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LXI REIT extends leases of 122 Travelodge hotels

Secure Income REIT SIR

LXI REIT has renegotiated the leases of the 122 Travelodge hotels, extending the weighted average lease length by a further nine years.

The portfolio of hotels was acquired by LXI as part of the Secure Income REIT merger. In return for the nine year extensions (which extends the weighted average unexpired lease term to first break (WAULT) on the hotels from 19.5 years to 28.5 years and increases the WAULT of the total LXI portfolio from 25.6 years to 27.3 years) the company has inserted caps and collars on the annual rent reviews.

Previously the rent was increased annually at RPI, but has been converted to CPI+0.5% with a cap (maximum uplift) of 4% and a collar (minimum uplift) of 1%. The company said that the change in rent review profile was also designed to ensure that the rents remain affordable over time and avoid becoming potentially over-rented versus market rents. The new collars also provide uplifts in lower inflationary environments.

It added that its valuer has indicated that the lease extensions would have a material positive impact on asset values. 

Green lease provisions

The company has also taken the opportunity to agree “green lease” provisions within the Travelodge leases, including to effect the following principles:

  • sharing of energy, water, recycling and waste data;
  • co-operating on the environmental, social and governance strategies of the landlord and tenant; and
  • future proofing the leases to ensure the landlord has the necessary rights to enter the properties to make environmental performance improvements.

Rent-smoothing

The company and Travelodge have also agreed the “rent-smoothing” of these 122 hotels. This means that the individual rent levels have been reset per hotel to best reflect the trading performance of each site. The total rent across the hotels remains the same, but has been “smoothed” on a site by site basis, to ensure that each hotel has a robust stand-alone rent cover. 

Simon Lee, fund manager, commented: “We’re delighted to have worked so effectively with Travelodge to execute this material and accretive lease extension and rent-smoothing exercise, whilst inserting green lease provisions. This transaction is the latest step on our plans to unlock further embedded value from the merged LXI/SIR portfolio, following the earnings and NAV enhancing Merlin “income strip” transaction which completed in October this year.  Our expanded portfolio has defensive characteristics and further potential for value accretive asset management opportunities which we are also actively exploring. This will be supported by our proactive accretive recycling of capital and wide range of refinancing options to enable us to continue to underwrite our progressive dividend policy and deliver outperformance for our shareholders.”

LXI : LXI REIT extends leases of 122 Travelodge hotels

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