Leisure giant Whitbread is to sell its four- and five-star Marriott-branded properties – a move which should net it £1b and allow it to pay shareholders a special dividend.

 

	Londons Country Hall hotel: one of Whitbread's Marriot portfolio

The group, which intends to focus its core products of budget hotels, restaurants and leisure clubs, will form a joint 50:50 venture with US company Marriott Hotels until the hotels are sold.

 

Under the agreement, Whitbread will receive £710m on 5 May, of which £400m will be returned to shareholders, £100m will go towards reducing the company’s pension deficit and the rest will be used to reduce overall debt.

 

Whitbread chief executive Alan Parker defended the decision to sell the properties outright, rather than the original sale-and-manage-back plan. “We expect this transaction to realise at least £1b over the next two years from a franchised business that, despite good management and operational performance, does not meet the cost of capital requirements,” he said.

 

Once the hotels are sold, Marriott will operate under long-term management contracts, and the 8,000-plus Whitbread employees will be transferred to the US hotelier.

 

An industry insider commented:

“This is a very natural idea. Marriott has been under pressure for some time from shareholders to improve its returns, but Whitbread has failed to do that. For Whitbread because it doesn’t own the brand, the Marriott hotels were the worst performing businesses in terms of returns and shareholders were chasing to resolve the problem.

 

“As brand owner and hotel manager, Marriott will have more infrastructure in the UK to drive performance. Shareholders are engrossed by returns and any hotel not delivering this will be put under pressure to improve performance or sell assets. That’s why there’s so much happening with the sale-and-manage-back type deals.”

 

Whitbread shares also responded well to the news, rising by more than 8%.An analyst explained that returning cash to the shareholders had become more acceptable, having been seen as a last resort in the past.

 

“Share price went up because there had been a relatively low return on capital and the hotels has been seen as holding as holding the returns on the capital back,” he added.


Source: Caterer & Hotelkeeper magazine, 17 March 2005