• M&B deal is further consolidation

The deal to sell 52 hotels to investors and lease them onto Travelodge has further consolidated the UK economy hotel market.

Increasingly, the market is now a two horse race between Premier Inn and second-placed Travelodge. IHG's Express and Accor's Ibis and Etap are significantly trailing.

M&B announced the £91m sale of 52 hotels totalling 2,000 rooms, to property investor Prupim, with Travelodge signing 25-year leases on the sites in July.

Innkeeper's Lodge is seen as non-core to M&B, which is refocusing towards its restaurant and pub brands. The deal leaves it with 750 lodging rooms, the majority of which are above restaurants and pubs that will continue to trade under the Innkeeper's Lodge brand name.

The property interests in the lodges were sold for £75m with Prupim taking on 44 sites and a deal has been agreed for another property company to take the remaining eight. The property interests in eight restaurants and pubs have been sold for £16m and leased back by M&B.

The 52 lodges generated an EBIT of £9.5m for the year to September 30, 2009 which represents a gross EBIT multiple of 7.9 times on the gross lodge proceeds. The leases have been entered into at net initial yields of 6.0%. The annual rent is £1m which is 42% of EBITDAR.

Mitchells & Butlers reported like-for-like sales growth slowed to 1.2% in the nine weeks to 17 May, down from 1.8% in the 33 weeks to 15 May.

The group said that the month of the World Cup had a negative impact on food sales reducing overall like-for-like sales by approximately 2.0%, indicating an estimated underlying growth rate of 3.2% in the nine week period.

M&B said: "There continues to be uncertainty in the outlook for discretionary expenditure and associated pressure on the UK's eating and drinking out market. However, our core brands' effective marketing and value positioning have generated increases in sales and profitability this year and form a strong platform for future growth."


HA Perspective: The dominance of Premier Inn (which last year took out Golden Tulip in the UK) and Travelodge in the British economy hotel market looks unassailable.

For IHG and Accor there remains some opportunity but more profitable expansion for their economy brands surely lies outside of the UK market. Both Accor's and IHG's economy hotels will benefit from their respective companies' wider brand portfolio to at least give some scale to their operations and a meaningful system delivery for franchisees.

Hilton too could break into the market on the same basis with Hampton but it will be heavy going.

The toughest job though lies with brands such as Jurys. Without a wider portfolio and still comparatively small in scale, carving out a distinctive niche will be tough.


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