Will it be day of the jackal for Travelodge? 

Who will buy Travelodge for ONE BILLION POUNDS *Austin Powers finger*? Yes, the news pendulum has, with the inevitability of gravity, swung back to the budget sector and, in the UK, news means Travelodge.

The group enjoyed a refinancing in April, which was of only passing interest to the sector, but now owner GoldenTree, which recently sucked up the stakes held by Avenue Capital and Goldman Sachs, is sounding out investment banks with a view to scoring £1.2bn. 

Regular viewers will recall that in 2015 the brand was making IPO noises, which didn’t go anywhere and then five years later we spent our first pandemic summer enjoying a more familiar pastime: a Travelodge CVA. There was plenty of public spitting and hissing and pulling out of feathers and, at one point, everyone who was even casually passing the sector was lining up to pick apart the carcass.

In the end, landlord Secure Income Reit (now merged with Lxi Reit) – which provoked a fair amount of the spitting/hissing, decided that it did like Travelodge and, although a dollop of hotels were lost to the likes of Lionel Benjamin’s innovative Ago Hotels model, it was business as usual.

The hints were always there. At the start of the spitting/hissing, Secure Income Reit had said: “Until the pandemic struck, Travelodge had substantial earnings and significant operating cash flows, and we consider that this business has considerable equity value as well as long-term viability.” 

There has been no comment from the Reit on this latest news (In January Travelodge completed a lease regear on 97  of the 122 Travelodge hotels which they acquired as part of the Secure Income REIT acquisition. Travelodge negotiated new caps and collars on rent reviews to limit rental increases during high inflation periods and lease extensions averaging 9 years for all 122 hotels. Previously the rent increases were based on uncapped RPI, but have now been converted to CPI+0.5% with a  cap (maximum uplift) of 4% and a collar (minimum uplift) of 1%.). So they won’t be agitating any time soon. 

Does Travelodge look like a long-term bet still? Last year the group reported underlying revenue up 25% (against, well, 2019) to £909.9m and adjusted Ebitda of £212.9m, up £83.8m on 2019. Occupancy was close to flat at just over 80% with six openings taking it to 45,781 rooms across 595 hotels. Eight hotels are due to be added this year and the company has a target of 300 new locations. 

Jo Boydell, CEO, said: “We continue to evolve our brand offering and we are making good progress in upgrading our estate to the new premium budget-luxe hotel design that we launched last year.

“While the current macro-economic environment creates some uncertainty, the budget hotel segment has proven resilient as consumers continue to search for great value options within the marketplace – such as those offered by Travelodge. Looking ahead, we remain confident in the long-term prospects for Travelodge and excited about our future growth opportunities.”

It’s fair to say that even the most average hotel having rates most assuredly do not appeal to the consumer in terms of value. As the large global players have noted with their recent launches, pennies are being pinched. There is room for real budget hotels again.

Will one of those groups be looking to pick themselves up a new brand? At £1.2bn, it might just be a little bit punchy for Marriott International, just to acquire a big piece of the UK budget market. 

What seems more likely is the dull option, which is that a private equity house will come in and buy the brand and enjoy the regular Travelodge cycle until it decides to flog it on, a couple of CVAs down the line.

But let’s look at that list of companies which were hoping to pick apart the carcass in 2020 and wipe the brand out, replacing it, cuckoo like, with their own: Accor, Marriott International, InterContinental Hotels Group, Hilton, Jury’s Inn and Magnuson Hotels were all taking a look. We all remember the call featuring Sébastien Bazin and some owners confused about who would replace the mattresses. Even Whitbread was getting the slide rule out.

What held Whitbread and one of the other big US groups back was the lack of consistency across the estate. One hotel was very much not like an other, to the extent where they were given different rankings. This disparity meant that no one group wanted them all. The cost of upgraded many was too prohibitive.

This is what may well keep Travelodge up there as a brand. It is certainly what will keep those listed above monitoring its performance closely. Jackals? It’s rough out there in budget land. 

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