Coronavirus: Travelodge landlord Leslau fights back in rent row

May 20, 2020

One of Britain's most prominent property investors is canvassing support for a plan to halt the budget hotel operator Travelodge's efforts to abandon £150m of rent payments amid the coronavirus pandemic.

Sky News has learnt that Nick Leslau, whose Secure Income REIT owns more than 120 of Travelodge's hotels, has approached fellow landlords in the wake of the company's threat to push it through an insolvency mechanism if its demands are not met.

In a letter sent to other property owners on Wednesday, Mr Leslau described Travelodge's stance as "unreasonable [and] unacceptable to the vast majority of those property owners we have spoken to".

He is understood to believe that the company is trying to force through a restructuring by the end of June, after which property-owners are expected to regain the ability to use forfeiture and statutory demands to collect rent.

"The company is using the COVID emergency legislation [to impose a moratorium on evictions] to game the system," one landlord said.

Mr Leslau wants the hotel chain, whose shareholders include Goldman Sachs, to ditch a restructuring proposal which has met with a hostile reception from many landlords on the basis that it would not require the owners to invest any more of their own money.

Instead, Mr Leslau is asking fellow landlords to support a rival plan that would involve deferring rent arrears for the current quarter as well as 20% of the rent owed during the second half of this year.

Those arrears would be written off "on an equal quarterly basis during 2023 provided that full lease terms are honoured throughout 2021, 2022 and 2023", his letter said.

"Lease extensions reflecting the amounts written off will be required in December 2023," it added.

Mr Leslau's proposal is understood to be worth in the region of £70m to Travelodge, according to people close to his plan.

The row over the company's demands is the latest example of conflict to arise between commercial landlords and their tenants during the COVID-19 pandemic.

Intu Properties, the stricken shopping centre-owner, said recently that it would serve legal demands against retailers which could afford their rent bills but were choosing not to pay.

Boots, Sir Philip Green's Arcadia Group, Superdrug and Burger King are among the big high street names which have abandoned rent payments since the crisis erupted.

Under Mr Leslau's proposals, Travelodge would be required to switch to monthly-in-advance payments for the 18 month period from July to December 2021, with quarterly lease bills resuming in early 2022.

Travelodge would also be obliged to pay all "service charges, head rents and other obligations…as they fall due, without exception".

"These proposals do not impact any rights of property owners in relation to a CVA or any other liquidation event," Mr Leslau's letter to other Travelodge landlords said.

By contrast, the hotel group, which also counts the hedge funds Avenue Capital and Goldentree Asset Management among its shareholders, has given landlords a deadline of this Friday to agree to a deal that would involve securing £60m of additional debt, as well as the waiver of £150m of rent payments.

Under the current owners' plans, the existing shareholders would retain sole control of Travelodge's equity.

In a statement to Sky News, Mr Leslau said: "'Our ever-growing group comprises institutions, public companies, charities and responsible property-owners, which are all acutely aware of the challenges of COVID-19 and are supporting a generous initiative.

"The proposal is to support the business with up to some £70m of cash by way of rent-free to deal with the shorter-term issues confronting the company in these challenging times and has, within 24 hours of sending the letter, already received close to 50% support of Travelodge property owners.

"The shareholders of Travelodge have offered zero cash, only debt and won't even disclose on what terms."

Mr Leslau said that while property-owners were sometimes "demonised as greedy and irresponsible...this feels more like yet another case of private equity taking out way too much cash over the years from an otherwise very viable business to enhance its returns, whilst leaving the company vulnerable to a downturn".

He complained that Travelodge was expecting landlords to "pick up 100% of the cost, without the shareholders putting back a penny of the cash they have withdrawn, whilst they get to keep 100% of the upside".

"To claim shareholders have had to write down reserves and put more debt into the company is simply irrational - they are putting in no new cash".

"At a time of national emergency, when government has temporarily withdrawn owner's ability to collect rent, the company's owners are deploying the threat of a CVA process, not collaboration, to achieve their aims."

Travelodge's threat to pursue a company voluntary arrangement (CVA), a form of insolvency mechanism, comes just weeks after it reported record-breaking financial results.

A source close to the hotel operator said landlords were being asked to forego between 2% and 3% of the overall rent due to them.

He claimed it was a "balanced proposal" because shareholders would "absorb an impact on equity value of approximately £200m through the use of the Company's cash reserves and the borrowing by the Company of the extra £100m in additional facilities that the company has taken on".

Travelodge insiders claim it is losing £50m every month during the lockdown, and that 10,000 jobs were on the line.

They added that landlords that were asked to accept reduced rent would be offered an option to extend their lease for a period equivalent in value to the amount of rent foregone, as well as an additional further year.

Travelodge declined to comment.

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