Secure Income REIT will not terminate Travelodge’s lease at its 123 sites (which it had the right to do as part of the terms of the hotel chain’s CVA) after running a sales process of the portfolio and attempting to re-let them.
The company will maintain the current arrangements following the recent CVA, whereby the leases of its 123 hotels portfolio remain in place on the same terms and conditions, with a short term reduction in rent. Under the terms of the CVA, in 2021 Secure Income REIT is due to receive £19.8m of rent (70% of previous level) from Travelodge and in January 2022 the rents will revert to the full contracted level.
The company ran a sales process on the Travelodge portfolio, which represents around 19.6% of the company’s portfolio value of £1.96bn as at 30 June 2020, and said it received multiple bids supporting the 30 June 2020 valuation. However, it said none of these offers reflected the potential for value recovery once the pandemic had subsided and consequently did not pursue this option.
It had also been in discussions with several third party hotel operators to re-let the hotels but concluded that “Travelodge remains one of the best in class operators in the low cost hotel sector and the terms offered by any replacement would carry unacceptable risks”.
Chairman Martin Moore said:
“We have carried out a thorough review of the options available to the company and are satisfied that Travelodge remains a market leading operator, albeit with ongoing capital constraints in the same challenging market facing all hotel businesses. Its trading trajectory in the months following national lockdown illustrates how the best operators in the budget hotels sector should be the first to recover once the pandemic subsides. We are very alert to the challenges facing the industry but, with our hotels held at close to vacant possession value and with rents reverting to 70% of the previous full contracted amounts in 2021 and the full amount by January 2022, we believe that provided sufficient capital is made available, Travelodge should benefit materially as the economy recovers, as should Secure Income REIT from any consequential yield compression.
“Secure Income REIT held uncommitted cash of £220m and a net loan to value ratio of 35.3% as at June 2020 with robust ‘shock absorbing’ debt covenants. Whilst there are clearly major hurdles ahead to jump over in the coming months, we take encouragement from the sense that we are more likely to be closer to the end of the pandemic than the start.”
SIR : Secure Income REIT to stick with Travelodge