CorePoint executives see signs of rebound in Q2
CorePoint executives see signs of rebound in Q2
11 AUGUST 2020 8:41 AM

Executives on CorePoint Lodging’s second-quarter earnings call said asset sales slowed in early Q2 due to delays in the financing process, but all three KPIs saw steady increases from April to June.

IRVING, Texas—CorePoint Lodging President and CEO Keith Cline said the real estate investment trust experienced a slowdown in asset sales in April and MAy but there were encouraging operating improvements as the second quarter progressed.

Cline said the portfolio’s performance improved in the latter part of the quarter due to growing transient room demand, modest recovery in corporate travel related to essential businesses, and having well-positioned properties in drive-to markets and destination locations.

The REIT has also kept cost-containment initiatives in place, such as reducing staffing levels and housekeeping hours, to reduce cash burn.

In April, which had an occupancy level of around 21% and revenue per available room of approximately $13.50, the estimated property-level cash burn was in the range of $9 million to $10 million. In June, which had a 50% occupancy level and RevPAR of $34, the REIT saw a positive $3 million in property-level earnings before interest, taxes, depreciation and amortization.

Additionally, Cline said all 230 of its hotels are now fully open.

“While we are pleased with this recovery to date, we remain cautious about the uncertainty in the months ahead for the lodging industry as we continue to navigate through the ongoing global pandemic,” he said.

Hotel sales
In the first half of Q2, Cline said CorePoint experienced a slowdown in asset sales compared to prior periods because of delays in the financing process, including with Small Business Administration loans. He added that some buyers were waiting for more forward visibility.

In the second half of the quarter through 10 August, Cline said the REIT’s investment team has been active on closing existing transactions and communicating with prospective buyers.

“For these buyers, there continues to be a high level of interest in owning a property with a La Quinta flag,” he said.

Since May, the REIT has closed on the sale of an additional 14 hotels for total proceeds of about $67 million. It put another 19 hotels under contract that could generate total gross proceeds of about $84 million.

If those 19 sales are completed in 2020, he said that would bring the REIT to a total of 59 hotels sold in the year for anticipated gross proceeds of $264 million.

“While this rebound in asset sale pace is encouraging, there could be additional headwinds due to the macro uncertainty in the months ahead, but as we have noted in the past, this is a multi-year process,” he said.

Dan Swanstrom, EVP and CFO of CorePoint, said the REIT’s non-core hotel disposition program continues to create value.

During the second quarter, it closed on the sale of seven non-core hotels for a total of approximately $29 million. He said those transactions were “completed at attractive valuations.” Subsequent to quarter end, he said CorePoint has closed on the sale of 10 additional non-core hotels for gross proceeds of $51 million.

“We are very pleased to close on the sale of these 17 (non-core) hotels over the last three months at highly accretive and attractive valuation levels,” he said. “We believe there is compelling strategic rationale for our non-core disposition program and narrowing our focus to a go-forward core portfolio of 105 hotels … primarily located in the top 50 MSAs.”

Top performing markets
CorePoint’s portfolio has particularly benefited from seasonal leisure travel as demonstrated by higher occupancy and rates on weekends versus weekdays, Cline said.

Cline said hotels in markets such as Florida, Arizona and California, as well as those next to interstates, have outperformed.

Though all CorePoint’s hotels are now open, it previously had a peak of 30 hotels not accepting transient reservations.

“We’ve worked very hard to ensure that all of our rooms were open and available for any demand that shows up in the market,” he said. “As we’ve mentioned, we went from a peak of 30 hotels that weren’t accepting transient reservations to a situation today where all of our hotels are open. This really highlights the benefit of the chain scale that we compete in—midscale, upper midscale, select-service.”

He said the La Quinta brand has resonated well with the leisure transient traveler and corporate traveler that’s traveling for essential business during the pandemic.

“We’ve been very focused on evaluating demand on a hotel-by-hotel basis and working alongside our management company to ensure that we’re testing the elasticity and pricing in those markets to generate solid financial returns, and we’ve been pleased,” he said.

As the REIT looks ahead to Q4 of 2020 and Q1 of 2021—the two quarters that are historically slower because it’s a non-peak season—it is prepared for a potential operational decline, Cline said.

Q2 performance
According to the company’s Q2 earnings release, room demand increased each month on a sequential basis.

Comparable occupancy increased from 20.9% in April to 50.4% in June, an ADR from $65.30 to $67.91 and RevPAR of $13.66 to $34.25 for the same time periods.

The company reported a net loss of $107 million.

As of press time, CorePoint’s stock was selling at $5.86 a share, down 44.9% year to date. The New York Stock Exchange Composite was down 8.3% for the same period.

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