Private investor clients of Connection Capital, the specialist private client investment business, have participated in the acquisition of a £14.8million portfolio of Travelodge hotels, in a deal which gives them access to a fast-growing sector of the commercial property market.
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Hotels the best performing commercial property sector in recent years
The portfolio comprises three new, purpose-built hotels located in Weston-Super-Mare, King’s Lynn and Andover. The properties were secured off market by Connection Capital’s property partner, Riverside Capital, whose strategy enabled them to be purchased at a discount to current prevailing market values. One is already operational while the two others are due to open by the end of 2016.
Each of the properties is pre-let to Travelodge Hotels, one of the UK’s largest hotel brands, on 25 year leases with five yearly upward-only inflation-linked rent reviews. The investment is targeted to distribute 5% per annum to investors, with an income yield of 5.96% once all assets are income producing.
Connection Capital says that hotels are gaining wider recognition as a mainstream commercial property investment to complement the traditional office, retail and industrial sectors, offering long-term, secure income streams. Recent years have seen hotels outperform other UK commercial property sectors.*
In addition, the budget hotel sector is the fastest-growing UK hotel sector, with revenues per room for hotels outside London increasing by 10.4% in 2014 and 6.3% and in 2015**, driven by corporate and leisure demand for good quality, affordable accommodation. It is expected to expand considerably over the next decade, and could be a beneficiary of the Brexit vote if exchange rates continue to make the UK a more affordable holiday option.
Each Connection Capital client was able to invest in multiples of £25,000. Last year Connection Capital clients purchased another Travelodge hotel in Torquay’s “English Riviera”, and other commercial property investments include property tenanted by Premier Inn and Travis Perkins.
“It’s not every day that private investors get the chance to acquire brand-new hotel assets, pre-let to a leading UK hotel chain, offering impressive income growth at such an attractive price – which is the first step to adding value to any investment.” Claire Madden, Managing Partner
*Source: GVA data 2010-2014
**Source: PwC UK Hotels Forecast 2016