Update on Travelodge portfolio

23 October 2020

Secure Income REIT Plc

("SIR", "the Company")

Update on Travelodge portfolio  

The Board of Secure Income REIT Plc, announces that following a thorough review of potential strategies in relation to the Company's Travelodge portfolio, it has determined not to exercise its break options (which were part of the CVA restructuring) to terminate the tenant's leases in relation to these properties.  The Company will maintain the current arrangements following the recent CVA, whereby the leases of its 123 hotels portfolio remain in place on the same terms and conditions, with a short term reduction in rent. Under the terms of the CVA, in 2021 SIR is due to receive £19.8 million of rent from Travelodge and in January 2022 the rents will revert to the full contracted level. Travelodge hotels represent approximately 19.6% of the Company's portfolio value of £1.96 billion as at 30 June 2020.

As part of the review the Board had discussions with several third party hotel operators in order to ascertain whether there were opportunities to enhance shareholder value in relation to the Travelodge portfolio. The Board has concluded that Travelodge remains one of the best in class operators in the low cost hotel sector and the terms offered by any replacement would carry unacceptable risks for the Company. Travelodge had for five years until December 2019 produced consistently sector beating earnings and REVPAR growth before the exceptional circumstances created by the pandemic led to the recent CVA.

As part of the process of exploring the Company's options, the Company also ran a sales process where, reassuringly, multiple bids supported the 30 June 2020 hotels portfolio valuation.  However, none of these offers reflected the potential for value recovery once the pandemic has subsided. Consequently, and given the lack of certainty of outcome of these discussions, the Board ultimately concluded not to pursue this option.

Constructive discussions have also taken place with Travelodge about restructuring its leases and that will be considered on its merits in due course. A further update will be provided as and when appropriate.

Chairman Martin Moore commented:

"We have carried out a thorough review of the options available to the Company and are satisfied that Travelodge remains a market leading operator, albeit with ongoing capital constraints in the same challenging market facing all hotel businesses. Its trading trajectory in the months following national lockdown illustrates how the best operators in the budget hotels sector should be the first to recover once the pandemic subsides.  We are very alert to the challenges facing the industry but, with our hotels held at close to vacant possession value and with rents reverting to 70% of the previous full contracted amounts in 2021 and the full amount by January 2022, we believe that provided sufficient capital is made available, Travelodge should benefit materially as the economy recovers, as should SIR from any consequential yield compression.

"SIR held uncommitted cash of £220 million and a net loan to value ratio of 35.3% as at June 2020 with robust 'shock absorbing' debt covenants. Whilst there are clearly major hurdles ahead to jump over in the coming months, we take encouragement from the sense that we are more likely to be closer to the end of the pandemic than the start."

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