Whitbread and M&B in hotel/pub asset swap

Whitbread has agreed to swap 21 hotels owned by Mitchells & Butlers (M&B) and currently operating as Express by Holiday Inn sites in exchange for 44 of its pub restaurants.

Whitbread said the exchange has been made on the basis of equivalent EBITDA of around £9m from the hotels and pub restaurants, and an estimated value of £78m for the assets to be exchanged.

The group said the deal was expected to be earnings neutral in 2009/10 and then earnings enhancing.

The exchange will take the total number of UK Premier Inn rooms to over 38,000 in 550 hotels. Planning consent has been granted to extend five of the 21 acquired hotels, adding around 200 new rooms.

The hotels were in "prime locations throughout the UK", Whitbread said, and will be fully integrated into the Premier Inn estate on completion. The 400 existing employees at the hotels will transfer to Whitbread and approximately 1,300 pub restaurant employees will transfer to M&B on completion, due on September 19 2008.

The 44 Whitbread pub restaurants to be exchanged are on sites where development with a Premier Inn has not been possible due to planning constraints. Whitbread will continue with plans to develop a Premier Inn on its remaining 51 pub restaurant sites where there is currently not yet a hotel alongside.

Alan Parker, Whitbread's chief executive believed there was "a clear and compelling logic to this transaction".

"We are exchanging these pub restaurant sites because we have been unable to develop a Premier Inn alongside, which was the reason for retaining them," he added.

Tim Clarke, M&B's chief executive, said: "This deal drives further consolidation in top end managed houses and demonstrates our ability to create value from the non-core assets.

Clarke said it would be looking to undertake some form of sale and leaseback financing in order to fund the conversion outlay required for its new assets and to help to reduce debt.

"Our brands can add a lot of value to these pub restaurant sites as we have shown with previous acquisitions," Clarke added.