Net Leased Travelodge Hotel In London Trades at 6% Yield

Property Week - February 20, 2008

A consortium of private investors this week bought a Travelodge hotel in the City of London with 70% leverage.

The consortium of around 10 wealthy investors – seven of which are east African and three of which are UK based – was led by investment manager Aprirose Real Estate. It paid around £25m to Lenta Properties for the 45,000 sq ft, 190-bedroom hotel near Tower Hill at Lloyds Court in the City, which is let to Travelodge on a 35-year lease with upward-only rental increases lined to the Retail Prices Index.

Aprirose managed to secure 69.3% senior debt funding at an undisclosed rate for the purchase from a bank, thought to be Abbey, for the former office building on the back of the strength of Travelodge as a long-term covenant.

Manish Gudka, head of Aprirose, said: ‘We are led by what our investors want, and right now capital protection is the name of the game, so we are very much covenant-driven. ‘Our investors like long leases, guaranteed uplifts and strong covenants – and that is the model that this Travelodge fits. The fundamentals of the property, in terms of customer demand and the location, are strong,’ he said.

Mark Bruce-Lockhart, director at Phillips Lockhart, the agent acting for Aprirose, attributed the low 6% yield to the perceived resilience of the budget hotel sector in the downturn: ‘There are not many 35-year unbroken streams in central London, which pushed the yield down. The banks really liked this deal because it was long dated.

‘It shows that there is demand for the secure, long-dated income, purely because people are growing fed up with not earning any interest in the bank. ‘We are finding surprisingly good demand for small recession-resilient covenants like Tesco Express, Aldi and Lidl2, which Travelodge falls into.’

Contracts were exchanged before Christmas, but the deal did not complete until last week.

Lenta Properties was represented by Storeys:ssp. Sphere: Related Content