London-based AGO Hotels offers a hybrid lease model which delivers a combination of guaranteed rent plus additional profit rent , and continues to grow its portfolio as a landlord-friendly platform enabling stable asset values and cash flow .
By combining the benefits of institutional leases and operational participation , the AGO platform offers a 25-year FRI lease , and profit participation calculated on the basis of each hotel ’ s EBITDA .
The principals believe the structure aligns the interests of real estate owners and investors with those of the management and brands . It drives long-term added
AGO worked with Accor to convert several Travelodge hotels in the U . K . to the ibis budget brand . value by maximizing revenues , rents and asset values .
Initially , in November 2020 , AGO secured nine leases in the wake of a Travelodge company voluntary arrangement ( CVA ), which reportedly shaved nearly £ 150 million ( US $ 204 million ) from the chain ’ s rent bill , with some landlords sacrificing rent payments until 2022 . Accor became the operator for the hotels under its ibis budget brand and AGO funded rebranding costs . By September 2021 , AGO ’ s portfolio included 12 hotels across the U . K .
AGO co-founder Lionel Benjamin says Accor partnered into the model because it saw the opportunity to use AGO as an off-balance sheet entity that issues long leases and have Accor brands above the door of these hotels for the next 25 years .
“ We launched AGO Hotels during 2020 , which many voiced as a bold business move ,” Benjamin says . “ We saw the pandemic as an opportunity to address the muchneeded change within existing hotel leasing and operating models . Landlords became even more open to new leases during this period , and we were able to establish our hybrid platform combining elements of guaranteed fixed rents and profit sharing , to offer stability and withstand challenging market conditions . Those using our platform benefit from RPI increases in rent , no CapEx concerns , and an opportunity to achieve higher returns and financing , with total landlord transparency . The result is a great incentive to move away from a traditional lease , which through COVID we are demonstrating .”
Having paid rents in full throughout the lockdown , cofounders Viv Watts and Lionel
Benjamin expect AGO to grow significantly over the next year in the economy and budget sectors across the U . K . because the AGO model benefits landlords both in valuation and yield terms , as well as downside protection and genuine profit participation .
HERE IS HOW THE 25-YEAR FRI LEASE STRUCTURE IS BROKEN DOWN :
• Base Rent : Highly secured base rent with upwards-only RPI rent reviews every 5 years
• Profit Rent : Rewarding owners of outperforming hotels and compensating where hotels have historically been under rented
AGO HOTELS LEASES ARE FULLY REPAIRING AND INSURING AND OFFER :
• A significant % of individual property net operating income paid to landlord
• Guaranteed transparent annual CAPEX investment in participating hotels
• A long-term strategic brand partner , providing initial equity investment for rebranding , working capital , distribution and IT The challenge for the platform , says Benjamin , remains educating owners and operators about the disruptive model , which , throughout COVID , has paid rent in full . AGO has the advantage of a rent support facility to cover rent if , for any reason , the hotel trading is insufficient to cover the rent . AGO include owners in the hotel ’ s profits , especially valuable as markets return to normalcy as COVID becomes less of an issue . Making sense of AGO ’ s model After a long career with Hilton and a stint with the Ability Group
November / December 2021 hotelsmag . com 59