COVID-19

Landlords plot to evict Travelodge

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.

Viv Watts, who leads the Travelodge Owners Action Group, said: “Travelodge does not own its hotels, so they are reliant on other landlords to invest in the real estate. We have more than £100m in commitments from other private investors to create a Travelodge 2.0. which would give landlords a stake in the company.”

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.
Travelodge wrote to landlords on May 13 appealing for their support, saying it expected to miss out on £350m in lost revenue due to coronavirus.

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”. The landlords who accepted a period of reduced rent would then be offered an option to extend their leases for the a period to make up the rest lost, plus one year.

The company said that it expected the new regime to last until the end of 2021, at which point it expected to return to the full level of contracted rent payments.

Under the recovery plan, Travelodge said its shareholders were expected to absorb an impact on equity value of approximately £200m through the use of the company's cash reserves and additional borrowing.

It warned that if landlords did not accept the proposal, it would attempt an insolvency process such as a company voluntary arrangement.

Travelodge Owners Action Group was not the only landlord group to have rankled against Travelodge. The Combined Property Control Group also threatened legal action, arguing that the group was receiving government support and should not be penalising landlords.

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.”

At Whitbread’s results last month CEO Alison Brittain was asked whether the group would consider  spending some of the £1bn it was raising to take over its UK rival. Brittain wouldn’t be drawn on the concept, but told analysts that she read the same press as them.

 

Insight: If there’s a downturn then you can bet Travelodge will be in the news, flailing around. And now is no different. What makes this particular round intriguing is that its owners have the money to pay the rent - or one would hope that they do or we have bigger issues at play here.

A feature of the economic and political response to the pandemic has been the protection of tenants and this, it is generally felt, is a good thing. Where it rankles is when those who have the cash use it to defer payments, as opposed to those facing ejections onto the streets. Fairness has become key to general happiness in this pandemic, as you would expect with an event which has affected everyone. There has been much wrath against billionaires who use furloughing schemes, despite their legitimacy.

But before we stray into Cummings territory, back to Travelodge. It seems unlikely that Whitbread will show an interest - the Travelodge portfolio is variable and would require investment to bring it up to the standard of Premier Inn.

Travelodge was quick out of the box once hotels closed to say that it wouldn’t be paying rents and needed to renegotiate. Those with barely any memories at all will recall that the group was rescued only recently and that should have been the end of it.

Travelodge has been accused of abusing its position, that the budget sector would be the first to recover and owners were unlikely to benefit from this, particularly if they agreed to rent reductions. Is it? It’s grim out there. If the owners succeed in pushing the brand out, who will take its place? Will we see a swathe of owner operators? And what does it mean for the lease model?