24th Aug 2007 11:00
Dawnay Shore Hotels plc24 August 2007 For Immediate Release 24 August 2007 Dawnay Shore Hotels plc ("DSH" or "the Company") Hotel Portfolio to be leased to Major Spanish Group DSH to become Hotel Investment Company Dawnay Shore Hotels, the hotel group established by Dawnay, Day and ShoreCapital in 2004, which owns and operates a chain of twenty leading four and fivestar hotels in the UK, is pleased to announce the successful outcome of itsstrategic review. Highlights • DSH enters into agreement which will lead to Barcelo - a leadinginternational hospitality group - leasing and taking over the management ofParamount Hotels. • Long term 45 year agreement, provides secure income stream which willbe inflation indexed and with further potential for rises depending on hotelprofit performance. • Increased certainty of income through lease structure. • Deal leads to increased value of portfolio (excluding certainperipheral land) of £556.25 million, and allows investors to benefit fromconsiderable development potential and active asset management. • Plans to unlock value by increasing gearing and returning capital toshareholders. • Provides platform for DSH to expand in the hotel sector. Moreacquisitions to be targeted. Strategic alliance with Barcelo to play importantpart in Company's growth. Howard Shore, Shore Capital's chairman and a DSH director, said: "We are delighted to have concluded this value enhancing transaction after acareful review of all the options. As a result, shareholders will be able tocrystallise the benefits of their investment whilst continuing to benefit fromsignificant real estate potential." Peter Klimt, Dawnay, Day's Chief Executive and a DSH director, said: "As a result of the secure income stream generated by the leases and theresultant higher property valuation, DSH should be able to return further valueto shareholders. We have today laid the foundations for DSH to grow into a majorowner of hotel property." The Company will remain in an offer period pending a review of its capitalstructure and a potential corporate reorganisation following completion of thetransaction. A further announcement will be made at the appropriate time. Press Enquiries: Dawnay Shore HotelsHoward Shore 020 7468 7911 Dawnay Shore HotelsPeter Procopis 020 7834 8060 Citigate Dewe RogersonPatrick Donovan 020 7638 9571Fiona Mulcahy N M Rothschild & Sons (London)Avi Goldberg 020 7280 5000Rick Jones N M Rothschild & Sons (Madrid)Juan Pablo Rodriguez +34 91 702 2600 Shore Capital and Corporate LimitedGraham Shore 020 7408 4090 N M Rothschild & Sons Limited ("Rothschild") is acting for the Company and noone else in connection with the matters referred to in this announcement andwill not be responsible to anyone other than the Company for providing theprotections afforded to clients of Rothschild or for providing advice inrelation to the matters referred to in this announcement. Shore Capital and Corporate Limited ("Shore Capital") is acting for the Companyand no one else in connection with the matters referred to in this announcementand will not be responsible to anyone other than the Company for providing theprotections afforded to clients of Shore Capital and Corporate Limited or forproviding advice in relation to the matters referred to in this announcement. Notes to Editors 1. Paramount Group of Hotels was established in 1994 and was acquired byDawnay Shore Hotels Plc in July 2004. Following further acquisitions it nowowns and operates 20 four and five-star hotels across Scotland, NorthernEngland, Central England, Southern England and Wales, including the Lygon Armsin the Cotswolds, the Carlton Hotel in Edinburgh, The Marine in Troon, TheMajestic in Harrogate, The Imperial in Torquay, The Imperial in Blackpool andthe Oxford Hotel in Oxford. These all trade under the Paramount brand ofdistinction. 2. The hotels offer extensive banqueting, conference and leisure facilitiesand many of them have architectural and historical significance. The Group hasover 2,872 bedrooms and around 20,000 square metres of conference and meetingrooms and offers extensive facilities to both corporate and leisure guests. 3. Barcelo Corporacion Empresarial, S.A. is a privately owned Spanishhospitality company. The activities of the company include the management andoperation of over 130 hotels across more than 14 countries under an ownership,leasing or management basis as well as the operation of retail travel agencies.The Barcelo Group also promotes projects broadly related to the tourism andhotel industries, owning shares in other companies. The Barcelo Group carriesout its activities in Spain, the Dominican Republic, Costa Rica, Nicaragua, theUnited States, Mexico, the Czech Republic, Turkey and Switzerland, among othercountries. 4. On 9 November 2006, the Board announced that it had appointed Rothschildand Shore Capital as joint financial advisers to undertake a strategic review ofthe Company's business. During the strategic review the Board consideredoptions including a potential sale of the business as a whole and receivedindicative expressions of interest from potential acquirers. It also examinedthe option of creating a REIT. Introduction The Board of DSH is pleased to announce the successful outcome of the strategicreview begun in November 2006. DSH has entered into agreements which will, whencompleted, lease its portfolio of 20 prominent hotel, conference and leisurefacilities to a structure to be acquired by Barcelo Group ("Barcelo"), a leadingSpanish hospitality company, and transfer the operation of the hotels toBarcelo. On completion, which is due to take place in September, DSH will thereforebecome a hotel investment company with a secure and growing income stream from ablue chip tenant. The Board of DSH envisages that the Company's continuinggrowth will come not only from further development of the existing propertyportfolio, but also from acquiring additional hotels to which a similar approachcan be applied. The Board believes that DSH's strategic alliance with Barcelowill play an important part in the Company's growth. Outline Terms of the Leases The leases will be conventional long term leases with full repairing andinsuring obligations on the tenant. The first year's rent is £28 million,rising to £30 million in the second and third years and to between £31 millionand £34 million in the fourth year, depending upon hotel profitability.Thereafter the rent will be adjusted by inflation which can be supplemented inlater years depending on hotel profitability. Development Potential DSH will retain the reversionary property interests in the hotels comprising 17freeholds and 3 long leaseholds. The Board believes that there is considerablepotential to develop further the existing hotel properties by adding hotel roomsand conference/leisure facilities. At present DSH holds planning and otherpermissions where construction has not yet been committed for 316 hotel roomsand 1,581 square metres of conference / meeting space and the group continues topursue a significant number of further permissions. The agreement envisagesthat DSH as landlord and Barcelo as tenant will agree value-enhancing projectsof this nature and provides a formula for these improvements to add to theCompany's rental income through the leases. DSH has also excluded from theleased properties certain non-hotel assets. Impact upon DSH The Board considers the transaction to be value-enhancing in terms of both theCompany's net worth and net income. On the basis that the leases are granted(but without the benefit of the rooms and conference centres where planningpermissions are held but not yet constructed), DSH's external property valuershave valued its property portfolio at £556.25 million, a substantial increase onthe vacant possession value of £530.2 million last reported in the Company'saudited accounts as at 31 December 2006. Additionally, following completion DSHwill benefit from a more certain contractual lease rental income, while theprofit related element of the lease will enable DSH to participate in theoperational advantages of a major international hotel company. Following completion, the Board of DSH intends to review its capital structure.As a result of the secure income stream generated by the leases and theresultant higher property valuation, the Company expects to be able to increaseits borrowing. This extra funding should enable the Company to repay the deepdiscount bonds issued to its investors and, following a capital reduction, toreturn further value to shareholders. Under this plan, shareholders wouldretain their shareholding in DSH. The Board continues to be advised by Rothschild and Shore Capital on the optimumcapital structure for the Company following the commencement of the new leases.The Company will remain in an offer period pending a review of its capitalstructure and a potential corporate reorganisation following completion of thetransaction. A further announcement will be made at the appropriate time. Further Information on the Transaction Details of the Leases 45 year leases (35 year initial term with a tenant's right to renew) will beheld by wholly-owned subsidiary undertakings of Barcelo Corporacion Empresarial,S.A. ("Barcelo Corporacion"). In the extreme circumstance that, for at least ayear, total hotel EBITDA is less than the total rent, then DSH may, in certaincircumstances after the end of the third year but before the end of the tenthyear, either put the portfolio to Barcelo at a fixed price (initially £530million but increasing with inflation) or cancel the lease on receiving apayment of two years' rent (years 4-7) or one year's rent (years 8-10). Theleases benefit from a parental company guarantee from Barcelo Corporacion forthe first three years of the lease in relation to rent and for ten years inrelation to these other obligations. The rent for the portfolio with its current room capacity is as follows: Year £m1 282 303 304 31-34 (within the band, 65% of hotel level EBITDA)5 based on previous year + annual RPI capped at 5.5% p.a., ("Indexation")10-14 higher of 63.75% of hotel level EBITDA or Indexation15-19 higher of 63% of hotel level EBITDA or Indexation20-24 higher of 62% of hotel level EBITDA or Indexation25-35 higher of 61% of hotel level EBITDA or Indexation If agreed improvements (such as room additions) are made, the extra rent will be65% of the agreed EBITDA increase resulting from the development. The leases are standard UK full repairing and insuring leases with the Tenantbeing responsible for maintaining the properties' furnishings, fixtures andequipment, towards which DSH has agreed to make a contribution. Paramount Group The hotels currently trade under the Paramount brand name, with several of thehotels branded as Paramount Signature Hotels. Barcelo may introduce the Barceloname where it believes this will bring marketing and other advantages. Handover Completion of the transaction is subject to assignment of certain premiseslicences and other operating licences. It is expected that Barcelo will takecontrol of the hotels from September 2007. Management and Employees Barcelo will take on all employees of the hotels and the central management andadministration of Paramount and employee rights will be protected in accordancewith the Transfer of Undertakings (Protection of Employment) Regulations 2006.The Board believes that transfer of the business to Barcelo, being a leadinginternational group, should improve and widen the range of opportunities open toits staff. DSH wishes to thank all its employees for their hard work andenthusiasm in creating such a strong and successful hotel chain and looksforward to working with them as they become a part of an exceptionalinternational hotel company. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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