As Part of Shift in Strategy,
Meditrust Changes Its Name
After a year of what could be considered the equivalent of major reconstructive surgery, Meditrust Cos. is ready for its closeup.
The beleaguered, "diversified" Dallas real-estate investment trust, which has owned everything from health-care facilities to golf courses to a racetrack to hotels, is expected Tuesday to unveil its new persona.
The company will be known as La Quinta Properties Inc., a nod to the La Quinta Inns chain of hotels it owns. La Quinta Properties began trading on June 26 on the New York Stock Exchange under the ticker symbol LQI. Officials from the company were scheduled to ring the closing bell at the exchange that afternoon.
"Our company no longer bears resemblance to the Meditrust of a year ago," says Francis W. "Butch" Cash, president and chief executive, who took control of the company in April 2000, a few months after a series of staff resignations, the announcement of a reorganization plan and a suspension of dividend payments. About 80% of Meditrust's revenue and cash flow come from La Quinta. "The name change is consistent with our plan of being a lodging-focused company," he says.
While the shift in strategy has long been under way, its timing couldn't be any more curious. The slowing economy has hurt the hotel industry, especially the upscale segment, as business and leisure travelers watch their budgets more closely. A continued slowdown is expected to eventually hurt even midprice hotels such as La Quinta Inns.
Last week, Bear, Stearns & Co. reduced earnings estimates for the remainder of this year and for 2002 for most of the lodging companies it covers. The securities firm cited research that showed deteriorating conditions in May after a weak April. "Our sources indicate June is not any better," lodging analyst Jason N. Ader says. "Prospects for a strong second half [2001] rebound appear to be waning."
Investors have been checking out of the sector. Total returns for hotel REITs rose 13% year-to-date as of June18, according to the National Association of Real Estate Investment Trusts.
Meanwhile, the health-care sector, two years ago one of the REIT industry's worst performers, has been on the road to recovery. The Balanced Budget Refinement Act of 1999, which took effect last year, restored some of the federal payments that had been cut, giving the sector a big boost. Subsequently, legislators approved the Benefits Improvement and Protection Act of 2000, which included additional Medicare increases. The group has returned 35% to investors year-to-date.
Mr. Cash, who has extensive experience in the health-care and hospitality industries, isn't all that worried. "The whole [lodging] industry will be impacted, no question, if the economy gets softer," he says, "but the midscale sector will continue to get business and leisure travelers trading down from upscale hotels as it has in any recession."
Meditrust's shares reached their all-time high of $39 in December 1997, during the glory days of REITs. But the company tried to grow too much, too fast, say analysts who once followed the stock. Meditrust became saddled with debt mainly through acquisitions, had a strategy that struck Wall Street as unfocused and a portfolio full of then out-of-favor health-care assets. Investors lost interest, as did analysts, who, one by one, dropped coverage on the stock.
Armed with a team of new managers experienced in the hotel industry, Mr. Cash aimed to turn Meditrust around. The company sold health-care assets last December and in April to reduce debt. Its stock reached a 52-week high of $6.15 June 7, a couple of days before Meditrust announced the completion of a $350 million credit facility.
Representatives from securities firms that once covered Meditrust and that have hotel analysts seem to have adopted a wait-and-see approach to the stock.
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