Travelodge said that it expected to see the impact from the virus outbreak lasting for at least two years, as it was writing to suggest lease extensions to its landlords.
The offer was the latest in what has become a public negotiation between the group and its 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.”
In a letter to landlords, 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 planned to seek agreement to its proposal from all landlords next week.
The letter followed a missive from the group’s claiming that the budget hotel operator was taking advantage of the coronavirus to avoid rent payments, under an emergency system bought in by the government which bars landlords from using “aggressive tactics” to collect rent as well as banning them from issuing statutory demands and winding-up orders on tenants struggling to pay bills because of Covid-19.
A group of landlords have come together to create the Landlords Union to push for the new rules to change. Adam Coffer, managing director, leisure & retail real estate investor EPF Group, said: “We think the government has opened the door to nationalising rent and has used landlords to underpin the cost of the commercial property support for tenants. The vast majority of landlords want to help those tenants who so desperately need it . . . but the government’s moratorium has allowed certain unscrupulous tenants to undermine this.”
Insight: Every now and then this sector enjoys a letter-writing spat which keeps observers distracted, happy, feeling fortunate in their own existences. Things could be worse. You could be Travelodge.
Favourite missive frenzies of yore include that between Ron Burkle’s Yucaipa and the then-interim CEO at Morgans Hotel Group, Jason Kalisman, who Burkle described as “acting like a spoiled child” for not selling the company.
We’re not quite there yet, although one can dream. What makes this current round of The Trials of Travelodge more invigorating than traumas past is the presence of Goldman Sachs, Goldentree and Avenue Capital. This isn’t a case of ‘you can’t have the money, we have no money’. There is money to be had. Expect the postman to be weighed down for some time to come.