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Travelodge
Property News
20 January 2012

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Travelodge Update on Summer Trading
13 Weeks (1st June to 30th August 2011)
Strong Growth with Sales Up 15%

Trading

  • Total Sales Growth
    + 15% London +19% and Provincial + 14%
  • Like for Like RevPar
    +3% London +7% and Provincial +1%
  • Brand occupancy 83%
    +6 points London occupancy 90% (+ 2 points) and Provincial 81% (+ 7 points)
  • The impact of the London riots cost 2 percentage points of growth in the quarter

Efficiency

  • Reduced prices by 5% (£42 average room rate)
  • Despite continued high inflation, total costs per room (excluding rent) held flat with last year
  • Proforma Return on Capital Employed(2) continues to grow from last year's return of 16%

Growth

  • 22 new hotels opened to date –2415 rooms
  • 16 hotels to open by Christmas - 1,660 rooms
  • Created 180 jobs during the summer and recruiting 163 jobs before Christmas
  • 15 hotels exchanged during June to August (1432 rooms)
  • 10 million customers stayed with Travelodge in 2011 to date
  • Cautious outlook for the remainder of 2011

Travelodge CEO, Guy Parsons commented: "This has been a good summer for Travelodge with total sales growth of 15%, brand occupancy of 83% and 15 new hotel exchanges. Despite continued high inflation, costs per room were held flat with last year and our return on capital continues to lead the sector.

"Due to hefty financial cutbacks the Staycation break has been bigger than ever this summer with 35% of Britons holidaying at home. In response to this growing trend, we took a strategic decision to focus on increasing occupancy rates by lowering prices, funded by our efficient low cost base and allocated 1.5 million rooms at £19 or less. This resulted in our coastal, tourist cities and holiday hot spot Travelodge's achieving very high occupancy throughout the summer.

"Trading was, however, impacted by the recent riots, as 81 of our hotels were located in the affected cities. Over the two week period surrounding the riots, all of our hotels remained open, however, during this period we received more cancellations than bookings. Images of London burning and shops being looted flashing around the globe, stopped domestic and international travellers from leaving home and as a result our growth was lowered by two percentage points and cost the business a million pounds.

"We are under no illusion that Britons will continue to face tough challenges until the end of the year. Therefore we will continue to offer the consumer the best value to maintain occupancy. We have around 750,000 rooms available till the end of the year at £19 or less. We remain confident that with our strong pipeline of over eighteen thousand rooms; we are well placed to reach our targets."

The 15 new hotel exchanges that took place during this summer represent an investment of £105 million and will create around 380 new jobs. The locations include eight properties across London at: Clapham, Wembley, Cricklewood, Harrow, Tooting, Woolwich, Bethnal Green and Sutton. The other locations are: Woking, Newquay, Ipswich, Sunderland, Burton, Crawley and Hemel Hempstead.

 

Travelodge Hotels New Hotels Target List
October 2011

Click here to view the Travelodge target sheet

 

Travelodge National Park expansion
17 August 2011

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Travelodge Plans 178 Rooms
Property Week - 5 August 2011

Travelodge Plans 178 Rooms

Travelodge will open two hotels in developments that have been taken out of receivership in Altrincham and Ipswich.

In Altrincham's Grafton Centre on Stamford New Road, there will be a 91-bed Travelodge (pictured), in addition to offices and shops. Miller Developments will undertake the £10m revamp. In Ipswich, Investec will develop and 87-bed Travelodge hotel and a 16,000 sq ft ground-floor shop at its scheme at Duke Street.

Tony O'Brien, Travelodge UK development director, said: "I expect more stalled schemes will be presented to us."

Jenics advised Travelodge in Altrincham and Carter Jonas advised in Ipswich.

 

Hotel Development Update Presentation
'Insider' Breakfast - 19 May 2011
By Neil Bowler, Jenics

Jenics specialise in hotel development consulting, acting for both developers and occupiers and they have been instrumental in the provision of in excess of 6,000 branded hotel rooms, with a further 1500 rooms currently in solicitor's hands, mainly across the North West but also further afield.

A few facts and figures on this topic:

  • The tourist industry in the UK is worth £115 billion with 1 in 12 jobs employed in the tourism sector.
  • There is no definitive measure of the amount of rooms in the serviced accommodation sector in the UK, which includes hotels, B&B's, Youth Hostels, Guest Houses, Pub and Restaurant accommodation … but
  • The latest research suggests something in the region of 729,000 bedrooms with 54% of that stock provided by the unbranded independents, a market which has a variable pricing policy and quality issues. In the US for interest, only 31.5% of their market is operated by the independents.

Looking at the budget market as an example, the biggest players led by Premier Inn and Travelodge, provide less than 16% of the total bedstock in the UK, i.e. half market share to that in the established 'branded' US market.

There is therefore very good reason for the branded hoteliers to develop their brands. There are significant revenues to be generated from a large customer base and with capacity available in the market.

So why haven't the branded hotels taken over and occupied the same level of market share as their contemporaries do in the US and France for example?

Whilst there are a number of excellent unbranded hotels in the UK, historically the UK has been an independent market with the might of branding only coming to the fore in the last decade or so. There remains however a significant number of unbranded outlets offering dubious quality accommodation and service at varying price points.

Branded Expansion

There is an appetite for branded expansion across the UK, particularly by Travelodge and Premier Inn, both of whom aim to reach in excess of 100,000 beds. Other hotel groups also aim to significantly increase their brand market share, perhaps not to the same extent as Premier Inn and Travelodge, including, for example, Accor for Etap/Ibis/Novotel/Adagio, Intercontinental for Holiday Inn, Holiday Inn Express, Indigo and Staybridge, Hilton for Hampton, Double Tree, Jury's and Wyndham for Ramada, Ramada Encore.

Undoubtedly the last 3 years have seen difficult trading with occupancy and room rates (i.e. RevPar) having taken quite a hit. Since mid 2010 we have seen sporadic recovery on both of these measures bringing confidence and optimism back to the occupiers and giving them a renewed but cautious appetite for development.

So what makes it difficult, although not impossible, to achieve volume new openings?

It is as it always has been – Finance and access to it by operators and developers alike.

Our friends at the Banks claim business is 'as usual' but their criteria now vary from the heady days 2007/2008 where they used to ask:

  • Who is the tenant/operator?

Now they also ask:

  • Can the location sustain an hotel? i.e. feasibility report required to determine debt servicing.
  • What is the developer's track record?
  • Has the site got planning?

And increasingly important in this market:

  • What is the track record of the proposed contractor?

These questions are not inappropriate but perhaps some should have been asked in the early boom but that's another topic!

Unless you can satisfy the Bank's inquiries on these questions there is no point even considering trying to scrape together the 'mere 45-50%' of equity required to facilitate the development process.

So the question is therefore - Is the glass half full or half empty?

Glass Half Full Glass Half Empty

Despite the Bank's tightening their lending criteria; for the right product in the right location to the right occupier they will lend. However there is a strong appetite from Pension Funds in the hotel market, recent investment in Manchester alone by BP Ropemaker, British Steel Pension Fund, Scottish Widows, Aventis, Diagio – all happy to invest substantial funds for recognised covenants.

In addition, various 'investment consortia' and 'financial scheme' funds (such as BPRA) are active, eg. Regent Capital for Accor Adagio, Liverpool. Downing Finance for Sanguine Hotel schemes. National 'cash rich' contractors are also reviewing schemes from a funder/contractor role – basically to 'cashflow' the contracting business.

One of the biggest hurdles to development in reality for most operators, excluding the likes of Premier Inn and Travelodge and perhaps one or two other operators outside of London is their adherence to operating on management contracts or franchise agreements. Generally speaking, whilst the banks were becoming comfortable with these occupational agreements in 2007 and 2008, the lack of property security offered in the current market means that the ability to fund these is severely restricted even if the developer is prepared to fund 50% of development costs. The rewards are greater, but so is risk and (back to the Banks) they are severely risk adverse at this time. Their appetite to fund this market, despite good demand, is as you might imagine limited. Consequently, we see significant press releases about development of the budget brands, namely those taking leases and only limited commentary on development of the midmarket and franchisee schemes.

In summary therefore:

  • Market trends are improving.
  • Occupier demand and confidence is improving.
  • Opportunities still exist.
  • Construction costs are generally at a low (but rising).
  • The level of property values can be exploited by developers.
  • There is clearly capacity in the market to develop.
  • Affordable availability of finance remains restricted.