Corepoint from La Quinta
Summary
(24 May 2018) This new hotel REIT focuses on the business traveler. Corepoint is a spinoff resulting from Wyndham Worldwide's purchase of La Quinta Holding's Franchise business. Management alignment, the likely market interest in Wyndham Worldwide, and a pre-spin valuation likely lower than what the company is actually worth all indicate that purchasing this company post spin may prove profitable.
Parent Ticker: LQ
Announced Record Date: 18 May 2018
Announced Distribution Date: 30 May 2018
Anticipated Ticker: CPLG
Business
Corepoint will be a newly formed real estate investment trust with its primary markets in Texas, California and Florida.
Parent Child comparison
Although technically the parent, LQ will cease to exist when this transaction completes. Corepoint will manage the Real Estate holdings of the company as a REIT and Wyndham Worldwide will take ownership of the franchise and management business. Wyndam's focus on the asset light portion of the business may demonstrate that they have the growth portion of the business verses the 'dull' real estate portion of the business left for Corepoint. The transaction is part of a merger between Wyndham and LQ.
Spin Ratio
1 share for every 2 shares of LQ.
Cash Flow
The form 10-12b/a that was filed on 7 May 2018 does not have a pro forma cash flow statement. However, using the income statement and deducting the costs associated with continuing operations, the cash flow is likely around 190 million for the year ended on 31 Dec 2017. Using pro forma data, the cash flows likely exceeded 120 million each of the past 3 years.
Cash Position
Corepoint will have a cash position of 55 million upon spinoff completion.
Revenue Projections
Revenues likely will exceed 810 million in the coming years. To understand potential growth the reader can note that the company currently operates 902 hotels directly or through franchise agreements. Corepoint also has an additional 261 franchise agreements in its pipeline of new builds. These new hotels will be based throughout the American continents.
Management Actions
Management offer letters include stock grants that exceed 3-6x the CEO, COO and legal counsel's annual salaries. These stock grants are fully vested in 3-4 years after the grant dates. Management's motives should therefore be aligned with Corepoint's shareholder interests.
Activist Investor Activity
Activist investor activity appears unreported.
Peer Comparison
There are several hotel REITs. The advantage of having over 20 comparable companies is that the consistency of valuation will likely be pretty solid. The disadvantage is understanding that the company will have significant competition. La Quinta focuses on the business traveler making its niche a little more specific. Hotel REITs generate around 30x their operating earnings (Revenue-cost of sales-selling/administrative expenses-depreciation/amortization) at pre-spinoff prices, Corepoint will trade about 20x this figure. This would place Corepoint at the lower end of the hotel REIT universe.
Opinion
This spinoff is part of the merger with Wyndam Worldwide. The creation of La Quinta will allow Wyndam to take over the franchise operations of La Quinta. Although the transaction appears to strip the company of growth opportunities. Corepoint will have a non-exclusive right to the La Quinta brand. The company's prospects seem to indicate a price of 21.50 - 22.50/share may prove to be lucrative in the first few years of existence.
SEC Reports
Management offer letters
CorePoint Cline Offer Letter. In connection with his appointment as President and Chief Executive Officer of the Company, we entered into the CorePoint Cline Offer Letter with Mr. Cline, effective as of the spin-off. The CorePoint Cline Offer Letter provides that Mr. Cline will be employed with the Company as our President and Chief Executive Officer with the following compensation and benefits: (i) an annual base salary of $795,675, subject to increase (but not decrease); (ii) an annual bonus opportunity with a target amount equal to 100% of his base salary, with the actual bonus amount based upon achievement of Company and individual performance targets established by our compensation committee for the fiscal year to which the bonus relates; (iii) eligibility to receive annual grants under our Omnibus Incentive Plan in amounts and in a form determined by the our compensation committee, provided that, for the 2018 fiscal year, Mr. Cline’s long-term incentive award will have a target value of $3 million; (iv) a one-time grant of restricted stock with a grant date value equal to $1.875 million, and which vests on the third anniversary of the date of grant; and (v) a one-time grant of restricted stock with a grant date value equal to $1.875 million, and which vests on the fourth anniversary of the date of grant. The CorePoint Cline Offer Letter also provides that Mr. Cline will participate in the CorePoint Lodging Inc. Executive Severance Plan (the “CorePoint Executive Severance Plan”), in accordance with its terms.
CorePoint Cantele Offer Letter. In connection with his appointment as Executive Vice President and Chief Operating Officer of the Company, we entered into the CorePoint Cantele Offer Letter with Mr. Cantele, effective as of the spin-off. The CorePoint Cantele Offer Letter provides that Mr. Cantele will be employed with the Company as our Executive Vice President and Chief Operating Officer with the following compensation and benefits: (i) an annual base salary of $509,850, subject to increase (but not decrease); (ii) an annual bonus opportunity with a target amount equal to 100% of his base salary, with the actual bonus amount based upon achievement of Company and individual performance targets established by our compensation committee and our Chief Executive Officer for the fiscal year to which the bonus relates; (iii) eligibility to receive annual grants under our Omnibus Incentive Plan in amounts and in a form determined by our compensation committee, provided that, for the 2018 fiscal year, Mr. Cantele’s long-term incentive award will have a target value of $900,000; (iv) a one-time grant of restricted stock with a grant date value equal to $1.05 million, and which vests on the third anniversary of the date of grant; and (v) a one-time grant of restricted stock with a grant date value equal to $1.05 million, and which vests on the fourth anniversary of the date of grant. The CorePoint Cantele Offer Letter also provides that Mr. Cantele will participate in the CorePoint Executive Severance Plan, in accordance with its terms.
CorePoint Compensation. In connection with his appointment as Executive Vice President, Secretary and General Counsel of the Company, on April 12, 2018, our board of directors approved the following compensation and benefits terms for Mr. Chloupek: (i) an annual base salary of $412,000; (ii) an annual bonus opportunity with a target amount equal to 100% of his base salary; (iii) grants under our Omnibus Incentive Plan for the 2018 fiscal year with a target value of $900,000; (iv) a one-time grant of restricted stock with a grant date value equal to $800,000, and which vests on the third anniversary of the date of grant; and (v) a one-time grant of restricted stock with a grant date value equal to $800,000, and which vests on the fourth anniversary of the date of grant.