The story of Travelodge follows the pattern of the classical myths. David against Goliath. The Trials of Hercules. Sisyphus rolling the rock up the mountain. A group of owners who have banded together to fight the big guys, take on the struggle. The brands who want them cut from the same cloth - or so they would have you believe.
At the core of the tale are owners feeling they have been consummately done over and now have a chance to do back. Whether or not Travelodge has maligned its owners is no longer relevant, that bandwagon has moved on and it’s likely that the brand is now dead in the UK.
What will take its place is now in the hands of the owners, but only the owners as a collective. This David may be more than 500 sites, but will still need to strike with precision. At this week’s Accor H1 call, chairman & CEO Sébastien Bazin talked of gaining 20 to 400 of the sites for the Ibis Budget brand, but also told analysts that 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”. If it doesn’t get the full 400, will it just turn its back on the UK for the moment and pick up the ‘phone to all those others seeking sanctuary in its budget expertise?
It is thought that Accor needs 8,000 former Travelodge rooms for Ago to make any sense, putting the owners’ group under Viv Watts under something of a psychological test. The first break option is at the end of this month. Or the decision could be postponed to the end of the year. If fewer than 8,000 rooms sign up in a few weeks’ time, will the deal still be there at the end of the year? Would Accor sweeten the deal and offer more than £1,000 per key for rebranding, a figure which will buy a bit of neon but not much more. Is it worth owners waiting to see, or will there be nothing there if they do? Accor is thought to be flexible and not overly time sensitive, which is relaxing for the landlords but also suggests that the deal on offer is the deal on offer.
The issues facing the Travelodge estate and those who would reflag it are the same it has always faced. It is not a homogeneous mass. It is wildly varied in terms of quality, which is why the CVA saw the hotels ranked as A, B and C.
Under the CVA the former get to be paid rent, the middle 25% and the latter nothing until, well, 2022. So if you’re one of the fews Cs, any port which offers you some rent is a good deal. The As, which are what the other brands really want, can afford to hang around for something that looks a bit better. The Mass of Bs hold the power, but only together and they, like the Cs, may still need a chunk of Capex in the not-too-distant.
Where will this come from? Ago will set up a landlord-funded pot and, in the future, could Ago list and raise money that way? Of Magnuson and Goodnight’s Capex plan, more shortly.
Playing further into the David/Goliath piece are those players who are still in the rebrand running. We have Accor, the last of the global operators thought to be throwing its cap into the ring. Global major it may be, but this isn’t the message being put across. It is flexible, it’s not like the others, it’s not “draconian” (can’t think who it can be referring to). It knows real estate, it understands the plight of the owner. But, you know, it had to get out of that because the markets get confused about valuing hotel companies with real estate. And on that front, no thinking you’re going to touch its balance sheet. Sorry about that, but you know how it is.
Then we have Magnuson Hotels. Unlike the three-income-stream-share-of-Ago model, this is a clear offering. Fees are a simple slice and you have access to a global distribution network. Yes, it’s not hugely tested in the UK, but then neither is Ibis and, when over 80% of economy guests are domestic, the local market is the only one which counts. Magnuson will also invest in conversion and is of the opinion that many of the hotels could be pulled up into higher rate categories.
Then Goodnight, which has partnered with Village Hotels to provide the management and operational platform. The wholly-untested Goodnight 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”. So reassuring. It even offers a similar colour palette.
What may catch the owners’ eyes more is that it is also willing to offer a base rent and share of turnover structure. There is a little more in the kitty for Capex, as it said: “The capitalisation has also been calculated to cover a protracted period of post-Covid recovery to allow the business to cover the rental liabilities/shortfalls between revenue and rent. The landlord will not be responsible for any day one Capex or rebrand costs, which most other operators or businesses are expecting.”
Of course Travelodge remains in the running. OK then.
And what of those not in the Watts group? Secure Income Reit is looking to sell its portfolio of over 120 hotels currently under lease with Travelodge. We understand that Accor has suggested possible buyers for the portfolio, which would then bolster Ago. AccorInvest has not been mooted at this stage.
We have previously addressed the idea that this debacle marks a permanent shift in relationships within the stack and it feels unlikely. This is a volume deal. Negotiations will not change for single asset owners. It has, however, clarified that many models - including leases - don’t take into account that downsides can be a greater downer than previously thought possible.
Ago thinks it has the numbers and could take the prize - and such a prize. Other owners with hotels under entirely different brands have also been keeping an ear on negotiations and, even if Accor/Ago misses out on Travelodge we may yet see some skirmishes and flag changes going into the winterThe struggle between owners and brands will continue eternal.
*why are there no brands with a larger footprint in the UK still playing? Capex?