The first potential change from landlord antipathy to the recently proposed Travelodge reorganisation is set to appear in November, but noise already has begun, according to sources.

Following a court ruling that the firm’s CVA, centred on a rent-payment deduction of 38%, constituted a break of clause, rival hotel firms have been scouring Travelodge’s portfolio for potential add-ons.

The hard deadline for landlords to decide to leave their contracts with Travelodge is 18 November.

Already, one newly formed hotel firm, Goodnight Hotels, claims to have signed “18 Travelodge hotels from four undisclosed landlords at an approximate sum of £60m ($77.3 million),” according to CoStar News, owned by STR’s parent company CoStar. (Hotel News Now is a division of STR.)

Investors in that platform—NP Investment Management, Sherman Financial Group and Grand Heritage Hotels—have ended discussions on the possible acquisition of 119 Travelodge hotels from U.K. real estate investment trust Secure Income REIT, the largest Travelodge owner by asset number, CoStar News reports.

Hotel operators such as Accor, via a new platform called AGO Hotels, and Magnuson Hotels have expressed interest in taking over the management of Travelodge assets. Accor has been working with the Travelodge Owners Action Group, a body formed this year to bring together fragmented Travelodge ownership.

One of the UK’s two budget giants, Travelodge is owned by Goldman Sachs, GoldenTree Asset Management and Avenue Capital, was founded in 1985 and has 592 hotels, most of them in the U.K.

The problems started when Travelodge proposed in early summer a new arrangement called a Company Voluntary Arrangement, which landlords viewed as benefitting shareholders, not landlords.

Travelodge said reduced demand due to COVID-19 required it to reduce its rent load, but sources said even if the firm manages to weed out hotels it no longer wants, any percentage less in rent would not equal a reduction in debt.

“For Travelodge, I do not think it matters if none or 300 properties go. It has more debt now, and it is not carrying our rent reviews in 2020 or 2021, so when they are in January 2022, 200 or more rent reviews will all come into force at the same time,” said Viv Watts, managing partner of Oasis Holding, which owns two Travelodge properties.

“I would have thought (Travelodge) would have used the opportunity of this year to step back and take the emotion out of the picture,” said Watts, who also set up the Travelodge Owners Action Group.

In addition to the announcement by Goodnight, the AGO platform is building steam, according to Watts.

“We’ve put together a structure with Accor, all the commercial stuff, which came with the complications of working with a massive listed company in another country, but we’ve rubber-stamped draft documents, and these have been sent to landlords. These lack some of the details … but we’ll sign off on the execution documentation this week, and our indicative numbers are for between 45 to 50 Travelodge assets initially, with another 30 to 40 later,” Watts said.

Any assets transferring to Accor will be branded as Ibis, he added.

He said Goodnight’s proposed structure, similar to AGO, offers fixed or hybrid leases with a base rent and profit share, but there are some fundamental differences.

“There are inherent risks in opening a hotel today, mostly centred on brand and distribution. What Goodnight is doing is nice, but it is risky, as how does the man on the street hear about and find you?”

He added “what is important is to have a management team that can take on the new assets, a platform offering upside and downside protection and a brand people know.”

Magnuson Hotels’ co-founder Thomas Magnuson said that Travelodge’s preferred “upward only” rent clauses will make landlords pause after many have suffered an initial loss of rental income, further detrimental impact to investment value and increased liabilities.

“The deadline is coming, but that does not change in any way the level of dissatisfaction that landlords have seen,” Magnuson said. He added he does not rule out the possibility of another Travelodge CVA happening, perhaps in 2021.

“Because London represents approximately 60% of (Travelodge’s earnings before interest, tax, depreciation and amortization), that is a very large at-risk segment that could cause a second CVA sooner than owners had anticipated,” he said.

“This is causing more nervousness from landlords, and these are from our conversations with multiple landlords,” he added.

Watts said it is exciting to start a new brand, but the industry has not learned some of the fundamentals of signing fixed guaranteed leases in a market that is volatile and cyclical in nature.

“With ever-escalating rents, such a model is not often appropriate, which is why it has been phased out and the reason all (branded hotel companies) have gone asset-light. Added to that, the recovery (from the pandemic) is not clear. Six months back, we might have thought we could see the end, but now that is not the case. It is quiet in London, travel is non-existent and COVID-19 will not be the last piece of volatility,” Watts said.

“(AGO has) one foot in fixed institutional lease terms, the other in a variable profit share. There have been discussions with more 135 properties,” he added.

Magnuson said it is apparent Travelodge wants to retain some properties and not others.

“There will likely be more segmentation analysis going forward. That will be most unfortunate for some owners who will be on the bad end of the deal,” he said.

“Taking the fat from the lean is the wrong way to think about it. I stand behind Sam Walton’s (of retail chain Walmart) philosophy that you’ll never believe how much business there is in a small town, and in the UK, right now the London-regional divide (in hotel-performance metrics) has been utterly flipped on its head,” he added.

Travelodge was successful with a 2012 CVA, which is when its current owners came on board.

In first-half 2020 earnings to the end of June, Travelodge reported total revenue of £142.7 million ($184.82 million), down 57.7% year over year. Earnings before interest, tax, depreciation and amortization was down £97.1 million ($125.77 million) to -£52.4 million (-$67.87 million) in the same period, and cash reserves totalled £59.5 million ($77.06 million).

Six hotels have been added to the company’s portfolio this year.

At press time, Travelodge had not responded to emails from HNN.