• Macdonald, MWB resume growth

Macdonald Hotels and MWB, owner of the Malmaison and Hotel du Vin brands, have updated the market with news of expansion and strengthening of their financial positions.

The announcements came as the companies hoped to draw a line under a recession which has seen growth stalled and profits hit, as corporate travellers return to the two groups' UK provinces focused estates.

Although MWB has not opened a hotel since November 2008, it remains committed to expanding its two brands, with the group in advanced negotiations for a management agreement in Paris for Malmaison.

MWB said that it would continue to consolidate its position, but was investigating sites in Venice, Rome and Amsterdam, while discussions continued with regard to further potential opportunities to roll out the brand in Europe and the US.

The comments came more than three years on from the failed Vector Hospitality REIT, which would have been the UK's first hotels REIT. MWB had planned to sell Malmaison and Hotel du Vin for at least £495m and return the cash to shareholders.

However, after the float was called off citing weak market sentiment, MWB attempted to sell Malmaison and Hotel du Vin, which were at that time valued at £450m, with Eric Sanderson, MWB chairman, describing it at the time as a "back-up strategy" to the float.

After rumours linking the Prem Group to a £685m bid, the sale was further delayed as "a result of the current uncertainties in the markets" in autumn 2007. The sale process was then thought to have been restarted in summer 2008, with the brands rumoured to be marketed separately.

The 26-strong company has frequently commented on its desire to expand overseas and last year Richard Balfour-Lynn said that this was most likely to take place with a joint venture partner.

The possibility of at last achieving the much planned-for move overseas came as the company said that trading at Malmaison and Hotel du Vin had been in line with budget, with the second six months of 2010 expected to deliver a stronger performance than the first half.

Across the business, for the third quarter, occupancy was 82%, in line with budget, and revpar at £87, was ahead of the same period last year. Advanced room bookings for November and for the Christmas period were in line with last year but better in terms of rate, whilst food and beverage is substantially up at this stage compared to 2009. As a result, fourth quarter operating Ebitda was expected to be up on the year.

Last year the group extended its banking facilities across the whole group – including its offices businesses –  from 31 December 2009 to 31 December 2011. The £348m was provided by Bank of Scotland and Royal Bank of Scotland and came before the wider group strengthened its balance sheet with the £41.5m sale and leaseback of its flagship Liberty store in London.

While MWB was hoping to restart its expansion strategy, with plans to return money to shareholders still on hold, Macdonald Hotels last week confirmed that it had agreed a new three-year £340m debt facility on "competitive terms" which also allowed further capital expenditure on its existing hotels with Lloyds Banking Group.

This announcement came as the group reported results for the year ended 1 October 2009. Despite challenging trading conditions and a 5% reduction in group turnover to £128m, group operating profit before depreciation was up 16% to £25.7m generating an operating cash flow of £10.7m. The profit after tax for the year was £5.1m, against a loss of £8.9m in 2008. Occupancy was up by two percentage points, with revpar dow 6% and average room rate falling by 9%.

Executive chairman Donald Macdonald said: "The strength of the relationship with our bank is confirmed by the approval of £18m of capital expenditure in the two years to 30 September 2010 and its commitment to support further capital expenditure. This is particularly encouraging at a time of restricted credit for most of our competitors. The recent property valuation carried out by professional valuers, as part of the new facilities, showed a surplus to net book value, unusual in our sector today."

The company continues to expand, opening a new 120-room, hotel in Windsor in September and is spending £4m on the Inchyra Grange Hotel near Falkirk.

The executive chairman of the 40-strong group warned that it was likely to suffer the impact of public sector cuts, commenting: "It will probably have more impact on our commercial rather than disposable income business". The group's leisure business was able to help compensate for the lack of conference business during the downturn, although corporate business was, as it has been across the sector, picking up in latter months.

After having their strategies impeded during the downturn, both these hotel groups are now hoping to take advantage of stabilised finances and a return of the corporate market to pick up where they left off. The concerns over public sector cuts and VAT increases cast a shadow over Macdonald and MWB, but both are now on a firmer footing to withstand any shocks.


HA Perspective: Macdonald and Malmaison remain cash-constrained companies despite protestations to the contrary. And while both piled on debt during the boom years, they remain viable companies albeit in need of some serious equity.

For Macdonald, this money could be used to reshape the business under a coherent brand standard. But it is hard to see Lloyds letting it go for the knock-down price required to make any such restructuring make sense for the new equity required.

The Malmaison situation is different. While it too needs to refashion its capital structure it has something Macdonald does not – a desirable brand. It is entirely plausible that this brand could persuade a major to pay a sufficient premium to enable Lloyds to make a face saving exit.

Hilton is an obvious candidate, given the mess it made of the Denizen launch and its repeated assertions that it wants to enter the boutique / lifestyle sector. Whether Blackstone has the appetite for such a deal is another matter.

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