CorePoint Lodging’s Keith Cline explained during his company’s second-quarter earnings call what caused comparable RevPAR to come in well below expectations, including LaQuinta’s transition to Wyndham Hotels & Resorts systems.
IRVING, Texas—The second quarter did not go as executives at CorePoint Lodging hoped.
During the lodging-focused real estate investment trust’s second-quarter earnings call, President and CEO Keith Cline explained why his company’s hotels experienced a 6.1% year-over-year decrease in comparable revenue per available room and a 455-basis-point drop in RevPAR index market share.
Cline said the company hasn’t met expectations of moderate topline growth thus far into 2019. Although the second quarter was expected to be the weakest portion of CorePoint’s calendar, it fell well short of those already modest expectations of comparable RevPAR growth in a range of flat to down 1%.
CorePoint expected the company would benefit from its repositioned properties as they ramped back up and then face continued challenges in its oil and gas markets for most of the year, he said.
“That was our baseline heading into the second quarter,” he said.
The repositioned properties did turn out to be a tailwind, as comparable RevPAR excluding those repositioned properties would have been down 8%, he said. On the other hand, oil markets were indeed a headwind, as excluding those meant comparable RevPAR would have been down only 4.6%.
“So when netted together, the benefit of the repositioned properties more than offset the decline in oil-impacted markets,” he said.
The REIT’s hurricane-impacted hotels had a negligible effect on comparable RevPAR growth, as it remained -6.1% regardless of their inclusion, he said.
Overall, a 4.5% decrease in average daily rate and a drop of 120 basis points in occupancy drove down RevPAR growth.
“We believe this under performance is well outside normal expectations and reflects the impact of an adverse disruption to our business,” he said.
As part of the company’s transition of its LaQuinta-branded properties to the Wyndham Hotels & Resorts’ platform, the property managers at its wholly owned hotels made modifications to the hotels’ revenue management systems and tools, call center interface technology and the administration of corporate and group bookings, Cline said.
“We believe the modifications and other problems related to the implementation of the transition of our hotels contributed to the lower occupancy and average daily rate as well as the loss in market share,” he said.
There were early signs of this disruption, as noted during the Q1 call, he said. The decline in ADR from the transition and integration in April has not yet abated, and Kline noted July’s comparable RevPAR was down 5.2% with continued market share loss.
Because CorePoint believes the modifications adversely affected its business, it gave notice on 30 July to Wyndham of several defaults in the management agreement, he said. Wyndham officials have denied these defaults, he said, so the two are in discussions to resolve the matters.
“In the interim, we are working alongside our management company as mitigation efforts are deployed, and we are closely evaluating and monitoring the impact on our business while we pursue all options available to us,” he said.
As part of its strategic disposition of noncore assets, CorePoint sold three hotels totaling 395 rooms for a total gross sales price of about $16 million during the first quarter, the company’s earnings report states. In June, the company sold a 150-room hotel in Oakbrook Terrace, Illinois, that had been nonoperational since 2016 for approximately $3 million.
In July and August, the company sold seven hotels comprising 796 rooms for a total gross sales price of approximately $29 million. The company intends to use $10 million from those net proceeds to repay outstanding debt on a commercial mortgage backed security loan.
As of 13 August, CorePoint has 27 hotels under contract with qualified buyers expected to close by the end of 2019. The sales of these hotels is expected to generate more than $100 million of gross proceeds.
At press time, CorePoint’s stock was trading at $10.90, down 10% year to date. The Baird/STR Hotel Stock Index was up 12.4% for the same time period.