans to pay dividends on our common stock prior to the effective date of our election to be treated as a REIT.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our most recently completed fiscal year as of the initial filing date of the registration statement of which this information statement forms a part, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an

 



 

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emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies that are not emerging growth companies. These provisions include:

 

    reduced disclosure about our executive compensation arrangements;

 

    no non-binding shareholder advisory votes on executive compensation or golden parachute arrangements; and

 

    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the spin-off; (ii) the first fiscal year after our annual gross revenues are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have taken advantage of reduced disclosure regarding executive compensation arrangements and the presentation of certain historical financial information in this information statement, and we may choose to take advantage of some but not all of these reduced disclosure obligations in future filings. If we do, the information that we provide stockholders may be different than you might get from other public companies in which you hold stock, including La Quinta Parent.

The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

Restrictions on Ownership of our Stock

Subject to certain exceptions, our charter will provide that no person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 4.9% (in value or by number of shares, whichever is more restrictive) of our outstanding common stock or more than 4.9% (in value or by number of shares, whichever is more restrictive) of any outstanding class or series of our preferred stock, which we refer to as the “ownership limit,” and will impose certain other restrictions on ownership and transfer of our stock. We expect that, prior to consummation of the spin-off, our board of directors will grant an exemption from the ownership limit to Blackstone.

Our charter also will prohibit any person from, among other things:

 

    owning shares of our stock that would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT (including, but not limited to, as a result of any “eligible independent contractor” that operates a “qualified lodging facility” (as such terms are defined in Section 856(d)(9)(A) and 856(d)(9)(D) of the Code, respectively) on behalf of our taxable REIT subsidiaries (each a “TRS”) lessees failing to qualify as such);

 

    transferring shares of our stock if the transfer would result in shares of our stock being beneficially owned by fewer than 100 persons;

 

    beneficially owning shares of our stock to the extent such ownership would result in our failing to qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code; and

 



 

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    beneficially or constructively owning shares of our stock to the extent that such ownership could result in us owning a 10% interest in a tenant (as described in Section 856(d)(2)(B) of the Code), if the income so derived by us from such tenant for our taxable year during which such determination is being made could reasonably be expected to equal or exceed 1% of our gross income (as determined for purposes of Section 856(c) of the Code).

Any attempted transfer of our stock which, if effective, would result in violation of the above limitations or the ownership limit (except for a transfer which results in shares being owned by fewer than 100 persons, in which case such transfer will be void and of no force and effect and the intended transferee shall acquire no rights in such shares) will cause the number of shares causing the violation, rounded up to the nearest whole share, to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries designated by us, and the intended transferee will not acquire any rights in the shares.

These restrictions are intended to assist with our REIT compliance under the Code and otherwise to promote our orderly governance, among other purposes. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”

 

 

CorePoint Lodging Inc. was incorporated in the State of Maryland on May 8, 2017. Our headquarters are located in Irving, Texas, at 909 Hidden Ridge, Suite 600. Our telephone number is (214) 492-6600.

 



 

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THE SPIN-OFF

Overview

On January 18, 2017, La Quinta Parent announced its intention to pursue the possibility of separating its businesses into two stand-alone publicly traded companies, including by the spin-off of CorePoint Lodging from La Quinta, following which CorePoint Parent will be an independent, publicly traded company.

Before our spin-off from La Quinta, we will enter into a Distribution Agreement and several other agreements with La Quinta Parent related to the spin-off. These agreements will govern the relationship between us and La Quinta after completion of the spin-off and provide for the allocation between us and La Quinta of various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and liabilities). These agreements also will include arrangements with respect to transitional services to be provided by La Quinta to CorePoint Lodging. See “Certain Relationships and Related Party Transactions—Agreements with La Quinta Parent Related to the Spin-Off.”

The distribution of CorePoint Parent common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. In addition, La Quinta has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of La Quinta Parent determines, in its sole discretion, that the spin-off is not then in the best interests of La Quinta or its stockholders, that a sale or other alternative is in the best interests of La Quinta or its stockholders, or that market conditions or other circumstances are such that it is not advisable at that time to separate CorePoint Lodging from La Quinta. See “The Spin-Off—Conditions to the Spin-Off.”

Organizational Structure

The simplified diagrams below (which omit certain wholly owned intermediate holding companies) depict the organizational structure of LQH prior to the internal reorganization and the organizational structure of LQH, La Quinta and CorePoint Lodging after giving effect to the internal reorganization and the spin-off.

Organizational Structure Prior to the Internal Reorganization

 

LOGO

 

 



 

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Organizational Structure Reflecting the Internal Reorganization

 

LOGO

Organizational Structure Following the Spin-Off

 

LOGO

Financing Transactions

Subject to market conditions, La Quinta and CorePoint Lodging expect to complete one or more financing transactions on or prior to the completion of the spin-off, including the refinancing of substantially all of their

 



 

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existing indebtedness (collectively, the “Financing Transactions”). There can be no assurances that any such Financing Transactions will be completed in the timeframe or size indicated or at all.

The Financing Transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See “The Spin-Off—Financing Transactions” and “Description of Certain Indebtedness.”

The Purging Distribution

As a result of our intended election, subject to the then current corporate income tax environment, to be treated as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year, and to comply with certain REIT qualification requirements, we intend to declare a dividend to our stockholders to distribute our accumulated earnings and profits attributable to the period, if any, between the spin-off and the date our election to be treated as a REIT becomes effective (the “Purging Distribution”). The Purging Distribution will be paid to our stockholders in cash or a combination of cash and CorePoint Parent common stock, with the cash portion constituting at least 20% of the total amount of the Purging Distribution. We may pay the majority of the Purging Distribution in CorePoint Parent common stock. We expect to declare the Purging Distribution in                  and to make the Purging Distribution no later than             . We currently expect the amount of the Purging Distribution will be between approximately $                       and $                      . See “The Spin-Off—The Purging Distribution.”

Questions and Answers About the Spin-Off

The following provides only a summary of the terms of the spin-off. For a more detailed description of the matters described below, see “The Spin-Off.”

 

Q: What is the spin-off?

 

A: The spin-off is the series of transactions by which CorePoint Lodging will separate from La Quinta. To complete the spin-off, La Quinta Parent will distribute to its stockholders all of the outstanding shares of CorePoint Parent common stock. We refer to this as the “distribution.” Following the spin-off, CorePoint Lodging will be a separate company from La Quinta, and La Quinta will not retain any ownership interest in CorePoint Lodging.

 

Q: What will I receive in the spin-off?

 

A: As a holder of La Quinta Parent common stock, you will retain your La Quinta Parent shares and will receive                  shares of CorePoint Parent common stock for every                  shares of La Quinta Parent common stock you own as of the record date. The number of shares of La Quinta Parent common stock you own and your proportionate interest in La Quinta Parent will not change as a result of the spin-off. See “The Spin-Off.”

 

Q: What is CorePoint Parent?

 

A: CorePoint Parent is a lodging real estate company focused on serving the midscale and upper-midscale select-service segments with a geographically diverse portfolio of hotels with significant underlying real estate value. CorePoint Parent is currently a subsidiary of La Quinta Parent whose shares will be distributed to La Quinta Parent stockholders when the spin-off is completed. After the spin-off is completed, CorePoint Parent will be an independent, self-administered, publicly traded lodging company. Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year.

 



 

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Q: What is a REIT?

 

A: A REIT is a company that derives most of its income from real property or real estate mortgages and has elected to be subject to tax as a REIT. If a corporation elects to be subject to tax as a REIT and qualifies as a REIT, it generally will not be subject to U.S. federal corporate income taxes on income that it currently distributes to its stockholders. A company’s qualification as a REIT depends on its ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of its gross income, the composition and values of its assets, its distribution levels to its stockholders and the diversity of ownership of its capital stock.

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year, which we believe is the first taxable year for which such election is available to us.

 

Q: Why is the separation of CorePoint Lodging structured as a spin-off?

 

A: La Quinta Parent intends to implement the spin-off of its entire portfolio of owned hotels (319 hotels with approximately 41,000 rooms as of June 30, 2017) described under “Business and Properties—Our Properties,” which we refer to collectively as the “Separated Real Estate Business”. La Quinta determined, and continues to believe, that a spin-off is the most efficient way to accomplish a separation of the Separated Real Estate Business from La Quinta for various reasons, including: (i) a spin-off offers a higher degree of certainty of completion in a timely manner, lessening disruption to current business operations; and (ii) a spin-off provides greater assurance that decisions regarding the capital structure of CorePoint Lodging support future financial stability. After consideration of strategic alternatives, La Quinta believes that a spin-off will enhance the long-term value of both La Quinta and CorePoint Lodging. See “The Spin-Off—Reasons for the Spin-Off.”

 

Q: Can La Quinta decide to cancel the distribution of the CorePoint Parent common stock even if all the conditions have been met?

 

A: Yes. The distribution of CorePoint Parent common stock is subject to the satisfaction or waiver of certain conditions. See “The Spin-Off—Conditions to the Spin-Off.” La Quinta has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of La Quinta Parent determines, in its sole discretion, that the spin-off is not then in the best interests of La Quinta or its stockholders, that a sale or other alternative is in the best interests of La Quinta or its stockholders, or that market conditions or other circumstances are such that it is not advisable at that time to separate CorePoint Lodging from La Quinta.

 

Q: What is being distributed in the spin-off?

 

A: Approximately             million shares of CorePoint Parent common stock will be distributed in the spin-off, based on the number of shares of La Quinta Parent common stock expected to be outstanding as of 5:00 p.m., Eastern time, on                 ,                 , the record date, and assuming a distribution ratio of one-to-             . The actual number of shares of CorePoint Parent common stock to be distributed will be calculated on the record date. The shares of CorePoint Parent common stock to be distributed by La Quinta Parent will constitute all of the issued and outstanding shares of CorePoint Parent common stock immediately prior to the distribution. See “Description of Capital Stock—Common Stock.”

 

Q: When is the record date for the distribution?

 

A: The record date is             ,             .

 



 

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Q: When will the distribution occur?

 

A: The distribution date of the spin-off is             ,             . We expect that it will take the distribution agent, acting on behalf of La Quinta Parent, up to two weeks after the distribution date to fully distribute the shares of CorePoint Parent common stock to La Quinta Parent stockholders.

 

Q: What do I have to do to participate in the spin-off?

 

A: Nothing. You are not required to take any action, although we urge you to read this entire document carefully. No stockholder approval of the distribution is required or sought. You are not being asked for a proxy. No action is required on your part to receive your shares of CorePoint Parent common stock. You will neither be required to pay anything for the new shares nor be required to surrender any shares of La Quinta Parent common stock to participate in the spin-off.

 

Q: How will outstanding La Quinta Parent equity-based compensation awards be affected as a result of the spin-off?

 

A: At the time of the distribution, it is expected that all outstanding La Quinta Parent equity-based compensation awards, whether vested or unvested, will be equitably adjusted to reflect the occurrence of the separation.

 

Q: Why is CorePoint Parent being treated as the accounting spinnor to LQH for accounting purposes?

 

A: Notwithstanding the legal form of the spin-off described elsewhere in this information statement, for accounting and financial reporting purposes, LQH will be presented as being spun-off from CorePoint Parent (a “reverse spin”). This presentation is in accordance with GAAP and is primarily a result of the relative significance of CorePoint Parent’s business to LQH’s business, as measured in terms of revenues, profits, and assets. Further, LQH has been determined to best represent the predecessor entity to CorePoint Parent. Therefore, our historical financial statements presented herein and in our future filings, with respect to periods prior to the spin-off, will be represented by the historical financial statements of LQH, and the pro forma financial statements will present La Quinta Parent as discontinued operations. See “Risk Factors—Risks Related to the Spin-Off—The historical and pro forma financial information presented herein is not necessarily representative of the results that our business would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results,” “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information regarding the effects of this accounting treatment.

 

Q: What are the U.S. federal income tax consequences of the spin-off?

 

A: The spin-off will be made in the form of a taxable distribution to La Quinta Parent stockholders. An amount equal to the fair market value of our common stock received by you will be treated as a taxable dividend to the extent of your ratable share of any current or accumulated earnings and profits of La Quinta Parent allocable to the distribution, with the excess treated as a nontaxable return of capital to the extent of your tax basis in your shares of La Quinta Parent common stock and any remaining excess treated as capital gain. The transaction also will be treated as a taxable sale by La Quinta Parent, and La Quinta Parent will recognize gain equal to the excess, if any, of the fair market value of the assets contributed to CorePoint Parent over La Quinta Parent’s adjusted basis in the assets. As a result, La Quinta Parent anticipates that the distribution will increase its earnings and profits for the year in which the distribution occurs, which is anticipated to be . La Quinta Parent or other applicable withholding agents may be required to withhold on all or a portion of the distribution payable to non-U.S. stockholders. For a more detailed discussion, see “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” and “Material U.S. Federal Income Tax Considerations.”

 



 

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Q: How will fractional shares be treated in the spin-off?

 

A: Fractional shares of CorePoint Parent common stock will not be distributed. Fractional shares of CorePoint Parent common stock to which La Quinta Parent stockholders of record would otherwise be entitled will be aggregated and sold in the public market by the distribution agent at prevailing market prices. The distribution agent, in its sole discretion, will determine when, how and through which broker-dealers, provided that such broker-dealers are not affiliates of La Quinta Parent or CorePoint Parent, and at what prices to sell these shares. The aggregate net cash proceeds of the sales will be distributed ratably to those stockholders who would otherwise have received fractional shares of CorePoint Parent common stock. See “The Spin-Off—Treatment of Fractional Shares” for a more detailed explanation.

 

Q: Why has La Quinta determined to undertake the spin-off?

 

A: La Quinta Parent’s board of directors has determined that the spin-off is in the best interests of La Quinta Parent, its stockholders because the spin-off will provide the following key benefits:

 

    Direct and Differentiated Access to Capital Resources to Pursue Tailored Growth Strategies. Following the spin-off, CorePoint Parent will be free to allocate capital with a focus on optimizing the value of our portfolio without having to balance the potentially countervailing economic imperatives of a capital-light management and franchising business. As a pure-play real estate company with direct access to capital and independent financial resources, we believe our enhanced ability to execute compelling return on investment initiatives within our portfolio represents a significant embedded growth opportunity. Moreover, the anticipated liquidity of our stock should enhance our ability to pursue single-asset and portfolio acquisition opportunities. Similarly, as a pure-play hotel management and franchising company, La Quinta Parent expects to benefit from alignment with a dedicated investor base, resulting in enhanced and more efficient access to capital to pursue a growth strategy best suited for its core, capital-light fee business.

 

    Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities. La Quinta’s management and franchising and real estate businesses exhibit different financial and operating characteristics and appeal to different types of investors with different investment goals and risk profiles. Finding investors who want to invest in the businesses together is more challenging than finding investors for each business individually. After the spin-off, investors should be better able to evaluate the financial performance of each company, as well as its strategy within the context of its particular market, thereby enhancing the likelihood that each company will achieve an appropriate market valuation.

 

    Dedicated Management Team with Enhanced Strategic Focus. Following the spin-off, La Quinta’s management and franchising and CorePoint’s real estate businesses will no longer compete for the attention and resources of a single management team and will benefit from dedicated management teams focused on designing and implementing tailored strategies to achieve the distinct goals and opportunities of each business. Moreover, free from constraints that arise from being part of a larger hotel management business, CorePoint Parent’s dedicated management team will be able to employ business strategies that are solely focused on maximizing the value of its real estate business.

 

    Improved Management Incentive Tools. We expect to use equity-based and other incentive awards to compensate current and future employees. In multi-business companies such as La Quinta, incentives are necessarily structured in such a way that rewards employees in a manner tied to the performance of the company as a whole, rather than wholly directly related to the performance of their respective business units. By granting awards linked to the performance of a pure-play business, the compensation arrangements of each company should provide enhanced incentives that are tied to the more focused strategies of each business, aligning employee performance and improving the ability of each company to attract, retain and motivate qualified personnel.

 



 

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    Tax-Efficient Structure. The spin-off will allow La Quinta Parent’s stockholders to hold their interest in the CorePoint Lodging portfolio, comprising all of La Quinta Parent’s current ownership segment, through an entity that will, subject to the then current corporate income tax environment, elect to be taxed as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. We believe this will result in La Quinta Parent’s stockholders directly and indirectly bearing significantly less U.S. federal income tax than if the CorePoint Lodging properties were held in a C corporation.

 

Q: Will the CorePoint Parent common stock be listed on a stock exchange?

 

A: Yes. Although there is not currently a public market for CorePoint Parent common stock, before completion of the spin-off, CorePoint Parent will apply to list its common stock on the New York Stock Exchange under the symbol “CPLG.” It is anticipated that trading of CorePoint Parent common stock will commence on a “when-issued” basis at least two trading days prior to the record date. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. “When-issued” trades generally settle within four trading days after the distribution date. On the first trading day following the distribution date, any “when-issued” trading with respect to CorePoint Parent common stock will end, and “regular-way” trading will begin. “Regular-way” trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full trading day following the date of the transaction. See “Trading Market.”

 

Q: Will my shares of La Quinta Parent common stock continue to trade?

 

A: Yes. La Quinta Parent common stock will continue to be listed and trade on the New York Stock Exchange under the symbol “LQ.”

 

Q: If I sell, on or before the distribution date, shares of La Quinta Parent common stock that I held on the record date, am I still entitled to receive shares of CorePoint Parent common stock distributable with respect to the shares of La Quinta Parent common stock I sold?

 

A: Beginning on or shortly before the record date and continuing through the distribution date for the spin-off, La Quinta Parent common stock will begin to trade in two markets on the New York Stock Exchange: a “regular-way” market and an “ex-distribution” market. If you hold shares of La Quinta Parent common stock as of the record date for the distribution and choose to sell those shares in the “regular-way” market after the record date for the distribution and on or before the distribution date, you also will be selling the right to receive the shares of CorePoint Parent common stock in connection with the spin-off. However, if you hold shares of La Quinta Parent common stock as of the record date for the distribution and choose to sell those shares in the “ex-distribution” market after the record date for the distribution and on or before the distribution date, you will still receive the shares of CorePoint Parent common stock in the spin-off.

 

Q: Will the spin-off affect the trading price of my La Quinta Parent stock?

 

A: Yes. The trading price of shares of La Quinta Parent common stock immediately following the distribution is expected to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of the Separated Real Estate Business. Additionally, the shareholders of La Quinta Holdings Inc. have authorized a reverse stock split of La Quinta Holdings Inc.’s common stock at a ratio to be determined by its board of directors. This will impact the number of shares and per share price after the distribution. However, we cannot predict the price at which the La Quinta Parent shares will trade following the spin-off.

 



 

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Q: What financing transactions will be undertaken in connection with the spin-off?

 

A: Subject to market conditions, La Quinta and CorePoint Lodging expect to complete one or more financing transactions on or prior to the completion of the spin-off, including the refinancing of substantially all of their existing indebtedness. There can be no assurances that any such Financing Transactions will be completed in the timeframe or size indicated or at all.

The Financing Transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See “The Spin-Off—Financing Transactions” and “Description of Certain Indebtedness.”

 

Q: Who will comprise the senior management team and board of directors of CorePoint Parent after the spin-off?

 

A: We expect to identify the members of the senior management team and board of directors of CorePoint Parent in a subsequent amendment to the registration statement of which this information statement forms a part.

 

Q: What will the relationship be between La Quinta and CorePoint Lodging after the spin-off?

 

A: Following the spin-off, CorePoint Parent will be an independent, self-administered, publicly traded lodging company, and La Quinta Parent will have no continuing stock ownership interest in CorePoint Parent. CorePoint Parent will have entered into a Distribution Agreement with La Quinta Parent and will enter into several other agreements for the purpose of allocating among La Quinta Parent and CorePoint Parent various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and liabilities). The Distribution Agreement will provide, in general, that CorePoint Lodging will indemnify La Quinta against any and all liabilities arising out of the business of CorePoint Lodging as constituted in connection with the spin-off and any other liabilities and obligations assumed by CorePoint Lodging, and that La Quinta will indemnify CorePoint Lodging against any and all liabilities arising out of the businesses of La Quinta as constituted in connection with the spin-off and any other liabilities and obligations assumed by La Quinta.

So as to be able to elect to qualify as a REIT beginning in the 2018 taxable year, we will not directly or indirectly operate any of our hotels. Upon consummation of the spin-off, we will lease each of our wholly owned hotels to our TRS lessees, which, in turn, will engage a third-party manager, such as La Quinta, to manage these hotels pursuant to management agreements.

The terms of the management and franchise agreements that we and La Quinta or another third-party manager will enter into in connection with the spin-off are described under “Business and Properties—Our Principal Agreements—Management Agreements” and “—Franchise Agreements.”

 

Q: What will CorePoint Parent’s distribution policy be after the spin-off?

 

A: Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. Upon such election, the Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes tax on any taxable income retained by a REIT, including capital gains.

All dividends will be made by us at the discretion of our board of directors and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants (which are expected to include limits on dividends), applicable law and other factors as our board of directors deems relevant. Our board of directors has not yet determined when any dividends will be declared or paid, although we

 



 

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currently expect that dividends will be paid on a quarterly basis once we elect to qualify as a REIT. We cannot guarantee, and there can be no assurance, that we will declare or pay any dividends or distributions. See “Distribution Policy.”

Except to the extent intended to reduce any accumulated earnings and profits attributable to the period between the spin-off and the date our election to be treated as a REIT becomes effective (as discussed above under “— The Purging Distribution”), we have no current plans to pay dividends on our common stock prior to the effective date of our election to be treated as a REIT.

 

Q: What are the anti-takeover effects of the spin-off?

 

A: Certain provisions of the charter and bylaws of CorePoint Parent, Maryland law and possibly the agreements governing CorePoint Parent’s new debt, as each will be in effect immediately following the spin-off, may have the effect of making more difficult an acquisition of control of CorePoint Lodging in a transaction not approved by our board of directors. See “Risk Factors—Risks Related to Ownership of Our Common Stock—Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring our board of directors or stockholders to approve proposals to acquire our company or effect a change in control,” “Description of Certain Indebtedness,” “Description of Capital Stock—Restrictions on Ownership and Transfer” and “Certain Provisions of Maryland Law and of Our Charter and Bylaws.”

 

Q: What are the risks associated with the spin-off?

 

A: There are a number of risks associated with the spin-off and ownership of CorePoint Parent common stock. These risks are discussed under “Risk Factors.”

 

Q: Where can I get more information?

 

A. If you have any questions relating to the mechanics of the distribution, you should contact the distribution agent at:

Computershare Trust Company, N.A.

 

Before completion of the spin-off, if you have any questions relating to the spin-off, you should contact La Quinta Parent at:

La Quinta Holdings Inc.

Investor Relations

Phone: 214-492-6896

Email: investor.relations@laquinta.com

www.lq.com

After completion of the spin-off, if you have any questions relating to CorePoint Lodging, you should contact CorePoint Parent at:

CorePoint Lodging Inc.

Investor Relations

Phone:

Email:

 



 

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Summary of the Spin-Off

 

Distributing Company

La Quinta Holdings Inc., a Delaware corporation. After the distribution, La Quinta will not own any shares of CorePoint Parent common stock.

 

Distributed Company

CorePoint Lodging Inc., a Maryland corporation and a wholly owned subsidiary of La Quinta.

 

  After the spin-off, CorePoint Parent will be an independent, self-administered, publicly traded company. Subject to the then current corporate income tax environment, CorePoint Parent intends to elect to qualify as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year.

 

Distributed Securities

All of the outstanding shares of CorePoint Parent common stock owned by La Quinta Parent, which will be 100% of the CorePoint Parent common stock issued and outstanding immediately prior to the distribution.

 

Record Date

The record date for the distribution is                 ,      .

 

Distribution Date

The distribution date is                 ,      .

 

Internal Reorganization

LQH’s owned hotels are currently held through two of its wholly-owned subsidiaries—Lodge Holdco I L.L.C. (“Holdco I”) and Lodge Holdco III L.L.C. (“Holdco III”), collectively representing the Separated Real Estate Business—and its franchise and management businesses are held through two of its other wholly-owned subsidiaries (see “—Organizational Structure—Organizational Structure Prior to the Internal Reorganization”). As part of the spin-off, La Quinta will undergo an internal reorganization, which we refer to as the “internal reorganization,” pursuant to which, among other things and subject to limited exceptions:

 

    all of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Separated Real Estate Business will be transferred to us or our subsidiaries by LQH; and

 

    all other assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) of La Quinta will be retained by La Quinta Parent or its subsidiaries (other than us and our respective subsidiaries).

 

  After completion of the spin-off:

 

    we will be an independent, self-administered, publicly traded company (NYSE: CPLG), and will hold a portfolio of La Quinta’s real estate assets as described herein; and

 

    La Quinta will continue to be an independent, publicly traded company (NYSE: LQ) and continue to own and operate its management and franchising business.

 



 

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  See “The Spin-Off—Manner of Effecting the Spin-Off—Internal Reorganization.”

 

Distribution Ratio

Each holder of La Quinta Parent common stock will receive                  shares of CorePoint Parent common stock for every                  shares of La Quinta Parent common stock held as of 5:00 p.m., Eastern time, on                                      ,      .

 

  Immediately following the spin-off, CorePoint Parent expects to have approximately              record holders of shares of common stock and approximately              million shares of common stock outstanding, based on the number of stockholders and outstanding shares of La Quinta Parent common stock on                 ,                  and the distribution ratio. The figures exclude shares of La Quinta Parent common stock held directly or indirectly by La Quinta Parent, if any. The actual number of shares to be distributed will be determined on the record date and will reflect any repurchases of shares of La Quinta Parent common stock and issuances of shares of La Quinta Parent common stock in respect of awards under La Quinta Parent equity-based incentive plans between the date the La Quinta Parent board of directors declares the dividend for the distribution and the record date for the distribution.

 

The Distribution

On the distribution date, La Quinta Parent will release the shares of CorePoint Parent common stock to the distribution agent to distribute to La Quinta Parent stockholders. The distribution of shares will be made in book-entry form only, which means that no physical share certificates will be issued. It is expected that it will take the distribution agent up to two weeks to issue shares of CorePoint Parent common stock to you or to your bank or brokerage firm electronically on your behalf by way of direct registration in book-entry form. Trading of our shares will not be affected during that time. You will not be required to make any payment, surrender or exchange your shares of La Quinta Parent common stock or take any other action to receive your shares of CorePoint Parent common stock.

 

Fractional Shares

The distribution agent will not distribute any fractional shares of CorePoint Parent common stock to La Quinta Parent stockholders. Fractional shares of CorePoint Parent common stock to which La Quinta Parent stockholders of record would otherwise be entitled will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of the sales will be distributed ratably to those stockholders who would otherwise have received fractional shares of CorePoint Parent common stock.

 

Conditions to the Spin-Off

Completion of the spin-off is subject to the satisfaction or waiver by La Quinta Parent of the following conditions:

 

   

the final approval by the board of directors of La Quinta Parent of the spin-off and all related transactions and the determination of the

 



 

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record date, which approval may be given or withheld at its absolute and sole discretion;

 

    our Registration Statement on Form 10, of which this information statement forms a part, shall have been declared effective by the Securities and Exchange Commission (the “SEC”), no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC, and this information statement, or a notice of internet availability thereof, shall have been mailed to the La Quinta Parent stockholders;

 

    CorePoint Parent common stock shall have been approved for listing on the New York Stock Exchange, subject to official notice of distribution;

 

    the receipt by CorePoint Parent of a tax opinion, in form and substance reasonably satisfactory to CorePoint Parent, to the effect that, commencing with CorePoint Parent’s taxable year ending on December 31, 2018, CorePoint Parent should be considered to be organized in conformity with the requirements for qualification as a REIT under the Code, and its proposed method of operation should enable it to meet the requirements for qualification and taxation as a REIT;

 

    prior to the distribution date, the La Quinta Parent board of directors shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to La Quinta, which shall opine that, among other things and subject to certain customary qualifications and assumptions, immediately after giving effect to the spin-off, each of La Quinta and CorePoint Lodging will be solvent;

 

    any material governmental approvals and other consents necessary to consummate the spin-off shall have been received;

 

    no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the spin-off shall be pending, threatened, issued or in effect, and no other event shall have occurred or failed to occur that prevents the consummation of all or any portion of the spin-off;

 

    no other events or developments shall have occurred or failed to occur that, in the judgment of the board of directors of La Quinta Parent, would result in the distribution having a material adverse effect on La Quinta or its stockholders;

 

    the internal reorganization shall have been completed, except for such steps as La Quinta Parent in its sole discretion shall have determined may be completed after the distribution date;

 

    all necessary actions shall have been taken to cause the directors and officers of CorePoint Parent to be the individuals identified as such in this information statement;

 



 

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    all necessary actions shall have been taken to adopt the form of charter and bylaws filed by CorePoint Parent with the SEC as exhibits to the Registration Statement on Form 10, of which this information statement forms a part, including filing the form of charter with, and having the form of charter accepted for record by, the State Department of Assessments and Taxation of Maryland (the “SDAT”); and

 

    each of the Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Transition Services Agreement and the other ancillary agreements shall have been executed by each party.

 

  The fulfillment of the foregoing conditions will not create any obligation on the part of La Quinta to effect the spin-off. We are not aware of any material federal, foreign or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations, approval for listing on the New York Stock Exchange and the declaration of effectiveness of the Registration Statement on Form 10, of which this information statement forms a part, by the SEC, in connection with the distribution. La Quinta has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of La Quinta Parent determines, in its sole discretion, that the spin-off is not then in the best interests of La Quinta or its stockholders, that a sale or other alternative is in the best interests of La Quinta or its stockholders or that it is not advisable for CorePoint Lodging to separate from La Quinta at that time. For more information, see “The Spin-Off—Conditions to the Spin-Off.”

 

Trading Market and Symbol

We intend to list CorePoint Parent common stock on the New York Stock Exchange under the ticker symbol “CPLG.” We anticipate that, at least two trading days prior to the record date, trading of shares of CorePoint Parent common stock will begin on a “when-issued” basis and will continue up to and including the distribution date, and we expect “regular-way” trading of CorePoint Parent common stock will begin the first trading day after the distribution date. We also anticipate that, at least two trading days prior to the record date, there will be two markets in La Quinta Parent common stock: (i) a “regular-way” market on which shares of La Quinta Parent common stock will trade with an entitlement for the purchaser of La Quinta Parent common stock to shares of CorePoint Parent common stock to be distributed pursuant to the distribution; and (ii) an “ex-distribution” market on which shares of La Quinta Parent common stock will trade without an entitlement for the purchaser of La Quinta Parent common stock to shares of CorePoint Parent common stock. For more information, see “Trading Market.”

 

Tax Consequences of the Spin-Off

The spin-off will be in the form of a taxable distribution to La Quinta Parent stockholders. An amount equal to the fair market value of our common stock received by you will be treated as a taxable dividend

 



 

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to the extent of your ratable share of any current or accumulated earnings and profits of La Quinta Parent allocable to the distribution, with the excess treated as a nontaxable return of capital to the extent of your tax basis in your shares of La Quinta Parent common stock and any remaining excess treated as capital gain. Your tax basis in shares of La Quinta Parent held at the time of the distribution will be reduced (but not below zero) to the extent the fair market value of our shares distributed by La Quinta Parent in the distribution exceeds La Quinta Parent’s current and accumulated earnings and profits allocable to the distribution. Your holding period for such La Quinta Parent shares will not be affected by the distribution. Your tax basis in shares of our common stock received will equal the fair market value of such shares on the distribution date. Your holding period for such shares will begin the day after the distribution date. The transaction also will be treated as a taxable sale by La Quinta Parent, and La Quinta Parent will recognize gain equal to the excess, if any, of the fair market value of the assets contributed to CorePoint Parent over La Quinta Parent’s adjusted basis in the assets. As a result, La Quinta Parent anticipates that the distribution will increase its earnings and profits for the year in which the distribution occurs. La Quinta Parent or other applicable withholding agents may be required to withhold on all or a portion of the distribution payable to non-U.S. stockholders. For a more detailed discussion, see “Material U.S. Federal Income Tax Considerations.”

 

  Each stockholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the spin-off to such stockholder, including the effect of any state, local or non-U.S. tax laws and of changes in applicable tax laws.

 

Relationship with La Quinta after the Spin-Off

We will enter into a Distribution Agreement and several other agreements with La Quinta Parent related to the spin-off. These agreements will govern the relationship between us and La Quinta after completion of the spin-off and provide for the allocation between us and La Quinta of various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and liabilities). The Distribution Agreement will provide for the allocation of assets and liabilities between La Quinta and CorePoint Lodging and will establish the rights and obligations between and among the parties following the distribution. We intend to enter into one or more Transition Services Agreements with La Quinta Parent pursuant to which certain services will be provided on an interim basis following the distribution. We also intend to enter into an Employee Matters Agreement that will set forth the agreements between us and La Quinta concerning certain employee, compensation and benefit-related matters. Further, we intend to enter into a Tax Matters Agreement with La Quinta Parent regarding the sharing of taxes incurred before and after completion of the spin-off, certain indemnification rights with respect to tax matters

 



 

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and certain restrictions on our conduct following the distribution. We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements with La Quinta Parent Related to the Spin-Off,” and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off.”

 

  In order to be eligible to qualify as a REIT beginning in the 2018 taxable year, we will not directly or indirectly operate any of our hotels. Upon consummation of the spin-off, we will lease each of our wholly owned hotels to our TRS lessees, which, in turn, will engage a third-party manager, such as La Quinta, to manage these hotels pursuant to management agreements.

 

  The terms of the management and franchise agreements that we and La Quinta or another third-party manager will enter into in connection with the spin-off are described under “Business and Properties—Our Principal Agreements—Management Agreements” and “—Franchise Agreements.”

 

Distribution Policy

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. Following our election and qualification to be treated as a REIT for U.S. federal income tax purposes, we intend to make quarterly dividend payments of at least 90% of our REIT taxable income to holders of our common stock out of assets legally available for this purpose. Dividends will be authorized by and at the sole discretion of our board of directors based on a number of factors including actual results of operations, dividend restrictions under Maryland law or applicable debt covenants, our liquidity and financial condition, our taxable income, the annual distribution requirements under the REIT provisions of the Code, our operating expenses and other factors it may deem relevant. For more information, see “Distribution Policy.”

 

  Except to the extent intended to reduce any accumulated earnings and profits attributable to the period between the spin-off and the date our election to be treated as a REIT becomes effective (as discussed below under “Purging Distribution”), we have no current plans to pay dividends on our common stock prior to the effective date of our election to be treated as a REIT.

 

Purging Distribution

As a result of our intended election, subject to the then current corporate income tax environment, to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year, to comply with certain REIT qualification requirements, we will make the Purging Distribution by declaring a dividend to our stockholders to distribute our accumulated earnings and profits attributable to the period, if any, between the spin-off and the date our election to be treated as a REIT becomes effective. The Purging

 



 

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Distribution will be paid to our stockholders in cash or a combination of cash and CorePoint Parent common stock, with the cash portion constituting at least 20% of the total amount of the Purging Distribution. We may pay the majority of the Purging Distribution in CorePoint Parent common stock. Additionally, we expect to declare the Purging Distribution in                  and to make the Purging Distribution no later than      . We currently expect the approximate aggregate amount of the Purging Distribution will be between $                       and $                      . See “The Spin-Off—The Purging Distribution.”

 

  In general, any and all of the cash and stock we distribute to our stockholders as part of the Purging Distribution will be treated as a taxable distribution of property with respect to our stock, and the amount of any distribution of stock received by any of our stockholders as part of the Purging Distribution will be considered to equal the amount of the money that could have been received instead. In the Purging Distribution, a holder of our common stock will be required to report dividend income as a result of the Purging Distribution even if we distribute no cash or only nominal amounts of cash to such stockholder. See “The Spin-Off—Purging Distribution.”

 

  Each stockholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the Purging Distribution to such stockholder, including the effect of any U.S. federal, state, local and non-U.S. tax laws.

 

Financing Transactions

Subject to market conditions, La Quinta and CorePoint Lodging expect to complete one or more financing transactions on or prior to the completion of the spin-off, including the refinancing of substantially all of their existing indebtedness. There can be no assurances that any such Financing Transactions will be completed in the timeframe or size indicated or at all.

 

  The Financing Transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See “The Spin-Off—Financing Transactions” and “Description of Certain Indebtedness.”

 

Transfer Agent

Computershare Trust Company, N.A.

 

Risk Factors

We face both general and specific risks and uncertainties relating to our business, our relationship with La Quinta and our being an independent, publicly traded company. We also are subject to risks relating to the spin-off. You should carefully read the risk factors set forth in the section entitled “Risk Factors” in this information statement.

 



 

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Summary Historical and Unaudited Pro Forma Consolidated Financial Data

Notwithstanding the legal form of the spin-off described elsewhere in this information statement, for accounting and financial reporting purposes, LQH will be presented as being spun-off from CorePoint Parent (a “reverse spin”). This presentation is in accordance with GAAP and is primarily a result of the relative significance of CorePoint Parent’s business to LQH’s business, as measured in terms of revenues, profits, and assets. Further, LQH has been determined to best represent the predecessor entity to CorePoint Parent. Therefore, our historical financial statements presented herein and in our future filings, with respect to periods prior to the spin-off, will be represented by the historical financial statements of LQH, and the pro forma financial statements will present La Quinta Parent as discontinued operations.

The following summary historical consolidated statement of operations data for the years ended December 31, 2016, 2015 and 2014 and the summary historical consolidated balance sheet data as of December 31, 2016 and 2015 are derived from LQH’s audited consolidated financial statements included elsewhere in this information statement.

The summary historical consolidated statement of operations data for the six months ended June 30, 2017 and 2016 and the summary historical consolidated balance sheet data as of June 30, 2017 are derived from LQH’s unaudited condensed consolidated financial statements included elsewhere in this information statement. LQH has prepared its unaudited condensed consolidated financial statements on the same basis as its audited consolidated financial statements and, in our opinion, have included all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects LQH’s financial position and results of operations. Results for the six months ended June 30, 2017 are not necessarily indicative of results that may be expected for the entire year.

LQH’s historical results are not necessarily indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from La Quinta. For example, LQH’s historical consolidated financial statements included expenses for costs related to certain shared functions. These costs may not be representative of the future costs we will incur, either positively or negatively, as an independent, public company. See “Risk Factors—Risks Related to the Spin-Off—The historical and pro forma financial information presented herein is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.”

The unaudited pro forma condensed consolidated financial statements have been adjusted to give effect to the spin-off, presenting CorePoint Parent as the accounting spinnor, as well as other adjustments resulting from the transaction, CorePoint Lodging’s anticipated post-separation capital structure and the impact of, and transactions contemplated by, the Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, Transition Services Agreement and other commercial agreements between CorePoint Parent and La Quinta Parent summarized under “Certain Relationships and Related Party Transactions.” CorePoint Parent is currently in the process of implementing plans, which are subject to further refinement, to separate from La Quinta Holdings Inc. certain of the internal functions that CorePoint Parent needs to operate effectively and fulfill its responsibilities as a stand-alone public company. These plans reflect anticipated recurring activities that are different than our current activities, as well as certain nonrecurring activities that CorePoint Parent expects will be required during our transition to a stand-alone public company.

The following unaudited summary pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the dates indicated, nor is it indicative of future operating results. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available

 



 

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information and we believe such assumptions are reasonable under the circumstances. See “Unaudited Pro Forma Consolidated Financial Statements.”

The summary historical financial data below should be read together with the audited consolidated financial statements and unaudited consolidated financial statements, including the related notes thereto, as well as “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Certain Indebtedness” and the other financial information included elsewhere in this information statement.

 

    La Quinta Holdings Inc.  
    Six Months Ended June 30,     Years ended December 31,  
(in thousands)   Pro Forma
2017
    2017     2016     Pro Forma
2016
    2016     2015     2014  
    (Unaudited)     (Unaudited)                    

Statement of Operations Data:

             

Revenues:

             

Room revenues

  $                  $ 420,787     $ 439,341     $                    855,302     $ 887,358     $ 846,203  

Franchising and other fee-based revenues

      54,153       50,170         106,468       100,069       89,718  

Other hotel revenues

      9,733       9,849         19,334       19,343       19,536  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      484,673       499,360         981,104       1,006,770       955,457  

Brand marketing fund revenues from franchised and managed properties

      13,036       11,966         25,150       23,204       21,481  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

      497,709       511,326         1,006,254       1,029,974       976,938  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

             

Direct lodging expenses

      204,788       202,490         409,886       398,828       378,705  

Depreciation and amortization

      72,456       74,925         147,081       166,642       165,887  

General and administrative expenses

      70,936       56,879         115,715       125,697       149,894  

Other lodging and operating expenses

      21,891       30,976         62,281       63,513       56,984  

Marketing, promotional and other advertising expenses

      40,714       40,287         68,327       69,810       62,161  

Impairment loss

      —         99,560         104,258       50,121       5,157  

Loss (gain) on sales

      138       (722       (4,908     4,088       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      410,923       504,395         902,640       878,699       818,788  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Brand marketing fund expenses from franchised and managed properties

      13,036       11,966         25,150       23,204       21,481  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

      423,959       516,361         927,790       901,903       840,269  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

      73,750       (5,035       78,464       128,071       136,669  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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    La Quinta Holdings Inc.  
    Six Months Ended June 30,     Years ended December 31,  
(in thousands, except per share data)   Pro Forma
2017
    2017     2016     Pro Forma
2016
    2016     2015     2014  
    (Unaudited)     (Unaudited)                    

Statement of Operations Data:

             

Other Income (Expenses):

             

Interest expense, net

      (40,233     (40,592       (81,419     (86,504     (120,945

Other (loss) income

      (93     1,100         2,345       7,632       3,261  

Loss on extinguishment of debt, net

      —         —           —         —         (2,030
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other (expenses) income, net

      (40,326     (39,492       (79,074     (78,872     (119,714
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

      33,424       (44,527       (610     49,199       16,955  

Income tax (expense) benefit

      (14,923     20,721         (493     (22,487     (28,805

Recognition of net deferred tax liabilities upon C-corporation conversion

      —         —           —         —         (321,054
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

      18,501       (23,806       (1,103     26,712       (332,904

Loss on discontinued operations, net of tax

      —         —           —         —         (503
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $                  $ 18,501     $ (23,806   $                  $ (1,103   $ 26,712     $ (333,407

Net income attributable to noncontrolling interests

      (126     (120       (185     (347     (3,890
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

  $                  $ 18,375     $ (23,926   $                  $ (1,288   $ 26,365     $ (337,297
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) earnings per share

  $                  $ 0.16     $ (0.20   $                  $ (0.01   $ 0.21     $ (2.67

Diluted (loss) earnings per share

  $                  $ 0.16     $ (0.20   $                  $ (0.01   $ 0.20     $ (2.67

 

     La Quinta Holdings Inc.  
     As of June 30,      As of December 31,  
(in thousands)    Pro Forma
2017
     2017      2016      2016      2015      2014  
    

(Unaudited)

                      

Selected Balance Sheet Data:

                 

Cash and cash equivalents

        161,962        64,051        160,596        86,709        109,857  

Total assets

        2,928,614        2,840,671        2,892,523        2,985,844        3,179,773  

Total debt(1)

        1,693,935        1,706,005        1,699,950        1,712,099        1,859,511  

Total equity

        685,421        622,343        657,837        746,512        808,455  

 

(1) Includes current portion.

 



 

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RISK FACTORS

Owning our common stock involves a high degree of risk. You should consider carefully the following risk factors and all other information contained in this information statement. If any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, occur, our business, liquidity, financial condition and results of operations could be materially and adversely affected. If this were to happen, the market price of our common stock could decline significantly, and you could lose all or a part of the value of your ownership in our common stock. Some statements in this information statement, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section in this information statement entitled “Special Note About Forward-Looking Statements.”

Risks Related to Our Business and Industry

We are subject to the business and financial risks inherent to the lodging industry, any of which could reduce our profits, the value of our properties and our ability to make distributions and limit opportunities for growth.

Our business is subject to a number of business, financial and operating risks inherent to the lodging industry, including:

 

    significant competition from other lodging businesses and hospitality providers in the markets in which our properties are located;

 

    changes in operating costs, including energy, food, compensation, benefits, insurance and unanticipated costs resulting from force majeure events;

 

    increases in costs due to inflation or other factors that may not be fully offset by price and fee increases in our business;

 

    changes in taxes and governmental regulations that influence or set wages, prices, interest rates or construction and maintenance procedures and costs;

 

    the costs and administrative burdens associated with complying with applicable laws and regulations;

 

    the costs or desirability of complying with local practices and customs;

 

    significant increases in cost for health care coverage for employees, including employees of third-party hotel managers, and potential government regulation with respect to health coverage, such as costs associated with compliance with the requirements of the Patient Protection and Affordable Care Act;

 

    shortages of labor or labor disruptions;

 

    the availability and cost of capital necessary to fund investments, capital expenditures and service debt obligations;

 

    delays in, or cancellations of, planned or future development or renovation projects;

 

    the quality of services provided by La Quinta or any other future third-party hotel managers;

 

    the financial condition of La Quinta or any other future third-party hotel managers, developers and joint venture partners;

 

    relationships with La Quinta or any other future third-party hotel managers, developers and joint venture partners, including the risk that La Quinta or any other third-party hotel managers or franchisors may terminate our management or franchise agreements and joint venture partners may terminate joint venture agreements;

 

    changes in desirability of particular geographic locations and shortages of desirable locations for new development;

 

    changes in lodging preferences and travel patterns of potential guests of our properties and geographic concentration of our portfolio;

 

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    changes in the supply and demand for hotel services;

 

    decreased business travel as a result of improvements to the alternatives to in-person meetings, including virtual meetings hosted on-line or over private teleconferencing networks; and

 

    the ability of third-party internet and other travel intermediaries to attract and retain guests.

Any of these factors could limit or reduce our revenues or increase costs or affect our ability to develop new hotels or maintain our existing hotels. As a result, any of these factors can reduce our profits, the value of our properties and our ability to make distributions and limit opportunities for growth.

Macroeconomic and other factors beyond our control can adversely affect and reduce lodging demand.

Macroeconomic and other factors beyond our control can reduce demand for our lodging products and services, including demand for rooms at our hotels. These factors include, but are not limited to:

 

    changes in general economic conditions, including the severity and duration of any downturn in the U.S. or global economy and financial markets;

 

    war, political conditions or civil unrest, violence or terrorist activities or threats and heightened travel security measures instituted in response to these events;

 

    outbreaks of pandemic or contagious diseases, such as Zika virus, measles, Ebola, legionella bacteria, avian flu, severe acute respiratory syndrome (SARS) and H1N1 (swine flu);

 

    natural or man-made disasters, such as earthquakes, tsunamis, tornadoes, hurricanes, typhoons, floods, oil spills and nuclear incidents;

 

    decreased corporate or government travel-related budgets and spending and cancellations, deferrals or renegotiations of group business;

 

    low consumer confidence, high levels of unemployment or depressed real estate prices;

 

    the financial condition and general business condition of the airline, automotive and other transportation-related industries and its impact on travel;

 

    decreased airline capacities and routes;

 

    travel-related accidents;

 

    oil prices and travel costs;

 

    statements, actions or interventions by governmental officials related to travel and corporate travel-related activities and the resulting negative public perception of such travel and activities;

 

    governmental executive action and legislation, as well as political debate, conflicts and compromises related to such actions, to the extent that they negatively impact the financial markets and consumer confidence and spending or adversely impact the U.S. economy or international travel;

 

    cyber-attacks;

 

    climate change and resource scarcity, such as water and energy scarcity;

 

    domestic and international political and geo-political conditions; and

 

    cyclical over-building in the hotel and lodging industries.

These factors, and the reputational repercussions of these factors, can adversely affect, and from time to time have adversely affected, individual hotels, particular regions and our business, financial condition and results of operations as a whole. Any one or more of these factors could limit or reduce the demand, or the rates that can be charged, for rooms. Declines in ADR and occupancy relating to declines in consumer demand will

 

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lower RevPAR and may adversely affect our business, financial condition and results of operations. In addition, these factors could increase our operating costs or affect our ability to purchase or develop new hotels or to maintain our existing hotels.

Contraction in the global economy or low levels of economic growth could adversely affect our revenues and profitability as well as limit or slow our future growth.

Consumer demand for products and services provided by the lodging industry is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels. Decreased demand can be especially pronounced during periods of economic contraction or low levels of economic growth, and the recovery period in our industry may lag overall economic improvement. Declines in consumer demand due to adverse general economic conditions could negatively impact our business by decreasing the revenues and profitability of our properties. In addition, many of the expenses associated with our business, including personnel costs, interest, rent, property taxes, insurance and utilities, are relatively fixed. During a period of overall economic weakness, if we are unable to meaningfully decrease these costs as demand for our hotels decreases, our financial performance may be adversely affected.

In addition to general economic conditions, new hotel room supply is an important factor that can affect the lodging industry’s performance and overbuilding has the potential to further exacerbate the negative impact of an economic downturn. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. A reduction or slowdown in growth of lodging demand or increased growth in lodging supply could result in returns that are substantially below expectations or result in losses, which could materially and adversely affect our revenues and profitability as well as limit or slow our future growth.

A significant percentage of our hotels are concentrated in three states, which exposes our business to the effects of certain regional events and occurrences.

Although we have hotels located in 41 U.S. states as of June 30, 2017, a significant concentration of our hotels are located in three states. Specifically, as of June 30, 2017, approximately 45% of rooms in our portfolio were located in Texas, Florida and California with approximately 23% of rooms in our portfolio located in Texas. The concentration of hotels in one region or a limited number of markets may expose us to risks of adverse economic developments that are greater than if our portfolio were more geographically diverse. These economic developments include regional economic downturns, significant increases in the number of our competitors’ hotels in these markets and potentially higher local property, sales and income taxes in the geographic markets in which we are concentrated. For example, the recent downturn in the oil and gas industry significantly affected demand in certain markets in Texas such as Houston and South and West Texas, materially adversely affecting our business in those markets, and a further or prolonged decline could further adversely affect our business in those markets. In addition, our hotels are subject to the effects of adverse acts of nature, such as winter storms, hurricanes, hail storms, strong winds, earthquakes and tornados, which have in the past caused damage such as flooding and other damage to our hotels in specific geographic locations, including in the Texas, Florida and California markets. Depending on the severity of these acts of nature, the damage to our hotels could require us to close all or substantially all of our hotels in one or more markets for a period of time while the necessary repairs and renovations, as applicable, are undertaken. Additionally, we cannot assure you that the amount of our hurricane, windstorm, earthquake, flood or other casualty insurance we maintain would entirely cover damages caused by any such event.

As a result of our geographic concentration of hotels, we will face a greater risk of a negative impact on our revenues in the event these areas are more severely impacted by adverse economic and competitive conditions and extreme weather than other areas in the United States.

Our hotels operate and we compete for acquisitions in a highly competitive industry.

The lodging industry is highly competitive. Our principal competitors are other owners and investors in the upper-midscale and the midscale select-service lodging segments, including other lodging REITs, as well as

 

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major hospitality chains with well-established and recognized brands. However, our hotels generally operate in chain scales that contain numerous competitors, including a wide range of lodging facilities offering full-service, select-service and all-suite lodging options. Hotels in other chain scales, such as full-service hotels, may lower their rates to a level comparable to those of select-service hotels such as ours that, in turn, may further increase competitive pressure in our segments. Our hotels generally compete for guests on the basis of room rates, quality of accommodations, name recognition, service levels, convenience of locations and reward program offerings. We have also seen the emergence of a sharing economy with the increasing availability of online short term rentals. Additionally, an increasing supply of hotel rooms in our hotels’ chain scales, and consolidations in the lodging industry generally, have resulted in the creation of several large, multi-branded hotel chains with diversified operations and greater marketing and financial resources than we or our hotels have, which has increased competition for guests in the segments in which our hotels operate. If we are unable to compete successfully for hotel guests, our revenues or profits may decline.

We also compete for hotel acquisitions with entities that have similar investment objectives as we do. This competition could limit the number of investment opportunities that we find suitable for our business. It may also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms or on the terms contemplated in our business plan. Some of these entities may have substantially greater financial resources than we do and may be able and willing to accept more risk than we believe we can prudently manage. During the recovery phase of the lodging cycle, competition among potential buyers may increase the bargaining power of potential sellers, which may reduce the number of suitable investment opportunities available to us or increase pricing. Similarly, during times when we seek to sell hotels, competition from other sellers may increase the bargaining power of the potential property buyers.

We are subject to risks associated with the concentration of our portfolio in the La Quinta brand. Any deterioration in the quality or reputation of the La Quinta brand or our relationship with the La Quinta brand could have an adverse impact on our financial condition or results of operations.

All of our properties as of the date of this information statement utilize the La Quinta brand and participate in the Returns program, and we expect to enter into management and franchise agreements with La Quinta to manage our properties following the spin-off. As a result, the success of our hotels and their ability to attract and retain guests depends on brand recognition and reputation, including the consistency of the La Quinta brand experience amongst our portfolio of hotels. We cannot assure you that the prior performance of our hotels will be indicative of future results or that competition from other brands will not adversely affect our market position or financial performance.

In addition, the brand recognition and support that provide much of the basis for the successful operation of our hotels can also mean that changes or problems with La Quinta (e.g., changes in ownership or management or changes in management practices, the spin-off of CorePoint Lodging contemplated by this information statement or acts or omissions that adversely affect our business), or at our hotel properties (e.g., crime, scandal, litigation, negative publicity, catastrophic fires or similar events or accidents and injuries or other harm to guests or team members at our hotels) can have a substantial negative impact on the operations of otherwise successful individual locations, and can cause a loss of consumer confidence in La Quinta and other hotels in our segment. Adverse incidents have occurred in the past and may occur in the future. The considerable expansion in the use of social media over recent years has compounded the potential scope of the negative publicity that could be generated by such incidents. We could also face legal claims and adverse publicity from a variety of events or conditions, many of which are beyond our control. If the reputation or perceived quality of the La Quinta brand declines, our financial condition or results of operations could be adversely affected.

 

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We are dependent on the performance of La Quinta and other third-party hotel managers and could be materially and adversely affected if La Quinta or such other third-party hotel managers do not properly manage our hotels or otherwise act in our best interests.

In order for us to qualify as a REIT, with limited exceptions, third parties must operate our hotels. We lease each of our hotels to our TRS lessees. Our TRS lessees, in turn, will enter or have entered into management agreements with La Quinta or other third-party hotel managers to operate our hotels. We could be materially and adversely affected if La Quinta or any other future third-party hotel manager fails to provide quality services and amenities, fails to maintain a quality brand name or otherwise fails to manage our hotels in our best interest, and can be financially responsible for the actions and inactions of our third-party hotel managers pursuant to our management agreements. We also rely on the management company to engage general managers at each of our hotels to manage daily operations and oversee the efforts of their team members. We require the third-party hotel manager to hire general managers whom are trained professionals in the hospitality industry and have extensive experience in many markets worldwide. The failure of the management company to recruit, retain, train or successfully manage general managers for our hotels could negatively affect our operations. In addition, La Quinta in the future may manage, and in some cases may own or lease, or may have invested in or may have provided credit support or operating guarantees to hotels that compete with our hotels, any of which could result in conflicts of interest. As a result, La Quinta may make decisions regarding competing lodging facilities that are not in our best interests. Other third-party hotel managers that we engage in the future may also have similar conflicts of interest. From time to time, disputes may arise between us, La Quinta and/or any other future third-party hotel manager regarding their performance or compliance with the terms of the hotel management agreements, which in turn could adversely affect our results of operations. If we are unable to reach satisfactory results through discussions and negotiations, we may choose to terminate our management agreement, litigate the dispute or submit the matter to third-party dispute resolution, the outcome of which may be unfavorable to us.

In the event that we terminate any of our management agreements, we can provide no assurances that we could find a replacement hotel manager or that any replacement hotel manager will be successful in operating our hotels. If any of the foregoing were to occur, it could materially and adversely affect us.

Furthermore, if our relationship with La Quinta were to deteriorate or terminate as a result of disputes regarding the management of our hotels or for other reasons, La Quinta could, under certain circumstances, terminate our current management agreements or franchise agreements for hotels that we may acquire in the future. If any of the foregoing were to occur, it could materially and adversely affect our results of operations and profitability as well as limit or slow our future growth and impair our ability to compete effectively.

Restrictive covenants in certain of our hotel franchise agreements will contain provisions limiting or restricting the sale of our hotels, which could materially and adversely affect our profitability.

Certain of our hotel franchise agreements with La Quinta will contain restrictive covenants that will limit or restrict our ability to sell a hotel. Generally, we may not agree to sell, lease or otherwise transfer a particular hotel unless La Quinta approves the transfer pursuant to the applicable franchise agreement. As a result, we may be prohibited from taking actions that would otherwise be in our and our stockholders’ best interests. In addition, as noted above, La Quinta may have a conflict that results in La Quinta’s declining to approve a transfer that would be in our and our stockholders’ best interests.

If we are unable to maintain good relationships with La Quinta and other third-party hotel managers and franchisors that we may engage in the future, profitability could decrease and our growth potential may be adversely affected.

The success of our properties largely depends on our ability to establish and maintain good relationships with La Quinta and other third-party hotel managers and franchisors that we may engage in the future. If we are unable to maintain good relationships with La Quinta and such other third-party hotel managers and franchisors,

 

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we may be unable to renew existing management or franchise agreements or expand relationships with them. Additionally, opportunities for developing new relationships with additional third-party managers or franchisors may be adversely affected. This, in turn, could have an adverse effect on our results of operations and our ability to execute our growth strategy.

Our efforts to renovate, redevelop or develop our hotels could be delayed or become more expensive, which could reduce profits or impair our ability to compete effectively.

We must maintain and renovate our hotels to remain competitive, maintain the value and brand standards of these hotels and comply with applicable laws and regulations. From time to time, we evaluate our hotels to determine whether additional capital expenditures are required and will provide an acceptable return on investment. For example, in 2016, we undertook a review of our hotel portfolio to identify properties that, with the appropriate scope of capital investment and renovation, we believe have the opportunity to re-position within a market, allowing us to capture additional occupancy and increased rates while being measured against new, higher-quality competitive sets. As a result of this review, we identified approximately 50 hotels in which we expect to invest more than $180 million beginning in the fourth quarter of 2016. Through June 30, 2017, we have invested approximately $110 million under this plan. We may identify additional hotels as part of our on-going review.

Our strategy includes maintenance and renovation of our hotels and may include redevelopment, development and conversion of hotels, which is subject to a number of risks, including:

 

    the inability to obtain financing upon favorable terms or at all;

 

    construction delays or cost overruns (including labor and materials) that may increase project costs;

 

    lack of availability of rooms for revenue-generating activities during construction, modernization or renovation projects;

 

    changes in economic conditions that may result in weakened or lack of demand for improvements that we make or negative project returns for improvements that we make;

 

    obtaining zoning, occupancy, and other required permits or authorizations;

 

    governmental restrictions on the size or kind of development;

 

    volatility in the debt and capital markets that may limit our ability to raise capital for projects or improvements;

 

    force majeure events, including earthquakes, tornadoes, hurricanes, floods or tsunamis, or acts of terrorism; and

 

    design defects that could increase costs.

Furthermore, we generally rely heavily on local contractors, who may be inadequately capitalized or understaffed. The inability or failure of one or more local contractors to perform its obligations may result in construction or remodeling delays, increased costs and loss of revenues. As a result, we may not increase our revenues or generate expected profits and cash flows from the renovation, redevelopment or development of hotels.

If hotels under renovation or development cannot begin operating as scheduled, or if renovation investments adversely affect or fail to improve performance, our ability to compete effectively could be diminished and revenues could be reduced. Further, due to the lengthy development cycle, adverse economic conditions may alter or impede our development plans, thereby resulting in incremental costs to us or potential impairment charges. If the cost of funding these renovations or developments exceeds budgeted amounts, profits could be reduced. Moreover, during the early stages of operations of our hotel properties, charges related to interest

 

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expense and depreciation may substantially detract from, or even outweigh, the profitability of certain new hotel investments.

The lodging industry is subject to seasonal and cyclical volatility, which may contribute to fluctuations in our financial condition and results of operations.

The lodging industry is seasonal in nature. The periods during which our properties experience higher revenues vary from hotel to hotel, depending principally upon location and customer base served. Generally, our revenues are greater in the second and third calendar quarters than in the first and fourth quarters. The timing of holidays can also impact our quarterly results. This seasonality can be expected to cause quarterly fluctuations in revenue, profit margins and net earnings. In addition, the opening of hotels and the timing of any hotel acquisitions or dispositions may cause a variation of revenue from quarter to quarter. We can provide no assurances that our cash flows will be sufficient to offset any shortfalls that occur as a result of these fluctuations. As a result, we may have to enter into short-term borrowings in certain quarters to make distributions to our stockholders in accordance with our distribution policy upon our election to qualify as a REIT, and we can provide no assurances that such borrowings will be available to us on favorable terms, if at all. In addition, the lodging industry is cyclical and demand generally follows the broader economy on a lagged basis. The seasonality and cyclicality of our industry may contribute to fluctuations in our financial condition and results of operations.

Our expenses may not decrease even if our revenue decreases.

Many of the expenses associated with owning hotels, such as debt-service payments, property taxes, insurance, utilities and employee wages and benefits, are relatively inflexible. They do not necessarily decrease in tandem with a reduction in revenue at the hotels and may be subject to increases that are not tied to the performance of our hotels or the increase in the rate of inflation generally. In addition some of our third-party ground leases require periodic increases in ground rent payments. Our ability to pay these rents could be affected adversely if our hotel revenues do not increase at the same or a greater rate than the increases in rental payments under the ground leases.

In the event of a significant decrease in demand, La Quinta or other third-party hotel managers that we may engage in the future may not be able adjust the labor model to offset the decrease in demand. Our hotel managers also may be unable to offset any fixed or increased expenses with higher room rates. Any of our efforts to reduce operating costs also could adversely affect the future growth of our business and the value of our hotel properties.

Our business is capital intensive and our failure to make necessary investments could adversely affect the profitability of our properties.

Our hotels have an average age of 28 years. For these hotels to remain attractive and competitive, we have to make periodic investments to keep these hotels well maintained, modernized and refurbished. This creates an ongoing need for capital. We may be unable to access capital or unwilling to spend available capital when necessary. To the extent that we cannot fund expenditures from cash generated by the operation of our properties, funds must be borrowed or otherwise obtained, which may be difficult to obtain. Failure to make the investments necessary to maintain or improve our portfolio or act in accordance with applicable brand standards could adversely affect the profitability of our properties.

We are exposed to the inherent risks resulting from our investments in real estate, including the relative illiquidity of such investments, which could increase our costs, reduce our profits and limit our ability to respond to market conditions.

Real estate investments are relatively illiquid and, therefore, cannot be purchased or sold rapidly in response to changes in economic or other conditions. Buyers may not be identified quickly or be able to secure suitable

 

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financing to consummate a transaction or we may not be able to sell hotels on terms favorable to us. Furthermore, sales of certain appreciated hotels could generate material adverse tax consequences, which may affect our ability to sell hotels in response to market conditions and adversely affect our ability to generate cash flows.

Moreover, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs require that we hold our hotels for use in a trade or business or for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of hotels that otherwise would be in our best interests. Therefore, we may not be able to adjust the composition of our portfolio promptly in response to changing economic, financial and investment conditions or dispose of assets at opportune times or on favorable terms, which may adversely affect our cash flows and our ability to make distributions to stockholders.

Additionally, real estate ownership is subject to other risks, including:

 

    governmental regulations relating to real estate ownership or operations, including tax, environmental, zoning and eminent domain laws;

 

    loss in value or functionality, or unanticipated liabilities, due to environmental conditions, local market or neighborhood conditions, governmental takings, uninsured casualties or restrictive changes in zoning and similar land use laws and regulations or in health, safety and environmental laws, rules and regulations and other governmental and regulatory action;

 

    changes in tax laws and property taxes, even if the hotel level cash flows remain the same or decrease;

 

    increased potential civil liability for accidents or other occurrences in hotels;

 

    the ongoing need for owner funded capital improvements and expenditures to maintain or upgrade hotels;

 

    periodic total or partial closures due to renovations and hotel improvements;

 

    risks associated with mortgage debt, including the possibility of default, fluctuating interest rate levels and uncertainties in the availability of replacement financing;

 

    risks associated with the possibility that cost increases will outpace revenue increases and that in the event of an economic slowdown, the high proportion of fixed costs will make it difficult to reduce costs to the extent required to offset declining revenues;

 

    acts of God, including earthquakes, hurricanes, floods, winter storms and other natural disasters (that may result in uninsured losses, including property value losses caused by nearby disasters even if our hotels are completely undamaged);

 

    fluctuations in real estate values or potential impairments in the value of our assets;

 

    maintaining tenants for leased properties; and

 

    contingent liabilities that exist after we have exited a property.

Any of the forgoing risks could increase our costs, reduce our profits and the value of our properties and limit our ability to respond to market conditions.

We face various risks posed by our acquisition, redevelopment, repositioning, renovation and re-branding activities, as well as our disposition activities.

One element of our business strategy is to invest in identifying and consummating acquisitions of additional hotels and portfolios. We can provide no assurances that we will be successful in identifying attractive hotels or that, once identified, we will be successful in consummating an acquisition. We face significant competition for

 

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attractive investment opportunities from other well-capitalized investors, some of which have greater financial resources and a greater access to debt and equity capital to acquire hotels than we do. This competition increases as investments in real estate become increasingly attractive relative to other forms of investment. As a result of such competition, we may be unable to acquire certain hotels or portfolios that we deem attractive or the purchase price may be significantly elevated or other terms may be substantially more onerous. In addition, we expect to finance future acquisitions through a combination of retained cash flows, borrowings and offerings of equity and debt securities, which may not be available on advantageous terms, or at all. Any delay or failure on our part to identify, negotiate, finance on favorable terms, consummate and integrate such acquisitions could materially impede our growth.

In addition, newly acquired, redeveloped, renovated, repositioned or re-branded hotels may fail to perform as expected and the costs necessary to bring such hotels up to applicable brand standards may exceed our expectations, which may result in the hotels’ failure to achieve projected returns.

In particular, these activities could pose the following risks to our ongoing operations:

 

    we may abandon such activities and may be unable to recover expenses already incurred in connection with exploring such opportunities;

 

    acquired, redeveloped, renovated or re-branded hotels may not initially be accretive to our results, and we and the third-party hotel managers may not successfully manage newly acquired, renovated, redeveloped, repositioned or re-branded hotels to meet our expectations;

 

    we may be unable to quickly, effectively and efficiently integrate new acquisitions, particularly acquisitions of portfolios of hotels, into our existing portfolio;

 

    our redevelopment, repositioning, renovation or re-branding activities may not be completed on schedule, which could result in increased debt service and other costs and lower revenues, and defects in design or construction may result in delays and additional costs to remedy the defect or require a portion of a property to be closed during the period required to rectify the defect;

 

    management attention may be diverted by our acquisition, redevelopment, repositioning or re-branding activities, which in some cases may turn out to be less compatible with our growth strategy than originally anticipated;

 

    we may not be able to meet the loan covenants in any financing obtained to fund the new development, creating default risks;

 

    we may issue shares of stock or other equity interests in connection with such acquisitions that could dilute the interests of our existing stockholders;

 

    we may assume various contingent liabilities in connection with such transactions;

 

    we may divest of hotels which will impact our revenue and EBITDA and may yield lower than expected returns or otherwise fail to achieve the benefits we expect; and

 

    we may incur losses on sales or impairment on anticipated sales of properties.

The occurrence of any of the foregoing events, among others, could materially and adversely affect our results of operations and profitability as well as limit or slow our future growth.

Costs associated with, or failure to maintain, brand operating standards may materially and adversely affect our results of operations and profitability.

The terms of our franchise agreements and management agreements generally require us to meet specified operating standards and other terms and conditions and compliance with such standards may be costly. We expect that La Quinta and any other future third-party franchisors will periodically inspect our hotels to ensure

 

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that we and any third-party hotel managers follow brand standards. Failure by us, or any hotel management company that we engage, to maintain these standards or other terms and conditions could result in a franchise agreement being canceled or the franchisor requiring us to undertake a costly property improvement program. If a franchise agreement is terminated due to our failure to make required improvements or to otherwise comply with its terms, we also may be liable to the franchisor for a termination payment, which will vary by franchisor and by hotel. If the funds required to maintain brand operating standards are significant, or if a franchise agreement is terminated, it could materially and adversely affect our results of operations and profitability.

If we were to lose a brand license at one or more of our hotels, the value of the affected hotels could decline significantly and we could incur significant costs to obtain new franchise agreements, which could materially and adversely affect our results of operations and profitability as well as limit or slow our future growth.

All of our properties as of the date of this information statement utilize the La Quinta brand. We will lease each of our hotels to our TRS lessees. Our TRS lessees, in turn, will enter or have entered into management agreements with La Quinta and/or other third-party hotel managers to operate our hotels. We may, in the future, rebrand existing properties, acquire properties that operate under other brands and/or engage other third-party hotel managers and franchisors. If we were to lose a brand license, the underlying value of a particular hotel could decline significantly from the loss of associated name recognition, marketing support, participation in guest loyalty programs and the centralized reservation system provided by the franchisor or brand manager, which could require us to recognize an impairment on the hotel. Furthermore, the loss of a franchise agreement for a particular hotel could harm our relationship with the franchisor or brand manager, which could impede our ability to operate other hotels under the same brand, limit our ability to obtain new franchise agreements or brand management agreements from the franchisor or brand in the future on favorable terms, or at all, and cause us to incur significant costs to obtain a new franchise agreement or brand management agreement for the particular hotel. Accordingly, if we lose one or more franchise agreements or brand management agreements, it could materially and adversely affect our results of operations and profitability as well as limit or slow our future growth.

Cyber threats and the risk of data breaches or disruptions of our hotel franchisors’, managers’ or our own information technology systems could materially adversely affect our business.

La Quinta and any other future third-party franchisors and managers are dependent on information technology networks and systems, including the internet, to access, process, transmit and store proprietary and customer information, and we expect that other hotel managers that we contract with in the future also will be dependent on such networks. These complex networks include reservation systems, hotel management systems, customer databases, call centers, administrative systems and third-party vendor systems. These systems require the collection and retention of large volumes of personally identifiable information of hotel guests, which may include credit card numbers.

These information networks and systems can be vulnerable to threats such as: system, network or internet failures; computer hacking or business disruption; cyber-terrorism; viruses, worms or other malicious software programs; and employee error, negligence or fraud. The risks from these cyber threats are significant. We expect La Quinta may be subject to cyber-attacks in the future and may experience data breaches. We rely on La Quinta, and will rely on other hotel managers that we contract with in the future, to protect proprietary and customer information from these threats. Any compromise of our hotel managers’ networks could result in a disruption to operations, such as disruptions in fulfilling guest reservations, delayed bookings or lost guest reservations. Any of these events could, in turn, result in disruption of the operations of our hotels, in increased costs and in potential litigation and liability. In addition, public disclosure, or loss of customer or proprietary information could result in damage to La Quinta’s reputation and a loss of confidence among hotel guests and result in reputational harm for our hotels, which may have a material adverse effect on our business, financial condition and results of operations.

 

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In addition to the information technologies and systems La Quinta uses to operate our hotels, we expect to have our own corporate technologies and systems that are used to access, store, transmit, and manage or support a variety of business processes. There can be no assurance that the security measures we have taken to protect the contents of these systems will prevent failures, inadequacies or interruptions in system services or that system security will not be breached through physical or electronic break-ins, computer viruses, and attacks by hackers. Disruptions in service, system shutdowns and security breaches in the information technologies and systems we use, including unauthorized disclosure of confidential information, could have a material adverse effect on our business, our financial reporting and compliance, and subject us to liability claims or regulatory penalties which could be significant.

The growth of internet reservation channels could adversely affect our business and profitability.

A significant percentage of hotel rooms for individual guests are booked through internet travel intermediaries. Search engines and peer-to-peer inventory sources also provide online travel sources that compete with our hotels.

If bookings continue to shift to higher cost distribution channels, including internet travel intermediaries and meeting procurement firms, it could materially impact our profits. Bookings through internet travel intermediaries have been increasing. In 2015, such bookings represented 21.3% of our total bookings. In 2016, such bookings represented 23.6% of our total bookings. As such bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from the La Quinta brand, other brands our properties may utilize in the future and management companies. These hospitality intermediaries also may reduce these bookings by de-ranking our hotels in search results on their platforms, and other online providers may divert business away from our hotels. Moreover, hospitality intermediaries generally employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites. Further, some of these internet travel intermediaries are attempting to commoditize hotel rooms by increasing the importance of price and general indicators of quality at the expense of brand identification.

All of our properties as of the date of this information statement utilize the La Quinta brand. Consumers may develop brand loyalties to the intermediaries’ websites and reservations systems rather than to the La Quinta brand. If this happens, our business and profitability may be significantly harmed. Consolidation of internet travel intermediaries, and the entry of major internet companies into the internet travel bookings business, also could divert bookings away from La Quinta’s website and increase our hotels’ cost of sales.

In addition, recent class action litigation against several online travel intermediaries and lodging companies challenges the legality under antitrust law of certain provisions in contracts with third-party intermediaries. In one such action, several online travel intermediaries and lodging companies were sued for deceptive advertising and allegedly conspiring to fix prices. The court dismissed the action after finding the plaintiffs’ claims implausible and not linked to any harm. Although La Quinta was not named in that action, and the case sets favorable precedent, there is no guarantee that another similar action will not be filed in the future.

A disruption to the functioning of the La Quinta reservation system could have an adverse effect on our hotels.

La Quinta manages a reservation system that communicates reservations to our hotels that have been made by individuals directly, either online or by telephone to call centers or through devices via mobile applications, or through intermediaries like travel agents, internet travel web sites and other distribution channels. We expect that any other future third-party franchisor would similarly manage a reservation system. The cost, speed, efficacy and efficiency of the reservation system, as well as protection of personal or confidential information of its users, are important aspects of any brand. Any degradation of, failure of adequate development relative to, or security breach of, such reservation system may adversely affect our affiliated hotels.

 

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These reservation systems generally rely on data communications networks operated by unaffiliated third parties. Any significant interruption of the function of our reservation system (or significant parts of our reservation system) may adversely affect our business as well as our ability to generate revenues.

The cessation, reduction or taxation of program benefits of La Quinta’s Returns loyalty program or our access to it could adversely affect the La Quinta brand and guest loyalty.

All of our properties as of the date of this information statement participate in the Returns program for the La Quinta brand. Our hotels contribute a percentage of the guest’s room rate per night to the program for each hotel stay of a Returns program member. La Quinta arranges with service providers such as airlines to exchange monetary value represented by points for program awards and may charge a license fee to such service providers for use of the La Quinta brand trademarks. Returns program members accumulate points based on eligible stays and hotel charges and redeem the points for a range of benefits, including free rooms, airline miles and other items of value. Currently, the program benefits are not taxed as income to members. We are not the owner of the Returns program and changes to the program or our access to it could negatively impact our business. If the program awards and benefits are materially altered, curtailed or taxed and, as a result, a material number of Returns members choose to stay at non-La Quinta-branded hotels, our business could be adversely affected.

A number of our hotels are subject to ground leases; if we are found to be in breach of a ground lease or are unable to renew a ground lease, we could be adversely affected.

Eighteen of our hotels are either completely or partially on land subject to ground leases. If we are found to be in breach of a ground lease or ground sublease, such ground lease or sublease could be terminated. Assuming that we exercise all available options to extend the terms of our ground leases and ground subleases, all of our ground leases and ground subleases will expire between 2019 and 2102. However, in certain cases, our ability to exercise such options is subject to the condition that we are not in default under the terms of the ground lease or ground sublease, as applicable, at the time that we exercise such options and/or the time such extension occurs, and we can provide no assurances that we will be able to exercise our options at such time. Furthermore, we can provide no assurances that we will be able to renew our ground leases and ground subleases upon expiration or at satisfactory economic terms. If a ground lease or ground sublease expires or is terminated, we would be unable to derive income from such hotel, which could adversely affect us.

We will not recognize any increase in the value of the land or improvements subject to our ground leases and may only receive a portion of compensation paid in any eminent domain proceeding with respect to the hotel.

Unless we purchase a fee interest in the land and improvements subject to our ground leases, we will not have any economic interest in the land or improvements at the expiration of our ground leases and therefore we generally will not share in any increase in value of the land or improvements beyond the term of a ground lease, notwithstanding our capital outlay to purchase our interest in the hotel or fund improvements thereon, and will lose our right to use the hotel. Furthermore, if a governmental authority seizes a hotel subject to a ground lease under its eminent domain power, we may only be entitled to a portion of any compensation awarded for the seizure.

We may be subject to unknown or contingent liabilities related to the hotels that we may acquire in the future, which could materially and adversely affect our revenues and profitability growth.

The hotels that we may acquire in the future may be subject to unknown or contingent liabilities for which we may have no recourse, or only limited recourse, against the sellers. In general, the representations and warranties provided under the transaction agreements related to the purchase of the hotels we acquire may not survive the completion of the transactions. Furthermore, indemnification under such agreements may be limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of

 

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their representations and warranties. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with these hotels may exceed our expectations, and we may experience other unanticipated adverse effects, all of which could materially and adversely affect our revenues and profitability.

We depend on external sources of capital for future growth; therefore, any disruption to our ability to access capital at times and on terms reasonably acceptable to us may affect adversely our business and results of operations.

Ownership of hotels is a capital intensive business that requires significant capital expenditures to acquire, operate, maintain and renovate properties. To qualify as a REIT, we will be required to distribute to our stockholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding any net capital gain), including taxable income recognized for U.S. federal income tax purposes but with regard to which we do not receive cash. As a result, we must finance our growth, fund debt repayments and fund these significant capital expenditures largely with external sources of capital. Our ability to access external capital could be hampered by a number of factors, many of which are outside of our control, including:

 

    price volatility, dislocations and liquidity disruptions in the U.S. and global equity and credit markets such as occurred during 2008 and 2009;

 

    changes in market perception of our growth potential, including downgrades by rating agencies;

 

    decreases in our current and estimated future earnings;

 

    decreases or fluctuations in the market price of our common stock;

 

    increases in interest rates; and

 

    the terms of our existing indebtedness.

Any of these factors, individually or in combination, could prevent us from being able to obtain the external capital we require on terms that are acceptable to us, or at all, which could have a material adverse effect on our ability to finance our future growth and our financial condition and results of operations. Potential consequences of disruptions in U.S. and global equity and credit markets and, as a result, an inability for us to access external capital at times, and on terms, reasonably acceptable to us could include:

 

    a need to seek alternative sources of capital with less attractive terms, such as more restrictive covenants and shorter maturity;

 

    adverse effects on our financial condition and liquidity, and our ability to meet our anticipated requirements for working capital, debt service and capital expenditures;

 

    higher costs of capital;

 

    an inability to enter into derivative contracts to hedge risks associated with changes in interest rates and foreign currency exchange rates; or

 

    an inability to execute on our acquisition strategy.

Governmental regulation may adversely affect the operation of our hotels.

Our hotels are subject to extensive local, regional and national regulations and, on a periodic basis, must obtain various licenses and permits. The laws and regulations of states, counties, cities, provinces and other political subdivisions may also require certain registration, disclosure statements and other practices with respect to the franchising of hotels. Any failure to identify, obtain or maintain required licenses and permits could result in adverse consequences.

 

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The hotel industry is subject to extensive federal, state and local governmental regulations in the United States, including those relating to building and zoning requirements and those relating to the preparation and sale of food. We and our hotel managers are also subject to licensing and regulation by state and local departments relating to health, sanitation, fire and safety standards, and to laws governing their relationships with employees, including minimum wage requirements, overtime, working conditions and citizenship requirements. In connection with the continued operation or remodeling of certain of our hotels, we may be required to expend funds to meet federal, state and local regulations. For example, we have incurred and may incur additional significant costs complying with the Americans with Disabilities Act (“ADA”), which requires that all public accommodations meet certain federal requirements related to access and use by disabled persons. The regulations also mandate certain operational requirements that hotel operators must observe. If, pursuant to the ADA, we are required to make substantial alterations to, and capital expenditures for, our hotels, including removal of access barriers, it could increase our expenditures and, in turn, could reduce our earnings. Any failure to obtain or maintain any such licenses or any publicity resulting from actual or alleged violations of any such laws and regulations could result in injunctive relief, fines, damage awards or capital expenditures and could have an adverse effect on our results of operations. Moreover, new or revised laws and regulations or new interpretations of existing laws and regulations could affect the operation of our hotels or result in significant additional expense and operating restrictions on us.

U.S. environmental laws and regulations may cause us to incur substantial costs or subject us to potential liabilities.

We are subject to certain compliance costs and potential liabilities under various U.S. federal, state and local environmental, health and safety laws and regulations. These laws and regulations govern actions including air emissions, the use, storage and disposal of hazardous and toxic substances and wastewater disposal. Our failure to comply with such laws, including any required permits or licenses, could result in substantial fines or possible revocation of our authority to conduct some of our operations. We could also be liable under such laws for the costs of investigation, removal or remediation of hazardous or toxic substances at our currently or formerly owned or operated hotels or at third-party locations in connection with our waste disposal operations, regardless of whether or not we knew of, or caused, the presence or release of such substances. In some cases, we may be entitled to indemnification from the party that caused the contamination, but there can be no assurance that we would be able to recover all or any costs we incur in addressing such problems. From time to time, we may be required to remediate such substances or remove, abate or manage asbestos, mold, radon gas, lead or other hazardous conditions at our hotels. The presence or release of such toxic or hazardous substances could result in third-party claims for personal injury, property or natural resource damages, business interruption or other losses. Such claims and the need to investigate, remediate, or otherwise address hazardous, toxic or unsafe conditions could adversely affect our operations, the value of any affected hotel, or our ability to sell, lease or assign our rights in any such hotel, or could otherwise harm our business. Environmental, health and safety requirements have also become increasingly stringent, and our costs may increase as a result. For example, Congress, the U.S. Environmental Protection Agency (“EPA”), and some states are considering or have undertaken actions to regulate and reduce greenhouse gas emissions. New or revised laws and regulations or new interpretations of existing laws and regulations, such as those related to climate change, could affect the operation of our hotels or result in significant additional expense and operating restrictions on us.

Asbestos, lead-based paint, mold and other hotel related issues could expose us to substantial liability.

Certain U.S. laws impose liability for the release of asbestos containing materials into the air or require the removal or containment of asbestos containing materials, and third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to toxic or hazardous substances. Some of our hotels may have asbestos containing materials, and if such materials are discovered, we are required to take action as and when required by applicable law. Such laws require that, as owners of buildings containing asbestos, we must (i) properly manage and maintain the asbestos, (ii) notify and train certain employees regarding the presence of asbestos and the related hazards and (iii) undertake special precautions, including

 

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removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. Such laws may impose fines and penalties on us if we fail to comply with these requirements and may allow third parties to seek recovery for personal injury associated with exposure to asbestos fibers, which could significantly increase our operating costs and reduce our earnings.

In addition, certain laws impose liability for lead based paint, and third parties may seek recovery from owners of real properties for personal injury associated with lead based paint. Limits are placed on the amount of lead that may be present in public drinking water supplies, and third parties may seek recovery from owners of real properties for injuries arising from exposure to high lead concentration. We indemnify La Quinta, and we will indemnify other third-party hotel managers that we may engage in the future, for certain legal costs resulting from management of our hotels.

Other materials used in the construction of our hotels that are currently thought to be safe may in the future be determined to be hazardous, and could expose us to substantial liability for damages, injuries, adverse health effects or removal and disposal costs. In addition, other building supplies thought to be appropriate for their use, while not toxic, have been discovered to be defective (such as fire-retardant plywood or polybutylene piping). Defects in such supplies have resulted in substantial costs on the part of the owners of affected hotels to remove and replace the defective materials. Materials currently thought to be appropriate or safe may in the future prove to be defective, and could result in substantial costs or losses.

Problems associated with mold may pose risks to our hotels and also may be the basis for personal injury claims against us. There is no generally accepted standard for the assessment of mold. If left unchecked or inadequately addressed, the growth of mold could result in litigation and remediation expenses, or in a closure of some or all of a hotel, that could adversely affect revenues from an individual hotel. We have discovered that some of our hotels have problems with mold. The presence of mold at some of our hotels has required us to undertake a remediation program to remove the mold from the affected hotels. The cost of remediation to date has not been material. However, remediation costs may substantially increase if there is mold in our other hotels or if costs related to mold such as legal and insurance expense continue to increase rapidly, which could significantly increase our operating costs and reduce our earnings.

Additionally, the EPA has identified certain health risks associated with elevated radon gas in buildings, and has recommended that certain mitigating measures be considered. It is possible that other environmental conditions not currently known, or known but not currently thought to be dangerous, may in the future be determined to present a risk to health or safety, such as with respect to possible exposure to waterborne pathogens.

For all of these reasons, the presence of, or potential for contamination by, such hazardous or toxic substances, or exposure to pathogens, at, on, under, adjacent to, emanating from, or in any of our hotels could materially adversely affect the operations, the value of such hotel or the ability to attract guests to such hotel, or could otherwise harm our business.

Adverse judgments or settlements resulting from legal proceedings in which we may be involved in the normal course of our business could reduce our profits or limit our ability to operate our business.

In the normal course of our business, we are involved in various legal proceedings. La Quinta and other third-party hotel managers that we may engage in the future, whom we indemnify for legal costs resulting from management of our hotels, may also be involved in various legal proceedings relating to the management of our hotels. The outcome of these proceedings cannot be predicted. If any of these proceedings were to be determined adversely to us or our third-party hotel managers or a settlement involving a payment of a material sum of money were to occur, it could materially and adversely affect our profits or ability to operate our business. On April 25, 2016, a purported stockholder class action lawsuit, captioned Beisel v. La Quinta Holdings, Inc. et al, was filed in the U.S. District Court for the Southern District of New York. On July 22, 2016, the court appointed lead

 

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plaintiff (“plaintiff”), and, on December 30, 2016, plaintiff filed the operative complaint on behalf of purchasers of La Quinta Parent’s common stock from November 19, 2014 through February 24, 2016 (the “Class Period”) and on behalf of a subclass who purchased La Quinta Parent’s common stock pursuant to La Quinta Parent’s March 24, 2015 secondary public offering (the “March Secondary Offering”). The operative complaint names as defendants La Quinta Parent and certain of its current and former officers and members of its board of directors, among others. The lawsuit alleges, among other things, that, in violation of the federal securities laws, the registration statement and prospectus filed in connection with the March Secondary Offering contained materially false and misleading information or omissions and that La Quinta Parent as well as current and former officers made false and misleading statements in earnings releases and to analysts during the Class Period. The plaintiff seeks unspecified compensatory damages and other relief. On February 10, 2017, the defendants moved to dismiss the complaint. The plaintiff filed its opposition brief on March 31, 2017, and the defendants filed a reply on May 2, 2017. On August 24, 2017, the District Court granted the defendants’ motion to dismiss with prejudice. The court entered this judgment on August 28, 2017, and the plaintiff has 30 days to file an appeal. In recent years, a number of hospitality companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal laws and regulations regarding workplace and employment matters, consumer protection claims and other commercial matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants through adverse judgments or settlement agreements. Additionally, we could become the subject of future claims by third parties, including current or former third-party property owners, guests who use our properties, our employees, our investors or regulators. Any significant adverse judgments or settlements would reduce our profits and could limit our ability to operate our business. Further, we may incur costs related to claims for which we have appropriate third-party indemnity, but such third parties fail to fulfill their contractual obligations.

The loss of senior executives could significantly harm our business.

Our ability to maintain our competitive position depends to a large degree on the efforts and skills of our senior executives. Finding suitable replacements for senior executives could be difficult. We currently do not have a life insurance policy or key person insurance policy with respect to any of our senior executives. Any failure of our management to work together to effectively manage our operations, any additional departures of senior executives, our inability to hire other key management, and any failure to effectively integrate new management into our controls, systems and procedures may adversely affect our business, results of operations and financial condition.

We are subject to risks associated with the employment of hotel personnel, particularly with hotels that employ unionized labor, which could increase our operating costs, reduce the flexibility of our hotel managers to adjust the size of the workforce at our hotels and could materially and adversely affect our revenues and profitability.

We have entered into management agreements with La Quinta to operate each of our hotels. La Quinta is generally responsible for hiring and maintaining the labor force at each of the hotels they manage. Although we generally do not directly employ or manage employees at our hotels, we are subject to many of the costs and risks generally associated with the hotel labor force. Increased labor costs due to factors like additional taxes or requirements to incur additional employee benefits costs, including the requirements of the Affordable Care Act or any similar health care regulations enacted in the future, may adversely impact our operating costs. If a portion of the workforce at our hotels were to become unionized, it may also hinder the ability of La Quinta and any other hotel management company that we engage to resolve employment matters and disputes directly with their employees.

From time to time, strikes, lockouts, public demonstrations or other negative actions and publicity may disrupt hotel operations at any of our hotels, negatively impact the reputation of our brands, or harm relationships with the labor forces at our hotels. We also may incur increased legal costs and indirect labor costs as a result of contract disputes or other events. Additionally, hotels where our hotel managers have collective bargaining agreements with employees are more highly affected by labor force activities than others. The resolution of labor

 

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disputes or new or re-negotiated labor contracts could lead to increased labor costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs. Furthermore, labor agreements may limit the ability of our hotel managers to adjust the labor model during an economic downturn because collective bargaining agreements are negotiated between the hotel managers and labor unions. We do not have the ability to control the outcome of these negotiations.

If the insurance that we carry does not sufficiently cover damage or other potential losses or liabilities to third parties involving our hotels, our profits could be reduced.

We carry insurance from insurance carriers that we believe is adequate for foreseeable first and third party losses and with terms and conditions that we believe are reasonable and customary. Nevertheless, market forces beyond our control could limit the scope of the insurance coverage that we can obtain or restrict our ability to buy insurance coverage at reasonable rates. In the event of a substantial loss, the insurance coverage that we carry may not be sufficient to reimburse us in full for our losses or pay the full value of financial obligations, liabilities or the replacement cost of any lost investment or property loss, which could adversely affect our profits. In addition, risks that may fall outside the general coverage terms and limits of the policies and certain types of losses that are significantly uncertain, or generally of a catastrophic nature, such as hurricanes, earthquakes and floods or terrorist acts, may be uninsurable or not economically insurable. If such losses or events occur, they could cause substantial damage to our hotels or the surrounding area, without any insurance coverage. Further, we may not be able to obtain or renew insurance policies or, if we are able to obtain or renew our coverage, it may be at a significantly higher cost than the historic cost.

In addition, insurance coverage for our hotels and for casualty losses does not customarily cover damages that are characterized as punitive or similar damages. As a result, any claims or legal proceedings, or settlement of any such claims or legal proceedings that result in damages that are characterized as punitive or similar damages may not be covered by our insurance. If these types of damages are substantial, our financial condition and results of operation may be adversely affected.

In some cases, these factors could result in certain losses being completely uninsured. As a result, we could lose some or all of the capital invested in a hotel, as well as the anticipated future revenues and profits from the hotel. We could suffer an uninsured or underinsured loss, and we may not have sufficient insurance to cover awards of damages resulting from claims made against us.

Terrorism insurance may not be available at commercially reasonable rates or at all.

Following the September 11, 2001 terrorist attacks in New York City and the Washington, D.C. area, Congress passed the Terrorism Risk Insurance Act of 2002, which established the Terrorism Risk Insurance Program (the “Program”) to provide insurance capacity for terrorist acts. The Program expired at the end of 2014 but was reauthorized, with some adjustments to its provisions, in January 2015 for six years through December 31, 2020. We carry insurance from insurance carriers to respond to both first-party and third-party liability losses related to terrorism. We purchase our first-party property damage and business interruption insurance from a stand-alone market in place of and to supplement insurance from government run pools. If the Program is not extended or renewed upon its expiration in 2020, or if there are changes to the Program that would negatively affect insurance carriers, premiums for terrorism insurance coverage will likely increase and/or the terms of such insurance may be materially amended to increase stated exclusions or to otherwise effectively decrease the scope of coverage available, perhaps to the point where it is effectively unavailable.

Terrorist attacks and military conflicts may adversely affect the lodging industry.

The September 11, 2001 terrorist attacks in New York City and the Washington, D.C. area and the November 13, 2015 terrorist attacks in Paris, France underscore the possibility that large public facilities or economically important assets could become the target of terrorist attacks in the future. The occurrence or the possibility of terrorist attacks or military conflicts could, among other things, generally reduce travel to affected

 

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areas for tourism and business or adversely affect the willingness of guests to stay in or avail themselves of hotel services and result in higher costs for security and insurance premiums or diminish the availability of insurance coverage for losses related to terrorist attacks, all of which could adversely affect our financial condition and results of operations.

Changes to estimates or projections used to assess the fair value of our assets, or operating results that are lower than our current estimates at certain properties, may cause us to incur impairment charges that could adversely affect our results of operations.

Our total assets include a substantial amount of long-lived assets, principally property and equipment, including hotels, and intangible assets. We analyze our assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that an asset might be impaired. Our evaluation of impairment requires us to make certain estimates and assumptions including projections of future results. After performing our evaluation for impairment, including an analysis to determine the recoverability of long-lived assets, we will record an impairment loss when the carrying value of the underlying asset, asset group or reporting unit exceeds its fair value. Decisions to divest hotels could result in the requirement to record an impairment charge due to, among other factors, a decrease in the assumed holding period for the hotel. For example, during 2016, as part of the strategic review of our hotel portfolio, we identified approximately 50 hotels as candidates for sale in the near term. After considering the shortened holding period and probability of selling these hotels, we determined that the estimated cash flows were less than the carrying value of certain hotels and therefore we reduced the carrying values to their estimated fair value. This resulted in an impairment charge of approximately $80.4 million. Also during 2016, we entered into agreements to sell 11 of our hotels and recorded an impairment charge of $19.3 million to adjust the value of these assets to their fair value, less transaction costs. We also recorded $1.1 million of additional impairment for hotels included in assets held for sale and recorded impairment charges of $3.5 million related to two hotels for which we determined that the carrying amount would not be recoverable due to changes in market and economic conditions. Further divestitures could result in additional impairment charges. In addition, if the estimates or assumptions used in our evaluation of impairment change, we may be required to record additional impairment charges on certain of our assets. During times of economic distress, declining demand and declining earnings often result in declining asset values. If any impairment losses we recognize are significant, our financial condition and results of operations would be adversely affected.

Changes in federal, state or local tax law or interpretations of existing tax law, or adverse determinations by tax authorities, could increase our tax burden or otherwise adversely affect our financial condition, results of operations or cash flows.

We are currently subject to taxation at the federal, state and local levels in the United States. Our future effective tax rate could be affected by changes in the composition of earnings in jurisdictions with differing tax rates, changes in statutory rates and other legislative changes, changes in the valuation of our deferred tax assets and liabilities, or changes in determinations regarding the jurisdictions in which we are subject to tax. From time to time, the U.S. federal, state and local governments make substantive changes to tax rules and their application, which could result in materially higher taxes than would be incurred under existing tax law or interpretation and could adversely affect our profitability, financial condition, results of operations or cash flows. State and local tax authorities have also increased their efforts to increase revenues through changes in tax law and audits. Such changes and proposals, if enacted, could increase our future effective income tax rates. We are subject to ongoing and periodic tax audits and disputes in various jurisdictions. An unfavorable outcome from any tax audit could result in higher tax costs, penalties and interest, thereby adversely impacting our financial condition, results of operations or cash flows. Furthermore, subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. See “—Risks Related to our REIT Status and Certain Other Tax Items.”

 

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We are currently under audit by the Internal Revenue Service and may be required to pay additional taxes.

The Internal Revenue Service (the “IRS”) is currently auditing the tax returns of La Quinta Corporation, one of our former REITs prior to the Pre-IPO Transactions, and BRE/LQ Operating Lessee Inc., one of our former taxable REIT subsidiaries prior to the Pre-IPO Transactions, in each case for the tax years ended December 31, 2010, 2011, 2012 and 2013. With respect to the audits of the 2010 and 2011 tax returns, we received a draft notice of proposed adjustment from the IRS on January 9, 2014, and the notice of proposed adjustment was issued to us on June 2, 2014. We submitted a timely response to the notice of proposed adjustment and, on July 7, 2014, we received an IRS 30-Day Letter proposing to impose a 100% tax on the REIT totaling $158 million for the periods under audit in which the IRS has asserted that the rent charged for these periods under the lease of hotel properties from the REIT to the taxable REIT subsidiary exceeded an arm’s length rent. In addition, the IRS proposed to eliminate $89 million of net operating loss carryforwards for the taxable REIT subsidiary for the tax years 2006 through 2009; however, in an IRS rebuttal received on September 26, 2014, the IRS conceded its proposed adjustment on this point was incorrect. We disagree with the IRS’ position with respect to rents charged by the REIT to its taxable REIT subsidiary and have appealed the proposed tax and adjustments to the IRS Appeals Office. In determining amounts payable by our taxable REIT subsidiary under the lease, we engaged a third party to prepare a transfer pricing study contemporaneous with the lease which concluded that the lease terms were consistent with an arm’s length rent as required by relevant provisions of the Code and applicable Treasury Regulations. Attorneys and others representing us conducted preliminary discussions regarding the appeal with the IRS Appeals Office team on March 31, 2015 and April 1, 2015. In response to a supplemental analysis submitted by the IRS economist to the IRS Appeals Office and provided to us on August 18, 2015, we submitted responses dated September 3, 2015 and October 1, 2015. La Quinta’s most recent meeting with the IRS Appeals Office team occurred on January 25, 2017. La Quinta’s discussions with the IRS Appeals Office are ongoing. We believe the IRS transfer pricing methodologies applied in the audits contain flaws and that the IRS proposed tax and adjustments are inconsistent with U.S. transfer pricing principals and the U.S. federal tax laws related to REITs. La Quinta has concluded that the positions reported on our tax returns under audit by the IRS are, based on their technical merits, more-likely-than-not to be sustained upon examination. Accordingly, as of the date of this filing, we have not established any reserves related to this proposed adjustment or any other issues reflected on the returns under examination. If, however, La Quinta is unsuccessful in challenging the IRS, an excise tax would be imposed on the REIT equal to 100% of the excess rent and we could owe additional income taxes, interest and penalties, which could adversely affect our financial condition, results of operations and cash flow and the price of our common stock. Such adjustments could also give rise to additional state income taxes.

On November 25, 2014, La Quinta was notified that the IRS intended to examine the tax returns of the same entities subject to the 2010 and 2011 audit in each case for the tax years ended December 31, 2012 and 2013. La Quinta received several draft notices of proposed adjustment proposing a transfer pricing related assessment of approximately $18 million for 2013, but the IRS recently indicated they were withdrawing that proposed assessment. In addition, La Quinta received a draft notice of proposed adjustment proposing transfer pricing related adjustments to our net operating losses for the years 2006 through 2009. Based on our analysis of these draft notices, La Quinta believes the NOL disallowances proposed in the 2012-2013 audit contain the same flaws present in the 2010-2011 audit and that the IRS proposed adjustment is inconsistent with U.S. transfer pricing principles and U.S. federal income tax laws relating to REITs. La Quinta has concluded that the positions reported on our tax returns under audit by the IRS are, based on their technical merits, more-likely-than-not to be sustained upon examination. Accordingly, as of the date of this filing, La Quinta has not established any reserves related to this proposed adjustment or any other issues reflected on the returns under examination.

On November 1, 2016, the IRS notified La Quinta that it intends to audit the return of one of its subsidiaries, Lodge Holdco II L.L.C., for the short taxable year ended April 13, 2014. The audit is in its early stages and no issues have been communicated to us at this point. As Lodge Holdco II L.L.C. was treated as a partnership for the taxable year ended April 13, 2014, any tax resulting from this examination would be assessed at the partner level rather than against La Quinta. No provision has been recorded for this examination.

 

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Although neither we nor any of our subsidiaries have been a REIT for U.S. federal income tax purposes following the IPO, there can be no assurance that the IRS will not challenge the Pre-IPO Entities’ REIT status for previous years in which they elected REIT status. If the IRS were to successfully challenge the previous REIT status of any such entity, we may be required to pay additional taxes.

Certain of the Pre-IPO Entities elected to be treated as REITs for U.S. federal income tax purposes for taxable years ended on and prior to the date of the initial public offering of La Quinta Parent. Following consummation of the initial public offering of La Quinta Parent, neither we nor any of our subsidiaries has been a REIT for U.S. federal income tax purposes. However, there can be no assurance that the IRS will not challenge the Pre-IPO Entities’ REIT qualification for previous years in which they elected REIT status. Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which only a limited number of judicial or administrative interpretations exist. Although we believe that each of the Pre-IPO Entities that elected to be treated as a REIT met all of these requirements and qualified as a REIT in each of the years REIT status was elected, if the IRS were to successfully challenge the previous REIT status of any such entity, we could be liable for additional income taxes, interest and penalties, which could adversely affect our financial condition, results of operations and cash flow and the price of our common stock.

Changes to accounting rules or regulations may adversely affect our results of operations.

New accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. A change in accounting rules or regulations may even affect our reporting of transactions completed before the change is effective, and future changes to accounting rules or regulations or the questioning of current accounting practices may adversely affect our financial condition and results of operations. See Note 2: “Basis of Presentation and Summary of Significant Accounting Policies” in LQH’s audited consolidated financial statements included elsewhere in this information statement for a summary of accounting standards issued but not yet adopted.

If we elect to grow our portfolio internationally, the risks of doing business internationally could lower our revenues, increase our costs, reduce our profits or disrupt our business.

None of our hotels are located outside of the United States. We may acquire hotels located outside of the United States in the coming years. As a result, we may be, on a potentially increasing basis, subject to the risks of doing business outside the United States, including recessionary trends or economic instability in international markets, changes in foreign currency exchange rates or currency restructurings and hyperinflation or deflation in the countries in which our properties are located, the imposition of restrictions on currency conversion or the transfer of funds or limitations on our ability to repatriate non-U.S. earnings in a tax effective manner, the presence and acceptance of varying levels of business corruption in international markets, the impact of various anti-corruption and other laws, the impact of complying with regulations and policies of foreign governments, the difficulties involved in managing an organization doing business in many different countries, rapid changes in non-U.S. governmental, economic and political policies, political or civil unrest and acts of terrorism, increases in anti-American sentiment or the threat of international boycotts or U.S. anti-boycott legislation, forced nationalization of properties by local, state or national governments and events that make travel to such a region less attractive or more difficult.

Any or all of these factors may adversely affect the income from and the market value of our hotels located in international markets. In addition, the economy of any region in which our hotels are located may be adversely affected to a greater degree than that of other areas of the country or the world by certain developments affecting industries concentrated in that region or country. A decline in the general economic condition in regions or countries in which our hotels are located could result in a decrease in hotel demand in the region, and the income from and market value of these hotels may be adversely affected. Over time, room rates in regions can fluctuate and have historically fluctuated widely. While these factors and the impact of these factors are difficult to predict, any one or more of them could lower our revenues, increase our costs, reduce our profits or disrupt our business, and as our international operations increase, these risks will become more pronounced.

 

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Risks Related to our Indebtedness

Our substantial indebtedness could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry and our ability to pay our debts and could expose us to interest rate risk to the extent of our variable debt and divert our cash flow from operations to make debt payments.

Following the spin-off, we will have a significant amount of indebtedness. As of June 30, 2017, after giving pro forma effect to the consummation of the spin-off and the Financing Transactions, our total indebtedness would have been approximately $              billion. Our substantial debt could have important consequences, including:

 

    requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and pursue future business opportunities;

 

    increasing our vulnerability to adverse economic, industry or competitive developments;

 

    exposing us to increased interest expense, as our degree of leverage may cause the interest rates of any future indebtedness (whether fixed or floating rate interest) to be higher than they would be otherwise;

 

    exposing us to the risk of increased interest rates because certain of our indebtedness is at variable rates of interest;

 

    making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants, could result in an event of default that accelerates our obligation to repay indebtedness;

 

    restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

    limiting our ability to obtain additional financing for working capital, capital expenditures, hotel development, satisfaction of debt service requirements, acquisitions and general corporate or other purposes; and

 

    limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who may be better positioned to take advantage of opportunities that our leverage prevents us from exploiting.

In addition, we are a holding company and substantially all of our consolidated assets are owned by, and most of our business is conducted through, our subsidiaries. Revenues from these subsidiaries are our primary source of funds for debt payments and operating expenses. If our subsidiaries are restricted from making distributions to us, that may impair our ability to meet our debt service obligations or otherwise fund our operations. Moreover, there may be restrictions on payments by subsidiaries to their parent companies under applicable laws, including laws that require companies to maintain minimum amounts of capital and to make payments to stockholders only from profits. As a result, although a subsidiary of ours may have cash, we may not be able to obtain that cash to satisfy our obligation to service our outstanding debt or fund our operations.

Servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on many factors, some of which are not within our control.

Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. To a certain extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to restructure or refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital. We may not be able to affect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future

 

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debt arrangements may restrict us from affecting any of these alternatives. Our failure to make the required interest and principal payments on our indebtedness would result in an event of default under the agreement governing such indebtedness, which may result in the acceleration of some or all of our outstanding indebtedness.

Despite our level of indebtedness following the spin-off, we may be able to incur substantially more debt and enter into other transactions, which could further exacerbate the risks to our financial condition described above.

We may be able to incur significant additional indebtedness in the future. Although the debt agreements we will enter into in connection with the Financing Transactions will likely contain restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are often subject to a number of qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. To the extent new debt is added to our current debt levels, the substantial leverage risks described in the preceding two risk factors would increase.

The debt agreements we will enter into in connection with the Financing Transactions will contain, and future debt agreements may contain, restrictions that may limit our flexibility in operating our business.

The debt agreements we will enter into in connection with the Financing Transactions will contain operating covenants that limit the discretion of management with respect to certain business matters. These covenants may place restrictions on our ability to incur additional indebtedness and make guarantees, create liens on assets, enter into sale and leaseback transactions, engage in mergers and consolidations, sell assets, make fundamental changes, pay dividends and distributions or repurchase our capital stock, make investments, loans and advances, including acquisitions, engage in certain transactions with affiliates, make changes in the nature of our business and make prepayments of junior debt and may require us to maintain certain levels of indebtedness and/or interest expense. Additionally, the documents governing our future indebtedness may place additional restrictions on us and may require us to meet certain financial ratios and tests. Our ability to comply with these and other provisions of our new debt agreements and future debt agreements is dependent on our future performance, which will be subject to many factors, some of which are beyond our control. The breach of any of these covenants or non-compliance with any of these financial ratios and tests could result in an event of default under the debt agreements, which, if not cured or waived, could result in acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-default provisions.

Risks Related to the Spin-Off

The distribution of our common stock will not qualify for tax-free treatment and may be taxable to you as a dividend.

The distribution of our common stock will not qualify for tax-free treatment. An amount equal to the fair market value of our common stock received by you on the distribution date (plus any cash received in lieu of fractional shares) will be treated as a taxable dividend to the extent of your ratable share of any current or accumulated earnings and profits of La Quinta Parent, with the excess treated first as a non-taxable return of capital to the extent of your tax basis in La Quinta Parent common stock and then as capital gain. The fair market value of CorePoint Parent’s common stock reported by La Quinta Parent to you on IRS Form 1099-DIV may differ from the trading price of CorePoint Parent’s common stock on the distribution date. In addition, La Quinta Parent or other applicable withholding agents may be required or permitted to withhold at the applicable rate on all or a portion of the distribution payable to non-U.S. stockholders, and any such withholding could be satisfied by La Quinta Parent or such agent withholding and selling a portion of the CorePoint Parent common stock otherwise distributable to non-U.S. stockholders or by withholding from other property held in the non-U.S.

 

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stockholder’s account with the withholding agent. Your tax basis in shares of La Quinta Parent held at the time of the distribution will be reduced (but not below zero) if the fair market value of our shares distributed by La Quinta Parent to you in the distribution (plus any cash received in lieu of fractional shares) exceeds your ratable share of La Quinta Parent’s available current and accumulated earnings and profits. Your holding period for such La Quinta Parent shares will not be affected by the distribution. Your holding period for your shares of our common stock will begin the day following the distribution of our common stock, and your basis in our common stock will equal the fair market value of the shares received by you on the distribution date.

La Quinta Parent will not be able to advise stockholders of the amount of earnings and profits of La Quinta Parent until after the end of the 2017 calendar year. Additionally, La Quinta Parent’s current earnings and profits are measured as of the end of the tax year and are generally allocated to all distributions made during such tax year on a pro rata basis. As a result, a proportionate part of La Quinta Parent’s current earnings and profits for the entire taxable year of the spin-off will be allocated to the spin-off distribution. That proportionate part will be treated as dividend income to you even if you have not held La Quinta Parent stock for the entire taxable year of La Quinta Parent in which the spin-off occurs. Thus, if you did not hold your La Quinta Parent common stock for the entire taxable year of La Quinta Parent in which the spin-off occurs, you may be allocated a disproportionate amount of ordinary income attributable to La Quinta Parent’s current earnings and profits as a result of the spin-off distribution.

Although La Quinta Parent will be ascribing a value to our shares in the distribution for tax purposes, this valuation is not binding on the IRS or any other tax authority. These taxing authorities could ascribe a higher valuation to our shares, particularly if our stock trades at prices significantly above the value ascribed to our shares by La Quinta Parent in the period following the distribution. Such a higher valuation may cause a larger reduction in the tax basis of your La Quinta Parent shares or may cause you to recognize additional dividend or capital gain income. You should consult your own tax advisor as to the particular tax consequences of the distribution to you.

The spin-off and related transactions may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal distribution requirements.

The spin-off could be challenged under various state and federal fraudulent conveyance laws. An unpaid creditor or an entity vested with the power of such creditor (such as a trustee or debtor-in-possession in a bankruptcy) could claim that La Quinta Parent did not receive fair consideration or reasonably equivalent value in the spin-off, and that the spin-off left La Quinta Parent insolvent or with unreasonably small capital or that La Quinta Parent intended or believed it would incur debts beyond its ability to pay such debts as they mature. If a court were to agree with such a plaintiff, then such court could void the spin-off as a fraudulent transfer and could impose a number of different remedies, including without limitation, returning our assets or your shares in our company to La Quinta Parent or providing La Quinta Parent with a claim for money damages against us in an amount equal to the difference between the consideration received by La Quinta Parent and the fair market value of our company at the time of the spin-off.

The measure of insolvency for purposes of the fraudulent conveyance laws may vary depending on which jurisdiction’s law is applied. Generally, however, an entity would be considered insolvent if the fair saleable value of its assets is less than the amount of its liabilities (including the probable amount of contingent liabilities), and such entity would be considered to have unreasonably small capital if it lacked adequate capital to conduct its business in the ordinary course and pay its liabilities as they become due. No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that La Quinta Parent were solvent at the time of or after giving effect to the spin-off, including the distribution of our common stock.

 

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We could be required to assume responsibility for obligations allocated to La Quinta Parent under the Distribution Agreement.

Under the Distribution Agreement and related ancillary agreements, from and after the spin-off, each of La Quinta Parent and CorePoint Parent will be generally responsible for the debts, liabilities and other obligations related to the business or businesses which they own and operate following the consummation of the spin-off. Although we do not expect to be liable for any obligations that are not allocated to us under the Distribution Agreement, a court could disregard the allocation agreed to between the parties, and require that we assume responsibility for obligations allocated to La Quinta Parent (for example, tax and/or environmental liabilities), particularly if La Quinta Parent were to refuse or were unable to pay or perform the allocated obligations. See “Certain Relationships and Related Party Transactions—Agreements with La Quinta Parent Related to the Spin-Off—Distribution Agreement.”

In addition, losses in respect of certain shared contingent liabilities, which generally are not specifically attributable to any of the Separated Real Estate Business or the retained business of La Quinta, will be determined on or prior to the date on which the Distribution Agreement is entered. The percentage of shared contingent liabilities for which we are responsible will be fixed in a manner that is intended to approximate our estimated enterprise value on the distribution date relative to the estimated enterprise values of La Quinta. Subject to certain limitations and exceptions, La Quinta will generally be vested with the exclusive management and control of all matters pertaining to any such shared contingent liabilities, including the prosecution of any claim and the conduct of any defense. See “Certain Relationships and Related Party Transactions—Agreements with La Quinta Parent Related to the Spin-Off—Distribution Agreement.”

The historical and pro forma financial information presented herein is not necessarily representative of the results that our business would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

Due to the relative significance of CorePoint Lodging to LQH, among other factors, CorePoint Parent will be treated as the accounting spinnor to LQH for accounting purposes, notwithstanding the legal form of the spin-off described in this information statement. Therefore, the historical financial statements of LQH will represent the historical financial statements of CorePoint Parent and La Quinta Parent will be presented as discontinued operations. Accordingly, the historical and pro forma financial information for CorePoint Parent included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that CorePoint Parent would have achieved as a separate, publicly traded company during the periods presented or those that CorePoint Parent will achieve in the future as a result of the factors described below:

 

    prior to the spin-off, CorePoint Lodging’s business has been operated by LQH as part of its broader corporate organization in combination with the management and franchise business that will be held by La Quinta after the spin-off. We currently rely on LQH to provide certain corporate and administrative services such as information technology, financial and human resource services. A portion of the La Quinta management and franchise business performs services for or engages in intercompany transactions with the separated real estate business that will be held by CorePoint Lodging after the spin-off. CorePoint Parent’s historical and pro forma financial results reflect allocations of corporate expenses from La Quinta for such functions and are likely to differ from the expenses CorePoint Lodging would have incurred had it operated as a separate company from La Quinta. After the spin-off, CorePoint Lodging may not be able to operate its business efficiently or at comparable costs, and its profitability may decline;

 

    prior to the spin-off, CorePoint Lodging’s historical financial statements, as represented by the financial statements of LQH, include the assets, liabilities, results of operations and cash flows attributable to La Quinta’s management and franchise business, which will be held by La Quinta after the spin-off and distribution; and

 

    CorePoint Lodging’s historical financial information does not reflect its obligations under the various transitional and other agreements it will enter into with La Quinta in connection with the spin-off.

 

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Other significant changes will occur in CorePoint Lodging’s cost structure, management, financing and business operations as a result of operating as a company separate from the combined businesses of La Quinta and CorePoint Lodging. For additional information about the historical financial performance of CorePoint Lodging’s business and the basis of presentation of the historical consolidated financial statements and the unaudited pro forma condensed consolidated financial statements of CorePoint Lodging’s business, see “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Condensed Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes of LQH included elsewhere in this information statement.

We may incur greater costs as an independent company than we did when we were part of La Quinta.

As part of La Quinta, the real estate business owned by CorePoint Parent has been able to take advantage of La Quinta’s size and purchasing power in procuring certain goods and services such as insurance and health care benefits, and technology such as computer software licenses. CorePoint Lodging’s real estate business also relied on La Quinta to provide various corporate functions. After the spin-off, as a separate, independent entity, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable to us as those we obtained prior to the distribution. We may also incur costs for functions previously performed by La Quinta that are higher than the amounts reflected in the historical financial statements presented herein, which could cause our profitability to decrease.

Our ability to meet our capital needs may be harmed by the loss of financial support from La Quinta.

The loss of financial support from La Quinta could harm our ability to meet our capital needs. La Quinta can currently provide certain capital that may be needed in excess of the amounts generated by our operating activities and historically has provided financing to us at rates that we believe are not representative of the cost of financing that we will incur as a stand-alone company. After the spin-off, we expect to obtain any funds needed in excess of the amounts generated by our operating activities through the capital markets or bank financing, and not from La Quinta. After the spin-off, we may incur higher debt servicing and other costs relating to new indebtedness than we would have otherwise incurred as a part of La Quinta. As a stand-alone company, the cost of our financing also will depend on other factors such as our performance and financial market conditions generally. Further, we cannot guarantee that we will be able to obtain capital market financing or credit on favorable terms, or at all, in the future. We cannot be certain that our ability to meet our capital needs, including servicing our own debt, will not be harmed by the loss of financial support from La Quinta.

We may be unable to achieve some or all of the benefits that we expect to achieve from the spin-off.

As discussed under “The Spin-Off—Reasons for the Spin-Off,” we and La Quinta believe that a spin-off will enhance our long-term value. However, by separating from La Quinta, we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of La Quinta. In addition, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all.

Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the distribution, and failure to achieve and maintain effective internal controls could have a material adverse effect on our business and the price of our common stock.

Our financial results previously were included within the consolidated results of La Quinta Parent, and we believe that our financial reporting and internal controls were appropriate for a subsidiary of a public company. However, we were not directly subject to the reporting and other requirements of the Exchange Act. As a result of the distribution, we will be directly subject to reporting and other obligations under the Exchange Act. Beginning with our second annual report on Form 10-K, we will be required to comply with Section 404 of the

 

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Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) which will require annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm as to whether we maintained, in all material respects, effective internal controls over financial reporting as of the last day of the year. These reporting and other obligations may place significant demands on our management, administrative and operational resources, including accounting systems and resources.

The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with these requirements, we will need to establish our own systems; implement additional financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff. We expect to incur additional annual expenses for the purpose of addressing these requirements, and those expenses may be significant. If we are unable to establish our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired.

If, during periods we are required to assess the effectiveness of our internal controls, we are unable to conclude that we have effective internal controls over financial reporting or our independent public accounting firm is unwilling or unable to provide us with an unqualified report on the effectiveness of our internal controls as required by Section 404 of the Sarbanes-Oxley Act, we may be unable to report our financial information on a timely basis, investors may lose confidence in our operating results, the price of our common stock could decline and we may be subject to litigation or regulatory enforcement actions, which would require additional financial and management resources. This could have a material adverse effect on our business and lead to a decline in the price of our common stock.

Following the spin-off, we will be dependent on La Quinta Parent to provide certain services pursuant to the Transition Services Agreement.

Currently, we rely on La Quinta Parent to provide certain corporate and administrative services such as information technology, financial and human resource services. We expect to develop the capability to provide all such services internally or through the use of third parties at CorePoint Lodging. However, to the extent that we are unable to develop such capabilities prior to the separation, we will rely on La Quinta Parent to continue to provide certain services for a period of time pursuant to a Transition Services Agreement that we intend to enter in connection with the spin-off. If La Quinta Parent is unable or unwilling to provide such services pursuant to the Transition Services Agreement, or if the agreement is terminated prior to the end of its term, we may be unable to provide such services ourselves or we may have to incur additional expenditures to obtain such services from another provider.

We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements related to the spin-off.

We expect that the agreements with La Quinta Parent related to the spin-off, including the Distribution Agreement, Employee Matters Agreement, Tax Matters Agreement, Transition Services Agreements, the franchise agreements and management agreements and any other agreements, will be negotiated in the context of our separation from La Quinta while we are still part of La Quinta. Accordingly, these agreements may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. The terms of the agreements being negotiated in the context of our separation and the spin-off are related to, among other things, allocations of assets and liabilities, rights and indemnification and other obligations among La Quinta Parent and us. To the extent that certain terms of those agreements provide for rights and obligations that could have been procured from third parties, we may have received better terms from third parties because third parties may have competed with each other to win our business. See “Certain Relationships and Related Party Transactions—Agreements with La Quinta Parent Related to the Spin-Off.”

 

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The spin-off may not be completed on the terms or timeline currently contemplated, if at all.

We are actively engaged in planning for the spin-off. We expect to incur expenses in connection with the spin-off and any delays in the anticipated completion of the distribution may increase these expenses. Unanticipated developments could delay or negatively impact the distribution, including those related to the filing and effectiveness of appropriate filings with the SEC, the listing of our common stock on a trading market, and receiving any required regulatory approvals. In addition, La Quinta Parent’s board of directors may, in its absolute and sole discretion, decide at any time prior to the consummation of the spin-off not to proceed with the spin-off. Therefore, we cannot assure that the spin-off will be completed. Until the consummation of the spin-off, La Quinta Parent’s board of directors will have the sole and absolute discretion to determine and change the terms of the spin-off, including the establishment of the record date and distribution date.

Risks Related to our REIT Status and Certain Other Tax Items

If we do not qualify and maintain our qualification as a REIT, we will be subject to tax as a C corporation and could face a substantial tax liability.

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year, and we expect to continue to operate so as to qualify as a REIT under the Code. However, we cannot assure you that we will qualify and remain qualified as a REIT. In connection with our separation from La Quinta Parent, we expect to receive an opinion from Simpson Thacher & Bartlett LLP that, beginning in our taxable year ending December 31, 2018, we should be considered to be organized in conformity with the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws and our proposed method of operations should enable us to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for such taxable year and subsequent taxable years. You should be aware that Simpson Thacher & Bartlett LLP’s opinion is based upon customary assumptions, will be conditioned upon certain representations made by us and La Quinta Parent as to factual matters, including representations regarding the nature of our and La Quinta Parent’s assets and conduct of business and such opinion is not binding upon the IRS or any court. The opinion will be expressed as of the date issued. Simpson Thacher & Bartlett LLP will have no obligation to advise us or the holders of our common stock of any subsequent change in the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the validity of the opinion and our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis, the results of which will not be monitored by Simpson Thacher & Bartlett LLP.

Moreover, qualification as a REIT involves the interpretation and application of highly technical and complex Code provisions for which no or only a limited number of judicial or administrative interpretations may exist. Notwithstanding the availability of cure provisions in the Code, we could fail to meet various compliance requirements, which could jeopardize our REIT status. Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:

 

    we would be taxed as a C corporation, which under current laws, among other things, means being unable to deduct dividends paid to stockholders in computing taxable income and being subject to U.S. federal income tax on our taxable income at normal corporate income tax rates;

 

    any resulting tax liability could be substantial and could have a material adverse effect on our book value and financial condition;

 

    unless we were entitled to relief under applicable statutory provisions, we would be required to pay income taxes, and thus, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT; and

 

    we generally would not be eligible to requalify as a REIT for the subsequent four full taxable years.

 

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In addition, if we fail to qualify as a REIT, we will not be required to make distributions to stockholders, and all distributions to stockholders will be subject to tax as dividend income to the extent of our current and accumulated earnings and profits. As a result of all these factors, our failure to qualify as a REIT could impair our ability to execute our business and growth strategies, as well as make it more difficult for us to raise capital and service our indebtedness.

Qualifying as a REIT involves highly technical and complex provisions of the Code and therefore, in certain circumstances, may be subject to uncertainty.

In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the composition of our assets, the sources of our income and the diversity of our stock ownership. Also, we must make distributions to stockholders aggregating annually at least 90% of our “REIT taxable income” (determined without regard to the dividends paid deduction and excluding net capital gain). Compliance with these requirements and all other requirements for qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code is greater in the case of a REIT that, like us, conducts significant business operations through one or more TRS. Even a technical or inadvertent mistake could jeopardize our REIT status. In addition, the determination of various factual matters and circumstances relevant to REIT qualification is not entirely within our control and may affect our ability to qualify as a REIT. Accordingly, we cannot be certain that our organization and operation will enable us to qualify as a REIT for U.S. federal income tax purposes.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.

Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, built-in gain tax on the taxable sale of assets, tax on income from some activities conducted as a result of a foreclosure, and non-U.S. income, state or local income, property and transfer taxes. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT. We are subject to U.S. federal and state income tax (and any applicable non-U.S. taxes) on the net income earned by our TRSs. In addition, our domestic TRSs are subject to normal corporate federal, state and local taxation. Any of these taxes would decrease cash available for distributions to stockholders.

The ability of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.

Our charter will provide our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the approval of our stockholders. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our net taxable income and we generally would no longer be required to distribute any of our net taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders.

Liquidation of assets may jeopardize our REIT qualification.

To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.

 

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We have no operating history as a REIT, and our inexperience may impede our ability to successfully manage our business or implement effective internal controls.

While certain of our subsidiaries previously operated as REITs, we have no operating history as a REIT. We cannot assure you that our past experience will be sufficient to successfully operate our company as a REIT. Upon completion of the spin-off, we will be required to implement substantial control systems and procedures to qualify and maintain our qualification as a REIT. As a result, we will incur significant legal, accounting and other expenses that we have not previously incurred, and our management and other personnel will need to devote a substantial amount of time to comply with these rules and regulations and establish the corporate infrastructure and controls demanded of a REIT. These costs and time commitments could be substantially more than we currently expect. Therefore, the historical consolidated and unaudited pro forma condensed consolidated financial statements contained herein may not be indicative of our future costs and performance as a REIT.

Complying with REIT requirements may cause us to forego and/or liquidate otherwise attractive opportunities and limit our expansion opportunities.

To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, our sources of income, the nature of our investments in real estate and related assets, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

To qualify as a REIT, we must also ensure that at the end of each calendar quarter, at least 75% of the value of our gross assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investments in securities cannot include more than 10% of the outstanding voting securities of any one issuer or 10% of the total value of the outstanding securities of any one issuer unless we and such issuer jointly elect for such issuer to be treated as a TRS under the Code. The total value of all of our investments in TRSs cannot exceed 25% (20% for tax years beginning after December 31, 2017) of the value of our total assets. No more than 5% of the value of our assets can consist of the securities of any one issuer other than a TRS. In addition, not more than 25% of our total assets may be represented by debt instruments issued by publicly offered REITs that are “nonqualified” debt instruments. If we fail to comply with these requirements, we must dispose of a portion of our assets within 30 days after the end of the calendar quarter in which such discrepancy arises or qualify for certain statutory relief provisions to avoid losing our REIT status and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio, or contribute to a TRS, otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income, increasing our income tax liability, and reducing amounts available for distribution to our stockholders. In addition, we may also be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue investments (or, in some cases, forego the sale of such investments) that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code substantially limit our ability to utilize hedges, swaps, and other types of derivatives to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets (each such hedge, a “Borrowings Hedge”), or to manage risk of foreign currency exchange rate fluctuations with respect to any item of qualifying income (each such hedge, a “Currency Hedge”), if clearly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross

 

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income tests that we must satisfy to qualify and maintain our qualification as a REIT. This exclusion from the 95% and 75% gross income tests also will apply if we previously entered into a Borrowings Hedge or a Currency Hedge, a portion of the hedged indebtedness or property is disposed of and in connection with such extinguishment or disposition, we enter into a new properly identified hedging transaction to offset the prior hedging position. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. See “Material U.S. Federal Income Tax Considerations—Taxation of CorePoint Parent.” As a result of these rules, we intend to limit our use of advantageous hedging techniques or implement those hedges through one or more domestic TRSs. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in any TRS generally will not provide any tax benefit, except for being carried forward against future taxable income in such TRS.

Complying with REIT requirements may force us to borrow to make distributions to stockholders.

From time to time, our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in these situations, we may be unable to distribute substantially all of our taxable income as required by the REIT provisions of the Code. Thus, we could be required to borrow funds, raise additional equity capital, sell a portion of our assets at disadvantageous prices or find another alternative to make distributions to stockholders. These options could increase our costs or reduce our equity.

The ownership of our TRSs (including our TRS lessees) increases our overall tax liability.

Our domestic TRSs will be subject to U.S. federal, state and local income tax on their taxable income, which in the case of our TRS lessees, will consist of the revenues from the hotels leased by our TRS lessees, net of the operating expenses for such hotels and rent payments to us. Accordingly, although our ownership of our TRS lessees will allow us to participate in the operating income from our hotels in addition to receiving rent, that operating income will be fully subject to income tax. The after-tax net income of each TRS lessee is available for distribution to us.

Our TRS lessee structure subjects us to the risk of increased hotel operating expenses that could adversely affect our operating results and our ability to make distributions to stockholders.

Our leases with our TRS lessees require such TRS lessees to pay us rent based in part on revenues from our hotels. Our operating risks include decreases in hotel revenues and increases in hotel operating expenses, including but not limited to the increases in wage and benefit costs, repair and maintenance expenses, energy costs, property taxes, insurance costs and other operating expenses, which would adversely affect each TRS lessees’ ability to pay us rent due under the leases.

Increases in these operating expenses can have a significant adverse impact on our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our stockholders.

Our ownership of our TRSs, and any other TRSs we form, will be subject to limitations, and our transactions with our TRSs, and any other TRSs we form, may cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.

Overall, no more than 25% (20% for tax years beginning after December 31, 2017) of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Code also imposes a 100% excise tax on certain transactions between a TRS and its

 

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parent REIT that are not conducted on an arm’s-length basis. The 100% tax may apply, for example, to the extent that we were found to have charged our TRS lessees rent in excess of an arm’s-length rent. For example, La Quinta Parent’s predecessor, which was taxed as a REIT for U.S. federal income tax purposes prior to La Quinta Parent’s initial public offering, is currently undergoing an audit by the IRS in which the IRS has asserted this 100% excise tax on the grounds that the rent paid pursuant to the lease agreement between La Quinta Parent’s predecessor and its TRS was not arms’ length. See “—Risks Related to Our Business and Industry—We are currently under audit by the Internal Revenue Service and may be required to pay additional taxes.” It is our policy to evaluate material intercompany transactions and to attempt to set the terms of such transactions so as to achieve substantially the same result as they believe would have been the case if they were unrelated parties. As a result, we believe that all material transactions between and among us and the entities in which we own a direct or indirect interest have been and will be negotiated and structured with the intention of achieving an arm’s-length result and that the potential application of the 100% excise tax will not have a material effect on us. There can be no assurance, however, that we will be able to comply with the TRS limitation or to avoid application of the 100% excise tax.

If the leases of our hotels to our TRS lessees are not respected as true leases for U.S. federal income tax purposes, we will fail to qualify as a REIT.

To qualify as a REIT we must annually satisfy two gross income tests, under which specified percentages of our gross income must be derived from certain sources, such as “rents from real property.” Rents paid to us by our TRS lessees pursuant to the leases of our hotels will constitute substantially all of our gross income. In order for such rent to qualify as “rents from real property” for purposes of the gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and not be treated as service contracts, financing arrangements, joint ventures or some other type of arrangement. If our leases are not respected as true leases for U.S. federal income tax purposes, we will fail to qualify as a REIT.

If La Quinta or any other future third-party hotel managers do not qualify as “eligible independent contractors,” or if our hotels are not “qualified lodging facilities,” we will fail to qualify as a REIT.

Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. An exception is provided, however, for leases of “qualified lodging facilities” to a TRS so long as the hotels are operated by an “eligible independent contractor” and certain other requirements are satisfied. We expect to lease all or substantially all of our hotels to our TRS lessees and to engage third-party hotel managers (including La Quinta, which manages all of our hotels) that qualify as “eligible independent contractors.” Among other requirements, to qualify as an eligible independent contractor (i) the hotel manager cannot own, actually or constructively, more than 35% of our outstanding shares, and (ii) one or more actual or constructive owners of more than 35% of the hotel manager cannot own 35% or more of our outstanding shares (determined by taking into account only the shares held by persons owning, actually or constructively, more than 5% of our outstanding shares because our shares will be regularly traded on an established securities market and, if the stock of the hotel manager is regularly traded on an established securities market, determined by taking into account only shares held by persons owning, actually or constructively, more than 5% of the publicly traded stock of the hotel manager). The ownership attribution rules that apply for purposes of these 35% thresholds are complex, and monitoring actual and constructive ownership of our shares by our hotel managers and their owners may not be practical. Accordingly, there can be no assurance that these ownership levels will not be exceeded, in particular, with respect to La Quinta.

In addition, for a hotel management company to qualify as an eligible independent contractor, such company or a related person must be actively engaged in the trade or business of operating “qualified lodging facilities” (as defined below) for one or more persons not related to the REIT or its TRSs at each time that such company enters into a hotel management contract with a TRS or its TRS lessee. We expect La Quinta will operate qualified lodging facilities for certain persons who are not related to us or our TRSs as of the consummation of the spin-off. However, no assurances can be provided that any of our current and future hotel

 

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managers will in fact comply with this requirement. Failure to comply with this requirement would require us to find other hotel managers for future contracts, and, if we hired a management company without knowledge of the failure, it could jeopardize our status as a REIT.

Finally, each property with respect to which our TRS lessees pay rent must be a “qualified lodging facility.” A “qualified lodging facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, including customary amenities and facilities, provided that no wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. As of the date hereof, we believe that the properties that are leased to our TRS lessees are qualified lodging facilities. Although we intend to monitor future acquisitions and improvements of properties, REIT provisions of the Code provide no or only limited guidance for making determinations under the requirements for qualified lodging facilities, and there can be no assurance that these requirements will be satisfied.

Our charter will generally not permit any person to own more than 4.9% of our outstanding common stock or more than 4.9% of any outstanding class or series of our preferred stock, and attempts to acquire our common stock or any class or series of our preferred stock in excess of these 4.9% limits would not be effective without an exemption from these limits by our board of directors.

For us to qualify as a REIT under the Code, not more than 50% of the value of our outstanding stock may be owned directly or indirectly, by five or fewer individuals (including certain entities treated as individuals for this purpose) during the last half of a taxable year. In addition, for the rental income we receive on the hotels leased to our TRS lessees and operated by La Quinta (or another hotel manager) to be qualifying REIT income, La Quinta (or the other hotel manager) must qualify as an “eligible independent contractor.” For La Quinta (or another hotel manager) to qualify as an “eligible independent contractor,” (i) La Quinta (or another hotel manager) cannot own more than 35% of our stock and (ii) there cannot be 35% or more overlapping ownership between our stock and La Quinta Parent stock (or the other hotel manager’s stock), counting, for this purpose, only persons owning more than 5% of our outstanding stock and more than 5% of the outstanding La Quinta Parent stock (or other hotel manager’s stock), provided our stock and La Quinta Parent stock (or other hotel manager’s stock) is regularly traded on an established securities market. For the purpose of assisting our qualification as a REIT for U.S. federal income tax purposes, among other purposes, our charter will generally prohibit beneficial or constructive ownership by any person (other than certain existing holders and certain transferees) of more than 4.9%, in value or by number of shares, whichever is more restrictive, of the outstanding shares of our common stock or more than 4.9%, in value or by number of shares, whichever is more restrictive, of any outstanding class or series of our preferred stock, which we refer to as the “ownership limit.” We expect that, prior to consummation of the spin-off, our board of directors will grant an exemption from the ownership limit to Blackstone. The constructive ownership rules under the Code and our charter are complex and may cause shares of the outstanding common stock or preferred stock owned by a group of related persons to be deemed to be constructively owned by one person. As a result, the acquisition of less than 4.9% of our outstanding common stock or any class or series of our preferred stock by a person could cause a person to own constructively in excess of 4.9% of our outstanding common stock or any class or series of our preferred stock, respectively, and thus violate the ownership limit. There can be no assurance that our board of directors, as permitted in the charter, will not increase or decrease the ownership limit in the future. Any attempt to own or transfer shares of our common stock or preferred stock in excess of the ownership limit without the consent of our board of directors will result either in the shares in excess of the limit being transferred by operation of the charter to a charitable trust, and the person who attempted to acquire such excess shares will not have any rights in such excess shares, or in the transfer being void.

The ownership limit may have the effect of precluding a change in control of us by a third party, even if such change in control would be in the best interests of our stockholders or would result in receipt of a premium to the price of our common stock (and even if such change in control would not reasonably jeopardize our REIT status). The exemptions to the ownership limit granted to date may limit our board of directors’ power to increase the ownership limit or grant further exemptions in the future.

 

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Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

Under current law, the maximum U.S. federal income tax rate applicable to qualified dividend income payable to certain non-corporate U.S. stockholders is 23.8% (taking into account the 3.8% Medicare tax applicable to net investment income). Dividends payable by REITs, however, generally are not qualified dividends. This does not adversely affect the taxation of REITs; however, the more favorable rates applicable to regular corporate qualified dividends could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the price of our common stock.

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury (the “Treasury”). In recent years, numerous legislative, judicial and administrative changes have been made to the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. We cannot assure you that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. We urge you to consult with your tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Although REITs generally receive certain tax advantages compared to entities taxed as C corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter will provide our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a C corporation, without the approval of our stockholders.

Risks Related to Ownership of Our Common Stock

Upon consummation of the spin-off, approximately 30% of the outstanding common stock of CorePoint Parent will be controlled by Blackstone and its interests may conflict with ours or yours in the future.

Immediately following the spin-off, Blackstone will beneficially own approximately 30% of our common stock. Moreover, under the stockholders agreement we expect to enter into with Blackstone, we have agreed to nominate to our board individuals designated by Blackstone, whom we refer to as the “Blackstone Directors,” according to the following scale: (1) if Blackstone continues to beneficially own at least 30% of our stock, the lowest whole number that is at least 30% of the total number of directors comprising our board of directors; (2) if Blackstone continues to beneficially own at least 20% (but less than 30%) of our stock, the lowest whole number that is at least 20% of the total number of directors comprising our board of directors; and (3) if Blackstone continues to beneficially own at least 5% (but less than 20%) of our stock, the lowest whole number that is at least 10% of the total number of directors comprising our board of directors. For so long as the stockholders agreement remains in effect, Blackstone Directors may be removed only with the consent of Blackstone. In the case of a vacancy on our board created by the removal or resignation of a Blackstone Director, the stockholders agreement will require us to nominate an individual designated by Blackstone for election to fill the vacancy. We expect that members of our initial board of directors will be Blackstone employees. Accordingly, for so long as Blackstone retain significant ownership of us, Blackstone will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. For example, for so long as Blackstone continues to own a significant percentage of our stock, Blackstone may be able to influence whether or not a change of control of our company or a change in the composition of our board of directors occurs and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of our company and ultimately might affect the market price of our common stock. In addition, Blackstone may be

 

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engaged from time to time in discussions relating to dispositions of its holdings of our common stock, including sale of a significant percentage to a single buyer. If such significant sale were to occur, the buyer could have influence over the management of our company, including through board representation.

Blackstone engages in a broad spectrum of activities, including investments in real estate generally and in the hospitality industry in particular. In the ordinary course of their business activities, Blackstone may engage in activities where their interests conflict with our interests or those of our stockholders. For example, all of the hotels that we own as of the date of this information statement utilize brands licensed from La Quinta, and each of these hotels will be operated by La Quinta under management agreements with La Quinta. Blackstone owns a significant portion of the outstanding stock of La Quinta Parent and has significant influence with respect to the management, business plans and policies of La Quinta Parent. In addition, Blackstone owns interests in Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc., Hilton Grand Vacations Inc., and G6 Hospitality, LLC and Blackstone owns certain other investments in the hotel and lodging industries and may pursue ventures that compete directly or indirectly with us. Moreover, Blackstone may directly and indirectly own interests in other third-party hotel management companies and franchisors with whom we may engage in the future, may compete with us for investment opportunities and may enter into other transactions with us, including hotel development projects, that could result in their having interests that could conflict with ours. Our charter will also provide that, to the maximum extent permitted from time to time by Maryland law, in the event that Blackstone or any non-employee director or any of his or her affiliates, acquires knowledge of a potential transaction or other business opportunity, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and may take any such opportunity for himself or herself or offer it to another person or entity unless the business opportunity is expressly offered to such person in his or her capacity as our director. Blackstone also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may be unavailable to us. In addition, Blackstone may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investments in the Company, even though such transactions might involve risks to you.

Our charter will contain a provision that expressly permits Blackstone, our non-employee directors and their affiliates, to compete with us.

Blackstone may compete with us for investments in properties and for customers. There is no assurance that any conflicts of interest created by such competition will be resolved in our favor. Moreover, Blackstone is in the business of making investments in companies and acquires and holds interests in businesses that compete directly or indirectly with us. Our charter will provide that, to the maximum extent permitted from time to time by Maryland law, we renounce any interest or expectancy that we have in, or any right to be offered an opportunity to participate in, any business opportunities that are from time to time presented to or developed by our directors or their affiliates, other than to those directors who are employed by us or our subsidiaries, unless the business opportunity is expressly offered or made known to such person in his or her capacity as our director, and none of Blackstone, or any director who is not employed by us or any of his or her affiliates, will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we or our affiliates engage or propose to engage or to refrain from otherwise competing with us or our affiliates. Blackstone also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

Our charter will provide that, to the maximum extent permitted from time to time by Maryland law, Blackstone and each of our non-employee directors (including those designated by Blackstone), and any of their affiliates, may:

 

    acquire, hold and dispose of shares of our stock for his, her or its own account or for the account of others, and exercise all of the rights of a stockholder of CorePoint Parent to the same extent and in the same manner as if he, she or it were not our director or stockholder; and

 

   

in his, her or its personal capacity or in his, her or its capacity, as applicable, as a director, officer, trustee, stockholder, partner, member, equity owner, manager, advisor or employee of any other

 

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person, have business interests and engage, directly or indirectly, in business activities that are similar to ours or compete with us, that involve a business opportunity that we could seize and develop or that include the acquisition, syndication, holding, management, development, operation or disposition of interests in mortgages, real property or persons engaged in the real estate business.

Our charter will also provide that, to the maximum extent permitted from time to time by Maryland law, in the event that Blackstone, any non-employee director, or any of their respective affiliates, acquires knowledge of a potential transaction or other business opportunity, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and may take any such opportunity for itself, himself or herself or offer it to another person or entity unless the business opportunity is expressly offered to such person in his or her capacity as our director.

These provisions may limit our ability to pursue business or investment opportunities that we might otherwise have had the opportunity to pursue, which could have an adverse effect on our financial condition, our results of operations, our cash flow, the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to our stockholders.

Our rights and the rights of our stockholders to take action against our directors and officers are limited.

Our charter will eliminate the liability of our directors and officers to us and our stockholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law and our charter, our directors and officers will not have any liability to us or our stockholders for money damages other than liability resulting from:

 

    actual receipt of an improper benefit or profit in money, property or services; or

 

    active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action adjudicated.

Our charter will authorize us and our bylaws will obligate us to indemnify each of our directors or officers who is or is threatened to be made a party to or witness in a proceeding by reason of his or her service in those or certain other capacities, to the maximum extent permitted by Maryland law, from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her status as a present or former director or officer of us or serving in such other capacities. In addition, we may be obligated to pay or reimburse the expenses incurred by our present and former directors and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. As a result, we and our stockholders may have more limited rights to recover money damages from our directors and officers than might otherwise exist absent these provisions in our charter and bylaws or that might exist with other companies, which could limit your recourse in the event of actions that are not in our best interests.

Our board of directors may change significant corporate policies without stockholder approval.

Our investment, financing, borrowing and dividend policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, will be determined by our board of directors. These policies may be amended or revised at any time and from time to time at the discretion of our board of directors without a vote of our stockholders. Our charter also will provide that our board of directors may revoke or otherwise terminate our expected REIT election without approval of our stockholders, if it determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. In addition, our board of directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements. A change in these policies or the termination of our expected REIT election could have an adverse effect on our financial condition, our results of operations, our cash flow, the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to our stockholders.

 

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Certain provisions in our organizational documents might discourage or delay acquisition attempts for us that you might consider favorable.

Our charter and bylaws will contain provisions that may make the merger or acquisition of our company more difficult without the approval of our board of directors. Among other things:

 

    the restrictions on ownership and transfer of our stock discussed under the caption “Description of Capital Stock—Restrictions on Ownership and Transfer” prevent any person from acquiring more than 4.9% (in value or by number of shares, whichever is more restrictive) of our outstanding common stock or more than 4.9% (in value or by number of shares, whichever is more restrictive) of any outstanding class or series of our preferred stock without the approval of our board of directors;

 

    although we do not have a stockholder rights plan, and would either submit any such plan to stockholders for ratification or cause such plan to expire within a year, these provisions would allow us to authorize the issuance, or increase the number of authorized shares, of common or preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock;

 

    these provisions prohibit stockholder action by less than unanimous written consent;

 

    these provisions provide that our board of directors is expressly authorized to make, alter or repeal our bylaws and that our stockholders may only amend our bylaws with the approval of 80% or more of all of the outstanding shares of our stock entitled to vote; and

 

    these provisions establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

These takeover defense provisions could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring our board of directors or stockholders to approve proposals to acquire our company or effect a change in control.

Certain provisions of the Maryland General Corporation Law (the “MGCL”) may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of their shares of common stock, including:

 

    “business combination” provisions that, subject to certain exceptions and limitations, prohibit certain business combinations between a Maryland corporation and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding shares of stock) or an affiliate of any interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations, unless, among other conditions, our common stockholders receive a minimum price, as defined in the MGCL, for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares of stock; and

 

   

“control share” provisions that provide that, subject to certain exceptions, holders of “control shares” (defined as voting shares that, when aggregated with all other shares controlled by the stockholder,

 

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entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights with respect to those shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding shares owned by the acquirer, by our officers or by our employees who are also directors of our company.

Prior to the completion of the spin-off, by resolution of our board of directors, we will opt out of the business combination provisions of the MGCL and provide that any business combination between us and any other person is exempt from the business combination provisions of the MGCL. In addition, pursuant to a provision in our bylaws, we will opt out of the control share provisions of the MGCL. Provisions of our bylaws will prohibit our board of directors from revoking, altering or amending its resolution exempting any business combination from the business combination provisions of the MGCL or amending our bylaws to opt in to the control share provisions of the MGCL, in each case, without the affirmative vote of a majority of the votes cast on the matter by our stockholders entitled to vote generally in the election of directors.

In addition, the “unsolicited takeover” provisions of Title 3, Subtitle 8 of the MGCL permit our board of directors, without stockholder approval and regardless of what is provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board or increasing the vote required to remove a director. Such takeover defenses may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-current market price. Our charter will provide that, without the affirmative vote of a majority of the votes cast on the matter by our stockholders entitled to vote generally in the election of directors, we may not elect to be subject to certain provisions of Subtitle 8, including the provisions relating to adopting a classified board or increasing the vote required to remove a director.

There is no existing market for our common stock and a trading market that will provide you with adequate liquidity may not develop for our common stock. In addition, once our common stock begins trading, the market price and trading volume of our common stock may fluctuate widely.

There is no current trading market for our common stock. Our common stock distributed in the spin-off will be trading publicly for the first time. We expect that a limited trading market for CorePoint Parent common stock, commonly known as a “when-issued” trading market, will develop at least two trading days prior to the record date for the distribution, and we expect “regular-way” trading of CorePoint Parent common stock will begin the first trading day after the distribution date. However, there can be no assurance that an active trading market for our common stock will develop as a result of the spin-off or be sustained in the future. The lack of an active trading market may make it more difficult for you to sell your shares and could lead to our share price being depressed or more volatile.

For many reasons, including the risks identified in this information statement, the market price of our common stock following the spin-off may be more volatile than the market price of La Quinta Parent common stock before the spin-off. These factors may result in short-term or long-term negative pressure on the value of our common stock.

We cannot predict the prices at which our common stock may trade after the spin-off. The market price of our common stock may fluctuate significantly, depending upon many factors, some of which may be beyond our control, including, but not limited to:

 

    a shift in our investor base;

 

    our quarterly or annual earnings, or those of comparable companies;

 

    actual or anticipated fluctuations in our operating results;

 

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    our ability to obtain financing as needed;

 

    changes in laws and regulations affecting our business;

 

    changes in accounting standards, policies, guidance, interpretations or principles;

 

    announcements by us or our competitors of significant investments, acquisitions or dispositions;

 

    the failure of securities analysts to cover our common stock after the spin-off;

 

    changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

    the operating performance and stock price of comparable companies;

 

    overall market fluctuations;

 

    a decline in the real estate markets; and

 

    general economic conditions and other external factors.

Moreover, securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares without regard to our operating performance. For example, the trading prices of equity securities issued by REITs historically have been affected by changes in market interest rates. One of the factors that may influence the market price of our common stock is the annual yield from distributions on our common stock as compared to yields on other financial instruments. An increase in market interest rates, or a decrease in our distributions to stockholders, may lead prospective purchasers of shares of our common stock to demand a higher distribution rate or seek alternative investments. As a result, if interest rates rise, it is likely that the market price of our common stock will decrease as market rates on interest-bearing securities increase. In addition, our operating results could be below the expectations of public market analysts and investors, and in response the market price of our shares could decrease significantly. The market value of the equity securities of a REIT is also based upon the market’s perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales or refinancings, and is secondarily based upon the real estate market value of the underlying assets. For that reason, our common stock may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock and, in such instances, you may be unable to resell your shares for a profit. Other factors may also influence the price of our stock so long as we are not qualified as a REIT.

In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements applicable to other public companies (including La Quinta Parent) but not to emerging growth companies, including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our registration statements, periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any

 

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golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the completion of this spin-off. We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of this spin-off; (ii) the first fiscal year after our annual gross revenues are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our per share trading price of our common stock may be adversely affected and more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this accommodation allowing for delayed adoption of new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Future issuances of common stock or preferred stock by us, and the availability for resale of shares held by Blackstone, may cause the market price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, could substantially decrease the market price of our common stock. Upon consummation of the spin-off, substantially all of the outstanding shares of our common stock will be available for resale in the public market. The market price of our common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them.

In addition, upon completion of the spin-off, our charter will provide that we may issue up to                  shares of common stock and                  shares of preferred stock, $0.01 par value per share. Moreover, under Maryland law and as will be provided in our charter, our board of directors will have the power to amend our charter to increase the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue without stockholder approval. Future issuances of shares of our common stock or securities convertible or exchangeable into common stock may dilute the ownership interest of our common stockholders. Because our decision to issue additional equity or convertible or exchangeable securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future issuances. In addition, we are not required to offer any such securities to existing stockholders on a preemptive basis. Therefore, it may not be possible for existing stockholders to participate in such future issuances, which may dilute the existing stockholders’ interests in us. See “Description of Capital Stock.”

Pursuant to a registration rights agreement that we will enter into in connection with the spin-off as described under “Certain Relationships and Related Party Transactions—Registration Rights Agreement,” we will grant Blackstone an unlimited number of “demand” registrations and customary “piggyback” registration rights. In addition, none of the shares outstanding upon consummation of the spin-off, including those held by Blackstone, will be “restricted securities” within the meaning of Rule 144 under the Securities Act, and will be freely tradable subject to certain restrictions in the case of shares held by persons deemed to be our affiliates. Accordingly, the market price of our stock could decline if Blackstone exercises its registration rights, sells its shares in the open market or otherwise or is perceived by the market as intending to sell them.

Upon consummation of the spin-off, we expect to have an aggregate of shares of common stock issuable upon vesting or exercise of outstanding options and an aggregate of shares of common stock available for future issuance under our Omnibus Incentive Plan. We will file a registration statement on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of

 

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our common stock issued pursuant to our Omnibus Incentive Plan. Accordingly, shares registered under such registration statements will be available for sale in the open market.

The cash available for distribution to stockholders may not be sufficient to pay dividends at expected levels, nor can we assure you of our ability to make distributions in the future. We may use borrowed funds to make distributions.

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. The Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes tax on any taxable income retained by a REIT, including capital gains. We anticipate, upon our election to qualify as a REIT, to make quarterly distributions to our stockholders. We expect that the cash required to fund our dividends will be covered by cash generated by operations. However, our ability to make distributions to our stockholders will depend upon the performance of our asset portfolio. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, borrow funds, raise additional equity capital, sell assets or reduce such distributions. If such cash available for distribution decreases in future periods from expected levels, our inability to make the expected distributions could result in a decrease in the market price of our common stock. In addition, our charter allows us to issue preferred stock that could have a preference over our common stock as to distributions. See “Distribution Policy.” All distributions will be made at the sole discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our REIT qualification and other factors as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future. In addition, some of our distributions may include a return of capital. To the extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for U.S. federal income tax purposes to the extent of the holder’s adjusted tax basis in their shares. A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment. To the extent that distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of such stock. See “Material U.S. Federal Income Tax Considerations—Taxation of Taxable U.S. Stockholders—Distributions.” If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

The stock ownership limits imposed by the Code for REITs and our charter may restrict stock transfers and/or business combination opportunities, particularly if our management and board of directors do not favor a combination proposal.

In order for us to qualify and maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year following our first year. Our charter, with certain exceptions, authorizes our board of directors to take the actions that are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person or entity (other than a person or entity who has been granted an exception) may directly or indirectly, beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 4.9%, in value or by number of shares, whichever is more restrictive, of our outstanding common stock, or more than 4.9%, in value or by number of shares, whichever is more restrictive, of any outstanding class or series of our preferred stock.

Our board may, in its sole discretion, grant an exemption to the ownership limits, subject to certain conditions and the receipt by our board of certain representations and undertakings. In addition, our board of directors may change the stock ownership limits. Our charter will also prohibit any person from: (1) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, our stock if that would

 

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result in us being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT; (2) beneficially or constructively owning shares of our stock that would cause any person, including La Quinta Parent, to fail to qualify as our eligible independent contractor; (3) transferring stock if such transfer would result in our stock being owned by fewer than 100 persons; (4) beneficially owning shares of our stock to the extent such ownership would result in our failing to qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code; and (5) beneficially or constructively owning shares of our stock to the extent that such ownership could result in us owning a 10% interest in a tenant (as described in Section 856(d)(2)(B) of the Code), if the income so derived by us from such tenant for our taxable year during which such determination is being made could reasonably be expected to equal or exceed 1% of our gross income. The stock ownership limits contained in our charter key off the ownership at any time by any “person,” which term includes entities, and take into account direct and indirect ownership as determined under various ownership attribution rules in the Code. The stock ownership limits also might delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

Our authorized but unissued shares of common stock and shares of preferred stock may prevent a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

Our charter will authorize us to issue additional authorized but unissued shares of common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares of common stock or the number of shares of any class or series of preferred stock that we have authority to issue and classify or reclassify any unissued shares of common stock or preferred stock and set the preferences, rights and other terms of the classified or reclassified stock. As a result, our board of directors may establish a series of common stock or preferred stock that could delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

We will be required to disclose in our periodic reports filed with the SEC specified activities engaged in by our “affiliates.”

In August 2012, Congress enacted the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRSHRA”), which expands the scope of U.S. sanctions against Iran and Syria. More specifically, Section 219 of the ITRSHRA amended the Exchange Act to require companies subject to SEC reporting obligations under Section 13 of the Exchange Act to disclose in their periodic reports specified dealings or transactions involving Iran or other individuals and entities targeted by certain OFAC sanctions engaged in by the reporting company or any of its affiliates. These companies are required to separately file with the SEC a notice that such activities have been disclosed in the relevant periodic report, and the SEC is required to post this notice of disclosure on its website and send the report to the U.S. President and certain U.S. Congressional committees. The U.S. President thereafter is required to initiate an investigation and, within 180 days of initiating such an investigation with respect to certain disclosed activities, to determine whether sanctions should be imposed. Under ITRSHRA, we will be required to report if we or any of our “affiliates” knowingly engaged in certain specified activities during the period covered by one of our Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q. Because the SEC defines the term “affiliate” broadly, it includes any entity controlled by us as well as any person or entity that controls us or is under common control with us. Because we may be deemed to be a controlled affiliate of Blackstone, affiliates of Blackstone may also be considered our affiliates. Other affiliates of Blackstone have in the past and may in the future be required to make disclosures pursuant to ITRSHRA, including the activities discussed in the disclosures included on Exhibit 99.2 to the registration statement of which this information statement forms a part, which disclosures are hereby incorporated by reference herein. Disclosure of such activities by us or our affiliates, even if such activities are not subject to sanctions under applicable law, and any sanctions imposed on us or our affiliates as a result of these activities, could have a negative effect on our results of operations.

 

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This information statement contains forward-looking statements including in the sections entitled “Summary,” “Risk Factors,” “The Spin-Off,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” “Unaudited Pro Forma Condensed Consolidated Financial Statements” and “Business and Properties,” that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the benefits resulting from our separation from La Quinta, the effects of competition and the effects of future legislation or regulations and other non-historical statements. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements in this information statement. We do not have any intention or obligation to update forward-looking statements after we distribute this information statement.

The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.

 

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THE SPIN-OFF

Background

On January 18, 2017, La Quinta Parent announced its intention to pursue the possibility of separating its businesses into two stand-alone publicly traded companies, including by the spin-off of CorePoint Lodging from La Quinta, following which CorePoint Parent will be an independent, publicly traded company. LQH’s owned hotels are currently held through two of its wholly-owned subsidiaries—Holdco I and Holdco III, collectively representing the Separated Real Estate Business —and its franchise and management businesses are held through two of its other wholly-owned subsidiaries (see “—Organizational Structure—Organizational Structure Prior to the Internal Reorganization”). As part of the spin-off, La Quinta will effect an internal reorganization to properly align the appropriate businesses within each of CorePoint Lodging and La Quinta Parent. We refer to such reorganization as the “internal reorganization.”

To complete the spin-off, La Quinta Parent will, following the internal reorganization, distribute to its stockholders all of the outstanding shares of our common stock. The distribution will occur on the distribution date, which is expected to be                 ,      . Each holder of La Quinta Parent common stock will receive                  shares of our common stock for every                  shares of La Quinta Parent common stock held as of 5:00 p.m., Eastern time, on                 ,                 , the record date. After completion of the spin-off:

 

    we will be an independent, self-administered, publicly traded company (NYSE: CPLG), and will hold a portfolio of La Quinta’s real estate assets as described herein; and

 

    La Quinta will continue to be an independent, publicly traded company (NYSE: LQ) and continue to own and operate its management and franchising business.

Each holder of La Quinta Parent common stock will continue to hold his, her or its shares in La Quinta Parent. No vote of La Quinta Parent stockholders is required or is being sought in connection with the spin-off, including the internal reorganization, and La Quinta Parent stockholders will not have any appraisal rights in connection with the spin-off.

The distribution of our common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. In addition, La Quinta has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of La Quinta Parent determines, in its sole discretion, that the spin-off is not then in the best interests of La Quinta or its stockholders, that a sale or other alternative is in the best interests of La Quinta or its stockholders or that it is not advisable for us to separate from La Quinta at that time. See “—Conditions to the Spin-Off.”

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year.

Reasons for the Spin-Off

La Quinta Parent’s board of directors has determined that the spin-off is in the best interests of La Quinta Parent and its stockholders because the spin-off will provide the following key benefits:

 

   

Direct and Differentiated Access to Capital Resources to Pursue Tailored Growth Strategies. Following the spin-off, CorePoint Parent will be free to allocate capital with a focus on optimizing the value of our portfolio without having to balance the potentially countervailing economic imperatives of a capital-light management and franchising business. As a pure-play real estate company with direct access to capital and independent financial resources, we believe our enhanced ability to execute compelling return on investment initiatives within our portfolio represents a significant embedded growth opportunity. Moreover, the anticipated liquidity of our stock should enhance our ability to pursue single-asset and portfolio acquisition opportunities. Similarly, as a pure-play hotel management and franchising company, La Quinta Parent expects to benefit from alignment with a dedicated investor

 

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base, resulting in enhanced and more efficient access to capital to pursue a growth strategy best suited for its core, capital-light fee business.

 

    Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities. La Quinta’s management and franchising and real estate businesses exhibit different financial and operating characteristics and appeal to different types of investors with different investment goals and risk profiles. Finding investors who want to invest in the businesses together is more challenging than finding investors for each business individually. After the spin-off, investors should be better able to evaluate the financial performance of each company, as well as its strategy within the context of its particular market, thereby enhancing the likelihood that each company will achieve an appropriate market valuation.

 

    Dedicated Management Team with Enhanced Strategic Focus. Following the spin-off, La Quinta’s management and franchising and CorePoint’s real estate businesses will no longer compete for the attention and resources of a single management team and will benefit from dedicated management teams focused on designing and implementing tailored strategies to achieve the distinct goals and opportunities of each business. Moreover, free from constraints that arise from being part of a larger hotel management business, CorePoint Parent’s dedicated management team will be able to employ business strategies that are solely focused on maximizing the value of its real estate business.

 

    Improved Management Incentive Tools. We expect to use equity-based and other incentive awards to compensate current and future employees. In multi-business companies such as La Quinta, incentives are necessarily structured in such a way that rewards employees in a manner tied to the performance of the company as a whole, rather than wholly directly related to the performance of their respective business units. By granting awards linked to the performance of a pure-play business, the compensation arrangements of each company should provide enhanced incentives that are tied to the more focused strategies of each business, aligning employee performance and improving the ability of each company to attract, retain and motivate qualified personnel.

 

    Tax-Efficient Structure. The spin-off will allow La Quinta Parent’s stockholders to hold their interest in the CorePoint Lodging portfolio, comprising all of La Quinta Parent’s current ownership segment, through an entity that will, subject to the then current corporate income tax environment, elect to be taxed as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. We believe this will result in La Quinta Parent’s stockholders directly and indirectly bearing significantly less U.S. federal income tax than if the CorePoint Lodging properties were held in a C corporation.

Manner of Effecting the Spin-Off

The general terms and conditions relating to the spin-off will be set forth in a Distribution Agreement between us and La Quinta Parent.

Internal Reorganization

LQH’s owned hotels are currently held through two of its wholly-owned subsidiaries—Holdco I and Holdco III, collectively representing the Separated Real Estate Business—and its franchise and management businesses are held through two of its other wholly-owned subsidiaries (see “—Organizational Structure—Organizational Structure Prior to the Internal Reorganization”). As part of the spin-off, La Quinta will undergo an internal reorganization, pursuant to which, among other things: (i) all of the assets and liabilities (including whether accrued, contingent or otherwise) associated with the Separated Real Estate Business will be transferred to us or our subsidiaries by LQH; and (ii) all other assets and liabilities (including whether accrued, contingent or otherwise) of La Quinta will be retained by La Quinta Parent or its subsidiaries (other than us and our respective subsidiaries).

 

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Distribution of Shares of Our Common Stock

Under the Distribution Agreement, the distribution will be effective as of                 , Eastern time, on                 ,                 , the distribution date. As a result of the spin-off, on the distribution date, each holder of La Quinta Parent common stock will receive                  shares of our common stock for every                  shares of La Quinta Parent common stock that he, she or it owns as of 5:00 p.m. Eastern time, on                 ,                 , the record date. The actual number of shares to be distributed will be determined based on the number of shares of La Quinta Parent common stock expected to be outstanding as of the record date and will be reduced to the extent that cash payments are to be made in lieu of the issuance of fractional shares of CorePoint Parent. The actual number of shares of CorePoint Parent common stock to be distributed will be calculated on the record date. The shares of CorePoint Parent common stock to be distributed by La Quinta Parent will constitute all of the issued and outstanding shares of CorePoint Parent common stock immediately prior to the distribution.

On the distribution date, La Quinta Parent will release the shares of our common stock to our distribution agent to distribute to La Quinta Parent stockholders. For most La Quinta Parent stockholders, our distribution agent will credit their shares of our common stock to book-entry accounts established to hold their shares of our common stock. Our distribution agent will send these stockholders a statement reflecting their ownership of our common stock. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are issued. For stockholders who own La Quinta Parent common stock through a broker or other nominee, their shares of our common stock will be credited to these stockholders’ accounts by the broker or other nominee. It may take the distribution agent up to two weeks to issue shares of our common stock to La Quinta Parent stockholders or to their bank or brokerage firm electronically by way of direct registration in book-entry form. Trading of our stock will not be affected by this delay in issuance by the distribution agent. As further discussed below, we will not issue fractional shares of our common stock in the distribution.

La Quinta Parent stockholders will not be required to make any payment or surrender or exchange their shares of La Quinta Parent common stock or take any other action to receive their shares of our common stock. No vote of La Quinta Parent stockholders is required or sought in connection with the spin-off, including the internal reorganization, and La Quinta Parent stockholders have no appraisal rights in connection with the spin-off.

Transaction Costs

One-time costs related to the spin-off of CorePoint Lodging is expected to be approximately $        million, consisting of approximately $        million of estimated transaction costs, including debt issuance costs, legal and accounting fees and expenses, certain tax and other costs relating to the internal reorganization and distribution, and approximately $        million for the acceleration of taxes associated with certain cancellation of debt income related to the Financing Transactions. Pursuant to the Distribution Agreement, these costs and expenses are to be borne by             .

Organizational Structure

The simplified diagrams below (which omit certain wholly owned intermediate holding companies) depict the organizational structure of LQH prior to the internal reorganization and the organizational structure of LQH, La Quinta and CorePoint Lodging after giving effect to the internal reorganization and the spin-off.

 

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Organizational Structure Prior to the Internal Reorganization

 

LOGO

Organizational Structure Reflecting the Expected Internal Reorganization

 

LOGO

 

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Organizational Structure Following the Spin-Off

 

LOGO

Treatment of Outstanding Equity Awards

We are in the process of determining how existing awards granted to our employees under La Quinta Parent’s equity compensation plans will be treated following the spin-off. Information regarding the effect of the spin-off on outstanding La Quinta Parent equity-based compensation awards will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part.

Treatment of Fractional Shares

The distribution agent will not distribute any fractional shares of our common stock to La Quinta Parent stockholders. Instead, as soon as practicable on or after the distribution date, the distribution agent will aggregate fractional shares of our common stock to which La Quinta Parent stockholders of record would otherwise be entitled into whole shares, sell them in the open market at the prevailing market prices and then distribute the aggregate net sale proceeds ratably to La Quinta Parent stockholders who would otherwise have been entitled to receive fractional shares of our common stock. The amount of this payment will depend on the prices at which the distribution agent sells the aggregated fractional shares of our common stock in the open market shortly after the distribution date and will be reduced by any amount required to be withheld for tax purposes and any brokerage fees and other expenses incurred in connection with these sales of fractional shares.

The Purging Distribution

As a result of our intended election, subject to the then current corporate income tax environment, to be treated as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year, and to comply with certain REIT qualification requirements, we intend to declare a dividend to our stockholders to distribute our accumulated earnings and profits attributable to the period, if any, between the spin-off and the date our election to be treated as a REIT becomes effective. The Purging Distribution will be paid to our stockholders in a combination of cash and our common stock, with the cash portion constituting at least 20% of the total amount of the Purging Distribution (the “Cash Limitation”). We may pay the majority of the Purging Distribution in our common stock. Additionally, we expect to declare the Purging Distribution in                  and to make the Purging Distribution no later than             . We currently expect the amount of the Purging Distribution will be between approximately $                       and $                      .

 

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In the event we pay the Purging Distribution as a combination of cash and our common stock, each stockholder will be permitted to elect to receive the stockholder’s entire entitlement under the Purging Distribution in either cash or our common stock, subject to the Cash Limitation. The Cash Limitation will in no event be less than 20% of the Purging Distribution declaration (without regard to any cash that may be paid in lieu of fractional shares). If our stockholders elect to receive an amount of cash in excess of the Cash Limitation, each such electing stockholder will receive a pro rata amount of cash corresponding to the stockholder’s respective entitlement under the Purging Distribution declaration. In the Purging Distribution, a holder of our common stock will be required to report dividend income as a result of the Purging Distribution even if we distribute no cash or only nominal amounts of cash to such stockholder.

We urge you to consult with your tax advisor as to the particular tax consequences of the Purging Distribution to you, including the applicability of any U.S. federal, state and local and non-U.S. tax laws.

Material U.S. Federal Income Tax Consequences of the Spin-Off

The following is a summary of the material U.S. federal income tax consequences to the holders of shares of La Quinta Parent common stock in connection with the spin-off. This summary is based on the Code, the Treasury regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect as of the date of this information statement and all of which are subject to differing interpretations and may change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below. This summary assumes that the spin-off will be consummated in accordance with the Distribution Agreement and as described in this information statement.

For purposes of this summary, a U.S. Holder is a beneficial owner of La Quinta Parent common stock that is, for U.S. federal income tax purposes:

 

    an individual who is a citizen or a resident of the United States;

 

    a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state thereof or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

    a trust (1) with respect to which a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (2) that has a valid election is in place under applicable Treasury regulations to be treated as a U.S. person.

A non-U.S. Holder is a beneficial owner of La Quinta Parent common stock that is neither a U.S. Holder nor an entity treated as a partnership for U.S. federal income tax purposes.

This summary does not discuss all tax considerations that may be relevant to stockholders in light of their particular circumstances, nor does it address the consequences to stockholders subject to special treatment under the U.S. federal income tax laws, such as:

 

    persons acting as nominees or otherwise not as beneficial owners;

 

    dealers or traders in securities or currencies;

 

    broker-dealers;

 

    traders in securities that elect to use the mark to market method of accounting;

 

    tax-exempt entities;

 

    cooperatives;

 

    banks, trusts, financial institutions or insurance companies;

 

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    persons who acquired shares of La Quinta Parent common stock pursuant to the exercise of employee stock options or otherwise as compensation;

 

    stockholders who own, or are deemed to own, at least 10% or more, by voting power or value, of La Quinta Parent equity;

 

    holders owning La Quinta Parent common stock as part of a position in a straddle or as part of a hedging, conversion, constructive sale, synthetic security, integrated investment, or other risk reduction transaction for U.S. federal income tax purposes;

 

    regulated investment companies;

 

    REITs;

 

    former citizens or former long-term residents of the United States;

 

    holders who are subject to the alternative minimum tax;

 

    pass-through entities (such as entities treated as partnerships for U.S. federal income tax purposes); or

 

    persons that own La Quinta Parent common stock through partnerships or other pass-through entities.

This summary does not address the U.S. federal income tax consequences to La Quinta Parent stockholders who do not hold shares of La Quinta Parent common stock as a capital asset, or La Quinta Parent stockholders who purchase or sell their La Quinta Parent common stock between the record date and the distribution date. Moreover, this summary does not address any state, local, or foreign tax consequences or any estate or gift tax consequences or tax consequences other than U.S. federal income tax consequences.

If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of La Quinta Parent common stock, the tax treatment of a partner in that partnership generally will depend on the status of the partner and the activities of the partnership. Such a partner or partnership is urged to consult its tax advisor as to the tax consequences of the spin-off.

YOU ARE URGED TO CONSULT WITH YOUR TAX ADVISOR AS TO THE SPECIFIC U.S. FEDERAL, STATE AND LOCAL, AND NON-U.S. TAX CONSEQUENCES OF THE SPIN-OFF IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES AND THE EFFECT OF POSSIBLE CHANGES IN LAW THAT MIGHT AFFECT THE TAX CONSEQUENCES DESCRIBED IN THIS INFORMATION STATEMENT.

Tax Classification of the Spin-off in General

The spin-off will be in the form of a taxable distribution to La Quinta Parent stockholders. An amount equal to the fair market value of our common stock received by you will be treated as a taxable dividend to the extent of your ratable share of any current or accumulated earnings and profits of La Quinta Parent allocable to the distribution, with the excess treated as a nontaxable return of capital to the extent of your tax basis in your shares of La Quinta Parent common stock and any remaining excess treated as capital gain.

Although La Quinta Parent will ascribe a value to the shares of our common stock distributed in the spin-off, this valuation is not binding on the IRS or any other tax authority. These taxing authorities could ascribe a higher valuation to the distributed CorePoint Parent shares, particularly if, following the spin-off, those shares trade at prices significantly above the value ascribed to those shares by La Quinta Parent. Such a higher valuation may affect the distribution amount and thus the tax consequences of the spin-off to La Quinta Parent’s stockholders.

La Quinta Parent will be required to recognize any gain, but will not be permitted to recognize any loss, upon distribution of shares of our common stock in the spin-off. La Quinta Parent does not expect to recognize any taxable income as a result of the spin-off.

 

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Tax Basis and Holding Period of CorePoint Parent Shares Received by Holders of La Quinta Parent Stock

Your tax basis in shares of our common stock received in the spin-off generally will equal the fair market value of such shares on the date of the spin-off, and the holding period for such shares will begin the day after the date of the spin-off.

Tax Treatment of the Spin-Off to U.S. Holders

The portion of the value of our shares you receive in the spin-off that is paid from La Quinta Parent’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles, generally will be treated as a dividend for U.S. federal income tax purposes. To the extent that the value of our shares that you receive exceeds La Quinta Parent’s current and accumulated earnings and profits, the distribution will first be treated as a tax-free return of capital, causing a reduction in your tax basis of your La Quinta Parent common shares, and to the extent the amount of the distribution exceeds your tax basis in your La Quinta Parent common shares, the excess will be treated as gain from the disposition of La Quinta Parent common stock. If certain holding period and other applicable requirements are met, dividends received by a corporate U.S. Holder will be eligible for the dividends received deduction, and dividends received by a non-corporate U.S. Holder will qualify for taxation at reduced rates. Long-term capital gains of non-corporate U.S. Holders (including individuals) are eligible for reduced rates of taxation.

Certain U.S. Holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on “net investment income” (or, in the case of an estate or trust, on “undistributed net investment income”). You should consult your own tax advisors regarding this tax on net investment income.

Tax Treatment of the Spin-Off to Non-U.S. Holders

The portion of the value of our shares you receive in the spin-off which is treated as a dividend for U.S. federal income tax purposes (calculated as described above under “—Tax Treatment of the Spin-Off to U.S. Holders”) generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with your conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment) are not subject to the withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if you were a U.S. person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

To the extent that the value of our shares that you receive exceeds La Quinta Parent’s current and accumulated earnings and profits, the distribution will first be treated as a tax-free return of capital, and any excess will be treated as gain from the disposition of La Quinta Parent common stock (see “—Tax Treatment of the Spin-Off to U.S. Holders,” above). A non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized, unless:

 

    the gain is effectively connected with a trade or business of the non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the non-U.S. holder);

 

    the non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or

 

    La Quinta Parent is or has been a “U.S. real property holding corporation” for U.S. federal income tax purposes and certain other conditions are met.

A non-U.S. Holder described in the first bullet point immediately above will be subject to tax on the portion of the distribution treated as capital gain in the same manner as if the non-U.S. Holder were a U.S. person as

 

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defined under the Code. In addition, if any non-U.S. Holder described in the first bullet point immediately above is a foreign corporation, such gain may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. Holder described in the second bullet point immediately above will be subject to a 30% (or such lower rate as may be specified by an applicable income tax treaty) tax on the gain derived from the sale or other disposition, which gain may be offset by U.S. source capital losses even though the individual is not considered a resident of the United States.

La Quinta Parent believes that it is, and will be prior to the spin-off, a “U.S. real property holding corporation” for U.S. federal income tax purposes. So long as La Quinta Parent’s common stock continues to be regularly traded on an established securities market (within the meaning of applicable U.S. Treasury regulations), only a non-U.S. Holder who is not a “qualified foreign pension fund” (as defined under the Code) and who holds or held (at any time during the shorter of the five year period preceding the date of the distribution or the holder’s holding period) more than 5% of La Quinta Parent’s common stock will be subject to U.S. federal income tax on the portion of the distribution giving rise to capital gain.

If withholding is required on any amounts otherwise distributable to a Non-U.S. Holder in the spin-off, the applicable withholding agent may collect the amount required to be withheld by converting to cash for remittance to the IRS a sufficient portion of QCP common stock that such non-U.S. holder would otherwise receive or would withhold from other property held in the non-U.S. holder’s account with the withholding agent, and such holder may bear brokerage or other costs for this withholding procedure. A Non-U.S. holder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the amounts withheld exceeded the holder’s U.S. tax liability for the year in which the spin-off occurred.

Additional Withholding Requirements

Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), a 30% U.S. federal withholding tax may apply to any dividends paid on common stock paid to (i) a “foreign financial institution” (as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) its compliance (or deemed compliance) with FATCA (which may alternatively be in the form of compliance with an intergovernmental agreement with the United States) in a manner which avoids withholding, or (ii) a “non-financial foreign entity” (as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) adequate information regarding certain substantial U.S. beneficial owners of such entity (if any). If a distribution pursuant to the spin-off is both subject to withholding under FATCA and subject to the withholding tax discussed above under “—Tax Treatment of the Spin-Off to Non-U.S. Holders,” the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. You should consult your own tax advisors regarding these requirements.

Results of the Spin-Off

After the spin-off, we will be an independent, self-administered, publicly traded company. Immediately following the spin-off, we expect to have approximately             record holders of shares of our common stock and approximately                  shares of our common stock outstanding, based on the number of stockholders and outstanding shares of La Quinta Parent common stock on                 ,                  and the distribution ratio. The figures exclude shares of La Quinta Parent common stock held directly or indirectly by La Quinta Parent, if any. The actual number of shares to be distributed will be determined on the record date and will reflect any repurchases of shares of La Quinta Parent common stock and issuances of shares of La Quinta Parent common stock in respect of awards under La Quinta Parent equity-based incentive plans between the date the La Quinta Parent board of directors declares the dividend for the distribution and the record date for the distribution.

For information regarding equity awards settleable in shares of our common stock that will be outstanding after the distribution, see “Certain Relationships and Related Party Transactions—Agreements with La Quinta Parent Related to the Spin-Off—Employee Matters Agreement” and “Management.”

 

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Before the spin-off, we will enter into several agreements with La Quinta Parent to effect the spin-off and provide a framework for our relationship with La Quinta after the spin-off. These agreements will govern the relationship between us and La Quinta after completion of the spin-off and provide for the allocation between us and La Quinta of the assets, liabilities, rights and obligations of La Quinta. See “Certain Relationships and Related Party Transactions—Agreements with La Quinta Parent Related to the Spin-Off.”

Trading Prior to the Distribution Date

It is anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be a “when-issued” market in our common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for shares of our common stock that will be distributed to La Quinta Parent stockholders on the distribution date. Any La Quinta Parent stockholder who owns shares of La Quinta Parent common stock as of 5:00 p.m., Eastern time, on the record date will be entitled to shares of our common stock distributed in the spin-off. La Quinta Parent stockholders may trade this entitlement to shares of our common stock, without the shares of La Quinta Parent common stock they own, on the when-issued market. On the first trading day following the distribution date, we expect when-issued trading with respect to our common stock will end and “regular-way” trading will begin. See “Trading Market.”

Following the distribution date, we expect shares of our common stock to be listed on the New York Stock Exchange under the ticker symbol “CPLG.” We will announce the when-issued ticker symbol when and if it becomes available.

It is also anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in La Quinta Parent common stock: a “regular-way” market; and an “ex-distribution” market. Shares of La Quinta Parent common stock that trade on the regular-way market will trade with an entitlement to shares of our common stock distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock distributed pursuant to the distribution. Therefore, if shares of La Quinta Parent common stock are sold in the regular-way market up to and including the distribution date, the selling stockholder’s right to receive shares of our common stock in the distribution will be sold as well. However, if La Quinta Parent stockholders own shares of La Quinta Parent common stock as of 5:00 p.m., Eastern time, on the record date and sell those shares on the ex-distribution market up to and including the distribution date, the selling stockholders will still receive the shares of our common stock that they would otherwise receive pursuant to the distribution. See “Trading Market.”

Financing Transactions

Subject to market conditions, La Quinta and CorePoint Lodging expect to complete one or more financing transactions on or prior to the completion of the spin-off, including the refinancing of substantially all of their existing indebtedness. There can be no assurances that any such Financing Transactions will be completed in the timeframe or size indicated or at all.

The Financing Transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See “The Spin-Off—Financing Transactions” and “Description of Certain Indebtedness.”

 

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Conditions to the Spin-Off

We expect that the spin-off will be effective as of                 , Eastern time, on                 ,                 , the distribution date, provided that the following conditions shall have been satisfied or waived by La Quinta:

 

    the final approval by the board of directors of La Quinta Parent of the spin-off and all related transactions and the determination of the record date, which approval may be given or withheld at its absolute and sole discretion;

 

    our Registration Statement on Form 10, of which this information statement forms a part, shall have been declared effective by the SEC, no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC, and this information statement, or a notice of internet availability thereof, shall have been mailed to the La Quinta Parent stockholders;

 

    CorePoint Parent common stock shall have been approved for listing on the New York Stock Exchange, subject to official notice of distribution;

 

    the receipt by CorePoint Parent of a tax opinion, in form and substance reasonably satisfactory to CorePoint Parent, to the effect that, commencing with CorePoint Parent’s taxable year ending on December 31, 2018, CorePoint Parent should be considered to be organized in conformity with the requirements for qualification as a REIT under the Code, and its proposed method of operation should enable it to meet the requirements for qualification and taxation as a REIT;

 

    prior to the distribution date, the La Quinta Parent board of directors shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to La Quinta, which shall opine that, among other things and subject to certain customary qualifications and assumptions, immediately after giving effect to the spin-off, each of La Quinta and CorePoint Lodging will be solvent;

 

    any material governmental approvals and other consents necessary to consummate the spin-off shall have been received;

 

    no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the spin-off shall be pending, threatened, issued or in effect, and no other event shall have occurred or failed to occur that prevents the consummation of all or any portion of the spin-off;

 

    no other events or developments shall have occurred or failed to occur that, in the judgment of the board of directors of La Quinta Parent, would result in the distribution having a material adverse effect on La Quinta or its stockholders;

 

    the internal reorganization shall have been completed, except for such steps as La Quinta Parent in its sole discretion shall have determined may be completed after the distribution date;

 

    all necessary actions shall have been taken to cause the directors and officers of CorePoint Parent to be the individuals identified as such in this information statement;

 

    all necessary actions shall have been taken to adopt the form of charter and bylaws filed by CorePoint Parent with the SEC as exhibits to the Registration Statement on Form 10, of which this information statement forms a part, including filing the form of charter with, and having the form of charter accepted for record by, the SDAT; and

 

    each of the Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Transition Services Agreement and the other ancillary agreements shall have been executed by each party.

The fulfillment of the foregoing conditions will not create any obligation on the part of La Quinta to effect the spin-off. We are not aware of any material federal, foreign or state regulatory requirements that must be

 

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complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations, approval for listing on the New York Stock Exchange and the declaration of effectiveness of the Registration Statement on Form 10, of which this information statement forms a part, by the SEC, in connection with the distribution. La Quinta has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of La Quinta Parent determines, in its sole discretion, that the spin-off is not then in the best interests of La Quinta or its stockholders, that a sale or other alternative is in the best interests of La Quinta or its stockholders or that it is not advisable for CorePoint Lodging to separate from La Quinta at that time.

Reasons for Furnishing this Information Statement

This information statement is being furnished solely to provide information to La Quinta Parent stockholders that are entitled to receive shares of our common stock in the spin-off. This information statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities or any securities of La Quinta. We believe that the information in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither La Quinta nor we undertake any obligation to update the information except in the normal course of our respective public disclosure obligations.

 

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TRADING MARKET

Market for Our Common Stock

There is currently no public market for our common stock, and an active trading market may not develop or may not be sustained. We anticipate that trading of our common stock will commence on a “when-issued” basis at least two trading days prior to the record date and continue through the distribution date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. When-issued trades generally settle within four trading days after the distribution date. If you own shares of La Quinta Parent common stock as of 5:00 p.m., Eastern time on the record date, you will be entitled to shares of our common stock distributed pursuant to the spin-off. You may trade this entitlement to shares of our common stock, without the shares of La Quinta Parent common stock you own, on the when-issued market. On the first trading day following the distribution date, any when-issued trading with respect to our common stock will end and “regular-way” trading will begin. We intend to list our common stock on the New York Stock Exchange under the ticker symbol “CPLG.” We will announce our when-issued trading symbol when and if it becomes available.

It is also anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in La Quinta Parent common stock: (i) a “regular-way” market; and (ii) an “ex-distribution” market. Shares of La Quinta Parent common stock that trade on the regular-way market will trade with an entitlement to shares of our common stock distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock distributed pursuant to the distribution. Therefore, if you sell shares of La Quinta Parent common stock in the regular-way market up to and including the distribution date, you will be selling your right to receive shares of our common stock in the distribution. However, if you own shares of La Quinta Parent common stock as of 5:00 p.m., Eastern time, on the record date and sell those shares on the ex-distribution market up to and including the distribution date, you will still receive the shares of our common stock that you would otherwise receive pursuant to the distribution.

We cannot predict the prices at which our common stock may trade before the spin-off on a “when-issued” basis or after the spin-off. Those prices will be determined by the marketplace. Prices at which trading in our common stock occurs may fluctuate significantly. Those prices may be influenced by many factors, including anticipated or actual fluctuations in our operating results or those of other companies in our industry, investor perception of our company and the lodging industry, market fluctuations and general economic conditions. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the performance of many stocks and that have often been unrelated or disproportionate to the operating performance of these companies. These are just some factors that may adversely affect the market price of our common stock. See “Risk Factors—Risks Related to Ownership of Our Common Stock” for further discussion of risks relating to the trading prices of our common stock.

Transferability of Shares of Our Common Stock

On                 ,                  , La Quinta Parent had approximately                     million shares of its common stock issued and outstanding. Based on this number, we expect that upon completion of the spin-off, we will have approximately million shares of common stock issued and outstanding. Subject to the ownership limits and other restrictions on transfer set forth in our charter and described under “Description of Capital Stock—Restrictions on Ownership and Transfer,” the shares of our common stock that you will receive in the distribution will be freely transferable, unless you are considered an “affiliate” of ours under Rule 144 under the Securities Act. Persons who can be considered our affiliates after the spin-off generally include individuals or entities that directly, or indirectly through one or more intermediaries, control, are controlled by, or are under common control with, us, and may include certain of our officers and directors. As of the distribution date, we estimate that our directors and officers will beneficially own in the aggregate less than one percent of our shares. In

 

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addition, individuals who are affiliates of La Quinta Parent on the distribution date may be deemed to be affiliates of ours. Our affiliates may sell shares of our common stock received in the distribution only:

 

    under a registration statement that the SEC has declared effective under the Securities Act; or

 

    under an exemption from registration under the Securities Act, such as the exemption afforded by Rule 144.

In general, under Rule 144 as currently in effect, an affiliate will be entitled to sell, within any three-month period commencing 90 days after the date that the registration statement of which this information statement is a part is declared effective, a number of shares of our common stock that does not exceed the greater of:

 

    1.0% of our common stock then outstanding; or

 

    the average weekly trading volume of our common stock on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales under Rule 144 are also subject to restrictions relating to manner of sale and the availability of current public information about us.

In the future, we may adopt new equity-based compensation plans and issue stock-based awards. We currently expect to file a registration statement under the Securities Act to register shares to be issued under these equity plans. Shares issued pursuant to awards after the effective date of that registration statement, other than shares issued to affiliates, generally will be freely tradable without further registration under the Securities Act.

Except for our common stock distributed in the distribution and employee-based equity awards, none of our equity securities will be outstanding immediately after the spin-off.

 

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DISTRIBUTION POLICY

Subject to the then current corporate income tax environment, we intend to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year. The Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes tax on any taxable income retained by a REIT, including capital gains. To satisfy the requirements to qualify as a REIT and to avoid paying tax on our income, upon our election to be treated as a REIT for U.S. federal income tax purposes, we intend to make quarterly distributions of all, or substantially all, of our REIT taxable income (excluding net capital gains) to our stockholders.

In addition, as a result of our intended election, subject to the then current corporate income tax environment, to be treated as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year, and to comply with certain REIT qualification requirements, we intend to declare the Purging Distribution as described under “The Spin-Off—The Purging Distribution.” The Purging Distribution will be paid to our stockholders in a combination of cash and our common stock, with the cash portion constituting at least 20% of the total amount of the Purging Distribution. We may pay the majority of the Purging Distribution in our common stock. Additionally, we expect to declare the Purging Distribution in                  and to make the Purging Distribution no later than                     . We currently expect the aggregate amount of the Purging Distribution will be between approximately $                       and $                      . See “The Spin-Off—The Purging Distribution.”

Our future distributions will be at the sole discretion of our board of directors. When determining the amount of future distributions, we expect that our board of directors will consider, among other factors, (1) the amount required to be distributed to qualify and maintain our status as a REIT and to reduce any income and excise taxes that we otherwise would be required to pay, (2) the amount of cash generated from our operating activities, (3) our expectations of future cash flows, (4) our determination of near-term cash needs for debt repayments, existing or future share repurchases, and selective acquisitions of new properties, (5) the timing of significant capital investments and expenditures and the establishment of any cash reserves, (6) our ability to continue to access additional sources of capital, (7) any limitations on our distributions contained in our debt agreements and (8) the sufficiency of legally available assets.

We expect that the cash required to fund our dividends will be covered by cash generated by operations. However, our ability to make distributions to our stockholders will depend upon the performance of our asset portfolio. To the extent we are prevented by provisions of our financing arrangements or otherwise from distributing 100% of our REIT taxable income or otherwise do not distribute 100% of our REIT taxable income, we will be subject to income tax, and potentially excise tax, on the retained amounts. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, borrow funds, raise additional equity capital, sell assets or reduce such distributions. In addition, our charter allows us to issue preferred stock that could have a preference over our common stock as to distributions. The distribution preference on any preferred stock that we may issue in the future could limit our ability to make distributions to the holders of our common stock. In addition, our board of directors could change our distribution policy in the future. See “Risk Factors.”

Upon our election to be treated as a REIT for U.S. federal income tax purposes, distributions to our stockholders will be generally taxable to them as ordinary income, although a portion of our distributions may be designated by us as capital gain or qualified dividend income or may constitute a return of capital or taxable gain. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. See “Material U.S. Federal Income Tax Considerations.”

 

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Except to the extent intended to reduce any accumulated earnings and profits attributable to the period between the spin-off and the date our election to be treated as a REIT becomes effective (as discussed above under “The Spin-Off—The Purging Distribution”), we have no current plans to pay dividends on our common stock prior to the effective date of our election to be treated as a REIT.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2017 on a historical basis and on a pro forma basis to give effect to the spin-off and the Financing Transactions, as if they occurred on June 30, 2017. In accordance with GAAP, CorePoint Parent will be treated as the accounting spinnor to LQH for accounting purposes following the spin-off due to the relative significance of CorePoint Parent to LQH (which is the legal spinnor) for financial reporting purposes, notwithstanding the legal form of the spin-off described elsewhere in this information statement. Therefore, the historical financial statements of LQH will represent the historical financial statements of CorePoint Parent given the presentation of La Quinta Parent as discontinued operations upon completion of the spin-off.

Explanation of the pro forma adjustments made to the historical consolidated financial statements can be found under “Unaudited Pro Forma Consolidated Financial Statements.” The following table should be reviewed in conjunction with “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and LQH’s unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this information statement.

 

     As of June 30, 2017  
     Actual     Pro forma(1)  
(in thousands)    (unaudited)  

Cash and cash equivalents

   $ 161,962     $           
  

 

 

   

 

 

 

Total debt(2)

   $ 1,693,935     $  

Equity:

    

La Quinta Parent preferred stock, $0.01 par value; 100,000,000 shares authorized and none outstanding

   $ —       $  

La Quinta Parent common stock, $0.01 par value; 2,000,000,000 shares authorized, 132,476,942 shares issued and 117,462,590 shares outstanding

     1,325    

CorePoint Parent preferred stock

     —      

CorePoint Parent common stock

     —      

Additional paid-in-capital

     1,173,957    

Accumulated deficit

     (277,631  

La Quinta Parent Treasury stock at cost, 15,014,352 shares

     (210,299  

Accumulated other comprehensive loss

     (4,559  

Noncontrolling interests

     2,628    
  

 

 

   

 

 

 

Total equity

   $ 685,421     $  
  

 

 

   

 

 

 

Total capitalization

   $ 2,379,356     $  
  

 

 

   

 

 

 

 

(1) See “Unaudited Pro Forma Consolidated Financial Statements.”
(2) Includes current and long-term portions of debt. Subject to market conditions, La Quinta and CorePoint Lodging expect to complete one or more financing transactions on or prior to the completion of the spin-off, including the refinancing of substantially all of their existing indebtedness. There can be no assurances that any such Financing Transactions will be completed in the timeframe or size indicated or at all. The Financing Transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

Notwithstanding the legal form of the spin-off described elsewhere in this information statement, for accounting and financial reporting purposes, LQH will be presented as being spun-off from CorePoint Parent (a “reverse spin”). This presentation is in accordance with GAAP and is primarily a result of the relative significance of CorePoint Parent’s business to LQH’s business, as measured in terms of revenues, profits, and assets. Further, LQH has been determined to best represent the predecessor entity to CorePoint Parent. Therefore, our historical financial statements presented herein and in our future filings, with respect to periods prior to the spin-off, will be represented by the historical financial statements of LQH, and the pro forma financial statements will present La Quinta Parent as discontinued operations.

The following selected historical consolidated statement of operations data for the years ended December 31, 2016, 2015 and 2014 and the selected historical consolidated balance sheet data as of December 31, 2016 and 2015 are derived from LQH’s audited consolidated financial statements included elsewhere in this information statement.

The selected historical consolidated statement of operations data for the six months ended June 30, 2017 and 2016 and the selected historical balance sheet data as of June 30, 2017 are derived from LQH’s unaudited condensed consolidated financial statements included elsewhere in this information statement. LQH has prepared its unaudited condensed consolidated financial statements on the same basis as its audited consolidated financial statements and, in our opinion, have included all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects LQH’s financial position and results of operations. Results for the six months ended June 30, 2017 are not necessarily indicative of results that may be expected for the entire year.

LQH’s historical results are not necessarily indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from La Quinta. For example, LQH’s historical consolidated financial statements included expenses from La Quinta, including expenses for costs related to certain shared functions. These costs may not be representative of the future costs we will incur, either positively or negatively, as an independent, public company. See “Risk Factors—Risks Related to the Spin-Off—The historical and pro forma financial information presented herein is not necessarily representative of the results that our business would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.”

 

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The selected consolidated financial data below should be read together with the audited consolidated financial statements and unaudited condensed consolidated financial statements, including the related notes thereto, as well as “Unaudited Pro Forma Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement.

 

     La Quinta Holdings Inc.  
     Six Months Ended
June 30,
    Years ended December 31,  
(in thousands)    2017      2016     2016     2015      2014  
     (Unaudited)                     

Statement of Operations Data:

            

Revenues:

            

Room revenues

   $ 420,787      $ 439,341     $ 855,302     $ 887,358      $ 846,203  

Franchising and other fee-based revenues

     54,153        50,170       106,468       100,069        89,718  

Other hotel revenues

     9,733        9,849       19,334       19,343        19,536  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
     484,673        499,360       981,104       1,006,770        955,457  

Brand marketing fund revenues from franchised and managed properties

     13,036        11,966       25,150       23,204        21,481  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

     497,709        511,326       1,006,254       1,029,974        976,938  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Operating Expenses:

            

Direct lodging expenses

     204,788        202,490       409,886       398,828        378,705  

Depreciation and amortization

     72,456        74,925       147,081       166,642        165,887  

General and administrative expenses

     70,936        56,879       115,715       125,697        149,894  

Other lodging and operating expenses

     21,891        30,976       62,281       63,513        56,984  

Marketing, promotional and other advertising expenses

     40,714        40,287       68,327       69,810        62,161  

Impairment loss

     —          99,560       104,258       50,121        5,157  

Loss (gain) on sales

     138        (722     (4,908     4,088        —    
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
     410,923        504,395       902,640       878,699        818,788  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Brand marketing fund expenses from franchised and managed properties

     13,036        11,966       25,150       23,204        21,481  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     423,959        516,361       927,790       901,903        840,269  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Operating income (loss)

     73,750        (5,035     78,464       128,071        136,669  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

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     La Quinta Holdings Inc.  
     Six Months Ended
June 30,
    Years ended December 31,  
(in thousands, except per share data)    2017     2016     2016     2015     2014  
     (Unaudited)                    

Statement of Operations Data:

          

Other Income (Expenses):

          

Interest expense, net

   $ (40,233   $ (40,592   $ (81,419   $ (86,504   $ (120,945

Other (loss) income

     (93     1,100       2,345       7,632       3,261  

Loss on extinguishment of debt, net

     —       —       —         —         (2,030
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses, net

     (40,326     (39,492     (79,074     (78,872     (119,714
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     33,424       (44,527     (610     49,199       16,955  

Income tax (expense) benefit

     (14,923     20,721       (493     (22,487     (28,805

Recognition of net deferred tax liabilities upon C-corporation conversion

     —       —       —         —         (321,054
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     18,501       (23,806     (1,103     26,712       (332,904

Loss on discontinued operations, net of tax

     —       —       —         —         (503
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 18,501     $ (23,806   $ (1,103   $ 26,712     $ (333,407

Net (income) loss attributable to noncontrolling interests

     (126     (120     (185     (347     (3,890
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

   $ 18,375     $ (23,926   $ (1,288   $ 26,365     $ (337,297
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) earnings per share

   $ 0.16     $ (0.20   $ (0.01   $ 0.21     $ (2.67

Diluted (loss) earnings per share

   $ 0.16     $ (0.20   $ (0.01   $ 0.20     $ (2.67

 

     La Quinta Holdings Inc.  
     As of June 30,      As of December 31,  
(in thousands)    2017      2016      2016      2015      2014  
     (Unaudited)                       

Selected Balance Sheet Data:

              

Cash and cash equivalents

   $ 161,962      $ 64,051      $ 160,596      $ 86,709      $ 109,857  

Total assets

     2,928,614        2,840,671        2,892,523        2,985,844        3,179,773  

Total debt(1)

     1,693,935        1,706,005        1,699,950        1,712,099        1,859,511  

Total equity

     685,421        622,343        657,837        746,512        808,455  

 

(1) Includes current portion.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements of CorePoint presented below consist of unaudited pro forma consolidated statements of operations for the six months ended June 30, 2017 and the three years ended December 31, 2016, 2015 and 2014, as well as an unaudited pro forma consolidated balance sheet as of June 30, 2017. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the information under “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and notes thereto of La Quinta Holdings Inc. included elsewhere in this information statement.

Notwithstanding the legal form of the spin-off described elsewhere in this information statement, for accounting and financial reporting purposes, LQH will be presented as being spun-off from CorePoint Parent (a “reverse spin”). This presentation is in accordance with GAAP and is primarily a result of the relative significance of CorePoint Parent’s business to LQH’s business, as measured in terms of revenues, profits, and assets. Further, LQH has been determined to best represent the predecessor entity to CorePoint Parent. Therefore, our historical financial statements presented herein and in our future filings, with respect to periods prior to the spin-off, will be represented by the historical financial statements of LQH, and the pro forma financial statements will present La Quinta Parent as discontinued operations.

The unaudited pro forma consolidated statements of operations for the six months ended June 30, 2017 and the three years ended December 31, 2016, 2015 and 2014 have been prepared as if the separation and distribution and related transactions described in this information statement had occurred as of January 1, 2016 and the effects of discontinued operations had occurred as of January 1, 2014. The unaudited pro forma consolidated balance sheet as of June 30, 2017 has been prepared as if the separation and distribution and such related transactions had occurred as of such date.

The following unaudited pro forma consolidated financial statements have been adjusted to give effect to the spin-off, presenting CorePoint Parent as the accounting spinnor, as well as other adjustments resulting from the transaction, CorePoint Lodging’s anticipated post-separation capital structure and the impact of, and transactions contemplated by, the distribution agreement, Tax Matters Agreement, Employee Matters Agreement, Transition Services Agreement and other commercial agreements between CorePoint Parent and La Quinta Parent summarized under “Certain Relationships and Related Party Transactions.”

The unaudited pro forma adjustments are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the unaudited pro forma consolidated financial statements provide a detailed discussion of how such adjustments were derived and presented in the unaudited pro forma consolidated financial information.

We have estimated the costs of the nonrecurring activities and will continue to revise our estimates as we implement our plans. We currently estimate the nonrecurring costs that we will incur during our transition to being a stand-alone public company to range from approximately $         million to $         million. We anticipate that substantially all of these costs will be incurred within                      months of the distribution.

CorePoint Parent is currently in the process of implementing plans, which are subject to further refinement, to separate from La Quinta Parent certain of the internal functions that CorePoint Parent needs to operate effectively and fulfill its responsibilities as a stand-alone public company. These plans reflect anticipated recurring activities that are different than our current activities, as well as certain nonrecurring activities that CorePoint Parent expects will be required during our transition to a stand-alone public company.

Except for the pro forma adjustments described in footnote (g) to the tables below, we have not adjusted the unaudited pro forma consolidated statements of operations presented below for nonrecurring transition costs as these costs are not expected to have an ongoing impact on our operating results.

 

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As a result of our intended election, subject to the then current corporate income tax environment, to be treated as a REIT for U.S. federal income tax purposes beginning in the 2018 taxable year, and to comply with certain REIT qualification requirements, we intend to declare a dividend to our stockholders to distribute our accumulated earnings and profits attributable to the period, if any, between the spin-off and the date our election to be treated as a REIT becomes effective. The Purging Distribution will be paid to our stockholders in cash or a combination of cash and CorePoint Parent common stock, with the cash portion constituting at least 20% of the total amount of the Purging Distribution. We may pay the majority of the Purging Distribution in CorePoint Parent common stock. We expect to declare the Purging Distribution in              and to make the Purging Distribution no later than             . We currently expect the amount of the Purging Distribution will be between approximately $                           and $                          . See “The Spin-Off—The Purging Distribution.” The election to be treated as a REIT for U.S. federal income tax purposes and the Purging Distribution are not reflected as pro forma adjustments in the unaudited pro forma consolidated financial statements. The amount of earnings and profits to be distributed in the Purging Distribution requires a complex factual and legal determination and is not factually supportable as of the date of this filing. Additionally, because we do not expect to elect and qualify to be subject to tax as a REIT for U.S. federal income tax purposes until 2018, we will be subject to corporate income tax expense for our fiscal year 2017, but we note that CorePoint Lodging does not expect to have substantive operations in 2017. We will no longer be subject to corporate income tax expense following the effective date of our election and qualification to be subject to tax as a REIT for U.S. federal income tax purposes, with the exception that we will continue to incur a federal income tax expense for our TRS.

The unaudited pro forma consolidated financial information has been prepared for illustrative purposes only is not necessarily indicative of our financial position or results of operations had the transactions described above for which we are giving pro forma effect actually occurred on the dates or for the periods indicated, nor is such unaudited pro forma financial information necessarily indicative of the results to be expected for any future period. A number of factors may affect our results. See “Risk Factors” and “Special Note About Forward-Looking Statements.”

 

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of June 30, 2017

(dollars in thousands)

 

     LQH
Historical
    Adjustment
for
Discontinued
Operations(j)
    Debt
Refinance
    Other Pro
Forma
Adjustments
    Pro
Forma
 

ASSETS:

          

Current Assets:

          

Cash and cash equivalents

   $ 161,962     $  —     $              $          (k)    $           

Accounts receivable, net of allowance for doubtful accounts of $4,296

     44,448      
(25,267

     

Assets held for sale

     9,048       —          

Other current assets

     19,548       (10,075      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

     235,006       (35,342      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Property and equipment, net of accumulated depreciation

     2,501,624       (44,595      

Intangible assets, net of accumulated amortization

     176,492       (171,312      

Other non-current assets

     15,492       (3,382      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Non-Current Assets

     2,693,608       (219,289      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 2,928,614       (254,631      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY:

          

Current Liabilities:

          

Current portion of long-term debt

   $ 17,514     $ —       $     $     $  

Accounts payable

     43,523       (21,651      

Accrued expenses and other liabilities

     66,168       (30,444      

Accrued payroll and employee benefits

     41,426       (41,426      

Accrued real estate taxes

     17,912       (52      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     186,543       (93,573      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt

     1,676,421             (l )     

Other long-term liabilities

     27,847       (13,156      

Deferred tax liabilities

     352,382       (33,293       (m )   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     2,243,193       (140,022      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and Contingencies

          

Equity:

          

Preferred Stock, $0.01 par value; 100,000,000 shares authorized and none outstanding as of June 30, 2017

     —       —          

Common Stock, $0.01 par value; 2,000,000,000 shares authorized at June 30, 2017, 132,476,942 shares issued and 117,462,590 shares outstanding as of June 30, 2017

     1,325       —          

Additional paid-in-capital

     1,173,957       —          

Accumulated deficit

     (277,631     (114,609      

Treasury stock at cost, 15,014,352 shares at June 30, 2017

     (210,299     —          

Accumulated other comprehensive loss

     (4,559     —          

Noncontrolling interests

     2,628       —          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

     685,421       (114,609      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 2,928,614     $ (254,631   $     $     $  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited pro forma consolidated financial information

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2017

(dollars in thousands, except share and per share data)

 

    LQH
Historical
    Adjustment
for
Discontinued
Operations(a)
    Intercompany
Fees
    Debt
Refinance
    Other Pro
Forma
Adjustments
    Pro Forma  

REVENUES:

           

Room revenues

  $ 420,787     $ —     $ 3,768 (b)    $     $     $  

Franchise and other fee-based revenues

    54,153       (54,153     —          

Other hotel revenues

    9,733       (1,820     —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    484,673       (55,973     3,768        

Brand marketing fund revenues from franchise and managed properties

    13,036       (13,036     —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    497,709       (69,009     3,768        

OPERATING EXPENSES:

           

Direct lodging expenses

    204,788       —         24,688 (c)        (f )   

Depreciation and amortization

    72,456       (4,127     —          

General and administrative expenses

    70,936       (15,542 )(d)      —           (h )   

Other lodging and operating expenses

    21,891       —         659 (e)        (f )   

Marketing, promotional and other advertising expenses

    40,714       (30,177     —          

Loss on sales

    138     —         —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    410,923       (49,846     25,347        

Brand marketing fund expenses from franchise and managed properties

    13,036       (13,036     —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

    423,959       (62,882     25,347        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

    73,750       (6,127     (21,579      

OTHER INCOME (EXPENSES):

           

Interest expense, net

    (40,233     —         —         (g )     

Other expense

    (93     —         —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other (Expenses) Income, net

    (40,326     —         —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) Before Income Taxes

    33,424       (6,127     (21,579      

Income tax expense

    (14,923     2,451       8,632         (i )   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

    18,501       (3,676     (12,947      

Net income attributable to noncontrolling interests

    (126     —         —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) attributable to La Quinta Holdings’ stockholders

  $ 18,375     $ (3,676   $ (12,947   $              $              $  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

           

Basic (loss) earnings per share

  $ 0.16             $  

Diluted (loss) earnings per share

  $ 0.16             $  

See notes to unaudited pro forma consolidated financial information

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2016

(dollars in thousands, except share and per share data)

 

    LQH
Historical
    Adjustment
for
Discontinued
Operations(a)
    Intercompany
Fees
    Debt
Refinance
    Other Pro
Forma
Adjustments
    Pro Forma  

REVENUES:

           

Room revenues

  $ 855,302     $ —       $ 8,257 (b)    $                  $                  $               

Franchise and other fee-based revenues

    106,468       (106,468     —          

Other hotel revenues

    19,334       (3,511     —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    981,104       (109,979     8,257        

Brand marketing fund revenues from franchise and managed properties

    25,150       (25,150     —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    1,006,254       (135,129     8,257        

OPERATING EXPENSES:

           

Direct lodging expenses

    409,886       —         49,820 (c)        (f )   

Depreciation and amortization

    147,081       (8,237     —          

General and administrative expenses

    115,715       (22,808 )(d)      —           (h )   

Other lodging and operating expenses

    62,281       —         1,191 (e)        (f )   

Marketing, promotional and other advertising expenses

    68,327       (46,909     —          

Impairment loss

    104,258       —         —          

(Gain) loss on sales

    (4,908     —         —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    902,640       (77,954     51,011        

Brand marketing fund expenses from franchise and managed properties

    25,150       (25,150     —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

    927,790       (103,104     51,011        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

    78,464       (32,025     (42,754      

OTHER INCOME (EXPENSES):

           

Interest expense, net

    (81,419     —         —         (g )     

Other income

    2,345       —         —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other (Expenses) Income, net

    (79,074     —         —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) Income Before Income Taxes

    (610     (32,025     (42,754      

Income tax expense

    (493     12,810       17,102         (i )   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET (LOSS) INCOME

    (1,103     (19,215     (25,652      

Net income attributable to noncontrolling interests

    (185     —         —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (Loss) Income attributable to La Quinta Holdings’ stockholders

  $ (1,288   $ (19,215   $ (25,652   $     $     $  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

           

Basic (loss) earnings per share

  $ (0.01           $  

Diluted (loss) earnings per share

  $ (0.01           $  

See notes to unaudited pro forma consolidated financial information

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2015

(dollars in thousands, except share and per share data)

 

     LQH
Historical
    Adjustment
for
Discontinued
Operations(a)
    Intercompany
Fees
    Pro Forma  

REVENUES:

        

Room revenues

   $ 887,358     $ —       $ 8,130 (b)    $ 895,488  

Franchise and other fee-based revenues

     100,069       (100,069     —         —    

Other hotel revenues

     19,343       (3,625     —         15,718  
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,006,770       (103,694     8,130       911,206  

Brand marketing fund revenues from franchise and managed properties

     23,204       (23,204     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     1,029,974       (126,898     8,130       911,206  

OPERATING EXPENSES:

        

Direct lodging expenses

     398,828       —         51,473 (c)      450,301  

Depreciation and amortization

     166,642       (8,178     —         158,464  

General and administrative expenses

     125,697       (19,225 )(d)      —         106,472  

Other lodging and operating expenses

     63,513       —         1,210 (e)      64,723  

Marketing, promotional and other advertising expenses

     69,810       (47,585     —         22,225  

Impairment loss

     50,121       —         —         50,121  

Loss on sales

     4,088       —         —         4,088  
  

 

 

   

 

 

   

 

 

   

 

 

 
     878,699       (74,988     52,683       856,394  

Brand marketing fund expenses from franchise and managed properties

     23,204       (23,204     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

     901,903       (98,192     52,683       856,394  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     128,071       (28,706     (44,553     54,812  

OTHER INCOME (EXPENSES):

        

Interest expense, net

     (86,504     —         —         (86,504

Other income

     7,632       —         —         7,632  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other (Expenses) Income, net

     (78,872     —         —         (78,872
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Income Taxes

     49,199       (28,706     (44,553     (24,060

Income tax expense

     (22,487     11,482       17,821       6,817  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

     26,712       (17,224     (26,732     (17,243

Net income attributable to noncontrolling interests

     (347     —         —         (347
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) attributable to La Quinta Holdings’ stockholders

   $ 26,365     $ (17,224   $ (26,732   $ (17,590
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

        

Basic (loss) earnings per share

   $ 0.21        

Diluted (loss) earnings per share

   $ 0.20        

See notes to unaudited pro forma consolidated financial information

 

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Table of Contents

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2014

(dollars in thousands, except share and per share data)

 

    LQH
Historical
    Adjustment
for
Discontinued
Operations(a)
    Intercompany
Fees
    Pro
Forma
 

REVENUES:

       

Room revenues

  $ 846,203       —       $ 8,407 (b)    $ 854,610  

Franchise and other fee-based revenues

    89,718       (89,718     —         —    

Other hotel revenues

    19,536       (4,424     —         15,112  
 

 

 

   

 

 

   

 

 

   

 

 

 
    955,457       (94,142     8,407       869,722  

Brand marketing fund revenues from franchise and managed properties

    21,481       (21,481     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    976,938       (115,623     8,407       869,722  

OPERATING EXPENSES:

       

Direct lodging expenses

    378,705       —         39,849 (c)      418,554  

Depreciation and amortization

    165,887       (8,075     —         157,812  

General and administrative expenses

    149,894       (45,091 )(d)      —         104,803  

Other lodging and operating expenses

    56,984       —         1,594 (e)      58,578  

Marketing, promotional and other advertising expenses

    62,161       (40,955     —         21,206  

Impairment loss

    5,157       —         —         5,157  
 

 

 

   

 

 

   

 

 

   

 

 

 
    818,788       (94,121     41,443       766,110  

Brand marketing fund expenses from franchise and managed properties

    21,481       (21,481     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

    840,269       (115,602     41,443       766,110  
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

    136,669       (21     (33,036     103,612  

OTHER INCOME (EXPENSES):