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Travelodge advances growth with 52-hotel lease deal
In a deal that sees its portfolio increase to 452 hotels, Travelodge has agreed to lease 52 properties at a cost of £91 million (US$139.9 million) from PRUPIM, the property investment arm of Prudential PLC. The 25-year lease to the budget hotel chain was made after U.K.-based pub group Mitchells & Butlers PLC sold 52 Innkeeper’s Lodges to PRUPIM with a total of approximately 2,000 rooms.
Travelodge, owned by Dubai Holding’s investment arm, has said the plan is to increase overall capacity from its current level of 30,504 rooms in 452 hotels (after the deal closes) to 70,000 rooms in approximately 1,000 hotels by 2020.
“We have an aggressive growth plan in place, and despite a very challenging market, we have chosen to invest and grow throughout the recession and for many more years to come,” said Grant Hearn, Travelodge executive chairman. “The prevailing economic climate has accelerated the forecasted structural change of the hotel market as consumers have chosen low-cost, quality accommodation rather than over-priced, full-service and mid-market establishments.
“Our growth strategy includes looking for new sites to build hotels, convert empty office buildings into Travelodge hotels, joint development partnerships with restaurants, supermarkets and pubs as well as acquisition of hotels.”
Hearn said Travelodge growth looks to be accelerating.
“This innovative deal with Mitchells & Butlers represents the whole of last year’s growth in one move, and we are keen to explore further opportunities like this deal with other similar businesses,” he said.
During the next four months Travelodge will spend more than £10 million (US$15.4 million) converting the Innkeepers Lodges to the brand. Travelodge has committed to seek to retain all 430 staff within the deal, while also recruiting a further 115.
M&B is one of the largest operators within the U.K.’s £70-billion (US$107.5 billion) eating-and-drinking-out market with brands and formats including Harvester, Toby Carvery, All Bar One and O’Neill’s.
As the first step of a plan to sell selected assets and focus on expanding others, the company aims to use the cash generated to move away from traditional drink-led pubs and focus more on full-service food establishments.
Commenting on the transaction, Adam Fowle, M&B’s chief executive, said in a release: “This transaction is in line with our strategy of disposing of the non core assets and focusing the business on expanding the number of sites of our market leading restaurant and pub brands which have significant growth potential.”
The 52 hotels generated a profit of £9.5 million (US$14.6 million) for M&B in the year ending September 2009, representing an operating income multiple of 7.9 on the gross lodge proceeds, with the net book value attributable to the lodges at £93 million (US$142.8 million).
Travelodge already has built a number of hotels alongside pubs of Marston’s PLC, which owns and runs more than 500 pubs across England and Wales, and have stated interest in exploring further opportunities in operating hotels alongside pubs. All of the newly leased hotels are next door to Mitchells & Butlers’ restaurants and pubs. Within the deal, PRUPIM is also buying eight of M&B’s pubs, inseparable from the hotels, and leasing them back to M&B for 25 years.
The transactions with Travelodge and PRUPIM are expected to complete on 10 August 2010.
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