Donald Smith (Trades, Portfolio), leader of New York-based investment firm Donald Smith & Co., disclosed he established a stake in CorePoint Lodging Inc. (CPLG, Financial) on March 27.
Using a deep-value, bottom-up approach, the guru’s firm typically invests in out of favor stocks that are trading at a discount to tangible book value. The portfolio managers look for companies that are in the bottom docile of price-tangible book ratios and have a positive earnings outlook over the next two to four years.
According to GuruFocus Real-Time Picks, a Premium feature, Smith invested in 3.01 million shares of the Irving, Texas-based real estate investment trust for an average price of $10.52 per share, dedicating 1.15% of the equity portfolio to the position.
The hotel and motel REIT, which was spun off of La Quinta Holdings Inc. in second-quarter 2018 before it merged with Wyndham Hotels & Resorts Inc. (WH, Financial), has a $765.29 million market cap and an enterprise value of $1.72 billion; its shares were trading around $12.85 on Monday with a price-book ratio of 0.56 and a price-sales ratio of 1.11.
While the stock has tumbled approximately 53% from its market debut, GuruFocus estimates it has gained 5% year to date.
On March 21, CorePoint reported fourth-quarter and full-year 2018 financial results. The REIT posted an earnings loss of $3.17 per share on $199 million in revenue for the quarter, which was a 10.6% increase from the prior-year quarter. Comparable revenue per available room, a closely watched performance metric, grew 9.9% to $53.61.
For the full year, the REIT recorded a loss of $4.47 per share on $862 million in revenue. Comparable revenue per available room grew 4.7% to $58.67.
CorePoint’s board of directors also declared a quarterly dividend of 20 cents per share for the first quarter of 2019. It will be paid on April 15 to shareholders of record as of April 2.
Weighed down by declining revenue per share and a low cash-debt ratio, GuruFocus rated CorePoint’s financial strength 4 out of 10. In addition, the weak Altman Z-Score of 0.70 warns the company is at risk of going bankrupt.
The company’s profitability and growth scored a 5 out of 10 rating. While the REIT’s margins and returns are negative and underperform a majority of competitors, the moderate Piotroski F-Score of 4 suggests its operating conditions are stable.
With his purchase, Smith became CorePoint’s largest guru shareholder. Other gurus currently invested in the stock are Jeremy Grantham (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Portfolio composition
Smith’s $2.72 billion equity portfolio, which is composed of 61 stocks as of fourth-quarter 2018, is largely invested in the industrials and financial services sectors. As of the fourth quarter, the investor’s five largest holdings were AerCap Holdings NV (AER, Financial), Air France-KLM (AFLYY, Financial), Micron Technology Inc. (MU, Financial), Unum Group (UNM, Financial) and Kinross Gold Corp. (KGC, Financial).
In contrast, real estate stocks account for a mere 0.76% of Smith’s portfolio. His only other position in the space is MFA Financial Inc. (MFA, Financial).
Disclosure: No positions.
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