8th Apr 2008 07:02
The Real Hotel Company PLC08 April 2008 THE REAL HOTEL COMPANY PLC(the "Company") 8 April 2008 PROPOSED SALE OF THE QUALITY HOTEL WESTMINSTER, THE COMFORT INN KENSINGTON AND THE PURPLE HOTEL, CITY OF LONDON The Company is pleased to announce the conditional sale of the business andassets of the Comfort Inn Kensington (the "Kensington Hotel") and the purplehotel, City of London (the "Purple Hotel") and the entire issued share capitalof the subsidiary company owning the Quality Hotel Westminster (the "WestminsterHotel"), to Premier Inn Hotels Limited ("PIHL"), a subsidiary of Whitbread PLC(the "Transaction"). The total cash consideration to be received by the Groupfrom the sale of all three hotels is £18.58 million. The key points of the Transaction are as follows: •Sale of three hotels currently owned within the group of companies comprising the Company and its subsidiaries (the "Group"), namely the Kensington Hotel, the Westminster Hotel and the City of London Hotel. •A right of first refusal given to PIHL in respect of any future disposals by the Group of any hotels now or subsequently operated under the "purple" brand or any derivation therefrom and any new, replacement or other budget hotel which is demonstrably derived from the purple hotel brand. •The board of directors of the Company (the "Board") intend to use the net proceeds from the sale of the three hotels to reduce Group indebtedness. •Shareholder approval to implement the Transaction is required. Michael Prager, Chief Executive of the Company commented: "In line with our declared strategy we are focusing our growth on the premiumlimited service sector and we will exit our full service hotelsopportunistically where the deal terms are favourable. We've considered verycarefully whether exiting the London market and including one of our new purplehotels in the transaction was in the Company's shareholders' best interests andhave come to the conclusion that exiting London for a temporary period at thistime allows us to extract maximum value from this transaction whilstconcentrating the regional strengths of the brand." Peter Catesby, Chairman of the Company, said: "We are pleased with this deal which has enabled us to realise the long termvalue of these businesses more quickly than we anticipated whilst continuing toaggressively develop our new purple hotel brand". "We regard our exit from the London market as a temporary situation. We have anactive development pipeline already in place with over 2000 rooms under offerand becoming a largely de-leveraged business will enhance our ability to deliverthis plan". Contact: the real hotel company plc Michael Prager, Chief Executive 020 8233 2001Paul Mitchell, Finance Director Introduction The Company is pleased to announce the conditional sale of the Kensington Hotel,the Purple Hotel and the Westminster Hotel (together the "Hotels" orindividually "Hotel") to PIHL. The total cash consideration to be received bythe Group from the sale of all Hotels is £18.58 million. As part of the Transaction, the Company has given PIHL a right of first refusalin respect of any future disposals by the Group of any hotels now orsubsequently operated under the purple hotel brand or any derivation therefromand any new, replacement or other budget hotel which is demonstrably derivedfrom the purple hotel brand. The aggregate proceeds from the sale of all Hotels, less transaction costs, isapproximately £18.0 million which represents a surplus of approximately £1.1million over the net book value of £16.9 of the Hotels as reported in theCompany's 2007 interim results. The Board consider that the Transaction willbenefit the Group by reducing Group indebtedness. The Transaction constitutes a Class 1 transaction under the Listing Rules of theUnited Kingdom Listing Authority and, as such, requires the approval of theCompany's shareholders. The Company intends to send a circular (the "Circular")containing details of the Transaction and a notice convening a general meetingof the Company's shareholders (the "General Meeting"), to Shareholders toapprove the Transaction in the near future. Background to the Transaction The Board has been focusing the Group strategy by leveraging current markettrends against specific skill sets contained within the Group. The Boardbelieves that the traditional mid market is being squeezed by the extension offour star brands at the higher end and the growth of the budget sector at thelower end to the extent that the mid market is no longer an attractive sector inwhich to grow the Group's business. At the same time, the Board recognises thatthe Group has a competence based on the values of traditional hospitality thatthe Board broadly defines as being "real hoteliers" and that this suited to thepremium limited service sector. The Board believes that the Group offers alimited service operation that has the economics similar to the budget sectorbut delivers a guest experience similar to that of the four star sector. This,the Board believes, comes together in the Group's "purple" branded hotels whichare the focus of the Group's future growth. As a result the Board has determinedthat over time the Group will exit from the traditional mid market sector tofocus on the premium limited service sector. Reasons for the Transaction In line with this strategy, the Board is seeking to exit its mid market hotelsas and when opportunities arise. The Board considered whether exiting the Londonmarket and including one of the Group's new purple branded hotels in theTransaction was in its shareholders best interests. The Board has come to theconclusion that whilst it would ideally have chosen to retain the Purple Hotelthe Transaction was not possible without it and that exiting the London marketfor a temporary period at this time allows us to extract maximum value from thistransaction whilst concentrating on the regional strengths of its purple brandedhotels. The Transaction does not prevent the Group from re-entering the Londonmarket at any future time. Terms of the Transaction The Transaction Under the Transaction, the Group has entered into agreements with PIHL asfollows: •a share sale and purchase agreement for the sale of the entire issued share capital of Gazelon Limited, the owner of the business and assets of the Westminster Hotel for a debt free cash consideration payable on completion of £7.58 million (the "Westminster SPA"). The consideration received for the sale of the Westminster Hotel is subject to adjustments for working capital; •a business sale and purchase agreement for the sale of the business and assets of the Purple Hotel for a cash consideration payable on completion of £6.0 million (the "Purple SA"); •a business sale and purchase agreement for the sale of the business and assets of the Kensington Hotel for a cash consideration payable on completion of £5.0 million (the "Kensington SA"); •a right of first refusal agreement granting PIHL a right of first refusal in respect of any future disposals by the RHC Group of any hotels now or subsequently operated under the "purple" brand or any derivation therefrom and any new, replacement or other budget hotel which is demonstrably derived from the "purple" brand (the "ROFR Agreement"); and •an implementation deed providing a framework for the implementation of the Transaction and requiring the Company to seek the approval of its shareholders to the Transaction and to pay a termination fee to PIHL in certain circumstances if the Transaction does not complete (the "Implementation Deed"). Sale Agreements Completion of each of the Westminster SPA, the Purple SA and the Kensington SA(together the "Sale Agreements") is conditional upon the passing of a resolutionof the Company's shareholders (the "Shareholder Resolution") at the GeneralMeeting to be convened pursuant to the Circular which is expected to be sent bythe Company towards the end of April 2008 and with the General Meeting expectedto be held in May 2008. If the Shareholder Resolution is not passed at theGeneral Meeting the Sale Agreements will terminate. Completion of the Purple SA and the Kensington SA is also conditional upon theconsent of each landlord in accordance with the terms of each lease under whichthe relevant hotels are held by the Group and the Purple SA is conditional uponthe consent of the landlord to PIHL's proposed alterations to signage at thePurple Hotel. Furthermore, the Purple SA and Kensington SA are conditional onthe each other agreement becoming unconditional on its terms. Under each of thePurple SA and the Kensington SA the conditions referred to above need to besatisfied within six months of the date of each agreement or otherwise eachagreement will (unless otherwise extended by mutual agreement) terminate. Additionally, the Westminster SPA is conditional upon the Company obtainingretrospective planning permission and listed building consent in respect ofcertain works which have been carried out by the Company at the WestminsterHotel as well as PIHL receiving planning permission and listed building consentfor certain alterations to be carried out by PIHL at the Westminster Hotel("PIHL's Condition"). The conditions referred to above (save for PIHL'sCondition) need to be satisfied within six months of the date of the WestminsterSPA or otherwise the Westminster SPA will (unless otherwise extended by mutualagreement) terminate. If after six months PIHL's Condition is not satisfied itis deemed to be have been waived and on the assumption that all other conditionshave been satisfied, the Westminster SPA will complete. Assuming the Shareholder Resolution is passed the Purple SA and the KensingtonSA are expected to become unconditional and complete by the end of May 2008 andthe Westminster SPA is expected to complete by the end of October 2008. Implementation Deed Pursuant to the Implementation Deed, the Company has agreed with PIHL to sendthe Circular to the Company's shareholders containing a statement by the Boardthat they believe the Transaction is in the best interests of the Company andits shareholders as a whole and a recommendation (the "Recommendation") thatshareholders vote in favour of the Shareholder Resolution. Once the Circular hasbeen published the Company has agreed it will not withdraw or adversely modifythe Recommendation or make any public statement which could reasonably beconsidered to be contrary to the Recommendation recommending that itshareholders take any action which could prevent, adversely affect or delay theimplementation of the Transaction. If the Company fails to do any of the above or if the Shareholder Resolution isnot passed or if the General Meeting is not convened by 16 May 2008 or held by12 June 2008 or if the General Meeting is held but the Resolution is notconsidered or if the General Meeting is adjourned after 12 June 2008, then theCompany has agreed to pay a termination fee to PIHL equal to £140,000. ROFR Agreement Under the ROFR Agreement, the Company has agreed to grant to PIHL a right offirst refusal agreement granting PIHL a right of first refusal in respect of anyfuture disposals by the RHC Group of any hotels now or subsequently operatedunder the "purple" brand or any derivation therefrom and any new, replacement orother budget hotel which is demonstrably derived from the "purple" brand andwhich the Group may wish to sell within the forthcoming five years. The Companywill offer PIHL the exclusive opportunity to conclude any such purchase at aprice set by the Company, failing which, the Company will then be able todispose of such property or properties to a third party for not less than 90% ofthe price offered to PIHL. The right of first refusal contained in the ROFR Agreement is also conditionalupon passing of the Shareholder Resolution. If the Shareholder Resolution is notpassed at the General Meeting the ROFR Agreement will terminate. The Company The Company owns, leases and manages hotels and hospitality brands across theUnited Kingdom and continental Europe in the premium limited service and fullservice mid-market sectors, under the following brands: •purple hotels •Stop Inns •Comfort Inns and Hotels •Quality Hotels •Clarion Hotels •New Connaught Rooms The Comfort Inn, Kensington The Kensington Hotel is owned under lease by a subsidiary company of the Group,Opaljewel Limited. The business and assets of the Kensington Hotel, includingthe lease, will be sold to PIHL. The sale proceeds for the Kensington Hotel willbe £5.0 million. The audited figures for the year ended 31 December 2006 show that the KensingtonHotel generated revenues of £1.9 million and a loss before tax of the £0.3million. At the date of the 2007 interim results the net book value of the hotelwas £5.2million. The Purple Hotel, City of London The Purple Hotel is owned under lease by a subsidiary company of the Group,C.H.E (Sleep Inns) PLC. The business and assets of the Purple Hotel, includingthe lease, will be sold to PIHL. The sale proceeds for the Purple Hotel will be£6.0 million. The Purple Hotel commenced business in May 2007 and, therefore, no historicaudited figures are available profit and loss. As at the date of the 2007 interim results, the net book value of the hotel was£8.3million. Quality Hotel, Westminster The Westminster Hotel is owned by Gazelon Limited and the entire issued sharecapital of that company is being sold to PIHL for £7.58 million. The audited figures for the year ended 31 December 2006 show that theWestminster Hotel generated revenues of £2.9 million and a profit before tax ofthe £0.3 million. The value of the net and gross assets was £3.4 million. Use of Proceeds The Board intends that the estimated cash available to the Group derived fromthe sale of the Hotels (assuming that completion of the sale of all Hotels takeplace) of £18.58 million will be used as follows: •to discharge the costs of the transaction estimated to amount to approximately £0.58 million; £€11.00 million to reduce Group indebtedness; £€7.00 million for general working capital requirements of the Group. Financial Effects of the Sale on the Continuing Group Consolidate Balance Sheet The Transaction constitutes the sale of one subsidiary company and two leasesfrom the Group. On the assumption that the sale of all Hotels completed and after taking intoaccount the expected costs of the transaction, the Transaction is likely torealise £18.0 million. The Transaction is expected to increase the Group's cashand cash equivalents by approximately £7.0 million, to decrease the Group'sexternal debt by approximately £11 million and to decrease the Group's propertyfixed assets by approximately £16.9 million. Under IFRS these leasehold properties were capitalised as fixed assets and therespective finance lease creditor was carried as a debt at £14.0 million. As aresult of the Transaction taking place the combined impact of reducing externaldebt and of extinguishing the finance lease creditor, will reduce debt by £25.0million in total. The Transaction is expected to realise a net profit to the Group (assuming thatall Hotels are sold) of approximately £1.1 million in excess of the book valueof the subsidiary and leases, as included in the Company's 2007 interim results. General Meeting of the Company's shareholders The Company expects to send the Circular to its shareholders towards the end ofApril 2008 and with the General Meeting expected to be held in May 2008. END This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Whitbread