Main Photo: The latest style of Travelodge bedroom
Date: July 2020
Name: Goodnight Hotels
No. of Keys: TBA
Who: Goodnight Hotels has launched into the UK budget hotel market to initially work with disgruntled landlords at Travelodge hotels who it says feel they have been adversely affected by the group’s last two company voluntary arrangements (CVAs).
The group expects to launch with 80 hotels that it says will revert to a product more like the one Travelodge landlords originally signed up for. The Goodnight business 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 group said in a statement.
Goodnight Hotels has partnered with Village Hotels which will provide the management and operational platform. Village Hotels will provide the platform on a White Label basis and will allow the hotel company to operate and drive the growth of a new budget hotel brand – Goodnight Hotels which has launched today.
The group said: “Village will bring significant experience and knowledge to the business helping Goodnight provide stability immediately, ensuring Goodnight can operate and be managed effectively and efficiently from day one.” Goodnight Hotels has been formed to create a new brand which will initially operate budget hotels across the UK under FRI leases.
Goodnight said: “The key advantage of a creating a new brand is that there will be minimal rebranding requirement. The new brand has maintained many similarities of colour pallet to significantly reduce costs, all of which will be met by the business and not the landlords. A lot of competing hotels are seeking to significantly rebrand the hotels to their existing standards, resulting in a costly and lengthy hand over period for the landlords.”
The business has already had indicative commitments from landlords of over 50 hotels and it says it is expected that from launch the business will operate at least 80 hotels, “making it a sizeable brand from day one”. It said it is also in discussions with landlords of other hotel brands which are secured under HMA and Franchise agreements who have indicated their commitment to sign up to new leases with Goodnight.
The creditors of Travelodge approved its proposed company voluntary arrangement on 19 June.
The group launched the CVA on 3 June after deciding it had run out of other options during negotiations with its landlords at its 580 hotels over its non payment of rent. The CVA was unusual in that it involved no closures but a combination of: the temporary reduction of rent in respect of certain leases, a temporary move from quarterly to monthly rents in respect of other leases, the compromise of certain other specific unsecured liabilities, the waiver of certain termination rights under certain agreements for lease and the provision of mitigating elements to certain landlords (including options for lease extensions and a mechanism to participate in additional cash rental payments, should Travelodge meet certain performance thresholds).
Landlords, which include some of the UK’s biggest REITs, property companies and fund managers such as Secure Income REIT, IM Properties, M&G Real Estate, Aberdeen Standard Investments and Legal & General, were notably aggrieved by a proposed banding of hotels for payment. The process has become a poster child for disputes between landlords and private equity owners of operators during lockdown, with Travelodge’s shareholders – the private equity consortium of Golden Tree Asset Management, Avenue Capital and Goldman Sachs – coming under fire from landlord groups for being both extremely well capitalised and difficult to reach and negotiate with.
The terms Goodnight is offering a new 25 year lease subject to CPI rent reviews on a five-yearly basis and collared at 0% and capped at 3% pac. The projected P&L model is run on a very similar basis to the previous leased hotels with a marginal efficiency difference, the group says.
Goodnight has forecast approximately 6% – 8% of cost variance. Based on the new shadow/forecast P&L, Goodnight will offer a day one rent set at 1.7x rent/EBITDAR cover, it added.
It says that in a number of cases the rent will see little or no adjustments from the rent previously paid by the previous operators/lessees. In circumstances where the previous rent is considered over rented, the initial rent will be reduced to meet the 1.7x rent cover.
Goodnight said it is also willing to offer a base rent and share of turnover structure which will see the landlord benefiting from a higher income whilst maintaining a base rent which will be more secure and thus capitalised at a keener yield. In this scenario the rent will be 50% of the assessed 1.7x rent cover.
This will be the base rent on a 25 year lease and subject to the same CPI reviews. The surplus net operating income which the Goodnight business produces is shared 50/50 with the landlord. It said this allows the landlord the option to participate in the performance of the hotel without being exposed to the operational risk.
Where a landlord wishes to enter into a full rent lease, Goodnight will benefit from a six-month rent free period. Where the landlord selects the base/turnover model, the rent-free will be three months.
Most importantly, the Goodnight business said, it has been sufficiently capitalised to cover any rebrand costs and capex requirements to get the hotels operating. It explained: “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.”
In particular Goodnight says the major appeal for landlords will be that from a valuation point of view, the yields applied in the short to medium term to Travelodge will be significantly impaired while indicative conversations with valuers have shown a “good level of support for better capital values for the new brand given the number of hotels secured and not having a legacy of undertaking multiple CVAs”.
It says: “This therefore will offer landlords an excellent opportunity to protect against short term income and short medium term capital impairment.” Goodnight Hotels is aiming to have leases agreed by late September with a view to commencing trading in January 2021.
The Goodnight team is offering heads of terms setting out the key terms in advance of entering into legal commitments which is likely to follow in the next two weeks. Goodnight is also exploring the freehold acquisition of a number of hotels to further enhance the performance of the business.
Goodnight said: “Whilst Goodnight will be a new brand, the team behind the business have a significant track record and existing platform upon which to rely. “Goodnight and the management team are confident that the proposal offers landlords the best possible alternative to the previous Travelodge Hotel lease structure and are excited at the growth prospect for the business as well as offering landlords a viable and sustainable alternative hotel lease co.”
THPT Comment: CVAs, commonplace in the retail sector, is unusual in hospitality…but can be a blunt instrument, as Travelodge’s owners have discovered. So 80 on board…just another 490 to decide! We are aware that Accor, and other major brands….Marriott, IHG, Magnuson and more, also have initiatives ready to be launched to Travelodge owners in the coming days
First Seen: Co-Star
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