RNS Number : 4586X
The Real Hotel Company PLC
25 June 2008
The Real Hotel Company plc
(the "Company", "Group" or "RHC")
Posting of class 1 circular to shareholders
On 8 April 2008 the Company announced the conditional sale of the business and assets of the Comfort Inn Kensington (the "Kensington
Hotel") and the purple hotel, City of London (the "Purple Hotel") as well as the entire issued share capital of the subsidiary company
owning the Quality Hotel Westminster (the "Westminster Hotel"), to Premier Inn Hotels Limited ("PIHL"), a subsidiary of Whitbread PLC (the
"Disposals"). The total cash consideration to be received by the Company and its subsidiary undertakings (the "Group") from the sale of the
Kensington Hotel, the Purple Hotel and the Westminster Hotel (together the "Disposal Hotels") is �18.6 million. In addition to the
Disposals, the Company has given PIHL a conditional right of first refusal in respect of any future disposals by the Group of any hotels now
or subsequently operated under the "purple" hotel brand for a five year period commencing from the date of the passing of the resolutions to
approve the Disposals and such right of first refusal (the "Transaction").
The Transaction is classified as Class I pursuant to the Listing Rules of the UK Listing Authority and therefore the Company today
announces that it has posted to shareholders a circular containing a notice convening a general meeting (the "General Meeting") at which two
resolutions (the "Resolutions") will be proposed seeking approval for the Transaction. The General Meeting will be held at 9.00 a.m. on
Friday 11 July 2008 at the New Connaught Rooms, 61-65 Queen Street, London, WC2B 5DA.
1. Background to and reasons for the transaction
The Group currently operates 59 owned, leased or managed hotels under various hospitality brands (excluding the Disposal Hotels) across
the United Kingdom and continental Europe in the premium limited service and full service mid-market sectors. The premium limited service
hotels operate under the "purple" brand, which is owned by the Company. The Group also operates the New Connaught Rooms conferencing and
banqueting suite in London's Covent Garden.
The board of directors of the Company (the "Board" or the "Directors") has been focusing the Group by leveraging current market trends
against specific skill sets contained within the Group. The Board believes that the traditional mid market is being squeezed by both the
extension of four star brands at the higher end and the growth of the budget sector at the lower end, to the extent that the mid market is
no longer an attractive sector in which to grow the Group's business. The Board believes that the Group offers a limited service operation
that has economics similar to the budget sector but 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 which are the focus of the Group's future growth. As a result, the Board has
determined that over time the Group will exit from the traditional mid market sector as and when opportunities arise to focus on the premium
limited service sector.
The Board considered whether exiting the London market, including one of the Group's new purple branded hotels in the Transaction, was
in the best interests of Shareholders. The Board has come to the conclusion that the Transaction was not possible without including the
disposal of the Purple Hotel City of London, and that exiting the London market at this time allows the Group to extract maximum value from
the Transaction whilst concentrating on the regional strengths of its purple branded hotels. The Transaction does not prevent the Group from
re-entering the London market at any future time.
Further Information in relation to the Disposal Hotels
Kensington Hotel
The Kensington Hotel, a 125 bedroom hotel, is owned under lease by a subsidiary company of the Group, Opaljewel Limited. The business
and assets of the Kensington Hotel, including the lease, will be sold to PIHL (the "KH Disposal"). The sale proceeds for the Kensington
Hotel will be �5.0 million. The gross assets and losses attributable to the Kensington Hotel are �6.2 million and �0.5 million
respectively.
Purple Hotel City of London
The Purple Hotel, a 163 bedroom 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, including the lease, will be sold to PIHL (the "PH Disposal"). The sale proceeds for the Purple Hotel City
of London will be �6.0 million. The gross assets and profits attributable to Purple Hotel business are �9.5 million and �0.2 million
respectively.
Westminster Hotel
The Westminster Hotel, a 107 bedroom hotel, is owned under lease by Gazelon Limited ("Gazelon"), a subsidiary company of the Company.
The entire issued share capital of that company is being sold to PIHL for �7.6 million (the "WH Disposal"). An adjustment will also be made
to reflect any net intercompany debt due by the Group to Gazelon which is repayable at completion of the WH Disposal. In addition, the
Company has agreed to contribute the lower of 30 per cent. of the total cost or �0.2 million to upgrade the air conditioning at the
Westminster Hotel if required (based on the existing room count). The gross assets and profits attributable to the Westminster Hotel are
�8.8 million are �0.2 million respectively.
2. VALUATION
The Disposal Hotels have been valued for the Company by Edward Symmons, acting as independent property valuers, at �13.45 million. The
valuation is on a property by property basis and does not take into account any premium attributable to a simultaneous sale of all of the
Disposal Hotels.
3. TERMS OF THE TRANSACTION DOCUMENTS
The Transaction Documents
The Group entered into the following agreements with PIHL on 7 April 2008 (the "Transaction Documents") (with the exception of the
Implementation Deed (defined below), all are conditional, inter alia, upon the passing of the Resolutions):
* 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 cash and debt free consideration payable on Completion of �7.6 million (the "Westminster SPA").
The consideration will be increased or decreased by the amount of the indebtedness due to or by Gazelon Limited to or by the Group. This
indebtedness will be repaid at completion of the WH Disposal;
* a business sale and purchase agreement for the sale of the business and assets of the Purple Hotel City of London for a cash
consideration payable on Completion of �6.0 million (the "Purple BPA");
* 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 BPA");
* a right of first refusal agreement granting PIHL a right of first refusal 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 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 BPA and the Kensington BPA (together the "Sale Agreements") is conditional upon,
inter alia, the passing of the Resolutions at the General Meeting. If the Resolutions are not passed at the General Meeting each of the Sale
Agreements will terminate and will not complete and the ROFR Agreement will also terminate. If the Resolutions, which are conditional upon
each other, are both passed by Shareholders the ROFR Agreement will become unconditional and effective in accordance with its terms even if
the Disposals do not thereafter proceed to completion.
Completion of each of the KH&PH Disposal is also conditional on the simultaneous completion of each other KH&PH Disposal but completion
of the KH&PH Disposal is not conditional on the WH Disposal completing. In addition, each of the Purple BPA and the Kensington BPA is
conditional upon the consent of each landlord in accordance with the terms of each lease under which the relevant Disposal Hotels are held
by the Group. The Purple BPA is conditional upon the consent of the landlord to PIHL's proposed alterations to signage at the Purple Hotel.
Under each of the Purple BPA and the Kensington BPA the conditions referred to above need to be satisfied within six months of the date of
each agreement or otherwise each agreement will (unless otherwise extended by mutual agreement) terminate.
The WH Disposal is not conditional on the KH&PH Disposal completing and in the event that the KH&PH Disposal does not complete, the WH
Disposal will still complete provided the relevant conditions to completion have been satisfied. The Westminster SPA is conditional upon the
Company obtaining retrospective planning permission, listed building and landlord's consents in respect of certain works which have been
carried out by the Group at the Westminster Hotel as well as PIHL receiving planning permission and listed building consent for certain
alterations to be carried out by PIHL at the Westminster Hotel ("PIHL's Condition"). The conditions referred to above (save for PIHL's
Condition) need to be satisfied within six months of the date of the Westminster SPA or otherwise the Westminster SPA will (unless otherwise
extended by mutual agreement) terminate. If after such six months PIHL's Condition is not satisfied it is deemed to be have been waived and
on the assumption that all other conditions have been satisfied, the Westminster SPA will complete.
Assuming the Resolutions are passed, the KH&PH Disposal is expected to complete in July 2008 and the WH Disposal is expected to complete
in October 2008.
Implementation Deed
Pursuant to the Implementation Deed, the Company has agreed with PIHL to send the circular to Shareholders containing the recommendation
to vote in favour of the Transaction (the "Recommendation"). The Company has also agreed it will not withdraw or adversely modify the
Recommendation, or make any public statement which could reasonably be considered to be contrary to the Recommendation or recommending that
Shareholders take any action which could prevent, adversely affect or delay the implementation of the Transaction.
However, the Company will not be required to comply with these undertakings if an event or change of circumstance occurs and the
Directors determine, acting in good faith, that such compliance would be a breach of their fiduciary duties.
If the Company breaches the undertakings above or if the Resolutions are not passed or if the General Meeting is not held by 14 July
2008 or if the General Meeting is held but the Resolutions are not considered or if the General Meeting is adjourned after 14 July 2008,
then the Company has agreed to pay a termination fee to PIHL equal to �140,000 plus VAT.
ROFR Agreement
Under the ROFR Agreement, the Company has agreed to grant to PIHL a right of first refusal 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 brand which is demonstrably derived from the purple brand and which the Group may wish to sell for a period of five years from
the date of passing of the Resolutions. The Company will offer PIHL the exclusive opportunity to conclude any such purchase at a price set
by the Company, failing which, the Company will then be able to dispose of such property or properties to a third party for not less than 90
per cent. of the price offered to PIHL. The right of first refusal contained in the ROFR Agreement is also conditional upon passing of the
Resolutions. If the Resolutions are not passed at the General Meeting the ROFR Agreement will terminate, along with the Sale Agreements
which will also terminate and the Transaction will not proceed. In particular, as a result, none of the Disposals will proceed to completion in such circumstances. If the Resolutions are passed,
the ROFR Agreement will become unconditional and effective in accordance with its terms even if the Disposals do not thereafter proceed to
completion because the other conditions precedent under each Sale Agreement (as described above) are not satisfied.
4. APPLICATION OF PROCEEDS
The gross proceeds from the KH&PH Disposal is �11.00 million and the gross proceeds from the WH Disposal is �7.6 million. The Board
intends that the estimated net proceeds from KH&PH Disposal and the WH Disposal of �18.6 million (the "Disposal Proceeds") will be used as
follows:
KH & PH Disposal WH Disposal Adjustment Total
(1)
�m �m �m �m
Reduce Group indebtness 6.9 7.0 0.6 14.5
Working capital for the Group 3.5 0.0 - 3.5
Expenses of the transaction 0.6 0.6 (0.6) 0.6
Decrease in overall debt 11.0 7.6 0.0 18.6
Note
1. The total expenses of the transaction are estimated to be �0.6 million which are payable whether one or both of the KH&PH disposal
and the WH Disposal completes. Therefore in the event that one of either the KH&PH Disposal or the WH Disposal does not complete, the
expenses of �0.6 million will still be payable from the proceeds from the Disposal which completes. Therefore, the sum of �0.6 million has
been deducted from both Disposals as a transaction expense but adjusted in the adjustment column to reflect the fact that this sum will only
be paid once.
5. CURRENT TRADING OF THE GROUP
As referred to in the Company's unaudited results for the year ending 31 December 2007 announced on 29 April 2008 (the "Preliminary
Results"), trading in 2007 was very polarised between the mid market full service and the limited service estates. As with other operators
in the hotel and leisure sector the economic uncertainties that arose in the second half of 2007 had a negative effect on the business of
the Group.
Overall in 2007 the revenue of the Group grew by two per cent. This showed a one per cent. decline on a like for like basis over the
prior year although, due to stringent cost control activities, this translated to a 32 per cent. reduction in the operating loss of the
Group. Nevertheless, taking into account rising rent levels and one-off cost of the reorganisation and pre-opening costs of new properties,
this resulted in a loss before tax of �9.7 million on turnover of �81.2 million.
The Group continues to follow its historical trading pattern which will show results weighted towards the second half of the year. The
decline in revenues in 2007 seen from the mid market full service estate has continued in 2008 which has led to revenues for the Continuing
Group (excluding the disposal hotels) for the four months to 30 April 2008 being seven per cent. lower than the equivalent prior year
period.
Whilst trading and the economic climate remains uncertain, the growing demand for premium limited service hotel accommodation continues
for which the Group's Purple Hotel brand is well positioned to exploit. The Transaction demonstrates the sort of value that can be created
and the Board is pleased that following the completion of the Disposals the proceeds from the Transaction, once completed, will reduce debt
and fund further working capital for the Group. The consequences for the continuing Group (being the Group immediately after completion of
the PH Disposal, KH Disposal and WH Disposal)("the Continuing Group") if the Transaction does not complete are set out in paragraph 8 of
this announcement entitled "Importance of the vote"
The Board is also considering whether the Ordinary Shares of the Company should remain admitted to the Official List of the UK Listing
Authority or whether it would be appropriate that the Ordinary Shares be admitted to trading on AIM in the near term. A further announcement
concerning this matter will be made in due course.
6. TREND INFORMATION FOR THE GROUP
As referred to in the Company's interim management statement announced on 19 May 2008, in the 13 weeks ending 3 April 2008 the Group saw
revenues from continuing operations (excluding discontinued businesses) grow by 4.0 per cent. with UK hotels growing by 5.0 per cent.
Overall, like for like premium limited service hotels grew revenue by 1.0 per cent. with revenue per available room night ("RevPAR") up 1.0
per cent. (occupancy was flat, average room rate charged ("ARR") increased 1.0 per cent.) while the mid-market full service hotels saw
revenue decline by 10.7 per cent., with RevPAR declining by 7.7 per cent. (occupancy decreased 3.2 percentage points, ARR decreased 2.2 per
cent.) and 14 per cent. reduction in food and beverage. In the UK hotels, with the exception of utility costs which rose by 2.9 per cent.,
payroll and other costs were reduced by 6.0 per cent. in line with the reduction in business levels where applicable.
Launch of Purple Hotel Brand
The Purple Hotels* premium limited service brand was formally launched at the beginning of February and consists of 10 hotels,
comprising 869 bedrooms. In addition the Purple Hotel Glasgow Airport (103 bedrooms) opened in February of this year with at least one
further hotel opening during 2008. The pipeline for new properties continues to grow with over 2,000 rooms under offer or subject to
planning or legal approval.
Exit from Master Franchise Agreement
At the end of January the Group exited the loss making UK Master Franchise Agreement with Choice International. In April the Group
terminated the management contracts of four hotels which did not meet the Group's minimum rates of return. 25 hotels in the UK still operate
under the Choice brands on independent franchise agreements.
UK Hotel Performance Forecasts
In January 2008 TRI Hospitality Consulting carried out a survey of 97 UK hotel operators at unit and head office level. More than four
in five expected rooms RevPAR at their operations to increase in 2008, but the majority predicted growth at half the rate enjoyed in 2007.
By April the evidence of an economic slowdown was even greater.
Still, the sentiment of the hoteliers polled appears to mirror what consensus forecasts are predicting for the UK economy, with national
GDP growth expected to slow to 1.6 per cent. from 3.1 per cent. in 2007.
Total Provincial Hotels (Including England, Scotland, Wales) Excluding London
Provincial hotel performance is primarily influenced by domestic conditions and we envisage some reduction in domestic corporate travel
and accommodation budgets and cutbacks on conferences as UK based companies trim their costs. This will result in some loss of headline rack
business, more pre-negotiated rates and local discounting, but average room rates are expected to grow in each demand segment, thanks to the
marketing and distribution power enjoyed by chain hotel operations. It is likely that independent provincial hotels with weak distribution
will be most adversely affected by a squeeze on corporate and consumer spending.
The overall European economy is forecast to grow roughly in line with the UK, and it is expected that European inbound tourism will hold
up well in 2008.
7. IRREVOCABLE UNDERTAKINGS
The Company has received irrevocable undertakings from certain Shareholders representing holdings of 27,858,724 Ordinary Shares being
equal to approximately 31.8 per cent. of the existing issued share capital of the Company to vote in favour of the Resolutions or, as the
case may be, procure that such action is taken by the relevant registered holder.
8. IMPORTANCE OF THE VOTE
The Company is of the opinion that, taking into account the bank and other facilities available to it and the Disposal Proceeds to be
received by the Company, the working capital available to the Continuing Group is sufficient for its present requirements, that is for at
least 12 months from the date of this document. However, shareholders should be aware that if the Resolutions are not passed, the Continuing
Group will, as set out below, not have sufficient working capital for its present requirements that is for the next 12 months.
The Board believes that the Resolutions to be proposed at the General Meeting are in the best interests of the Company and the
Shareholders as a whole. Set out below are the consequences of the Resolutions not being passed and, if passed, the consequences of the
KH&PH Disposal not proceeding.
Shareholders should note that in either of the following scenarios, the Group will not have sufficient working capital for its present
requirements, that is for the next 12 months from the date of this document, where:
(a) the Resolutions are not passed. As a result none of the Disposals will complete and therefore none of the Disposal Proceeds will
be received by the Company; or
(b) the Resolutions are passed, but the KH&PH Disposal does not proceed. As a result the Company will not receive the �11.0 million
consideration for the KH&PH Disposal expected to be received in July 2008 of which �3.5 million would have been used for working capital for
the Group.
In either of the above scenarios, under existing loan and overdraft facilities available to the Group, the Group will have insufficient
working capital for the operation of its business from November 2008. On the basis that the Group performs in line with its current business
plan, the Group would therefore have a shortfall of approximately �5.0 million ("Shortfall") for present working capital requirements.
This will be the case if either the Resolutions are not passed by Shareholders or, if they are passed, but only the WH Disposal is
completed. The Shortfall is the same in both cases, as the entire proceeds of the WH Disposal will be used to repay debt and none will be
used for working capital purposes.
In the event of either scenario (a) or (b) above, the Directors will consider the following options for meeting the Shortfall:
* to cover immediate working capital requirements, the Group would immediately seek to agree additional debt financing facilities.
In this regard, the Group has received an expression of interest for such financing, although the Board is confident that it could secure
such financing for the Group there can be no guarantee that agreement on this or any other facilities would be secured on terms which the
Board would consider to be in the best interests of the Company or at all.
* the Group would seek to dispose of non-core businesses. The Directors have already received potential offers for certain such
assets. If required, the Directors are confident that the disposals could be completed by November 2008 and generate funds which would
significantly exceed the amount of the Shortfall.
For the avoidance of doubt, if the Resolutions are passed and the KH&PH Disposal completes, the Continuing Group will have sufficient
working capital for its present requirements that is for at least 12 months from the date of this document. This will be the case even if
the WH Disposal does not complete, as the proceeds from the WH Disposal are not intended to be used for working capital.
9. RECOMMENDATION
The Board believes that the Transaction is in the best interests of the Company and Shareholders as a whole and unanimously recommends
that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as they have irrevocably undertaken to do in
respect of their own beneficial holdings of 226,358 Ordinary Shares, which represent approximately 0.3 per cent. of the total issued
Ordinary Shares.
In addition to providing irrevocable undertakings in respect of their own beneficial holdings to vote in favour of the Resolutions, the
Directors have obtained irrevocable undertakings from certain other Shareholders. In aggregate, therefore, the Board has obtained
irrevocable undertakings in respect of 28,085,082 Ordinary Shares representing approximately 32.1 per cent. of the Ordinary Shares to vote
in favour of the Resolutions.
Note: The circular, which has been posted to shareholders of the Company on 24 June 2008, will shortly be available for inspection at
the United Kingdom Listing Authority's Document Viewing Facility which is situated at the Financial Services Authority, 25 The North
Colonnade, Canary Wharf, London E14 5HS (telephone: +44 (0) 20 7066 1000).
For further information please contact
RHC plc: 020 8233 2001
Michael Prager, Chief Executive
Paul Mitchell, Chief Financial Officer
Adhoc PR 020 7483 0030
Deborah Parritt
Notes to Editors:
The Real Hotel Company plc (RHC)
The Real Hotel Company is more than just a name. It is a statement of the Company's core values. To deliver the rich traditions of hotel
keeping to a 21st century market in a low cost environment. In short to be real hoteliers.
The Company is an owner, operator and developer of branded hotels in the UK and Europe and operates 59 owned, leased or managed hotels
in the UK, France, Germany and Belgium. It also operates the New Connaught Rooms conference and banqueting suite situated in London's Covent
Garden.
The Company owns the Purple Hotels* limited service brand - 'a real hotel for the price of an inn' which differentiates itself by adding
a touch of style and cool to a sector that has, so far, defined itself only by price.
It also operates hotels under the franchise Choice brands of Quality, Comfort and Clarion as well as six Stop Inn hotels.
The RHC management team has considerable experience in the hotel sector. Michael Prager was Managing Director of Utell International and
held senior positions in Intercontinental and Radisson Hotel groups. Paul Mitchell was formerly Vice President of Financial Planning and
Control for Europe, Middle East and Africa at Intercontinental Hotel Group in addition to holding senior finance positions in Granada, Forte
and Allied Lyons.
This information is provided by RNS
The company news service from the London Stock Exchange
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