Travelodge completes lease regear with its biggest landlord

Budget hotel chain Travelodge has announced the completion of a lease regear with its largest landlord, LXI REIT.

On 27 January, the business completed the regear on 97 of the 122 Travelodge hotels LXI REIT acquired as part of the Secure Income REIT acquisition last year, with the remainder subject to agreement by the superior landlords.

As part of the regear, Travelodge has negotiated new caps and collars on rent reviews to limit rental increases during high inflation periods and lease extensions averaging nine years for all 122 hotels. Previously, the rent increases were based on uncapped RPI, but have now been converted to CPI+0.5% with a cap (maximum uplift) of 4% and a collar (minimum uplift) of 1%.

The regear also included rent smoothing across the portfolio, resetting rent levels for the 122 hotels to reflect the trading performance of each site. The total rent across the hotels will remain the same but has been smoothed on a site-by-site basis, "to ensure that each hotel has a robust stand-alone rent cover".

Meanwhile, new green lease provisions will include:

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

Travelodge also announced its 2022 financial results, which were "significantly ahead" of 2019, driven by strong levels of domestic leisure demand and a rapid recovery in ‘blue collar' business demand, with a more gradual recovery in ‘white collar' corporate demand.

Total underlying revenues for the year were up by around 25% on 2019 levels and Travelodge delivered "record" profits in the year with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) expected to be between £210m and £215m, compared to £129.1m in 2019.

The group said strong leisure and ‘blue collar' business demand had continued in the first weeks of 2023, as customers continue to prioritise travel and seek value in tough economic times.

Meanwhile, administrators for Travelodge's Company Voluntary Arrangement (CVA) have also issued their final report, confirming the CVA has now been fully implemented and is now formally at an end. Based on the expected EBITDA range the business said it expected to make a one-off payment under the excess cumulative EBITDA landlord rent payment clause shortly after it publishes its 2022 audited annual report and accounts.

Jo Boydell, Travelodge chief executive, said: "We are delighted to announce record results for 2022, with our eighth consecutive year of revpar growth outperformance against our competitive segment and EBITDA significantly ahead of 2019 levels. Strong trading has continued into the first few weeks of 2023 with leisure and ‘blue collar' customers continuing to prioritise travel and seek out value in tough economic times.

"We are also very pleased to confirm the completion of a mutually beneficial lease re-gear with our largest landlord, LXI REIT, which caps future rent increases and includes green lease clauses to support our sustainability plan 'Better Future'."

Travelodge opened its first hotel in 1985 on the A38 Burton under Needwood. Today the UK's second largest hotel chain, it operates 595 hotels across the UK, Ireland and Spain.