Ago Hotels was moving into the final stages of efforts to rebrand the Travelodge estate under Accor’s Ibis brand.
The company was in discussions with around 138 landlords as the 18 November deadline approached.
In a letter seen by Hospitality Insights, Ago Hotels said it “continued to build momentum and a solid foundation for Ago Hotels’ launch and future”
Ago Hotels offers a hybrid lease model under the Ibis Budget flag, with Accor potentially investing up to £32m in rebranding, encompassing IT.
The full Ago Hotels offering included a 25-year lease term from Ago Hotels on a full repairing and insuring basis (capex, repairs and maintenance fully managed by Ago Hotels); RPI-linked base rent at 50% of current Travelodge rent, adjusted for inflation since last rent review with five-yearly rent reviews; 50% of individual property Ebitda to landlord; 49% of total Ebitda paid into Ago Hotels and redistributed to landlords as a diversified income stream and “major” equity stake in Ago Hotels for incoming Travelodge landlords.
On Accor’s H1 call chairman & CEO Sébastien Bazin talked of gaining 20 to 400 of the sites for the Ibis Budget brand, and also told analysts Accor had “never seen so many enquiries” from small and medium-sized groups, commenting: “it won’t be one by one, it will be groups of hotels of 10,000 rooms and above”.
Ago was facing competition from a number of parties, including Magnuson Hotels.
Thomas Magnuson, Magnuson Hotels CEO, said: “If it were a stable world, we would understand why UK hotel property owners would submit to the current CVA proposal.
"But since it’s not, UK hotel property owners need to think past the temporary comfort of accepting a new rental review. It is our premise that the British lease, with its upward-only rent review structure is unstable.
“Because Magnuson Hotels has successfully operated for decades through 9/11, 2008 and the present, we know there is investment upside for hotel assets facing CVA decisions, just not under the current rent structures. If asset owners transitioned to a business owner role and assumed control of their hotels with transparent professional management/branding, the outcome will be a growing long-term secure income stream.
“No matter how hard UK hotel property owners look, there will be no more complete guarantees. But there certainly is the prospect of higher long-term asset revenues by taking control of one’s own destiny.”
At the time of writing the sales process for Secure Income Reit’s portfolio was still underway, with a number of bids having come in for the group’s package of 123 Travelodge leases and Aroundtown expected to win, most-likely rebranding the hotels. At SIR, 119 of leases included a landlord-only option to break the lease for no consideration payable. For the majority of those leases - 114 of the 119 - the break option may be exercised at any time before 19 November 2020 and for the remaining five leases the break option period runs to 31 December 2021.
Under the terms of the CVA, 70 Category A assets, which accounted for approximately 45% of 2019 UK hotel Ebitda, would not have the option to break their leases. Landlords of Category B, C1 and C2 hotels have reduced rents for the temporary period to the end of December 2021 and have the temporary option to exercise a break right under their leases.
For 456 Category B hotels, the option expires on 20 November and for the 36 Category C1 and C2 the option expires on 31 December 2021.
According to Travelodge’s most recent trading update, the brand had agreed further equity funding of up to £40m to be provided by shareholders or affiliates, with £10m having been received on 24 August. The remaining £30m was subject to no material adverse effect having occurred (including no further government imposed lockdown for more than two weeks) and on the refinancing of the £60m revolving credit facility.
As at 19 August the group had £71.3m in cash.
By August the flag had reopened all of its hotels, with revolt since July down 40% on the pervious year, with the first half seeing a revpar decline of 55.7%. The group concluded: “New funding and temporary rent reductions strengthen our position…Autumn trading period will be first real indication of consumer attitudes.”
Commenting earlier this month, Secure Income Reit said that, following the Travelodge CVA, rents had been reduced in 2020 and 2021 after which rents return to the levels originally contracted for the period from 1 January 2022. The Reit received Travelodge rents of £1.3m in aggregate when due on 1 and 7 October.
Insight: At the time of writing, with the deadline starting to loom, it is thought that Travelodge has stepped back from sticks and looked more towards carrots, offering a higher proportion of the rent than previously mentioned. Will owners be swayed? Very probably. Can Travelodge pay? With sections of the UK closing down as we speak - although hotels allowed to stay open in Tier Three and unable to access support - it looks less convincing that the extra £30m in funding will come through and the brand will have deep enough pockets to pay.
Early signs are that Travelodge will be diminished by landlords as they look to a brand with less enthusiasm for CVAs. In the meantime, it seems that KSL has lost enthusiasm for the process entirely and pulled away from Goodnight, the flag which shared most with the Travelodge structure.
Will owners take a punt on Ago and Accor? With the winter set to be a rerun of the lockdown, minds are likely focused more on government support on what a brand can offer. Will they look for a fresh start in the Spring? That would depend on how much rebranding support is likely to come their way. Those nice neon signs don’t pay for themselves.