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La Quinta Properties Inc. (LQI) Message Board

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  • Vaalie60 Vaalie60 Nov 7, 1999 10:25 PM Flag

    series of four 3

    Just 2 comments on what you wrote.

    1)
    Capital gains add to the REIT's income (per IRS) and
    thereby increase the minimum dividend payout (the 95%).
    Ultimately, the shareholders pay the tax. (Correct me if I am
    wrong, anyone.)

    2) About half of MT's debt is at
    fixed rates, so the impact of higher market interest
    rates would be less drastic than your calculations
    show.

    My opinion: You are looking at a company with a
    breakup value of about $12 per share. In other words, if
    MT took the next 2 years to sell off all of the
    properties and pay off all of the debt, that's what the
    shareholders will receive in liquidation. The chance of
    bankruptcy is remote, IMO. The dividend will probably be cut
    -- my guess is by 25% -- to conserve cash and
    improve refinancing prospects. Higher medicare payments
    will bolster operators and also improve prospects for
    financing healthcare facilities. Hotel supply/demand will
    come into balance -- the main risk here is that
    equilibrium is delayed by a recession -- something that no
    one (except Ed Yardeni) expects right now.

    If
    we are not at the bottom, we are mighty close to it.
    (JMHO, but then again, I've been wrong on MT so far.)

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    • If MT sold La Quinta it would receive 7.6 x
      EBIDTA based on Red Roofs recent selling price (see
      Frichards newswire story from a few days ago). The EBIDTA
      for the last 3 quarters has averaged %75 million,
      which annualizes to $300 million. 7.6 x $300 million =
      $2.28 billion.

      If MT used the $2.28 billion to
      pay off its current debt, it would still owe approx.
      $350 million to the lenders.

      The EBIDTA on the
      medical facilities is currently $280 million. Subtract
      out operating expenses of $25 million and interest
      payments of $35 million on the remaining $350 million of
      debt, and you're left with net income of $220
      million.

      At $12 per share, MT is worth $141 million x $12 =
      $1.7 billion.


      Your assumption is that MT is
      only worth 7.7 x net income = 12.9% return on
      investment annually.

      Real estate that provides a
      12.9% net return on investment and in addition provides
      tax shelter through depreciation and
      appreciation
      is a steal.

      Therefore, MT must be worth more
      than $12.