In the weeks since Travelodge’s company voluntary arrangement was voted through by its creditors, landlord Vivian Watts has been fielding calls “24/7” from other property owners, with some now in “desperate situations”.
Watts leads the Travelodge Owners Action Group, a coalition of landlords representing more than 470 hotels, which counts institutional owners, local authorities, charities, individuals and family offices among its members.
Watts is one of many individual investors putting their savings into real estate. Income from his two Travelodge hotels, in Glasgow and Burton on Trent, also subsidises his other businesses, which include care homes and start-ups.
After Travelodge made key revisions to its proposals – including a landlord break option for more than 500 hotels – it won support from 86.2% of creditors, excluding Travelodge’s connected parties; 13.8% voted against.
The coalition was among those voting in favour of the plans, in what he said was a “difficult decision”.
Many landlords will be braced for similar pain given the growing number of occupiers following Travelodge down the insolvency path – notable examples including JD Sports’ pre-pack deal for Go Outdoors and Poundstretcher’s approved CVA.
Based on his experiences so far, Watts tells EG what he wished he knew before the events that unfolded in March and his views on how commercial landlords can prepare for the risk of tenant insolvency.
Think like an equity investor
In the first instance, Watts wishes he had analysed his investments with the mindset of an equity investor.
He would usually focus “simplistically” on the headline numbers, lease terms, how much it paid and the tenant’s credit rating. However, he says now that more attention should be paid to corporate debt structure, rather than prospects that appear to offer high yields compared to the risk they present.
“I say this to all the landlords blaming Travelodge – we don’t do as much homework on the nature of the owners of the tenants, [than] looking at the financial performance of each tenant and how much money it has made,” says Watts. “It’s not Travelodge’s fault that we bought their properties.”
‘Hostages along for the ride’
The nature of the CVA process itself, and the negotiations in the lead-up to it, were also learning curves for Watts. The power to vote on proposals, he discovered, would result in “far less benefit either way” than he might have expected.
He says: “The risk is that if you refuse it, you have no more control. [The tenant] could go into a number of insolvency routes, all of which leave landlords with zero optionality. We’re just hostages along for the ride.
“You’re doomed if you do, and doomed if you don’t. The only benefit we get out of this is that we get the right to break the leases, and then it effectively gives you one brief window to decide if this tenant is the least-worst option you have, or if someone else is truly interested in your properties.”
Landlords in the Travelodge Owners Action Group are now in talks with alternative operators including Accor, Marriott, IHG, Hilton, Jury’s Inn and Magnuson Hotels.
“We are trying to find someone who is a long-term partner, and doesn’t see rent payments as a gift. They will want us both to make money, and believe in what we’re doing,” Watts says.
Landlords must rally together
Watts began the landlord group with just two names on a spreadsheet – his own, and one other investor that he knew. This slowly expanded with connections from agents and the banks.
He says if he chooses to buy any further commercial properties, he would set up a landlord group or create an in-house function to oversee one. Other landlords affected by unrelated insolvency processes have contacted him for advice, demonstrating the need for tenant-specific associations.
“You never know when you’ll need to be able to talk to other landlords,” he says. “If you buy a piece of commercial real estate that is tenanted, check if there is a landlord association. Make sure you are represented by a coalition of like-minded people in the same position.”
Watts adds that there “should be no tenant who doesn’t have landlord representation”. Even if the tenant is trading well, quarterly briefings should be issued to keep landlords up to date.
“Investors should think about who represents them, when their chips are down,” he says. “The [big] tenants will have 10 law firms representing them; the landlords will not. We need to act in unison.”
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