Travelodge is lined up for a sale that could value the budget hotel chain at more than £1 billion only three years after its rescue from the brink of collapse.
Its owners — Goldman Sachs, Avenue Capital and GoldenTree Asset Management — are understood to be preparing to appoint advisers to weigh up strategic options, including a flotation, on the back of soaring profits and a surge of interest in the hotel sector.
City sources say that the company has been talking to investment banks including Deutsche Bank, Jefferies and Goldman Sachs, with a sale in the next nine to twelve months seen as the most likely option.
The main trigger has been the upturn in performance. Today, Travelodge will unveil a 63 per cent jump in underlying earnings last year to £66.2 million from revenues up 14.9 per cent to £497.2 million. Revenue per available room (revpar) — the key industry metric — was up 16.8 per cent to £34.24 as occupancy and room rates both improved.
Crucially, strong trading has continued since the year’s end, with revpar up 17.6 per cent in the first quarter and 2015 underlying earnings forecast to increase to at least £90 million. With next year’s earnings tipped to reach £115 million, analysts are forecasting a price tag for Travelodge of at least £1 billion.
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One issue its owners face is whether to fold in a property package of 144 Travelodges acquired last August from a consortium led by Nick Leslau’s Prestbury Investment Holdings for about £500 million. Although they are held separately, with Travelodge paying an RPI-linked rent to lease them, analysts said that the properties could be included — potentially boosting the price to more than £1.6 billion.
Avenue, Goldman and GoldenTree grabbed the Travelodge keys from Dubai International Capital in 2012 in a financial restructuring that reduced its borrowings of £1 billion to less than £400 million and enabled it to shed about 48 unsustainable leases.
A key factor in the restoration of Travelodge’s fortunes has been the decision to back an investment programme worth nearly £100 million, which is now 90 per cent complete.
As part of the turnaround, led by Peter Gowers, its chief executive, Travelodge has returned to the expansion trail. It has 501 hotels in the UK, with 15 openings in the pipeline this year, and Mr Gowers said the rate of openings would rise to 20 to 25 a year.
It also has five hotels in Spain and eleven in Ireland, but Mr Gowers said the immediate focus was Britain, where there was scope for another 250 hotels. “The value market is going gangbusters,” he said. “Britain is steadily becoming a nation of value shoppers as people migrate to brands such as easyJet and Aldi, and the hotel market is slap bang in the middle of the revolution.”
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Another factor in Travelodge’s favour has been the gradual move upmarket of its biggest rival, owned by Whitbread. “Premier Inn has an average price per room of £59 versus £45 for Travelodge,” he said. “It’s a big gap and it’s bigger in London. They’re gradually putting more stuff in the rooms and they’re competing, very successfully as it happens, with the midmarket.”
Asked about the possibility of an exit by Travelodge’s backers, Mr Gowers said: “They’ve said themselves they are not natural long-term holders, but that’s a subject for them.”