Travelodge landlord Secure Income Reit said it would be “scrutinising” the brand’s proposals for a CVA.
The proposal does not include any hotel closures and all of the group’s 564 sites would revert to their full rent agreements from the end of next year.
For a CVA to be approved, 75% of creditors must support it. Travelodge has over 300 landlords, including Secure Income Reit, which said that it would look at the proposals “in order to best protect the company's position” in determining whether or not to support them.
Secure Income Reit has already rejected a proposal from Travelodge suggesting a rental cut of 80%. SIR said: “Until the pandemic struck, Travelodge had substantial earnings and significant operating cash flows, and we consider that this business has considerable equity value as well as long-term viability. It also has very substantial shareholders in Goldman Sachs, Goldentree and Avenue Capital.”
It is thought that Travelodge’s shareholders have offered to inject up to £40m of new equity, alongside an earlier proposal to secure an additional £60m in borrowing capacity being increased to £100m.
Viv Watts, who leads the Travelodge Owners Action Group, told Radio 4 this morning that Travelodge had asked some landlords to “accept a 75% rent reduction from March to December and then a 30% reduction for next year.” Others had been asked for “a 100% rent reduction for the nine months of this year and 100% rent reduction for the whole of next year.”
The Travelodge Owners Action Group has threatened to evict Travelodge from its hotels and replace it as an operator. The group, which said that it represented more than 400 out of the group’s 580 hotels, said that it had more than £100m in commitments to create “Travelodge 2.0”.
Travelodge withheld quarterly rents due at the end of March and proposed rent reductions until 2021. A number of owners have accused Travelodge’s owners - GoldenTree, Avenue Capital and Goldman Sachs - of abusing tenant protections laws bought in as a result of the pandemic.
The group claimed that Travelodge was trying to force through a restructuring of the group, after the brand withheld quarterly rents due at the end of March and proposed rent reductions until 2021.
In the letter, Travelodge said: “We have been generating substantial losses since the lockdown began and there is no date yet for it to be lifted. It appears increasingly likely that any lifting of restrictions will be phased and come with new operating conditions. We would expect that this may result in a lasting impact over at least the next two years and perhaps beyond.”
The group has proposed a plan which would see landlords “being asked to forego £103m to £146m in rent, or approximately 2.4% to 3.3% of the total of more than £4bn in rent due over the remainder of the leases”.
Travelodge entered into a CVA in 2012, with debts of £500m, an arrangement which saw 49 hotels closed and rent cuts on 109 properties. The deal was backed by current owners Goldman Sachs, GoldenTree Asset Management and Avenue Capital.
Insight: While other hotel companies have been muttering about the strains and stresses of reopening, of the need for extra PPE, wondering how long the furlough scheme was going to last, at Travelodge matters have escalated rapidly, all the way to CVA level as the company really, really, doesn’t want to pay any rent.
It was always going to be this way as the owners really, really did want it to pay rent and were already marshalling their armies of lawyers to drag it out of GoldenTree, Avenue Capital and Goldman Sachs. Will both sides spend more on lawyers than the costs of the missed rent? Give it a month and we’ll see.
In the short term, the Travelodge’s backers look to have used the CVA to hold onto the group. In the long term, this is doing nothing for landlord/tenant relations. When it comes to the next CVA - and there always is one with Travelodge - both sides are likely to go full flamethrower, if they haven’t all moved on to pastures more stable.