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Ei Group plc

Ei Group plc Disposal of 370 Commercial Properties for £348 million

Ei Group plc (LON:EIG), the largest owner and operator of pubs in the UK, today announced that it has entered into sale agreements, subject to Shareholder approval, with Tavern Propco Limited in relation to 370 properties comprising public houses and other commercial properties for expected gross aggregate cash consideration of £348 million.

Tavern Propco Limited is a newly incorporated private company, which is owned, through intermediate holding companies, by investment funds managed and/or advised by Davidson Kempner Capital Management LP.

The Disposal of the Portfolio, which comprises a significant proportion of the current Ei Commercial Properties division (FY 2018: 412 properties), represents a successful outcome of the previously announced sale process designed to optimise value from this part of the Group.

The Group’s strategy in recent years to grow the income and quality of the Commercial Properties portfolio has resulted in what the Board believes to be an attractive valuation for the Portfolio.

Highlights of the Disposal:

· The Portfolio is being sold on a debt free basis for expected gross aggregate cash consideration of £348 million, subject to customary rent apportionment mechanics at Completion. The Purchaser has paid Ei Group a deposit of £33.66 million, which is non-refundable unless Shareholders do not approve the Disposal.

· The sale value represents a 13 times multiple of earnings and is in line with the net book value of the assets, reinforcing the Board’s confidence in the robustness of the net asset value of the Group.

· A significant proportion of the Disposal proceeds will be used to reduce the level of the Group’s outstanding debt, accelerating the delivery of the Group’s medium-term target leverage ratio of 6x net debt to EBITDA.

· Along with the accelerated debt reduction, the Disposal provides the Board with the opportunity to consider more immediate returns to Shareholders.

· The Disposal also allows the Group flexibility to invest in driving growth in its core Publican Partnerships, Managed Operations and Managed Investments divisions, whilst at the same time identifying properties to rebuild its Commercial Properties division.

The Disposal constitutes a Class 1 transaction under the Listing Rules and Completion is conditional on Shareholder approval. Accordingly, a circular will soon be sent to Shareholders to convene the General Meeting at which Shareholders will be asked to approve the Disposal. Completion is expected to occur in early March 2019. Ei Group will continue to provide certain management services in respect of the Portfolio for a transitional period of up to 12 months.

Simon Townsend, CEO of Ei Group said: “We are very pleased to have agreed the sale of the Portfolio, which is in line with our strategy of delivering attractive and sustainable returns to Shareholders by unlocking the embedded value and optimising the returns from every asset within the business. The Portfolio is comprised of high quality assets which we believe are best suited to a free-of-tie, rent-only business model. Throughout the sale process, we have been impressed with the commitment and speed of execution demonstrated by Davidson Kempner, a global institutional investment management firm with over US$31 billion in assets under management and a long track record of investing in real estate.”

Rothschild & Co acted as sole financial adviser to Ei Group on the Disposal.