Travelodge, one of the UK’s budget hotel giants, faces the possibility of vastly reduced assets or disappearing altogether, with a group of its landlords looking to exit the brand via two initiatives launched for that express purpose.

Forming a portfolio called Ago, one group of Travelodge landlords are likely to partner with Accor under its Ibis brand, possibly before the end of August, according to sources.

For Accor, the opportunity is to rebrand hundreds of hotel rooms in key UK locations without building any new rooms.

Separately, CoStar News revealed last Friday that around 80 landlords are in talks to exit leases and transfer them to newly formed brand Goodnight Hotels. For the full story read here.

Goodnight Hotels has been formed to create a new brand which will initially operate budget hotels across the UK under FRI leases. It says the key advantage is 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. It adds: "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 says it 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".

Since the start of the COVID-19 crisis, Travelodge, owned by Goldman Sachs and New York City hedge funds GoldenTree Asset Management and Avenue Capital, had asked landlords for rent reductions through December 2021 and then had passed a company voluntary arrangement, or CVA.

Landlords agreed to pass the CVA if there were certain conditions, including break clauses, which then were mandated by the UK court system.

Founded in 1985, Travelodge has 589 hotels, most in the United Kingdom, and underwent its first CVA in 2013 after the Great Recession.

Viv Watts, managing partner of Oasis Holding and who owns two Travelodge properties, set up the Travelodge Owners Action Group after Travelodge announced its desire for a second CVA in early 2020.

He said he is increasingly bringing together the fragmented Travelodge ownership, including its largest single landlord, Prestbury, which owns 123 Travelodge assets via its Secure Income REIT and at the end of December 2019 had an annual rent of £28.3m ($34.5m).

In early June, Watts told Hotel News Now that he had begun to think of different options for landlords.

“The initial discussions on break clauses that would have gone into the CVA we thought were legally weak, with a hundred ways of wiggling out of them, so we insisted on various amendments to make sure break clauses were bulletproof,” he said.

“(Travelodge’s) Plan A was for landlords to accept a massive rent reduction in year one, so we already needed to start thinking what our other options are. Soon, those conversations became hotter,” he added.

Sources said Ago is not a brand name, but a platform for landlords interested in switching to the Ibis brand.

“The deal would be for a hybrid lease, somewhere between a hotel franchise agreement and a Travelodge lease agreement, which provides the best of both worlds and mitigates one against another,” Watts said.

“If 250 Travelodges would switch, Travelodge might go, and if they lose 50% and have 50% less operating expenses that would not half Travelodge’s debt profile,” Watts said.

He added the intention is not to hurt Travelodge, but to provide a fair deal for landlords, which he said have been unfairly treated to satisfy Travelodge shareholders.

“Travelodge has created the perfect storm to destroy its business, which is not our aim. The aim is to safeguard investment. Travelodge has been in business for 35 years with full respect and trading with great properties, and then only across a short time they’ve employed aggressive tactics to foster shareholders’ interests, not ours,” Watts said.

He said the profile of the majority of Travelodge owners is not multinational corporate, but rather includes individual landlords, retirees, local authorities and nursing homes.

Accor will not enter into full leases with the landlords who decide to exit the Travelodge brand.

The TOAG has had lengthy discussions with Accor CEO Sébastien Bazin and its board, Watts said. He added that personally he is not retained by anyone and has brought in for advice Lionel Benjamin, former director of hotels at Topland Hotels.

He said landlords are not looking for a gamble but stability and security.

“This is why we invested a large part of our wealth,” he said.

Watts said he had been in discussion with multiple parties, including InterContinental Hotels Group; former Hilton (U.K.) Managing Director David Michels, who now runs hotel management firm Michels & Taylor; Marriott International; and Oyo Hotels & Homes.

“It is a small industry. Everyone knows everyone else, and everyone wants a piece of this pie. This is a once-in-a-lifetime opportunity. It’s a feeding frenzy,” he said.

Another hotel operator the owners group approached is Magnuson Hotels.

Its CEO, Thomas Magnuson, said Watts’ efforts have been admirable.

“It has been remarkable to collaborate that unity and liberation. Now that has been done, owners have freedom to choose their own destiny, and they are looking around,” he said.

Magnuson said he has been “speaking to a significant number of owners directly, and what they are finding attractive about the Magnuson brand is that we are the only company uniquely suited to elevate these owners quickly from this situation.

He noted similarities between the Travelodge U.K. portfolio and Magnuson’s U.S. portfolio, both of which are in a middle-market segment with no property-improvement plans and “operate at above middle-market performance.”

“Magnuson was born from the fact that (co-founder and chairman) Melissa (Magnuson) and I were owners with a franchise. That drives our commitment and ethos to get things done,” he said.

“Independent investors now are finally able to connect with platforms that share that ethos,” he added.

Watts said the owners group believed Accor had all the key ingredients.

“It has a brand ready to go and grow, it has the strongest balance sheet, and it will provide landlords with a new vehicle that will be owned by those landlords,” he said.

In the Accor deal, according to Watts, the French hotel firm will not enter into leases and thus have no debt on its balance sheet.

“Accor will finance working capital and key money to make the change frictionless, and it is willing to give landlords equity value, to own 49%. Landlords will earn base rent, a profit share from their individual hotel(s) and a portion of the profits placed in a bucket and paid back in a diversified manner,” Watts said.

“We of course could set up a management team tomorrow, but that is not an easy task,” he said.

Watts added the U.K. government could do more to balance the power of individual investors and large shareholder bases.

“We are not fat cats smoking cigars for breakfast. Tenants tend to be multimillion-dollar companies, while investors are individuals,” Watts said.

“Firms, such as Travelodge, suddenly have no cash in a crisis, as it has all been pulled out by shareholders. Its operational gearing is such that when occupancy falls, as it has in this crisis, down, suddenly it is in the red. Ago addresses that, with fixed rent on institutional terms so landlords can be paid,” he said.

Magnuson agreed. “Recovery is going to be a long-haul … and in that long haul, whatever platform these property owners choose is going to be the one that is not going to impose additional costs upon them. These are individuals who did not set up to be operators,” he said.

“These landlords’ original dream was ‘I have a property, you run it, and then send a check.’ They do not want to be drawn into a complex set of new financial obligations, such as PIPs and additional frequency marketing surcharges. It needs to be sympathetic to the landlords and also have the cost structure that everyone can operate successfully,” he said.

Matthew Pohlman, partner at Goodwin Law’s real-estate industry group, said the break clause in the Travelodge portfolio is bespoke and somewhat unique.

“It is not a market moment, but a reaction to a challenging set of circumstances,” he said.

As of press time, Travelodge did not return requests for an interview.