Heavyweight Investors Jostle for 123-asset Travelodge Portfolio

Main Photo: The Travelodge Birmingham Central, one of the 123 Travelodge hotels owned by Secure.

Date: September 2020

Locations: 30% of the assets are located in Greater London and the South East, whilst 58% are located in the South West, Midlands and the North West, including properties in Bath, Birmingham, Edinburgh and Manchester, UK.

Name: Travelodge Hotels

No. of Keys: 6,500

Owner: Secure Income REIT, led by Nick Leslau, the chairman of its investment manager Prestbury, instructed CBRE and Eastdil Secured in July to advise the company on the merits of selling the portfolio, replacing Travelodge with an alternative operator or retain the company as the occupier.

Buyer: A shortlist of six investors are through to the second round of bids. It started with the landlord break clauses, brought about as a result of the Travelodge CVA, which have given Secure Income REIT an opportunity to explore options for maximising value. 

Secure’s options include an outright sale, lease restructuring or staying with Travelodge on current terms remain on the table. A shortlist of investors and operators have been taken through to the second round of bids for the Travelodge portfolio. 

Six parties are understood to have made it through to the penultimate stage of bidding, including Aroundtown; Henderson Park; London & Regional; Davidson Kempner; the newly formed Goodnight Hotels working with Kimmre and Interstate, as well as a private family office.

Bain Capital, Oaktree and TPG were all among the first round of bidders that have not progressed to the latter stages. While the 123-asset, 6,500-bed Travelodge portfolio was last publicly valued in June at £385m, it is not yet known – if it is decided to sell the properties – where pricing will end up given the varying basis on which the parties are bidding.

The runners and riders comprise a mix of investors and operator-owners. While 119 Travelodge assets are subject to landlord-only break clauses on 19 November, the remaining four assets have no lease breaks and are therefore of less interest to operators.

The portfolio provides a rare opportunity for an operator to instantly become the fourth largest player in the UK budget hotels sector through any transaction for the whole portfolio.

It is now looking increasingly unlikely that Secure Income REIT will opt to switch operators given that two-thirds of Travelodge’s landlords by 2019 EBITDA cannot or will not exercise break options prior to the November deadline. Up until the pandemic, Travelodge was producing record results for five straight years and enjoying some of the hospitality sector’s best REVPAR growth.

“We set out in our interims that the landlord break clauses, which arose as a result of the recent Travelodge CVA, provided an opportunity for us to explore options for value maximisation,” Leslau told React News. “These options continue to be explored and we are carefully weighing them up. We won’t be providing a running commentary on those but it may take several weeks to come to a final decision.”

Travelodge’s negotiations to introduce rent-free periods amid the pandemic, which were ultimately approved via a Company Voluntary Arrangement (CVA), have been a poster child for the break down in relations between private equity owners and landlords during lockdown over who should foot the bill for the damage done to the leisure sector.

The CVA, rubber-stamped in June, was unusual in that unlike other CVA processes, Travelodge did not discard any of its hotel leases or reduce its rental commitments, instead agreeing to rent-free periods before reverting to pre-COVID rental levels by January 2022 and move from quarterly to monthly payments.

“Travelodge is certainly one of the best-known hotel brands anywhere and the management team is very strong,” Leslau added. “What they encountered was, like so many others, a short-term cash flow hit with the near entire estate of 550 hotels having to close down. I had a very public ding dong as a result of my views of the conduct of the company’s shareholders not management.

“We have been closely involved with Travelodge for some sixteen years and continue to hold that group in high regard whatever the outcome of our decisions regarding SIR’s future.” Last year the portfolio generated £28.3m in rent and has a current unexpired lease term of just under 21 years with five yearly RPI uplifts.

Based upon this rental level, the asking price reflects a yield of around 6.3%. However, under the terms of the CVA, Travelodge, if kept in place, would pay a reduced rent of 32.3% for the remainder of the year and 73.9% during 2021.

THPT Comment: Well, the Travelodge CVA did not go the way it’s owners had hoped, with serious players, like Secure, not unnaturally, did not take the news lying down.

First Seen: React News

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