Whitbread hotels sale to raise $2bn

British leisure group Whitbread says it has set up a joint venture with the U.S. Marriott hotels group to sell its UK hotels, raising at least £1 billion ($1.92 billion) within two years.

Whitbread said it was creating a 50:50 joint venture with Marriott International to hold the luxury hotels until they are sold, and would receive an initial payment of £710 million on May 5.
The company said £400 million of that would be returned to shareholders through a special dividend of 135 pence per share, another £100 million would be used to reduce its pension fund deficit and the rest to repay debt.
"We expect the joint venture to sell the properties within two years because we want to achieve maximum value and benefit from the current appetite for hotel property assets and the continued upturn in the hotel cycle," Whitbread Chief Executive Alan Parker told reporters in a conference call.
He said the joint venture, under which about 8,300 staff would transfer to Marriott, would improve the company's return on capital employed and enhance earnings per share.
Exiting the Marriott hotels business follows a strategic review unveiled last October and allows Whitbread to focus on its Premier Travel Inn budget hotels, David Lloyd health clubs and restaurant chains.
Whitbread owns and manages 51 four-star hotels, almost all in the UK and Marriott-branded, and will sell 46 of them to the joint venture.
"We expect this transaction to realize at least 1 billion pounds over the next two years from a franchised business that, despite good management and operational performance, does not meet the group's cost of capital requirements," said Parker.
At 1000 GMT, Whitbread shares were down 0.2 percent at 963-1/2 pence, mirroring the performance of the UK benchmark FTSE 100 index. Shares in the company rose to six-year highs on Friday amid hopes that it would be returning more than 1 billion pounds to investors via the sale of its Marriott UK hotels.
"There may be some disappointment that only 400 million pounds is being returned to shareholders so, given the steep share price appreciation on Friday, we would not go chasing the shares this morning," said Numis analysts in a research note.
Marriott said the joint venture and related transactions would boost its earnings per share after tax modestly in 2005 and in 2006.