CorePoint Lodging Inc. (CPLG)

[Enterprising Investor]

Corepoint Lodging Reports Third Quarter 2018 Results (11/06/18)

IRVING, Texas, Nov. 06, 2018 (GLOBE NEWSWIRE) -- CorePoint Lodging Inc. (NYSE: CPLG) (“CorePoint” or the “Company”), a pure play select-service hotel owner strategically focused on the midscale and upper midscale segments, today reported operational and financial results for the third quarter ended September 30, 2018.

Third Quarter 2018 Highlights

- Net loss attributable to CorePoint Lodging common stockholders of $13 million, or $0.22 loss per fully diluted share

- Comparable RevPAR of $63.00, an increase of 3.6% from the same period in 2017 with 390 bps of RevPAR Index market share growth

- Adjusted EBITDAre of $55 million

- Adjusted FFO of $37 million

- Completed the construction phase of one additional significant hotel renovation, bringing the total number of repositioning projects with construction complete to 49 hotels, as part of the Company’s strategic repositioning program

Third quarter dividend of $0.20 was paid on October 15, 2018 to common stockholders of record on October 1, 2018

“We are excited to have completed CorePoint’s first full quarter as a stand-alone lodging REIT,” said Keith Cline, President and Chief Executive Officer of CorePoint. “We are extremely pleased with the revenue and market share growth experienced for our portfolio this quarter. Our team is focused on executing a proactive asset management strategy to continue to drive RevPAR growth with a focus on our repositioned and hurricane-impacted hotels, to improve EBITDA margins and to optimize our overall portfolio. We are also hopeful that next year, once CorePoint is fully integrated into the Wyndham platform we will begin to see the benefit of its network distribution and scale.”

Cline continued, “As we move through the remainder of 2018, our key strategic priorities are driving growth in RevPAR and market share, reopening our hurricane effected properties, completing our hotel repositioning projects, executing a proactive asset management strategy to drive profit margins, and closely monitoring the transition and integration of the La Quinta brand and the management of our hotels to Wyndham Hotels & Resorts.”

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Third Quarter 2018 Financial and Operating Results

The Company reported net loss attributable to CorePoint Lodging stockholders of $13 million, or $0.22 loss per fully diluted share, for the quarter ended September 30, 2018, compared to net income attributable to CorePoint Lodging stockholders of $13 million, or $0.22 income per fully diluted share, for quarter ended September 30, 2017. The year-over-year difference is primarily due to higher hotel operating expenses, including management and royalty fees, and higher interest expense.

Comparable RevPAR for the third quarter of 2018 increased 3.6% over the same period of 2017, primarily driven by an increase of 3.5% in comparable ADR. Top performing markets included Boston, New Orleans, Phoenix, San Francisco, and West Texas.

Adjusted EBITDAre for the third quarter of 2018 was $55 million as compared to $58 million on a pro forma basis for the same period in 2017. Increases in rooms revenue during the third quarter of 2018 were more than offset by increases in hotel operating expenses, in particular rooms expense, including payroll, contract labor, sales team, and third-party travel agent commissions.

Hurricane disruption continued to have an impact on the Company’s business in the third quarter of 2018, posing significant challenges for certain hotels. The Company estimates that the impact of the hurricanes on third quarter 2018 results was a reduction of approximately $3 million in Adjusted EBITDAre, compared to Adjusted EBITDAre on a pro forma basis in the third quarter of 2017. The majority of these business interruption claims due to hurricane disruption are expected to be recovered in the future through the Company’s business interruption insurance coverage.

Hurricanes Harvey and Irma

During the third quarter of 2017, two major hurricanes made landfall impacting areas serviced by CorePoint hotels. Many of the hotels in affected areas sustained property damage and also experienced business interruption as a result not only of damage to the hotels themselves but also to damage to surrounding infrastructure.

As of September 30, 2018, approximately 1% of rooms remain out of service, primarily at three properties in Florida that remain closed. The Company currently expects two of the three closed hotels to be re-opened by the end of 2018. CorePoint expects that insurance proceeds, excluding any applicable insurance deductibles, will be sufficient to cover a significant portion of the property damage to the hotels and the related operating loss. Through September 30, 2018, the Company has received approximately $3 million in total business interruption insurance proceeds, which includes approximately $2 million received during the second quarter of 2018 that is excluded from Adjusted EBITDAre.

Hurricane Michael

During October 2018, Hurricane Michael made landfall and significantly impacted the Company’s hotel located in Panama City, Florida. It is currently anticipated that this hotel will be closed for up to nine months with an estimated property damage of $10 million to $15 million. CorePoint expects that insurance proceeds, excluding any applicable insurance deductibles, will be sufficient to cover a significant portion of the property damage to this hotel and its related operating loss.

Capital Investments and Hotel Strategic Repositioning Program

The Company invested approximately $40 million in the third quarter of 2018 on capital improvements, including approximately $13 million related to its ongoing hotel strategic repositioning program.
In the fourth quarter of 2016, the Company began execution of a significant capital investment plan to invest over $200 million in 54 hotels with a focus to reposition these assets upward within their local markets. The scope of these strategic repositioning projects includes, but is not limited to, enhancing guestrooms, expanding public areas and upgrading exterior elements. Renovations incorporated elements of the “Del Sol” prototype, which is the newest build and design package for the La Quinta brand and related assets. During the third quarter of 2018, the construction phase of one additional hotel renovation was completed. As a result, as of September 30, 2018, 49 of these hotels had completed the construction phase of the project. The Company expects to invest the substantial majority of the remaining approximately $7 million of capital spend associated with the strategic repositioning program in the fourth quarter of 2018.

Tax Matters Agreement Update

As previously disclosed, in connection with the spin-off and La Quinta merger transaction, the parties agreed to set aside $240 million as a reserve amount to pay certain taxes that will be due as a result of the spin-off and related transactions. If the tax amount due is less than $240 million, the remaining amount will be paid to CorePoint in cash. While the determination of the ultimate tax amount due is ongoing, CorePoint currently expects the $240 million reserve to be more than sufficient to cover such tax liability.

Balance Sheet and Liquidity

At the end of the third quarter of 2018, the Company had total debt principal outstanding of $1.035 billion.

Total cash and cash equivalents were $64 million as of September 30, 2018, excluding lender escrows of approximately $15 million. As of September 30, 2018, the Company had $150 million of availability on its revolving credit facility.

On July 3, 2018, the Company sold one hotel located in Huntsville, Texas for a total gross sales price of $2 million, substantially the same as the Company’s GAAP net carrying value for the property.

Dividend

On September 19, 2018, our Board of Directors authorized and the Company declared a cash dividend of $0.20 per share of common stock with respect to the third quarter of 2018. The third quarter dividend was paid on October 15, 2018 to stockholders of record as of October 1, 2018.

On November 5, 2018, our Board of Directors authorized and the Company declared a cash dividend of $0.20 per share of common stock with respect to the fourth quarter of 2018. The fourth quarter dividend will be paid on January 15, 2019 to stockholders of record as of December 31, 2018. All future dividends will be at the sole discretion of CorePoint’s Board of Directors.

Outlook

CorePoint has updated its 2018 outlook that was provided on August 13, 2018.

The 2018 outlook range incorporates the impact of disruption caused by Hurricanes Harvey, Irma, and Michael on the Company’s operating results. The majority of these business interruption claims are expected to be recovered in the future through the Company’s business interruption insurance coverage. Factoring in recent expense growth trends, the Company currently estimates its hurricane disruption hotels will provide an incremental hotel EBITDAre contribution of approximately $13 million to $17 million in 2019.

Pro Forma Adjusted EBITDAre assumes an annual run rate of approximately $20 million for corporate general and administrative expenses, excluding stock-based compensation expense and separation costs related to the spin-off.

The Company’s achievement of anticipated full-year 2018 operating results is subject to risks and uncertainties, including those disclosed in the Company’s filings with the Securities and Exchange Commission (the “SEC”).

A reconciliation of anticipated full-year 2018 Pro Forma Adjusted EBITDAre to the closest GAAP financial measure is not available on a forward-looking basis without unreasonable efforts due to the high variability, complexity and uncertainty with respect to forecasting and quantifying certain amounts that are necessary for such reconciliations, including net income (loss) and adjustments that could be made for the spin-off and other related expenses, impairment charges, gains or losses on sales of assets, and the timing and magnitude of other amounts in its reconciliation of historic numbers. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could have a potentially unpredictable, and potentially significant, impact on its future GAAP financial results.

Webcast and Earnings Call

The Company will host a quarterly conference call for investors and other interested parties on Tuesday, November 6, 2018 beginning at 10:00 a.m. Eastern Time.

The call may be accessed by dialing [phone], or [phone] for international participants, and entering the passcode 4685437. Participants may also access the call via webcast by visiting the Company's investor relations website at www.corepoint.com/investors. You are encouraged to dial into the call or link to the webcast at least fifteen minutes prior to the scheduled start time. The replay of the call will be available from approximately 10:00 a.m. Eastern Time on November 7, 2018 through midnight Eastern Time on November 14, 2018. To access the replay, the domestic dial-in number is [phone], the international dial-in number is [phone], and the passcode is 4685437. The archive of the webcast will be available on the Company's website for a limited time.

About CorePoint

CorePoint Lodging Inc. (NYSE: CPLG) is the only pure-play publicly traded U.S. lodging REIT strategically focused on the ownership of midscale and upper-midscale select-service hotels. CorePoint owns a geographically diverse portfolio of 315 hotels and more than 40,000 rooms across 41 states in attractive locations primarily in or near employment centers, airports, and major travel thoroughfares. The portfolio consists of all La Quinta branded hotels, except for one Baymont branded hotel. For more information, please visit CorePoint’s website at www.corepoint.com.

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