CorePoint Lodging is being bought in a joint venture by Highgate and Cerberus Capital Management, three-and-a-half years after the real estate investment trust was created in a spinoff from La Quinta Holdings.
The merger, announced Monday, is valued at approximately $1.5 billion — an all-cash transaction based on a per-share consideration of $15.65, which MarketWatch reports is "nearly 12% below Friday's closing price of $17.76 but a roughly 42% premium to its closing price of $11.04 on July 13, before it announced that it was exploring strategic alternatives."
The price "reflects the assumption of current net debt and a $160 million buyer liability reserve" related to a settlement agreement with the Internal Revenue Service.
The deal is expected to close in the first quarter of 2022, subject to approval by stakeholders and satisfaction of customary closing conditions. Affiliates of Blackstone, which owns approximately 30% of CorePoint's total outstanding shares, have agreed to vote in favor of the transaction. At the close, CorePoint will become a privately owned company, no longer listed on the New York Stock Exchange.
CorePoint executives have been pursuing "strategic alternatives," including a potential sale of the company, since at least July 2021, and the company has been strategically selling off non-core assets since March 2019.
In a company news release announcing the deal, CorePoint President and CEO Keith Cline said: “Over the past few years, CorePoint has been executing on a disciplined asset disposition strategy that has transformed the company’s portfolio and created substantial value. This transaction continues our strategy of maximizing value and represents a compelling opportunity to deliver immediate and certain cash value to our stockholders. Our portfolio has accomplished a great deal over the past several years."
CorePoint Lodging's spinoff from La Quinta Holdings Inc., completed in May 2018, created a stand-alone public company with a portfolio of 316 hotels that were previously owned by La Quinta, primarily in the midscale and upper-midscale select-service segment.
The spinoff was timed with Wyndham Hotels & Resorts' acquisition of the hotel franchise and management business of LaQuinta Holdings, which added more than 900 franchised hotels with a total of nearly 89,000 rooms to Wyndham's midscale portfolio. Wyndham retained management agreements for CorePoint's portfolio of La Quinta hotels in that deal, but announced that at the close of the CorePoint sale, those management agreements will cease.
Since CorePoint announced the non-core disposition program, the company has sold 210 hotels for a combined gross price of approximately $768 million. An additional 41 hotels are under contract with qualified buyers, according to a company earnings release, and expected to generate approximately $278 million in gross proceeds.
Meanwhile, Highgate — a hotel investment, development and management firm with more than 350 properties comprising more than 65,000 owned or managed hotel rooms — has been on a growth trajectory through the COVID-19 pandemic.
In September 2020, Highgate acquired from Colony Capital six hospitality portfolios, consisting of 197 hotels with 22,676 rooms, in a deal valued at $2.8 billion. Other recent transactions include the purchase of the 267-room Dorsett City London hotel in July 2021 for 115 million pounds sterling ($156.1 million).
Mahmood Khimji, co-chairman of Highgate, said in the news release announcing the sale of CorePoint: “Highgate has tremendous respect for CorePoint and its highly experienced team, having observed the company strengthen, refine and cultivate a leading portfolio of select-service hotels. We are thrilled to partner with our friends at Cerberus on another exciting transaction, through which Highgate will continue to enhance its capabilities in the select service space. We look forward to collaborating with the many associates and stakeholders involved towards a successful closing and to working closely with the Wyndham Hotels team as we embark on the next chapter for this portfolio.”
CorePoint Third Quarter Performance
In third quarter results announced today, CorePoint Lodging reported net income of $17 million and $34 million in adjusted earnings before interest, taxes, depreciation and amortization for real estate.
The company's hotels achieved comparable revenue per available room of $66.38 in the quarter, which was a 71.4% increase from the same quarter in 2020 and a 4.9% decrease from 2019. Hotel occupancy in the quarter was 63.3%, compared to 51.6% in 2020, and average daily rate was $104.93, up 40% year over year.
As of Sept. 30, the company had $174 million in cash liquidity and $537 million in outstanding total debt principal.
At press time, CorePoint Lodging stock was trading at $15.58 a share, up 48% year to date but down 12.2% today since the announcement of the sale. The NYSE Composite was up 19.3% year to date.