• MWB to cut debt, ownership

MWB Group announced last week that it was planning to cut debt across its businesses, including its Malmaison and Hotel du Vin brands.

The comments came as the group reported a 36% increase in half-year ebitda to £16.0m at its hotel business and said that it would move away from expansion through ownership to focus on operating and management agreements and leases.

The group's announcement came in the same week that Lloyds Banking Group, which took on MWB with its acquisition of Bank of Scotland, announced that its non-core asset disposal programme was ahead of expectations, at £20.7bn in the first quarter. It is thought that the bank is eager to offload many of the hotel assets taken on during the merger.

In a conference call, Tim Tookey, Lloyds FD, said: "We are pleased with the substantial progress made on non-core asset reduction. We have made reductions of £126bn since we started the programme, of which £21bn was in the first quarter of this year."

MWB is thought to be in negotiations with Lloyds and its other lender, the Royal Bank of Scotland, over the refinancing of £279m of debt secured against its Malmaison and Hotel du Vin businesses, with the loans due to mature in December.

MWB is in the process of reducing its property exposure and is reported to be close to selling several hotels to cut debt. As Hotel Analyst was going to press, rumours emerged that the company had agreed a £32m sale and leaseback deal with Deka for its Charterhouse Walk Malmaison hotel in London. The group released a statement commenting that "no such transactions have as yet taken place", but confirmed that it was "in active discussions with a number of parties with regard to the possible sale and leaseback and/or sale of certain of its hotel assets".

The Sunday Times has most recently said that the group could sell hotels worth up to £100m to repay debt, with hotels in Birmingham, Manchester and Newcastle likely to follow London, with the brand remaining in place.

Robert Cook, CEO at Malmaison and Hotel du Vin Group, said: "Our business model for expanding Malmaison outside the UK will be based on either operating and management agreements or commercial leases rather than acquiring freehold properties and the consequent risk.

"For Hotel du Vin, we continue to focus expansion plans on the UK. Our initial objective is to open a further six Hotel du Vins although, in the longer term, we believe there is scope to double the current size of the chain."

Revenue at the division rose by 12% to £58.8m, with a pre-tax loss of £4.0m. However, the company said, excluding a £5.m property impairment, the group recorded a £1m profit. The group said that rates at both brands had risen by 3% on the year to £107, with Hotel du Vin achieving the highest increase with a rise of just over 5% to £119 compared to £113 in the same period last year. At Malmaison, the rate advanced to £101 from £99 for the same period in 2009.

Occupancy at Malmaison fell from 80% to 79%, and from 83% to 81% for the half-year at its sister brand. Average occupancy across the estate dropped from 81% to 80%.

Following last year's £27m share placing and the sale of Liberty in June, which raised £42m, the wider group's gearing has been reduced from 209% at the end of December 2009 to 180% at 31 December 2010. The company said its intention was to reduce its debt "significantly more" over the next 12 months.


HA Perspective: A sale and leaseback deal is not going to cut down MWB's gearing as the lease obligations will be capitalised back onto the balance sheet. Management contracts would obviously work but the pricing for such deals does not appear so attractive, particularly as investors such as Deka are focused on leases.

The direction of travel for nearly all listed hotel companies is away from leases due to the balance sheet challenges they bring. But MWB is in a uniquely difficult place right now, and has extended its financial year to 18 months to give it more time to sort out its loans.

While operating leases can make a lot of sense – certainly most retailers, listed or not, are able to cope – it is hard to see much appetite for a leased hotel vehicle among stock market investors. A delisting and probable sale seems the most likely result of the current moves.

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