Midlands’ landlords have been hit with a wake-up call following Travelodge’s Corporate Voluntary Arrangement (CVA).
The budget hotel operator is seeking to offload more than a dozen of its hotels in Birmingham and the West Midlands.
Travelodge, currently the largest hotel brand in Birmingham, is aiming to transfer the leases to other operators as part of a CVA and a financial overhaul designed to address its £700million debt pile.
The affected hotels are:
Birmingham Fort Dunlop
Birmingham Walsall
Birmingham Maypole
Redditch
Wolverhampton Central
Stratford Alcester
Birmingham Central
Birmingham Central Broadway Plaza
Birmingham Perry Barr
Bromsgrove
Coventry
Birmingham Frankley M5 Southbound
Birmingham Hilton Park M6 Southbound
Birmingham Dudley
The 14 West Midlands’ hotels are among 49 across the country, and 30 per cent of Travelodge’s 505-strong portfolio, earmarked for transfer.
Under the CVA agreed between the budget chain’s landlords and creditors, and Travelodge investors GoldenTree Asset Management, Avenue Capital Group and Goldman Sachs, a six-month rent reduction of 55 per cent has also been negotiated on these properties.
Jonathan Wren, a director and head of the hotels team at Colliers International in Birmingham, said the move was a wake-up call for the property industry.
He added: “During the recession Travelodge, alongside Premier Inn, have been the go-to names for developers looking to attract a hotel to their site. These two operators have had massive expansion programmes and boasted strong covenants. They are also the only significant names that run on a leasehold model, typically taking 25 years.
“However, because these brands have basically had the market to themselves, the banks have perhaps taken too optimistic a view of Travelodge’s covenant strength. As a result, Travelodge was allowed to over-borrow and consequently became over-geared.”
Its financial make-over has left Travelodge with a more manageable £329m of debt on its balance sheet. As a result, Mr Wren says Travelodge is still looking to expand. It has 52 new sites across the country which will continue to be developed, and the operator still has active requirements for development sites. Its rival, Premier Inn, continues to perform well.
As far as Birmingham and the West Midlands is concerned, Mr Wren says it will be business as usual for visitors to the city.
“Travelodge’s troubles are financial, not operational. They are likely to find buyers for their sites. I doubt we will see the number of beds drop.”
For property developers, however, Travelodge’s woes are a reality check.
Mr Wren said: “I’m afraid that some developers have come to think of the hotel sector as something of a ‘white knight’, particularly as office lettings have slowed and landlords have sniffed the potential of an alternative use for redundant business space. However, the regional hotel market remains highly competitive and, as recent months have shown, it is a complex and challenging business.”