• Travelodge deal puts bricks and brains together

A portfolio of 144 Travelodge hotels has changed hands in a GBP500m deal that sees the company’s operational owners take an interest in the group’s real estate too.

The package of properties was put up for sale via agents CBRE, by a four member consortium including Prestbury Investment Holdings, West Coast Capital, Aldersgate Investments and Lloyds Bank. The group also concurrently disposed of a package of 63 pubs located around the UK.

The consortium buying the Travelodge properties brings together Goldman Sachs, Goldentree Asset Management and Avenue Capital, which each have a one third stake in the portfolio. The three are already the owners of the Travelodge brand and operating business, having taken control when the company was forced into a corporate restructure in 2012.

For now, the properties are remaining in a separate vehicle, which will receive an index-linked rental from Travelodge’s operational business, under existing lease agreements.

Since its corporate restructure, Travelodge has been keen to demonstrate that it is a tenant with a good covenant, and that therefore its hotels make good investments. And, having divested itself of unprofitable parts of the estate through the restructure, growth has started once more with new openings. Recent deals have seen Redefine International pay GBP10m for a 132 room hotel in Enfield, with a 33 year lease giving the buyer an initial 5.5% yield; while an £11m deal in Wycombe was bought by Legal & General for a pension fund, with an initial 6.8% yield on an index-linked lease with 22 years to run. 

Speaking about the portfolio deal, Travelodge chief executive Peter Gowers said there had been strong interest in the assets, which are believed to have attracted bids from other private equity players. He said the company was well on the way to recovery, having largely completed a refurbishment of the estate across the UK, refreshing and upgrading guest rooms.


HA Perspective [by Chris Bown]: At Accor, Sebastien Bazin has his team running around, buying up hotels that Accor leases, having just added a package in the UK. Now, it appears the investors that took hold of a restructured Travelodge are following the same strategy. Will they buy more?

In snapping up a portfolio of almost one third of the group’s properties, the buyers have demonstrated their confidence in the upswing the business is set to enjoy, as the benefits of refurbishments kick in, and the stronger UK market allows Travelodge to ease up its previously rock bottom room rates. As Premier Inn has demonstrated in this rising market, with predominantly direct web bookings, smart pricing can take advantage of rising demand to considerably enhance margins. Travelodge operates a similar model, albeit at a price point consistently below that of Premier Inn.

Ownership is also a defensive play. Not only does it keep the portfolio out of the hands of rival private equity investors, it will also give the trio the opportunity to regear or replace the leases to suit their needs. Potentially, the combination makes both the opco and the propco more valuable.

The acquisition also gives the option of riding the real estate investment market. As in the US, new construction in the UK market continues to be restrained due to a lack of development finance, with some commentators thinking this restriction could take up to five years to significantly ease. Should the Travelodge trio choose to sell, in a couple of years, then it will only be at a yield which tells the market that the Travelodge hotel business has fully returned to health, and can be considered a blue chip tenant once more.

What the deal does not appear to signal, is the end of the hotel lease. Travelodge is still proudly announcing the leases it has signed – and the price investors are prepared to pay for their covenant.

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