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Travelodge takes on 52 hotels in £91m M&B deal

15 July 2010 by
Travelodge takes on 52 hotels in £91m M&B deal

Travelodge is to take on 52 more hotels as part of a deal which saw pub operator Mitchells & Butlers (M&B) sell its ‘lodge' businesses for a total of £91m to real estate manager Prupim (part of Prudential).

The lodges, all of which are adjacent to the company's restaurants and pubs, offer a total of 2,000 rooms.

Travelodge has entered into a 25-year deal to operate and lease all 52 lodges from Prupim.

The lodges and associated leases will be sold for £75m, while eight restaurants and pubs that are inseperable for the lodge buildings will be sold for £16m and leased back to M&B.

The pub firm said that the 52 lodges generated earnings before interest and tax of £9.5m for the year ended 30 September 2009, which means that the deal represents an EBIT multiple of 7.9x on gross lodge proceeds.

Meanwhile M&B will pay an annual rental charge of £1m on the eight pubs, which is 42% of their EBITDA.

As part of the transaction, M&B will also pay a one-off initial £3m contribution to the rental charge for the lodges. The net sale proceeds of £88m will be used to reduce the company's debt and fund further capital investment.

The deal will boost Travelodge's estate to 452 hotels and increase its room stock to 30,504.

Travelodge will seek to retain all 420 staff from Mitchells & Butlers and will look to recruit a further 115 positions, including 25 hotel managers. The company will now embark on a £10m investment programme to convert the hotels to bring them in line with the company's brand. This will cover the cost of building new reception areas, replacing all the beds and decorating the hotels.

Travelodge's executive chairman, Grant Hearn, said: "This innovative deal represents the whole of last year's growth in one move and highlights Travelodge's excellent position coming out of the recession. We have an aggressive growth plan in place and with this acquisition we are on track to more than double the size of Travelodge hotels over the next ten years. We hope to explore further opportunities like this deal with other similar businesses."

Commenting on the move, Adam Fowle, Chief Executive, said: "This transaction is in line with our strategy of disposing of the non core assets and focusing the business on expanding the number of sites of our market leading restaurant and pub brands which have significant growth potential."

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By Neil Gerrard

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