Travelodge - In Line - Model update
All,
Please see our updated analysis here.
We only launched coverage of Travelodge on 19th May, so with the numbers in line with our forecasts, little has changed. Q2 26 has started well with revenue up 4%; visibility for the rest of Q2 and Q3 is still limited and will be driven by the economic impact of the Gulf conflict. If the UK avoids a sharp recession, Travelodge is fully funded; the business will not de-lever, but refinance will be possible by 2028.
Investment Rationale:
- We are not becoming involved with Travelodge at this time.
- The 10.25% 2028 GBP SSNs are callable at 102.563 now and at par from April 2027. The EUR FRN is callable at 100.5 now and Par from June this year. Trading at 96%, the maximum upside in the GBP SSNs is 7 points vs. any immediate downside of 4 points (trade out to 15% on further disappointment). The Sonia +3.75%2030 FRN trades at 92 and has 8 points of upside and 10 points of downside (trading out to c12%).
- Travelodge will wait until they think they get a lower coupon before refinancing the £415m April-28 SUNs. Getting a better deal on the 2030 FRN margin is unlikely in the current environment, so it will be left in place for now.
- Travelodge performance will be driven by the UK economy (the Irish/Spanish businesses are small), and whilst we expect some margin contraction due to higher tax (staff and rates), and staff costs, even with a recession in H2 26 baked in Travelodge has sufficient cash and RCF availability to fund itself with <£100m in extra liquidity needed for <4 quarters, and could be met through loans and rent deferral.
- Our model is stressed for a 10% reduction in Occupancy in Q3/Q4 2026, and we forecast that liquidity is sufficient; there are also some Freehold assets that Golden Tree could raise cash on to plug the gap. We are not expecting such severe stress, but we are happy with the resilience of the business.
- In a severe downturn, landlords would almost certainly want to negotiate rental reductions or holidays rather than see hotels returned under a court process.
- In a restructuring, any return for creditors would be capped at par, as Golden Tree has a par take-out; if they were able to negotiate sufficient rental reductions with landlords, they could take out the notes.
Key Conclusions:
- As the company section highlights, Travelodge is the #2nd largest player, with an overwhelmingly leasehold portfolio. Growth is slowing as the industry matures and the UK economy is stalling. Travelodge is looking to less developed budget markets like Spain to boost future growth.
- For the industry, higher taxes (corporate and business rates) will hurt margins; staff reductions will lessen the impact of these costs, but we have seen the high point in margins in the UK.
- Travelodge has no debt amortisation until the GBP maturity in April 2028 (followed by the EUR 2030 notes). GoldenTree is not going to call this capital structure any time soon. The power of the sponsor in this is significant; they have relationships with the landlords, who will not want to see hotels returned as part of a CVA.
- The second half of 2025 saw a strong RevPar recovery (+2.3% LfL), but the H1 weakness in London meant that FY revenue was up only 0.7%
Cost control meant the EBITDA fall was in line with the £40m of cost headwinds
- As our Recent Trading section shows, H2 was stronger than H1 (-3.2% vs +4.2%), as a result FY revenue was 0.7% higher. H2 LfL revenue growth was 3.2%, as a result of a stronger performance in London. FY 24 EBITDA margin fell from 19.4% to 15.4%; the £39.5m fall largely through £40m of additional wages (national minimum wage increase, and National Insurance increases). There will be further cost increases next year with higher business rates and higher wages again. Management expects to be able to continue to reduce costs, but a net increase of £5m+ is likely in our calculations.
- In our Model we stressed Travelodge's results for 2026, and the company can still meet its cash flow obligations using cash and undrawn RCF. The balance of power between landlords and Travelodge gives GoldenTree plenty of leverage. Most landlords will want to avoid getting a lot of hotels back in a CVA. We are not very worried about a UK recession happening, but are encouraged by the resilience of Travelodge to a jolt if it comes.
- Our DCF shows that Travelodge is overleveraged relative to its cash generation ability. As an asset-light hotel operator, this can be sustained due to the length of leases, but it creates a very high level of fixed costs (rent). Lease rental commitments are around £260m a year, so FCF coverage is barely >1x. To get its refinance done, Travelodge will need to get its margins back to 16% - 17% over the next couple of years.
Recent Trading
Q1 26:
The bonds will be slightly softer today, with expected net cost inflation of 6.5%, which outweighs a decent trading performance (albeit Q1 is seasonally the weakest quarter). Revenue of £207m was ahead of our £197m forecast; driven by occupancy +0.8% (forecast -0.4%), balanced by RevPAR -1% (forecast +1%). The higher revenues flowed down to EBITDAR of £56m (£5m above forecast). Financing outflows of £78m were above our expectations, and we will adjust our model accordingly.
Forward visibility is limited (as normal). We had stress-tested Q2/Q3 2026 in terms of Occupancy, and so far in Q2, Travelodge is still seeing growth in London and Regional Occupancy, balanced by softer RevPAR. We are getting more confident in the SSNs, but are awaiting the more significant Q2 results; results to date were +45% YoY, which is ahead of the market. Travelodge ended the quarter with £91m vs our expectation of £102m (at May 20th, this had grown to £108m); we are confident that liquidity is adequate, even if there is a sharp downturn in the UK economy over the summer period.
Travelodge faces headwinds from government-mandated wage increases and taxes (£21m); visitor levies and the Employment Rights Bill could add to this burden. Around 100bp of the additional costs will be clawed back through cost savings, but net cost inflation will be 6.5%+. There will be 4 more hotel openings in 2026.
The softer London market in Q1 was due to lower business stays.
Q4 25
Weak H1 in London, but stronger H2: FY Revenue was up 0.7%; a weak H1 (-3.2%), driven by an underperformance in London, was predominantly recovered in H2, which was 4.2% higher (2.3% LfL). RevPar ended 1.8% higher at £61.69, recovering well from -1.9% in H1. Occupancy in was 0.7% up, both of which added to the Revenue recovery. Food and Beverage growth of 3% also contributed, as Travelodge wrings as much revenue as possible from its estate.
FY EBITDA fell £39.5m to £161.2m: reflecting c.£40m of underlying cost inflation dominated by the annualisation of National Living Wage increases (c10% April 2024, c7% April 2025), employer National Insurance contributions from April 2025, and uncapped five-yearly rent reviews now cascading through the portfolio. Cost discipline and in-sourcing initiatives helped mitigate; however, the structural magnitude of these regulatory and inflationary pressures means EBITDA absorption was substantial.
Strong occupancy maintained well ahead of market, occupancy recovered in H2, driven by the improvement in the London market. Overall, it fell 1.8% in the year, but by Q4, it was showing YoY growth.
21 UK hotels opened in 2025 across leasehold and freehold models: four traditional leaseholds (lower than historical 15–20 due to real estate market challenges), five leasehold rebrands, and twelve freehold acquisitions (rebranded and refitted). Two office-to-hotel change-of-use projects at St Paul's and Liverpool Street advanced through planning. Spain doubled its footprint since 2023; two freehold contracts were exchanged for Bilbao (April 2026 opening) and Madrid (2027).
Free cash generation of £49.7m before development capex, with year-end cash of £113.2m, reflecting EBITDA-driven cash flow partly offset by capex including the refit programme (two-thirds of estate upgraded to new look and feel, delivering positive commercial benefits). Refit programme delivering customer quality uplift (369 hotels received Tripadvisor Traveller's Choice Awards, up 45 on prior year; >93% rated 4 or above on TripAdvisor).
Q1 2026 trading solid with total revenue c.3% ahead of 2025 levels (1 Jan–18 Mar 2026 vs same 2025 period), driven by new hotel maturity, continued Spanish strength and outperformance against MSE segment on occupancy (c.9pts ahead). London faced headwinds from fewer events and softer corporate demand; regions were more resilient with rates in line with 2025. Booked revenue ahead of the prior year with encouraging long-lead patterns despite economic uncertainty. To test business resilience, we have deliberately modelled the impact of a recession in Q3/Q4 26, with recovery coming in 2027. Our forecast shows Travelodge can ride it out.
I look forward to discussing this with you all
Aengus
T: +44 203 744 7055