144-hotel Grove sale bodes well for Travelodge
20 AUGUST 2014 10:34 AM
The sale of the 144-hotel Grove Portfolio, the U.K.’s last large debt-acquisition portfolio, has been completed. Travelodge executives are bullish this is another step in the company’s recovery.
REPORT FROM ENGLAND—A package of 144 United Kingdom Travelodge hotels, known as the Grove Portfolio, has been sold to a consortium of investors—Avenue Capital Group, GoldenTree Asset Management and Goldman Sachs—for an estimated £500 million ($833.5 million) to £520 million ($867 million), according to reports.
The three consortium members, each purchasing an equal one-third stake, bailed out Travelodge in 2012 with a debt-for-equity restructuring that included writing off £235 million ($388 million) of debt.
Of the 144 properties, approximately half are in the southeast of England, 11 of which are in London. They were on the market via Aldersgate Investments, Lloyds Bank, Prestbury Investment Holdings and West Coast Capital.
According to information sent to HNN by Travelodge, the portfolio’s hotels deliver “£35.5 million ($59.18 million) in annual rent and (have) a weighted average unexpired lease term of 29.4 years.” The average cost price for each of the portfolio’s 8,256 keys is approximately £63,000 ($105,000).
Appetite for acquisition
Sources were not aware of any unsold portfolios the size of the Grove deal remaining in the U.K., an indication of the general hotel-sector bounce back from the recession.
Graham Craggs, managing director of Jones Lang LaSalle’s hotels and hospitality division, said the Travelodge deal was a continuation of the increasing interest in this type of debt-acquisition deal in the United Kingdom and where such appetite is particularly strong in the hotel sector.
“The timing of the deal, I think, is very good for the vendors, who probably would not have been able to secure that price 12 months ago. A lot of private equity is interested in these deals, particularly from the United States,” Craggs said.
“This deal is reflective of the nature of those properties’ lease structures. What has been sold is their freehold interest, and the price per key is specific to this deal,” he added.
The portfolio sale’s process was part of a competitive, widely marketed auction that initially included 10 interested parties, according to Travelodge.
The company’s statement said the final price of the portfolio was not disclosed but that it was a “fair and full price, with interest dominated by U.S. capital and second round bids in excess of £500 million ($833.5 million),” with the individual properties offering “investors retail price index-linked, five yearly, upward-only rent reviews over nearly 30 years, aligned to the business performance of (Travelodge).”
Peter Gowers, Travelodge’s CEO, said in a statement sent to HNN that the recently beleaguered company had “in the past 18 months … invested £57 million ($95 million) in modernizing our hotels, helping … deliver strong growth. We are outperforming the market, and the strength of the business is reflected in the strong interest we see from real estate institutions in developing and owning Travelodge hotels.”
Gowers was appointed to the role last November.
“The budget sector in the United Kingdom at the moment is particularly strong, and this deal is Travelodge taking part and riding on the crest of the wave,” said Russell Kett, chairman of the London office of global hotel valuation and consulting business HVS.
The economy and midscale sectors in the U.K. reported growth of 12.5% in revenue per available room in pound terms through the first seven months of the year, according to data from STR Global, sister company of HNN. Average daily rate and occupancy during the same period were up 9.1% and 3.2%, respectively.