Disposal

RNS Number:8288R
The Real Hotel Company PLC
08 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 and
assets of the Comfort Inn Kensington (the "Kensington Hotel") and the purple
hotel, City of London (the "Purple Hotel") and 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 "Transaction"). The total cash consideration to be received by the Group
from 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 premium
limited service sector and we will exit our full service hotels
opportunistically where the deal terms are favourable. We've considered very
carefully whether exiting the London market and including one of our new purple
hotels in the transaction was in the Company's shareholders' best interests and
have come to the conclusion that exiting London for a temporary period at this
time allows us to extract maximum value from this transaction whilst
concentrating 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 term
value of these businesses more quickly than we anticipated whilst continuing to
aggressively develop our new purple hotel brand".


"We regard our exit from the London market as a temporary situation. We have an
active development pipeline already in place with over 2000 rooms under offer
and becoming a largely de-leveraged business will enhance our ability to deliver
this plan".


Contact:


the real hotel company plc


Michael Prager, Chief Executive                 020 8233 2001
Paul 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" or
individually "Hotel") to PIHL. The total cash consideration to be received by
the 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 refusal
in respect of any future disposals by the Group of any hotels now or
subsequently operated under the purple hotel brand or any derivation therefrom
and any new, replacement or other budget hotel which is demonstrably derived
from the purple hotel brand.


The aggregate proceeds from the sale of all Hotels, less transaction costs, is
approximately £18.0 million which represents a surplus of approximately £1.1
million over the net book value of £16.9 of the Hotels as reported in the
Company's 2007 interim results. The Board consider that the Transaction will
benefit the Group by reducing Group indebtedness.


The Transaction constitutes a Class 1 transaction under the Listing Rules of the
United Kingdom Listing Authority and, as such, requires the approval of the
Company's shareholders. The Company intends to send a circular (the "Circular")
containing details of the Transaction and a notice convening a general meeting
of the Company's shareholders (the "General Meeting"), to Shareholders to
approve the Transaction in the near future.



Background to the Transaction


The Board has been focusing the Group strategy 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 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. At the same time, the Board recognises that
the Group has a competence based on the values of traditional hospitality that
the Board broadly defines as being "real hoteliers" and that this suited to the
premium limited service sector. The Board believes that the Group offers a
limited service operation that has the 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 to
focus on the premium limited service sector.



Reasons for the Transaction


In line with this strategy, the Board is seeking to exit its mid market hotels
as and when opportunities arise. The Board considered whether exiting the London
market and including one of the Group's new purple branded hotels in the
Transaction was in its shareholders best interests. The Board has come to the
conclusion that whilst it would ideally have chosen to retain the Purple Hotel
the Transaction was not possible without it and that exiting the London market
for a temporary period at this time allows us to extract maximum value from this
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.



Terms of the Transaction


The Transaction


Under the Transaction, the Group has entered into agreements with PIHL as
follows:


   *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 resolution
of the Company's shareholders (the "Shareholder Resolution") at the General
Meeting to be convened pursuant to the Circular which is expected to be sent by
the Company towards the end of April 2008 and with the General Meeting expected
to be held in May 2008. If the Shareholder Resolution is not passed at the
General Meeting the Sale Agreements will terminate.


Completion of the Purple SA and the Kensington SA is also conditional upon the
consent of each landlord in accordance with the terms of each lease under which
the relevant hotels are held by the Group and the Purple SA is conditional upon
the consent of the landlord to PIHL's proposed alterations to signage at the
Purple Hotel. Furthermore, the Purple SA and Kensington SA are conditional on
the each other agreement becoming unconditional on its terms. Under each of the
Purple SA and the Kensington SA 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.


Additionally, the Westminster SPA is conditional upon the Company obtaining
retrospective planning permission and listed building consent in respect of
certain works which have been carried out by the Company 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 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 Shareholder Resolution is passed the Purple SA and the Kensington
SA are expected to become unconditional and complete by the end of May 2008 and
the 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 send
the Circular to the Company's shareholders containing a statement by the Board
that they believe the Transaction is in the best interests of the Company and
its shareholders as a whole and a recommendation (the "Recommendation") that
shareholders vote in favour of the Shareholder Resolution. Once the Circular has
been published the Company has 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 recommending that it
shareholders take any action which could prevent, adversely affect or delay the
implementation of the Transaction.


If the Company fails to do any of the above or if the Shareholder Resolution is
not passed or if the General Meeting is not convened by 16 May 2008 or held by
12 June 2008 or if the General Meeting is held but the Resolution is not
considered or if the General Meeting is adjourned after 12 June 2008, then the
Company 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 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 and
which the Group may wish to sell within the forthcoming five years. 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% of
the price offered to PIHL.


The right of first refusal contained in the ROFR Agreement is also conditional
upon passing of the Shareholder Resolution. If the Shareholder Resolution is not
passed at the General Meeting the ROFR Agreement will terminate.



The Company


The Company owns, leases and manages hotels and hospitality brands across the
United Kingdom and continental Europe in the premium limited service and full
service 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, including
the lease, will be sold to PIHL. The sale proceeds for the Kensington Hotel will
be £5.0 million.


The audited figures for the year ended 31 December 2006 show that the Kensington
Hotel generated revenues of £1.9 million and a loss before tax of the £0.3
million. At the date of the 2007 interim results the net book value of the hotel
was £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, including
the 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 historic
audited 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 share
capital of that company is being sold to PIHL for £7.58 million.


The audited figures for the year ended 31 December 2006 show that the
Westminster Hotel generated revenues of £2.9 million and a profit before tax of
the £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 from
the sale of the Hotels (assuming that completion of the sale of all Hotels take
place) 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 leases
from the Group.


On the assumption that the sale of all Hotels completed and after taking into
account the expected costs of the transaction, the Transaction is likely to
realise £18.0 million. The Transaction is expected to increase the Group's cash
and cash equivalents by approximately £7.0 million, to decrease the Group's
external debt by approximately £11 million and to decrease the Group's property
fixed assets by approximately £16.9 million.


Under IFRS these leasehold properties were capitalised as fixed assets and the
respective finance lease creditor was carried as a debt at £14.0 million. As a
result of the Transaction taking place the combined impact of reducing external
debt and of extinguishing the finance lease creditor, will reduce debt by £25.0
million in total.


The Transaction is expected to realise a net profit to the Group (assuming that
all Hotels are sold) of approximately £1.1 million in excess of the book value
of 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 of
April 2008 and with the General Meeting expected to be held in May 2008.


END



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