Fitch Ratings has assigned
The Outlook is Stable. Fitch also assigned it an expected senior secured debt rating of 'BB-(EXP)' with a Recovery Rating of 'RR3' to the proposed
The company plans to use proceeds from senior secured debt, including proposed TLB, to refinance bridge facilities obtained to finance the buyout of a minority shareholder's 35% stake. The assignment of final ratings are subject to final documentation confirming to information already received.
The 'B+(EXP)' rating reflects Motel One's moderate business scale and diversification balanced by superior profitability and expected positive free cash flow (FCF) generation. It also assumes the company will deleverage over the next three years as post-transaction leverage is high and outside of the range that is commensurate with a 'B+(EXP)' rating. This is based on our expectation of a smooth execution of Motel One's growth strategy and continuation of strong performance of the existing asset base.
Key Rating Drivers
Moderate Scale and Diversification: We assess Motel One's business profile as being in line with the low 'BB' category rating in view of its business scale and diversification. It operates primarily under one brand, with some diversification across western
Material Business Growth: Pro-forma for the carve-out of its real-estate assets, we estimate that Motel One's revenue grew by a third and Fitch-adjusted EBITDA increased to more than
Further, we expect a positive impact from international travel to
Manageable Strategy Execution Risks: Motel One's strategy relies on the expansion of its hotel portfolio through leasing new properties, which does not require upfront capex unlike asset-heavy operators that invest in hotel construction. Our rating case assumes an increase in the number of hotels to 117 in 2027 (2023: 94), in line with the company's secured pipeline, which bears limited execution risks as contracts with property owners are already signed. Motel One has a record of new hotels quickly reaching profitability and the pipeline does not consider any large assets in new markets. We also assume that hotels will be opened on time as delays have mostly been contained to within three months in the past couple of years.
Superior Profitability: Motel One's EBITDAR margin of around 50% is the highest in Fitch's global lodging portfolio, with the exception of
EBITDA Margin Improvement: Our rating case assumes a gradual EBITDA margin improvement over 2024-2027 due to pricing actions and increase in the number of fully ramped-up hotels relative to new openings. We also expect margins to benefit from portfolio composition changes towards markets with higher rates and occupancies, such as
Positive FCF, Self-Funded Growth: The 'B+(EXP)' IDR reflects Motel One's sustained positive FCF, supported by strong operating margins, and its ability to self-fund its medium-term expansion. This inherent FCF generating capacity balances its limited scale and diversification, and differentiates it from lower-rated sector peers. Deteriorating FCF would signal structural weaknesses of Motel One's operating risk or a more aggressive financial policy, and would put pressure on the rating.
No Dividend Commitment: The company's intention is to operate with
Motel One has been paying dividends from internally generated cash but has no dividend commitment to its shareholders. Our analysis assumes some recurring dividends from 2025, subject to the limitation provisions of the financing documentation, as well as taking into account a measured financial policy of the company's shareholders.
Strong Deleveraging Capacity: Motel One's 'B+(EXP)' rating is conditional on rapid deleveraging over the next three years. We estimate EBITDAR leverage at 6.3x in 2024, which is high for the rating, but we expect the rating headroom to increase substantially over 2025-2026 as EBITDAR growth will lead to organic deleveraging.
Derivation Summary
In terms of room system size and business scale, Motel One is significantly smaller than higher rated globally diversified peers such as
We see
Motel One is rated two notches above Greek hotel operator Sani/Ikos Group Newco S.C.A. (B-/Stable) due to its larger scale, better diversification, stronger FCF profile and lower leverage.
Motel One has the same rating as
Key Assumptions
Sales growth CAGR of around 12% for 2024-2027
Organic growth is supported by a steady improvement in occupancy rates, alongside above-inflation growth in the room night daily rate
EBITDAR margins steadily improving towards 51.6% in 2027 from around 50% in 2023, supported by a strong focus on cost management, fast turnaround of new hotels to profitability and improving occupancy rates at existing sites
No significant working-capital outflows to 2027
Capex at 6%-10% of revenue per annum, for maintenance of existing sites including redesign and new site openings
Annual dividend payments of
Recovery Analysis
We assume that the company would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. In our bespoke recovery analysis, we estimate GC EBITDA available to creditors of around
We have applied a 6.0x EV/EBITDA multiple to the GC EBITDA to calculate a post-reorganisation EV. This multiple reflects the company's strong brand and business model concept, prime inner-city locations and high profitability. This is 0.5x higher than
Motel One's envisaged
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Successful execution of the growth strategy translating into double-digit revenue growth and EBITDAR expansion
EBITDAR leverage below 5.5x on a sustained basis
EBITDAR fixed-charge coverage above 1.8x on a sustained basis
Consistently positive FCF
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Material slowdown in revenue growth, with EBITDAR margin remaining flat or decreasing
EBITDAR leverage above 6x on a sustained basis
EBITDAR fixed-charge coverage below 1.5x on a sustained basis
Neutral-to-negative FCF
Liquidity and Debt Structure
Comfortable Liquidity: Pro-forma to the upcoming transaction, we expect Motel One to have cash on balance sheet of around
Fitch restricts
Issuer Profile
Motel One is a hotel operator with a growing market position within its niche 'affordable design' segment in western
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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