Travelodge - Facing pressure from lower RevPAR and cost inflation

Background:

• • Thame and London Limited (trading as Travelodge), economy hotel operator headquartered in the UK; latest FY2024 IFRS-16 EBITDA c. £449.6mm; Total Net Leverage including IFRS‑16 lease liabilities c. 7.2x; unrated publicly but legacy debt stack is sub‑investment grade; peers in the BB/B area
• • Travelodge operates budget hotels primarily in the UK with a growing presence in Spain and a franchise in Ireland, selling room nights, F&B and ancillary services via direct and indirect channels

o FY2024 EBITDA including IFRS‑16 c. £449.6mm; yoy not comparable on IFRS-16 basis due to mix and non-underlying, but FY2024 “EBITDA (adjusted)” pre‑IFRS‑16 was £200.7mm vs £243.9mm in FY2023; FY2024 IFRS-16 EBITDA margin c. 43.4% on £1,036.6mm of revenue; pre‑IFRS‑16 EBITDA margin 19.4%

o CEO: Jo Boydell. Director signing FY2023 accounts: Aidan Connolly (acts as CFO). No disclosed recent C‑suite departures in the provided materials

• • Segmental breakdown:
• • Revenue mix FY2024: accommodation‑related £966.7mm, food & beverage £66.4mm, other £3.5mm. Accommodation is the primary EBITDA driver; F&B contributes modest gross profit and is supportive to room economics
• • No formal EBITDA by segment disclosed; given low gross margins in F&B and ancillary scale, we assess >85% of EBITDA is generated by accommodation
• • Geographic breakdown:
• • FY2024 revenue: UK £1,007.9mm (97.2%), International (mainly Spain; franchise in Ireland) £28.7mm (2.8%). UK is the key contributor to revenue and EBITDA; Spain is growing following 2024 hotel acquisitions
• • Revenue model and contractual structure:
• • Demand-driven, dynamic pricing revenue model; RevPAR is function of occupancy and ADR; prices updated multiple times daily; high online mix
• • No long-term customer contracts; bookings are typically cancellable, with a portion prepaid. Exposure to short-lead leisure and SME/business travel demand
• • KPIs: FY2024 UK occupancy 84.2% and ADR £70.40, yielding RevPAR £59.31; like‑for‑like performance remains sensitive to events calendar and London market conditions
• • Inflation pass-through: partial; dynamic pricing enables ADR management, but demand elasticity and events mix can constrain full pass-through, especially in London during softer periods
• • No formal contractual inflation pass-through to customers; however, many property leases have CPI/RPI‑linked reviews which raise fixed costs
• • Cost structure:
• • FY2024 operating expenses £586.0mm and D&A £177.8mm reported under IFRS‑16
• • Major cost buckets: employee costs £268.5mm, COGS £65.0mm, utilities £46.0mm, business rates £35.1mm, other hotel costs £32.0mm, other operating expenses (marketing, IT, distribution fees and professional fees) £129.2mm
• • Variable vs fixed: material fixed-cost component driven by leases (IFRS‑16), business rates and staffing minimums; variable costs include COGS and portions of distribution/marketing. Personnel costs are c. 26% of revenue (and c. 46% of IFRS‑16 operating expenses ex D&A), indicating moderate flexibility but meaningful fixed burden
• • Shareholders and valuation:
• • Sponsored by GoldenTree and other credit investors in prior cycles; current precise equity ownership splits not disclosed in the provided materials
• • Private company; no observable public EV. 2023 refinancing priced sub‑IG and the business profile aligns with B‑rated European lodging issuers; peers like Premier Inn (Whitbread) trade at high single-digit EV/EBITDA, but Travelodge’s leverage and lease intensity justify a discount
• • Strategy:
• • Grow room count in the UK and Spain via a mix of leasehold rebrands, freehold acquisitions and selective new-builds; at least 15 new UK openings targeted in 2025 with a balanced freehold/leasehold mix
• • Estate refit program underway with c. 65% of rooms upgraded to next‑generation design by mid‑2025; aim is RevPAR uplift and F&B capture
• • Strengthen revenue management, broaden B2B distribution, enhance digital journey (mobile app, “Choose Your Room”, “Stay Smart” hybrid self‑service), and deliver operational efficiencies
• • ESG: Better Future plan, energy initiatives (LED, heat pumps), and long‑term net‑zero ambitions by 2050
• • Competitive landscape:
• • Direct competitors: Premier Inn (Whitbread), Holiday Inn Express (IHG), ibis (Accor) and local independents. Premier Inn holds the leading UK budget share. Competitive intensity remains high; Travelodge must maintain pricing discipline and quality to defend share, particularly in Greater London softness
• • Corporate actions:
• • 2023: Refinanced 2025 maturities with new senior secured GBP and EUR notes due 2028; eliminated super senior term loan; repaid RCF
• • 2024: Six Spanish freehold hotels acquired; UK freehold and leasehold additions; continued capex for refits and systems. These actions increase capital needs but target margin and growth benefits over time
• • Current trading:
• • H1 2025 revenue £471.3mm vs £486.7mm yoy (‑3.2%); Adjusted EBITDA pre‑IFRS‑16 £39.7mm vs £77.0mm. London market was rate‑driven weaker with events timing; regional performance more resilient. Cost control ongoing, but inflation headwinds and refit disruption weighed on margins. Cash at 30 June 2025 £140.8mm

Risks and mitigants:

• • Customer concentration:
• • No single customer concentration disclosed; fragmented retail customer base plus SME accounts mitigate concentration risk; however, reliance on events and public-sector demand in certain nodes introduces local exposure
• • Large amount of EBITDA adjustments:
• • Company reports “EBITDA (adjusted)” on a pre‑IFRS‑16 basis, removing non‑underlying items and rent phasing adjustments. FY2024 Adjusted EBITDA £200.7mm; rent phasing adjustment and CVA-related items excluded; statutory rent £3.2mm reported
• • Clean EBITDA methodology:
• • Start with FY2024 Adjusted EBITDA pre‑IFRS‑16 £200.7mm
• • Exclude any recurring “non‑underlying” that are in substance operating (e.g., continuing brand campaign or recurring restructuring), and do not add back run‑rate refit disruption or ongoing tech transformation costs
• • Given disclosures, we accept £200.7mm as Clean EBITDA pre‑IFRS‑16 because it already excludes rent phasing and clearly identified one‑offs; we do not add back the £10.4mm “non‑underlying” operating items unless evidenced as truly non‑recurring cash
• • On an IFRS‑16 basis (for lease‑inclusive leverage comparability), Clean EBITDA = Operating profit £268.6mm + D&A £177.8mm + statutory rent £3.2mm = £449.6mm
• • Adjustments are material in presentation terms but do not inflate cash generation under the above Clean approach; we note pre‑IFRS‑16 Adjusted EBITDA fell 17.7% yoy in FY2024, underscoring underlying softening
• • Cyclicality:
• • Economy lodging is cyclical and event‑sensitive. Post‑pandemic recovery supported ADR, but London’s rate softness and fewer events weighed in H1 2025. The brand historically shows resilience vs upscale peers due to value positioning
• • Litigation/provisions:
• • No material litigation disclosed; provisions modest at FY2024 (£1.9mm long‑term, £0.6mm current)
• • FCF and leverage sustainability:
• • FY2024 capex £114.8mm; operating cash flow before IFRS‑16 £465.4mm; Free Cash Flow (company APM) £98.1mm pre‑IFRS‑16 after capex. Lease repayments and interest are substantial under IFRS‑16, constraining post‑lease FCF. High lease‑adjusted leverage c. 7.2x raises vulnerability in downturns
• • Regulation/legislation risk:
• • Wage inflation (National Living Wage up nearly 10% in April 2024), CPI/RPI‑linked rent reviews and energy costs pressure margins. No tariff or cross‑border regulatory pricing regime exposure of note
• • Geopolitical/tariffs:
• • Limited direct exposure; macro shocks can reduce travel demand and events
• • Accounting irregularities/fraud risk:
• • Audits by PwC noted no material misstatements and acceptable controls; no red flags provided
• • Prior distress/restructuring:
• • Legacy CVA (2020) and lease re-gears with landlords highlight structural sensitivity to leases; 2023 refinancing addressed maturities but leverage remains high on a lease‑inclusive basis
• • Other significant risks:
• • Concentration in UK economy lodging, event calendar volatility, exposure to Greater London rate cycles, and execution risk on the refit program and Spanish expansion

Capital structure:

• • Total gross debt including IFRS‑16 (FY2024, £mm):
• • Senior secured bond related debt £600.8mm
• • Investor loan £140.2mm
• • IFRS‑16 lease liabilities £2,703.4mm (non‑current £2,610.6mm; current £92.8mm)
• • Financial derivative liabilities £13.4mm
• • Total gross debt (incl. leases; excl. immaterial other) c. £3,454.4mm
• • Net debt and Total Net Leverage:
• • Cash and equivalents £227.7mm
• • Net debt including leases c. £3,216.7mm; TNL including leases = £3,216.7mm ÷ £449.6mm ≈ 7.2x
• • For reference, excluding leases: net financial debt ≈ (£600.8mm + £140.2mm − £227.7mm) = £513.3mm; TNL ex‑leases = £513.3mm ÷ £200.7mm ≈ 2.6x
• • Both must be assessed consistently; agencies typically focus on lease‑inclusive leverage for lodging with material lease obligations
• • Weighted Average Cost of Debt (WACD):
• • FY2024 finance costs before IFRS‑16 were £88.1mm; investor loan interest £18.9mm; total cash interest proxy c. £107.0mm on average non‑lease debt of c. £741.0mm implies c. 14–15% nominal; includes fees and swap costs. On a broader base including leases, IFRS‑16 interest is substantial, but leases are quasi‑operating obligations rather than market‑refinanced debt. Overall funding cost is elevated for the bonds/investor loan cohort
• • Maturities and refinancing:
• • Senior secured notes due 2028; no near‑term bond maturities <2 years. Investor loan amortised in 2024; residual maturity undisclosed but subordinated. RCF £50mm undrawn; springing covenants apply when drawn
• • Contingent liabilities and provisions:
• • Derivative liability £13.4mm; provisions modest (£2.5mm total current and non‑current)
• • Supply chain financing:
• • No disclosure of material factoring or reverse factoring
• • Total liquidity:
• • FY2024 cash £227.7mm plus undrawn RCF £50mm; total available liquidity c. £277.7mm at year‑end. H1 2025 cash decreased to £140.8mm reflecting trading and capex phasing

Conclusion:

• • FCF outlook:
• • Pre‑IFRS‑16 FCF remained positive in FY2024 (£98.1mm after capex) and should benefit from refit-driven RevPAR uplift and Spanish contributions, but H1 2025 softness, wage inflation, CPI‑linked rent escalators and higher brand/tech spend temper near‑term expansion. Post‑lease FCF is tighter given IFRS‑16 lease capital and interest outflows
• • Valuation:
• • With IFRS‑16 net debt c. £3.22bn and private ownership, implied EV is highly sensitive to the chosen EBITDA basis. On a pre‑IFRS‑16 Clean EBITDA of £200.7mm and an 8x peer multiple, EV ≈ £1.61bn, which is inconsistent with lease‑inclusive leverage. On an IFRS‑16 Clean EBITDA of £449.6mm and a lower multiple reflecting lease load and sub‑IG risk (e.g., 6–7x), EV ≈ £2.70–£3.15bn. Debt therefore constitutes a very high proportion of EV, and equity cushion is modest under lease‑inclusive framing
• • Capital structure sustainability:
• • Ex‑lease net leverage c. 2.6x is manageable; however, lease‑inclusive TNL ≈ 7.2x and interest cover (EBITA/interest) ≈ 2.8x point to a constrained headroom profile through cycles. Liquidity is adequate with cash and undrawn RCF, and no near‑term bond maturities, but trading weakness in H1 2025 and ongoing capex increase execution risk
• • Indicative ratings view:
• • Using the provided grid and Clean IFRS‑16 metrics:
• • Debt/EBITDA ≈ 7.2x aligns worse than B3 and approaches Caa1 territory
• • EBITA/Interest ≈ 2.8x maps around B1–B2
• • Business profile: concentrated UK economy lodging with event exposure; moderate cyclicality; significant leases
• • Balancing these, an indicative corporate family rating around B2/B3 (S&P B-/B) appears appropriate, contingent on sustaining positive pre‑IFRS‑16 FCF, maintaining liquidity, and stabilizing RevPAR. An upgrade would require durable deleveraging and improved coverage; downside risk stems from London softness, inflation in wages/rents and slower‑than‑expected refit/Spain benefits