Secure Income REIT to keep Travelodge hotels

Secure Income REIT has decided not to sell or replace any of its 123 Travelodge hotels following a review. It is to instead continue with its lease arrangements agreed during the hotel firm’s CVA. Under the terms of the CVA, Secure Income REIT is to receive £19.8m in rent in 2021 from Travelodge. In January 2022 the rents are to revert to the full contracted level. Secure Income REIT said that while multiple bids were received for the portfolio, “none of these offers reflected the potential for value recovery once the pandemic has subsided” so it had decided not to pursue a sale. The firm added that it had also held talks with several other hotel operators as part of its review to determine whether there were other options but found that the terms likely to be offered by any replacement operators “would carry unacceptable risks”. Secure Income REIT 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.” Moore added: “While 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.” Travelodge represented around 19.6% of Secure Income REIT’s £1.96bn portfolio value at the end of June. The firm added in its update that it had uncommitted cash of £220m and a net loan-to-value ratio of 35.3% in June with “robust shock absorbing debt covenants”. In its first-half results in September, Secure Income REIT reported a 6% drop in the value of its portfolio to £1.96bn, with 79% of the net decline in its property valuation attributable to the Travelodge CVA.   To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette