Leases

Travelodge landlords move to shed brand

Early signs were that a number of Travelodge landlords would end their relationships with the brand, after the deadline for taking up a lease extension passed.

Ago Hotels and Magnuson Hotels confirmed ongoing talks, with the former confirming legal discussions with at least 20 landlords.

Lionel Benjamin, co-founder Ago Hotels, told us: “Having issued documentation four days ago we are in legals with more than 20 landlords with a number of others in advanced discussions. Some landlords are waiting to see where the momentum is going before committing. 

“I believe a number of landlords have not accepted the lease extension, which would see Landlords losing their rights to break the Travelodge lease. Landlords appear determined to fully explore alternatives with a preference to finding a structure which delivers enhanced long term value.”

Ago Hotels offers a hybrid lease model under the Ibis Budget flag, with Accor potentially investing £32m in rebranding, distribution and IT.

The full Ago Hotels offering includes 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; 50% 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.

Ago was facing competition from a number of parties, including Magnuson Hotels.  Thomas Magnuson, CEO, Magnuson Hotels, told us: ”We’re talking to a lot of owners and there's more interest than ever. We're advising the landlords that, no matter how hard they look, there are no complete guarantees. We're talking to owners not with a standard one-size-fits-all proposition, but a bespoke one. We're offering our brand, partnering with smaller, regional management companies, with a tailored solution. The outcome is for landlords and asset owners to receive a higher revenue stream than the historical lease amount.

The breakeven at Travelodge needs to be 32% occupancy for the pre-existing lease. From 1997, the national occupancy rate rose from 60% to pre-Covid of 79%. It's highly unlikely that things are going to hit 32% unless there's a complete lockdown. It's unlikely that there will be any complete lockdowns, it will be managed. 

"We've researched every hotel in this portfolio, and we estimate a low 60% on reopening and a move away from economy to midscale. We're having this conversation and getting a favourable result.”

It is thought that around 80 hotels could go to Goodnight, which has partnered with Village Hotels to provide the management and operational platform. The brand aims to “offer landlords as close a product to what they originally had under their Travelodge lease, where investors had originally often bought the hotels for four rent cheques a year and have little appetite for or experience of operational hotel risk”.

The brand is offering Travelodge landlords a new 25-year FRI lease subject to CPI rent reviews on a five-yearly basis, collared at 0% and capped at 3% pac.

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. At SIR, 119 of leases include 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.

 

Insight: Where the momentum lies is going to be the theme of the potential shrivelling of the Travelodge portfolio. How the wind will blow is dependent not only on how attractive the multiple pitches are, but how the hotel market performs heading into winter.

It is not clear how they hotels fared over the summer, but a pressured British staycationer was looking to stay cheap and local, Travelodge’s bread and butter. So better the devil you know may be a factor if the market is going upwards and no one wants to pay for conversions.

So now we hold our breath until November and we can expect lots of schmoozing until that point - a vital boost to the hospitality sector. Accor needs a certain volume to maintain its interest - when will it be distracted by something shinier? The role of the SIR portfolio will be key, with Accor hoping to bring in a favourable buyer. It’s still all to play for.