MWB is pleased to announce that its 82.5% owned subsidiary, MWB Malmaison Holdings Ltd, has exchanged contracts for the sales and leaseback of the following four Malmaison hotel properties: Charterhouse Square (London), Birmingham, Newcastle and Manchester.
In light of the stated intention of the Board to reduce debt levels, management has concluded that these transactions will be an advantageous way for the Group to significantly reduce indebtedness without compromising the operations of the Group. Following the transactions Malmaison will retain its robust asset backing, with 80% of its 26-stong Malmaison and Hotel du Vin-branded hotel portfolio (by number) being freehold or long leasehold.
The Charterhouse Square property is being sold to and leased back from funds managed by DEKA Immobilien GmbH whilst the other three properties are being sold to and leased back from funds managed by Legal and General Property Limited. Management views the strength of these institutional counterparties as a significant endorsement of the Malmaison brand.
The hotel properties will, on completion, be leased back to Malmaison for a total initial annual rent of £6.1 million. There will no operational impact from the transactions and Malmaison will continue to operate its highly regarded and award winning brand from the hotel properties as before the transactions.
Malmaison will enter into effective 70-year lease terms with rent reviews occurring only every five years, based on compounded indexation (capped and collared annually between 2% and 4%) and with market rent reviews to take place at the end of the 35th year; terms which management considers to be highly attractive in the current environment.
Given the effective long duration of the leases and the strength of the underlying operating business, management expect additional value to be recognized and capitalized in relation to the leases entered into pursuant to these transactions. This additional residual value has not yet been determined but management believe that, when added to the cash consideration for the properties of £86.8 million, the total will compare favorably with the aggregate book value of the properties at December 31, 2010 of £142.4 million.
The transactions are conditional on approval by the shareholders of MWB, which will be sought by means of the issue of an explanatory circular and notice of General Meeting, such circular to be issued in due course.
The proceeds from the transactions will be used to reduce the indebtedness of Malmaison, which as at December 31, 2010, amounted to £272.1 million. The MWB Board has previously announced that the reason for extending the Group's accounting reference date to June 30, 2011 was to enable completion of the documentation relating to the proposed extension of all the Group's banking facilities.