Skift Take

Travelodge's problems stem not from a lack of demand or a dislike of its services, but some wacky financial moves that began before the financial collapse and have yet to gain the proper footing again.

Budget hotel chain Travelodge made a pre-tax loss of £71.1m during its “annus horribilis” last year, accounts show.

Losses more than halved from £148.1m in 2011 but the figures, just filed at Companies House, highlight the challenges that faced Grant Hearn, the group’s outgoing chief executive, as he steered Travelodge through a debt-for-equity swap and company voluntary arrangement last year.

Wall Street hedge funds GoldenTree Asset Management and Avenue Capital Group took control of the low-cost hotel operator last autumn, along with Goldman Sachs, through a debt-for-equity swap.

Travelodge, which was bought by Dubai International Capital in 2006 in a debt-fuelled £675m deal, had been forced to seek an emergency loan from lenders at the start of 2012 as it struggled to keep up with interest payments on £635m of bank debt and a £482m bond.

Accounts for Travelodge Hotels Limited, the principal trading company for the hotel operator, show that it generated £391.4m in turnover last year, up from £369.5m the year before.

The company, which was in 1985 the first budget hotel brand to launch in Britain, also made a small operating profit in the year to December 31. But exceptional charges of more than £85m, including £41.1m relating to the financial restructuring, pushed it £71.1m into the red at a pre-tax level. The exceptional costs also included £27.3m of fees paid to advisers.

As part of the restructuring, £235m of bank debt was written off, as well as the £482m bond.

Last year’s restructuring was also dependent on a company voluntary arrangement, which allowed Travelodge to reduce its rent on 109 of its 520 hotels by 25pc, while some sites were also transferred to different operators.

Accounts for Travelodge’s new parent company, Thame and London Limited, show the group had debts of £431.7m as of December 31, compared to more than £1bn prior to the restructuring.

The company is now confident it can put its annus horribilis behind it and has drafted in several new directors, including leisure industry veteran Brian Wallace, previously of Ladbrokes and Hilton, to expand the company.

As part of last year’s restructuring, the new owners agreed to pump £57m into Travelodge to refurbish tired rooms. Results from the revamp have been so successful, according to the group, that a further £20m has been committed by the owners to accelerate the programme.

A Travelodge spokeswoman said the revamp has had an “enormous impact” on the growth of the business this year. Revenue per available room – a key performance measure – has grown by 10pc at the 132 hotels already refitted. Travelodge has outperformed competitors in the past quarter, the spokeswoman said, while the chain has also succeeded in attracting more business customers.

The group is currently searching for a new chief executive after Mr Hearn announced in July that he would step down following a decade with the hotel operator.


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Tags: budget, earnings, travelodge

Photo credit: A 'family room' in a UK Travelodge Karen Bryan / Flickr

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