In what has been the most actively watched hotel-firm financial restructuring of 2020, Travelodge (United Kingdom) has retained the majority of its hotels under its new company voluntary arrangement, but is seven-year CEO Peter Gowers will leave at the end of the year.
REPORT FROM THE U.K.—Travelodge (United Kingdom) claims that the vast majority of its landlords have remained with the British budget brand following a well-publicized financial restructuring, but CEO Peter Gowers, who has been at the helm since 2013, will leave the company at the end of the year.
The brand’s website said it has retained “578 hotels, accounting for more than 98% of its 2019 U.K. hotel (earnings before interest, tax and depreciation).”
Several hotels left Travelodge under the terms of a new company voluntary agreement that some landlords saw as benefitting shareholders, not landlords, and resulting in rent reductions.
But Travelodge’s ability to retain the majority of its revenue stream seems to have come through winning over large-scale owners.
The largest landlord of Travelodge assets in the U.K., both in terms of number, 123, and value, is real-estate investment trust Secure Income.
The REIT decided to remain with the flag, explaining in a statement that its board members believe the brand is well positioned to capitalize on demand when it returns. In 2021, the REIT “is due to receive £19.8 million ($26.4 million) of rent from Travelodge, and in January 2022 the rents will revert to the full contracted level. Travelodge hotels represent approximately 19.6% of the company's portfolio value of £1.96 billion ($2.62 billion) as at 30 June, 2020.”
Landlords had to make their decision by 18 November if they were classed in the portfolio’s categories A and B, while those in category C, generally regarded as being in less-desirable locations, have until the end of 2021 to make a decision.
The announcement brings an end to months of various entities courting potential conversions from Travelodge properties.
Accor, via a new platform called AGO Hotels, signed nine Travelodge hotels under its Ibis flag.
Viv Watts, managing partner, Oasis Holding, which owns two Travelodge properties, and who set up the Travelodge Owners Action Group and the AGO platform to bring together the voices of what he said were disparate Travelodge landlords, said he was content with AGO’s initial foray.
“Travelodge did a lot of side deals, not wanting to see a mass exodus, so it took us longer than we hoped in respect to the legals with Accor. We have nine firm B-category hotels, and there are a couple more we are talking to,” he said.
One of the hotels is the 297-room hotel at Heathrow Airport’s T5 Terminal, reflagged to Ibis and owned by Sidra Capital.
Goodnight Hotels is another new hotel firm that stated it has secured a number of Travelodge hotels, while Whitbread PLC flag Premier Inn, Travelodge’s main competitor in the U.K. budget field, signed two hotels, Travelodge Bury St. Edmunds and Travelodge London Uxbridge, which have separate landlords.
Steve Bennett, property director, Travelodge, said in a statement sent to Hotel News Now that Travelodge has “worked closely with our landlords to try to find the best possible path forward. With the overwhelming support and commitment of so many landlords across the country, we now have a strong, diversified and well invested network that leaves us well positioned for the recovery.”
Gowers will be replaced on an interim basis by Craig Bonnar, the flag’s current COO.
In a statement from Travelodge, Gowers said he had informed the board of his intention to step down.
Stephen Shurrock, a non-executive director at Travelodge, representing GoldenTree Asset Management, and chair of the audit committee, said in the same statement “with the recently completed arrangements to strengthen the business ... and an experienced management team with a proven track record, the company is in a strong position to move into the new year.”
Travelodge, founded in 1985, is owned by Goldman Sachs, GoldenTree and Avenue Capital and went through its first CVA in 2013, which is when the current owners stepped in.
Watts said 480 Travelodge hotels are classed as B-category hotels.
He said some have negotiated longer break periods.
“They are interested in leaving, or they would not have wanted that longer period. Category-C hotels have the greater break period, but we are being cautious, as they are not in the best locations,” he added.
Some landlords with C-category hotels face are receiving no rent this year or next depending on when they make their decision, he said.
Lionel Benjamin, co-founder of AGO and CEO of Gullwing Hospitality, said AGO leases consist of a 25-year term on a full repairing and insuring basis and a retail price-linked base rent of 50% of the contracted Travelodge rent
Watts said landlords will receive 50% of their hotel’s EBITDA and 50% of that of AGO’s, which will amount to about 75% of their EBITDA at the end of the day.
“Some category Cs have nailed their flags to the Travelodge mast, to be paid something as opposed to nothing,” Watts said, who added the handful of Travelodge assets on management clauses might decide to seek new homes.
“Nine is the starting point. That puts us on the map and demonstrates an appetite for our model, and practically speaking, it is better to launch with a smaller number and be able to stabilize rather than with 50, which would have been a nightmare,” he said.
Watts said he knew his organizing efforts around TOAG would have helped landlords who decided not to go with AGO, but that still sat well with him as it built goodwill and held Travelodge accountable.
“We helped landlords who got a better deal. The exercise was highly valuable,” he added.
Watts said he believed Gowers’ departure sends a worrying signal to landlords.
“(Gowers) built a very strong business. Quitting while you are ahead is not the same as quitting, as the saying goes. … (and its owners) are not putting any more net cash into the business. They’ve closed the taps from their side, perhaps to see how it plays out,” Watts said, who added the COVID-19 pandemic will not make it an easy next 12 months.
“I do not think (Travelodge landlords) are structured next year to ride any more downturns, and rents for Category-B landlords in January will go up to 70%,” he said.
The hotels Watts has signed will benefit from lower fixed costs, a few more months of being rent-free and will still receive government aid.
“Summer trade this year was fantastic, so if we can get through the next few months, with the furlough scheme extending to March, we’ll be a lot more comfortable,” he added.