Landlords critical as Travelodge prepares to launch CVA plan
The hotel chain Travelodge is preparing to launch insolvency proceedings in the form of a company voluntary arrangement (CVA), in an attempt to cut its rent by about 40% over the next 18 months and save 10,000 jobs.
The company has been locked in a battle with its landlords since the end of March when it refused to pay rent for the second quarter of the year. All but a handful of its 564 hotels have remained closed during the lockdown.
Travelodge is owned by investment firms including Goldman Sachs, Avenue Capital and GoldenTree and has £100m in cash reserves. Its shareholders have pledged to inject up to £40m in new equity into the business and raise £100m in new debt as part of a turnaround plan.
Unlike a traditional CVA, which is often employed by struggling retailers to close unprofitable stores, Travelodge is not proposing any hotel closures or job cuts, and the rent reduction will not be permanent.
Instead the company is asking landlords to cancel £144m of rent due until the end of 2021, and is giving those that accept a rent reduction the opportunity to break the lease after six months.
However, landlords accuse the hotel chain of using the coronavirus pandemic as an excuse to slash rent costs.
“Going down the CVA route now is highly aggressive,” said Viv Watts, who owns two of the chain’s hotels and leads the Travelodge Owners Action Group, whose members own about 400 of Travelodge’s sites.
Watts criticised the company for neither consulting with landlords about its CVA plans, nor responding to their own proposals. They are offering four and a half months rent-free followed by a 20% reduction from July to December.
“We are being asked to forfeit a huge amount of income. These are not commercial industrial landlords, these are savers, pensioners, local councils, charities, who heavily rely on their income to fund payroll and operations. Local authorities use this income to fund social care,” Watts said.
Secure Income REIT, a real estate investment trust that owns 123 of the chain’s hotels, had intended to pursue legal action against Travelodge to recoup overdue rent, when the government temporarily banned commercial property landlords from pursuing rent arrears.
The £1.4bn property investment group, which also owns the theme parks Alton Towers and Thorpe Park, wrote to the business secretary, Alok Sharma, at the end of May to complain that the measures intended to protect vulnerable businesses from aggressive rent collection had “created some unfortunate unintended circumstances” in which certain tenants had unilaterally decided not to pay their rent.
If successful, this would be Travelodge’s second CVA in eight years: in 2012 it jettisoned 49 hotels it said were no longer viable, and injected £75m of new money.
Creditors will be asked to vote on Travelodge’s proposals at a meeting on 19 June.
Travelodge declined to comment.
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