Secure Income Reit has withdrawn its portfolio of Travelodge hotels for sale, despite reports that a deal had been struck with Aroundtown.
The company said that none of the “multiple bids” received “reflected the potential for value recovery once the pandemic has subsided”.
SIR will maintain the current arrangements following the recent CVA, whereby the leases of its 123 hotels portfolio remained in place on the same terms and conditions, with a short term reduction in rent.
SIR said that it had undertaken discussions with several third party hotel operators in order to ascertain whether there were opportunities to enhance shareholder value in relation to the Travelodge portfolio. It said it had concluded that Travelodge remained “one of the best in class operators in the low-cost hotel sector and the terms offered by any replacement would carry unacceptable risks for the company”.
Under the terms of the CVA, in 2021 SIR was due to receive £19.8m of rent from Travelodge and in January 2022 the rents will revert to the full contracted level. Travelodge hotels represented approximately 19.6% of the group’s portfolio value of £1.96bn as at 30 June.
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 SIR from any consequential yield compression.
"SIR 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.”
Insight: And just as we were wondering which brand Aroundtown would go with, the portfolio vanished in a puff of air, leaving only bewilderment. It was understood by this publication that a price of £380m had been agreed, wildly seen as a good result which made Nick Leslau one of the only winners in this pandemic.
What turned his head? A sweetening of the deal from Travelodge, which has been turning on the charm for owners in recent weeks? Or - dare we say it - long-term faith in the hotel sector?
What does this mean for the other owners? Will they take SIR’s support as a sign they too should stick with the beleaguered brand? Stay tuned for the 18 November deadline.