15 July 2010

Mitchells & Butlers plc

Disposal of 52 lodges

Mitchells & Butlers announces the disposal of the majority of its lodge business and the sale and leaseback of eight pubs for a gross cash consideration of £91m.

The transaction incorporates the sale of approximately 2,000 rooms in 52 lodges, all of which are adjacent to Mitchells & Butlers' restaurants and pubs, and has three elements:

· Travelodge has entered into a 25 year agreement to operate and lease the 52 lodges;

· the property interest in the lodges, with the benefit of the associated leases, will be sold for £75m. Contracts have been exchanged on 44 sites with PRUPIM and agreed heads of terms are in place with another property company for the remaining sites; and

· the property interest in eight restaurants and pubs (that are inseparable from the lodge building) will be sold for £16m and leased back to Mitchells & Butlers.

The 52 lodges generated an EBIT of £9.5m for the year ended 30 September 2009 which represents an EBIT multiple of 7.9x on the gross lodge proceeds. The net book value attributable to the 52 lodges is £93m.

In relation to the sale and leaseback of the eight restaurants and pubs, Mitchells & Butlers has entered into 25 year leases at a net initial yield of 6.0%. The ongoing annual rental charge on these assets will be £1m which is 42% of their EBITDAR. The total net book value of the freehold and leasehold interest in these assets was £21m. The Board of Directors believe that the capital value of the leasehold interest remaining in Mitchells & Butlers would at least be valued at £5m although, in line with current accounting policy, this will not be capitalised on the balance sheet.

As part of the transaction, Mitchells & Butlers has agreed to make a one-off initial contribution of £3m to the rental charge for the lodges. Net proceeds of £88m will be used to reduce debt and to fund capital investment opportunities in Mitchells & Butlers' growth brands.

The transactions with Travelodge and PRUPIM are expected to complete on 10 August 2010.

Commenting on the transaction, Adam Fowle, Chief Executive, said:

"This transaction is in line with our strategy of disposing of the non core assets and focusing the business on expanding the number of sites of our market leading restaurant and pub brands which have significant growth potential."

For further information please contact:

Corporate Affairs:
Erik Castenskiold
0121 498 6513
James Murgatroyd (Finsbury Group)
020 7251 3801

Notes to editors

After completion of the transaction Mitchells & Butlers will operate around 750 rooms within its estate. The vast majority of these are rooms above restaurants and pubs that will continue to trade under the Innkeeper's Lodge brand name.
Mitchells & Butlers' leading portfolio of brands and formats includes Harvester, Toby Carvery, Vintage Inns, Premium Country Dining Group, Crown Carveries, Sizzling Pub Co., Browns, Miller & Carter, Metro Professionals, All Bar One, Nicholson's and O'Neill's. Further details are available on www.mbplc.com.
Mitchells & Butlers serves around 130 million meals and 575 million drinks each year and is one of the largest operators within the UK's £70 billion eating and drinking out market.
The first budget hotel brand to launch in the UK in 1985, Travelodge now operates 452 hotels (30,504 rooms) - ten in Ireland, three in Spain and the rest in the UK. Travelodge plans to grow its estate to 70,000 rooms (approximately 1000 hotels) by 2020. Over nine million people stayed with Travelodge last year and 87% of reservations are currently made online at travelodge.co.uk, where room rates start at £19 a night. The chain employs over 6,000 staff.
PRUPIM is one of the leading real estate investment managers in the United Kingdom. It forms part of the M&G Group of Companies which is the asset management arm of Prudential plc in the UK and Europe. PRUPIM manages over £15.4 billion of real estate assets, of which approximately £3 billion is invested internationally in North America, continental Europe and Asia Pacific.