CorePoint Lodging executives Keith Cline, president and CEO, and John Cantele, COO, sat down with HNN at The Lodging Conference to discuss the pros and cons of the transition from La Quinta to a REIT, and what’s down the line for the company.
PHOENIX—CorePoint Lodging is only a couple of months into its run as a real estate investment trust, which has led to some changes for executives transitioning from La Quinta Holdings to CorePoint Lodging.
Keith Cline, president and CEO of CorePoint and former president and CEO of La Quinta, said moving the 316 owned hotels from La Quinta to CorePoint wasn't a huge challenge; however, he said “the one thing you do give up in a transaction like this is control," because executives who made the move were used to making all the decisions for the brand, and now they are entrusting Wyndham Hotels & Resorts to do so.
“We’re used to running the entire brand, making all the decisions on technology and marketing and operations,” he said. “Wyndham certainly paid almost $2 billion for the benefit of making all those decisions, so now it’s about, ‘how do we work most effectively together as partners?’”
John Cantele, former La Quinta COO and now CorePoint COO, said the change for him is that he’s been used to managing a brand.
“I’m used to being in the mix, if you will,” he said. “I’m used to being part of the leadership team that’s making day-to-day operating decisions, pricing decisions, whatever it may be. Although we have the ability to engage with Wyndham and to interact with Wyndham and at some level even influence a few things potentially along the lines of allocating capital, etc., the biggest change is not being in that role any longer.”
Watch the video below for more from Cline on his transition as CEO and integrating La Quinta with the management arm of Wyndham.
Perks of the deal
There are a lot of benefits to be discovered from the Wyndham-La Quinta deal as time goes on, but one immediate benefit is the continuity of the deal, as Cantele put it.
“I think one of the benefits from a structural standpoint (and) from an efficiency standpoint for CorePoint is we determined early on we (didn’t) need a traditional asset-management structure where there’s one asset manager for every 20 to 25 hotels because, as Keith described, the team running our hotels today (is) the team that we hand-selected to run them yesterday, if you will,” he said. “They did a great job then, they’re doing a great job now and there’s no reason to put a layer of burden over the top of that, so that was appealing. That was that continuity. When it was determined that Keith was going to come over it was a pretty easy decision for me to want to do the same.”
Cline added that the biggest benefit of La Quinta joining the Wyndham family is the opportunity to drive revenue and occupancy across the portfolio.
“Competing as a single brand as I mentioned this morning (in a session at The Lodging Conference), where you’ve got to punch above your weight and focus on things like guest experience and product quality and service quality because you can’t outspend anybody, (is difficult),” he said.
“Certainly our expectation is there will be savings opportunities,” Cline said. “You would naturally think that if you plug into a distribution network that is many, many times the size of the one you had before there should be benefits there in terms of marketing, technology, procurement, things that we use in our hotels. But adding our management company to theirs, it’s basically double the number of employees that they had, so one would think there would be opportunities in scale in terms of buying power as it relates to benefits and employee-type things that would accrue to CorePoint Lodging.”
One question that will be answered down the line is what joining the Wyndham platform truly means for CorePoint’s owned La Quinta assets, Cline said. The full integration of La Quinta into Wyndham is expected to be completed in early 2019.
“There’s never a situation where you would call into a La Quinta call center and (be) sold into something else,” he said. “Well now you can call into a Wyndham call center and be cross-sold into a La Quinta. What does that do to our business? It will be interesting, but getting to that point where we’re fully distributed across all customer acquisition points, that’s the goal and we’ll start to get some measure as to what the benefit of the transaction is.”
CorePoint’s portfolio currently consists of all La Quinta assets, but Cline said the goal “isn’t to sit here five years from now and be running a single-flagged, single-managed REIT. It’s about diversifying geographies, diversifying brand distribution networks and diversifying managers to really build out the portfolio.”
“As you think about part of the thesis behind splitting the company in two is so the brands can behave how they need to and drive the right kind of product quality and service that they’re selling to franchisees, and then the asset owner can do what they do, which is try to optimize the capacity utilization on the real estate that we own,” he said.
Cline said the 316 hotels are all currently under the La Quinta flag, but there could be opportunities within the Wyndham portfolio to “up brand or down brand.”
“There’s many different homes that some of these assets could sit in, but the most exciting thing for us is when you look at this very fragmented midscale and upper-midscale space, it doesn’t have a lot of consolidation in our price points, it’s really kind of a compelling opportunity to grow this business across many brands,” he said.
Getting the word out
Another goal of CorePoint’s is getting the word out about the REIT, as it is currently the only REIT that is solely focused on the midscale and upper-midscale space, Cline said.
“We are the one thing that is not like the others out there in the REIT space. With that, you’ve got a little bit of a wait-and-see mentality sometimes from the markets to see how it’s going to perform with us kind of being born out of a transaction versus ‘hey, we set this thing up from scratch,’” he said. “We’ve got a little bit of the legacy transactions implications on this portfolio we have to manage through in terms of the long contract … and how (we) look at growth to go forward.”
Cline added that the midscale and upper-midscale space is healthy from a distribution perspective, and is attractive to customers because “it’s a great price-value proposition.”
“Certainly there’s been a lot of development in this space because of the cash-on-cash returns at this price point, so I think now CorePoint becomes a very interesting kind of exit vehicle for developers with these types of hotels where there wasn’t an institutional buyer previously,” he said. “As you think about building a cash flow vehicle of a REIT in this space, it just makes sense that’s where developers and customers are migrating.”