CorePoint lowers full-year outlook amid transition
 
CorePoint lowers full-year outlook amid transition
14 NOVEMBER 2019 9:24 AM

The resolution of a management dispute with Wyndham Hotels & Resorts contributed to Q3 RevPAR weakness and led to lower full-year 2019 guidance for CorePoint Lodging, officials said.

IRVING, Texas—CorePoint Lodging reported third-quarter performance “well outside normal expectations,” which played a part in the company’s decision to lower its full-year 2019 outlook, President and CEO Keith Cline said on a call with analysts.

On the company’s second-quarter earnings call, Cline attributed poor performance to modifications made to hotel revenue management systems and tools as part of the integration of the La Quinta portfolio into Wyndham Hotels & Resorts.

The management dispute was resolved last month in a settlement in which Wyndham will pay $20 million to CorePoint, but the transition still had a negative effect on third-quarter revenue-per-available-room growth. Cline said CorePoint has received approximately $10 million of that price so far and the full balance will be paid by no later than 30 June 2021.

CorePoint reported a 6.1% decrease in comparable RevPAR during the second quarter, and in the third quarter, a decline of 6.3%, Cline said. He attributed this drop to a 2.7% drop in average daily rate during the quarter and decrease of 253 basis points in occupancy.

The company revised its full-year 2019 RevPAR outlook to a range of down 5% to down 4% (from a previous outlook of -4.5% to -2.5%), according to a third-quarter earnings release. Adjusted earnings before interest, taxes, depreciation and amortization for real estate was revised from $150 million to $160 million for the full year to $142 million to $148 million.

Wyndham and its management company are working with CorePoint to “improve the operating performance of the portfolio” by improving and reestablishing tools within its portfolio, Cline said.

“These improvements and the reestablishment of these tools will not happen overnight, but rather will be phased in over the next year,” he said. “They are all expected to be fully functional no later than year-end 2020. In the interim, we are working with our manager to proactively change certain in-place systems, processes and resource allocation to slow the declines in RevPAR (and) market share we’ve experienced.”

Headwinds such as a softening lodging environment and tough hurricane comps also factored into the decision to lower full-year guidance, Cline said.

As of press time, CorePoint stock was trading at $9.84 per share, down 22.7% year to date. The Baird/STR Hotel Stock Index was up 11.4% year to date.

Disposition strategy
CorePoint continued its strategy to dispose of non-core assets during the third quarter, Cline said.

Through 13 November, the company has sold 36 assets with 4,189 rooms for a total of $136 million at a valuation multiple of 2.4 times revenue, he said.

Dan Swanstrom, EVP and CFO, said RevPAR year to date for the company’s core portfolio is about 100 basis points stronger than its noncore assets. CorePoint has another 25 hotels under contract with qualified buyers, and Cline added the company might expand its disposition strategy.

“It’s evident to us there’s a sizable disconnect between our public valuation and the private market valuations for these assets,” Cline said. “Based on the success of this program to date, and the shareholder value created through asset sales, and in connection with our ongoing 2020 business planning process, we are continuing to assess the composition of our portfolio, and we may expand our disposition program.”

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