CorePoint Lodging has been focused on the disposition of non-core assets to create value, and President and CEO Keith Cline said down the road the company sees opportunity to diversify the REIT’s portfolio through other brands, management companies and geographies.
IRVING, Texas—It’s been about a year and a half since CorePoint Lodging became a midscale-focused real estate investment trust, and in that time, the company has concentrated on different value-creation strategies while navigating a few business disruptions.
Keith Cline, president and CEO of CorePoint, said the company has had a lot on its plate since the spinoff in May 2018 with integrating its portfolio of owned La Quinta-branded hotels into the Wyndham Hotels & Resorts distribution system and management company.
One big project the REIT has been working on to create value is the sale of 78 non-core hotels, which include economy hotels that don’t fit the portfolio mix, Cline said. To date, CorePoint has sold 36 of the 78 hotels, and 25 of the 42 properties left to sell are under contract with qualified buyers, he said. The company has seen gross proceeds of $136 million from the 36 hotels sold.
“A big success story for CorePoint is really our ability to capitalize on this sizable disconnect between our public valuation and the private market valuations of these assets based on the success of this program to date and the shareholder value created through assets sales,” he said.
The remaining hotels are expected to be sold in early 2020. Since the disposition process has gone so well, Cline said the company is considering expanding its disposition program.
The sale of these non-core hotels will help CorePoint focus on “high-growth and highly profitable assets,” he said.
Diversifying the portfolio
In an interview with Hotel News Now at the 2018 Lodging Conference, Cline was open to diversifying CorePoint’s portfolio and said, “the goal isn’t to sit here five years from now and be running a single-flagged, single-managed REIT.”
While the company’s current portfolio still consists of only La Quinta properties managed by Wyndham, Cline said he still sees opportunities to diversify the portfolio. That diversity would explore different brand affiliations, brand distribution networks, geographies and management companies, he said.
There are a lot of midscale and upper-midscale hotels in the U.S., but the segment is highly fragmented, Cline said. CorePoint looks for select-service hotels in the $60 to $100 revenue-per-available-room range, which puts the REIT in a unique position because competitors are looking for upscale and upper-upscale hotels.
“CorePoint Lodging has the opportunity to fill a void in the lodging industry and provide an institutional ownership opportunity for public shareholders in a really attractive space,” he said.
Cline added it will take some time to execute on that strategy.
“Obviously 2019 has had some events that were somewhat distracting with all the activities with our systems conversion and then the default and the resolution with Wyndham, but we’re really pleased that we’re past that and we can get back to executing against our asset and balance sheet strategy and looking for opportunities to grow our business,” he said.
CorePoint has plans to acquire assets at some point, but Cline said it’s “too soon to tell in terms of the composition of the portfolio.”
“I really can't commit to when we would switch the playbook … and become an acquirer of assets, but we will continue to evaluate opportunities as they present themselves,” he said. “If something makes a lot of sense and the underwriting works for us, we would certainly consider pursuing it, but our focus in the near term is to continue to execute against our portfolio strategy, which includes the disposition program … and then evaluating potential expansions of that.”
The Wyndham settlement
In October, CorePoint reached a management-dispute settlement with Wyndham in which Wyndham will pay CorePoint $20 million by no later than 30 June 2021. The REIT has received $10 million of that amount so far.
As part of the settlement, Wyndham will help CorePoint re-establish tools to improve portfolio performance. Cline said the key tools and processes involve revenue management, and other tools are for direct billing for corporate and group bookings and legacy tools that “are more mobile and call center-related.”
Another important part of the settlement was “having a mutually agreed upon criteria for franchise transfer approvals” between CorePoint and Wyndham, Cline said.
“As we're selling hotels incumbent with the brand, it's really important for us to understand that we need to bring a specific type of buyer to the table that is good for us and good for Wyndham,” he said.