Announced on July 9th, Blackstone will be selling up to 17.7MM shares of CorePoint. That represents ~30% of the outstanding shares of CPLG. Should investors be concerned or even follow Blackstone with the sale?
I think its best to put some historical context behind this: How did Blackstone end up with the shares?
Blackstone acquired La Quinta in the beginning of 2006 for $3.4BN. I won’t call that the tippy top of the market, but it is pretty close. And since that time, large hotel chains have consolidated and gained more power (e.g. Starwood & Marriott). AirBNB has also emerged on the seen. The point is that not only did Blackstone acquire at a bad time from a market valuation perspective, the hotel industry has undergone some significant changes that crimped middle tier hotel chains like La Quinta.
So Blackstone has owned La Quinta for 13.5 years, when the average private equity life of a fund is around 5 years. That means its investors in that fund have to file k-1’s for an investment made that long ago. In addition, every day that passes drags down the IRR of the fund.
Blackstone also likes to own the franchisor, not the franchisee, because they collect management fees and generate a lot of cash. For example, Blackstone bought Hilton, they recently bought SERVPRO, and even formed a franchise roll up for the hospitality sector. The operators / franchisee has to manage the operate the business which is obviously tougher.
Given my fundamental view of the company, I’m not that concerned. If another shareholder wants to sell at 50% book value due to misaligned incentives (i.e. they need to get out), I am fine to scoop up the shares at a discount.
I do expect the shares to be under pressure soon. The stock is at $12 at the time of writing this, so it is quite possible we see a much lower valuation with 30% of the stock coming for sale.