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."
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Notes to editors