Travelodge to rationalise number of UK hotels

Travelodge, a US-based budget hotel chain, is to shed a number of its UK properties.

The hotel chain is to shed up to 10 percent of its 500 properties in the UK, and intends to reduce its rent bills on another 100 or so. The rationalisation comes in the wake of the group’s previous owners, Dubai International Capital, handing over control of Travelodge to US bankers, Goldman Sachs, and US hedge funds Golden Tree Asset Management and Avenue Capital, in a debt for equity swap.

Most of the 500 properties in question are not owned by the company, but rented, and it intends to find new owners for 49 of them, having also asked accountancy firm KPMG to negotiate rent reductions with 109 more.

The company saw an increase in profit of 20 percent, to £55m last year, but KPMG is still to ask creditors to write off £720m of Travelodge debt. Unless 75 percent of the company’s unsecured creditors agree to the deal it will go into liquidation.

The company’s problems are rooted in 2005, when Dubai International Capital acquired it in a £675m leveraged buyout from Permira, a private equity group, in a deal that loaded the company with £475m of debt. That debt has been costing the business £100m per year in interest ever since, limiting money for investment and refurbishment, despite the company achieving a 16 percent annual increase in revenue, culminating in a total of £370m last year. Dubai IC is set to lose £400m on the original deal.

The company still had plans for expansion, even up until January this year, when it announced that it would be opening 41 properties towards a long-term objective of operating 1,100 properties and 100,000 rooms.