CorePoint Q3’19 results weak, as expected, but once again asset sales are the real story $CPLG

CorePoint reported weak Q3’19 results, but as I said in my last post where I decided to exit my long call on the stock, this was expected.  In positive news, the company came to an agreement with Wyndham on its booking issue and will receive $17MM from them to settle their tax agreement. In total, the company will get about $37MM in awards from Wyndham and Wyndham will have to create a new system for them.

Now for some bad news. Results continued to be very weak on the portfolio. Comparable RevPAR was down 6.3% with nearly 550bps of market share loss. Occupancy was down 250bps Y?Y and hotel EBITDA margins were down 520bps, from 26.3% of sales to 21.1%. This was a bad print by any measure.

The company also reduced its outlook for the rest of 2019, calling for RevPar to be down ~4.5% for the year vs. their August expectation of -3.5%. EBITDA was also lowered from $155MM to $147MM, though $2MM was from asset sales and the rest was from Hurricane Dorian (which I noted in my last post) and its outlook revision reflecting weaker macro trends. Unfortunately, on the call the company said,

“Although we’re not providing guidance for 2020 at this time, we are expecting to face several headwinds in the business next year. In addition to slowed industry expectations, we will be impacted by everything we just discussed with respect to the performance of our portfolio, the timing of the full functionality of the new tools as well as limited visibility at present into any near-term potential lift from being part of the Wyndham distribution network.”

So not overly confident in the 2020 outlook.

But here is the interesting thing: There is still a strong dichotomy between what the private and public markets are willing to pay for these assets. CPLG is literally selling its worst assets for well above where they trade in the public market. The public market also seems to completely ignore this phenomenon. The company announced with this release that they sold 7 hotels that they previously noted in Q3, but also 18 others in 12 different markets for $70MM. The multiple was 38x EBITDA of 2.4x sales… They also sold 12 hotels for $42MM so far in Q4 for 2.4x sales and 29x EBITDA… They also have 25 more hotels for sale for $115MM, though unclear what the multiples are.

Recall, these assets are operating well under the threshold for what the company considers its “core portfolio.” I continue to believe they should continue to sell the company off piece-by-piece AND including the core portfolio assets. When you are trading for ~0.5x book value and 8-10x EBITDA, there is no better way to create shareholder value than to sell assets for higher than where you trade and either buyback stock or pay dividends.

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