Mick McGuire Long Corepoint Lodging & Extended Stay America: Sohn San Francisco 2018

We're posting up notes from the Sohn San Francisco 2018 investment conference.  Next up is Mick McGuire of Marcato Capital Management who pitched 2 longs: Corepoint Lodging (CPLG) and Extended Stay America (STAY).


Mick McGuire's Sohn San Francisco Presentation: Two Longs

•    Corepoint Lodging (CPLG) – lodging REIT spun off from La Quinta
•    Spun off from La Quinta recently so a new company in equity markets
•    315 properties REIT with all La Quinta branded properties and operated by Wyndham
•    Some classic dynamics of spin-off at play (Less analyst coverage, noisy financials, atypical shareholder base due to spin)
•    Earnings were temporarily depressed and should increase as 1) hotels impacted by hurricanes in Texas and Florida will come back online and contribute to earnings; 2) renovations are completed
•    Trading at a discount to peers at 8.3x EV/EBITDA vs median of 10.6x
•    Other sources of earnings upside are increased oil and gas activity – have more exposure to oil and gas markets
•    Trading at a discount based on hard asset value
•    Substantial opportunity to improve hotel level profitability
•    If margin improvement doesn’t happen, business likely to be sold (Taxable spin purposefully preserved ability to sell immediately)
•    55% upside based on current price, using 11x multiple and 2019 EBITDA of $232m


•    Extended Stay America (STAY) – hotel owner/operator with 599 properties and 27 franchisees
•    La Quinta part 2 but at the beginning of the story
•    Largest single brand hotel owner and operator in North America
•    Longer length of stay, less labor and higher margins versus typical lodging operator
•    Company knows current structure is sub-optimal and seems motivated to do something, which could unlock value
•    Highest margins relative to peers, strong cashflow profile, positive industry fundamentals, discounted valuation
•    Re-franchising less profitable units
•    Building new hotels with cash flow
•    Last of its kind to separate its hard real estate assets from its brand company
•    Capital deployment likely to drive shareholder value: stable cash flow from retained hotels, refranchising less profitable hotels, goes into: repurchasing shares, new hotels, growing franchise business which is minimal cost and high returns
•    Attractive valuation: Trading at discount to peers. 8x EBITDA versus peers at an average of 10.7x
•    Argues co belongs in a larger portfolio
•    134% upside to $38.12 target price based on 2022E Maintenance FCF/Share of $2.29 and 15x multiple


Be sure to check out the rest of the Sohn San Francisco 2018 presentations.

Paulson & Co Trims Extended Stay America / ESH Hospitality Position

John Paulson's hedge fund firm Paulson & Co filed a 13D with the SEC regarding its position in Extended Stay America (STAY).  Per the filing, Paulson now owns 10.3% of STAY with over 20 million shares.

This is a decrease of over 8.54 million shares since the end of 2016 when they previously owned 28.6 million STAY shares.  These are paired shares with ESH Hospitality which Paulson also owns and they trimmed that position proportionately as well. 

Paulson sold some STAY shares on March 10th at $16.70 per a Form 4 filed with the SEC.  We previously highlighted that Paulson trimmed this position back in November as well.

Per Google Finance, Extended Stay America is "an integrated owner/operator of Company-branded hotels in North America. The Company operates in hotel operations segment. The Company's business operates in the extended stay sector of the lodging industry. As of December 31, 2016, the Company owned and operated 629 hotels comprising approximately 69,400 rooms located in 44 states across the United States and in Canada. The Company owns and operates its hotels under its brand, Extended Stay America, which serves the mid-price extended stay sector. As of December 31, 2016, the Company also owned and operated three Extended Stay Canada hotels. The Company operates its hotels owned by ESH Hospitality, Inc. (ESH REIT). The hotels are operated by the Operating Lessees, subsidiaries of the Company and are managed by ESA Management LLC (ESA Management), a subsidiary of the Company. ESH Strategies, a subsidiary of the Company, owns the brands related to its business."

Paulson & Co Sells Some Extended Stay America / ESH Hospitality

John Paulson's hedge fund firm Paulson & Co has submitted numerous SEC filings regarding its position in Extended Stay America (STAY) and ESH Hospitality.

Per a Form 4, Paulson sold 4.67 million shares of STAY and ESH Hospitality on November 18th at $14.76 as part of a secondary offering.  Following this sale, Paulson & Co still owns 16.8% of the company with 33 million shares of STAY.

You can see the rest of Paulson & Co's portfolio in the newly released issue of our Hedge Fund Wisdom newsletter.

Extended Stay America and ESH Hospitality are paired shares.  Per the filing, "Each paired share is comprised of one share of common stock of Extended Stay America and one share of Class B common stock of ESH Hospitality, which shares are paired and traded as a single unit.

Per Google Finance, Extended Stay America is "an integrated owner/operator of company-branded hotels in North America. The Company operates in hotel operations segment. Its business operates in the extended stay lodging industry. It owns and operates approximately 630 hotels comprising over 69,400 rooms located in approximately 40 states across the United States and in Canada. It owns and operates its hotels under its core brand, Extended Stay America, which serves the mid-price extended stay segment. In addition, it owns and operates over three Extended Stay Canada hotels. It operates its hotels owned by ESH Hospitality, Inc. (ESH REIT). The hotels are operated by the Operating Lessees, subsidiaries of the Company and are managed by ESA Management LLC (ESA Management), a subsidiary of the Company. ESH Strategies, a subsidiary of the Company, owns the brands related to its business. The Company's extended stay hotels are designed to provide lodging or apartment accommodations." 

This is the second time Paulson has trimmed its Extended Stay America position in the past few months.

Paulson & Co Trims Extended Stay America Stake

John Paulson's hedge fund firm Paulson & Co has filed a couple of SEC filings regarding its paired shares in Extended Stay America (STAY) and ESH Hospitality.

The Form 4 filed indicates that Paulson & Co sold 4,983,333 paired shares in total, at a price of $14.16 per share on October 4th.

After these sales, Paulson still owned 37.67 million shares of STAY, or 19% of the company.

A press release from Extended Stay America indicates that they recently announced a secondary offering of paired shares, each paired share consisting of a share of common stock of STAY and a share of class B stock of ESH Hospitality.  Paulson & Co, Centerbridge Partners, and Blackstone Group were the selling stockholders. 

The company also announced a share repurchase agreement where they repurchased 1.95 million paired shares from the sellers.

We've also posted other recent portfolio activity from Paulson & Co here.

Per Google Finance, Extended Stay America is "an integrated owner/operator of company-branded hotels in North America. The Company operates in hotel operations segment. Its business operates in the extended stay lodging industry. It owns and operates approximately 630 hotels comprising over 69,400 rooms located in approximately 40 states across the United States and in Canada. It owns and operates its hotels under its core brand, Extended Stay America, which serves the mid-price extended stay segment. In addition, it owns and operates over three Extended Stay Canada hotels. It operates its hotels owned by ESH Hospitality, Inc. (ESH REIT). The hotels are operated by the Operating Lessees, subsidiaries of the Company and are managed by ESA Management LLC (ESA Management), a subsidiary of the Company. ESH Strategies, a subsidiary of the Company, owns the brands related to its business. The Company's extended stay hotels are designed to provide lodging or apartment accommodations."