Jarvis Hotels Plc Proposed 150 Million Pounds Sterling Sale and Leaseback of 9 Hotels and Return of up to 85 million pounds Capital to Shareholders by way Of a Tender Offer at a Fixed Price of 137.5p per Share

The Sale and Leaseback and the Tender Offer both require the prior approval of shareholders to be sought at an Extraordinary General Meeting of the Company expected to be held on Monday 4 November 2002 (the "EGM"). A circular containing further details of the proposed Sale and Leaseback and the terms of the Tender Offer, and containing a notice of EGM, will be posted to shareholders of Jarvis Hotels shortly. Shareholder approval will also be sought at the EGM to make certain amendments to the Company's employee share option schemes necessary as a result of the proposed return of capital and to bring the schemes into line with current best practice in the UK.

Background to the transaction

In 2001, the board announced that it was committed to maximising shareholder value by adopting and implementing business strategies to increase the share price and to return cash to shareholders. To achieve this, the board announced that it planned to evolve the Company into a hospitality management services company, concentrating on delivering growth through a combination of management contracts and strategic alliances, with a reduced emphasis on the ownership of hotel properties.

The Company has made considerable progress in achieving this strategy. In June 2001 the Company entered into a 20-year agreement with Marriott International Inc. to rebrand and operate selected hotels under the Ramada International Hotel & Resorts flag in Great Britain. This agreement includes access to the global booking system operated by Ramada International Hotels & Resorts. The Company has also entered into leases to operate two hotels at Glasgow Airport under the Ramada and Travelodge brands and a management contract to operate a hotel in the Midlands. These new contracts, together with the 9 hotels the Company operates under a lease agreement with Norwich Union, represent 1,242 rooms operated under lease or management agreements.

Despite these developments, the Company's shares continue to trade on the stock market at a substantial discount to net asset value. The board has reviewed thoroughly several options as a means to unlock value from its existing property holdings and has concluded that a sale and leaseback followed by a return of capital to shareholders is the most appropriate method to crystallise value for shareholders.

Reasons for the Sale and Leaseback

The Sale and Leaseback represents a significant step in the Company's evolution into a hotel management services company operating under recognised brands in a range of market sectors. This evolution will better enable it to:

• move towards a less asset intensive operating model
• increase its marginal return on investment via management contracts and operating leases rather than investing in directly owned properties.

Details of the Sale and Leaseback

The Sale and Leaseback will be effected by disposing of long leasehold interests in 9 hotel properties subject to occupational leases to operating subsidiaries of the Company for a period of 34 years and 360 days.

The annual operating lease cost with effect from completion of the occupational leases until 23 June 2003 will be approximately 10.6 million pounds on an annualised basis. The total rent is based on an average of 31 percent of the relevant total turnover for the 9 properties subject to the Sale and Leaseback, subject to a minimum guaranteed rental cost of 9.9 million pounds escalating at 2 percent per annum, capped at 10.75 million pounds.

Completion of the Sale and Leaseback is conditional only on the approval of the shareholders being obtained at the EGM.

Reasons for the Tender Offer

The directors believe that, following the receipt of the net proceeds of the Sale and Leaseback, the Company will have surplus cash taking into account its ongoing obligations. A return of capital of up to 85 million pounds (equivalent to approximately 50p per share) is therefore being proposed. Having considered a number of methods of returning capital, the directors have decided to implement a tender offer for the following reasons:

• shareholders have a choice whether or not to participate in the return of capital
• it is a tax efficient use of the proceeds of the Sale and Leaseback
• it is expected to enhance the Company's earnings per share * from the year ending 31 March, 2004, the first full year following the Tender Offer which will benefit from its financial effects
• it is expected immediately to increase the Company's net asset value per share*.

The rest of the net cash proceeds of the Sale and Leaseback will be used to reduce the Company's overall debt position by approximately 55 million pounds. The terms of the Group's existing facility agreement will be amended to reflect the new agreed financing arrangements.

The tender price for the shares has been set at 137.5p per share (the "Tender Price"). The return of capital involves the purchase of shares for an aggregate consideration of up to 85 million pounds, and the maximum number of shares to be purchased is therefore 61,818,181 shares (representing approximately 36.21 percent of Jarvis Hotels' current issued share capital). Full details of the terms of the Tender Offer will be set out in the circular in connection with the Sale and Leaseback and Tender Offer, which will be posted to shareholders shortly.

The Tender Offer is being made subject, inter alia, to completion of the Sale and Leaseback and approval of the shareholders being obtained at the EGM.

This statement does not constitute a profit or asset value forecast for the Company and accordingly it should not be inferred that the Company's profits or asset value will necessarily be greater than those for the relevant preceding financial period.

Irrevocable undertaking

Jarvis Hotels has received an irrevocable undertaking from Trefick Limited ("Trefick") to tender 40,027,715 shares (representing 23.45% of the issued share capital) and any other shares it acquires before the record date for the Tender Offer (together, the "Trefick Shares") in the Tender Offer at the Tender Price. Trefick has also undertaken to exercise the voting rights attached to the Trefick Shares as instructed by Jarvis Hotels on any resolution, which would assist in the implementation of the Tender Offer.

Financial effects

It has been agreed that the nine properties which are subject to the Sale and Leaseback are to be sold for 150 million pounds. Since the proceeds receivable exceed the book value of the properties of 92.4 million pounds, the Sale and Leaseback will increase the Group's net assets by the profit on disposal of approximately 47.6 million pounds after deducting expenses relating to the transaction of approximately 4.5 million pounds and capital gains tax of approximately 5.5 million pounds.

The Group's capital and reserves will increase by the amount of profit on disposal of the properties. However, the capital and reserves will be reduced by the amount of the capital (up to 85 million pounds) returned to shareholders through the Tender Offer.

The ongoing effect of the Sale and Leaseback and the Tender Offer on the profit and loss account will be to replace a depreciation charge of approximately 1.5 million pounds per annum and interest payable of approximately 3.1 million pounds per annum under part of the Group's existing facility agreement with an annual operating lease cost under the occupational leases.

The directors believe that the Sale and Leaseback is appropriate given:

• the stable trading record of the Properties
• the turnover based nature of the leases
• the significant value of the Company's remaining 47 owned hotels
• the Company retains a residual earnings stream from the Properties.

Dividend policy

Following the return of capital pursuant to the Tender Offer, the directors would expect, in the absence of unforeseen circumstances, to maintain the level of dividend paid for 2002 (5.6 pence per share) and adopt a progressive dividend policy thereafter as earnings permit.

Current trading and prospects

At the Annual General Meeting of the Company on 31 July 2002 (the "AGM"), it was reported that turnover for the first 16 weeks of the current financial year was running 3 percent below last year. Within this total, London hotels were showing a 6 percent decline, a major improvement on the position earlier in the year.

Turnover in recent weeks has for the first time been running marginally ahead of the equivalent period of 2001, with the result that the cumulative total for the year to date is now approximately 1 percent below last year. Within this total, trading in London remains marginally weaker than the regions.

The overall upward trend reflects the quality of the Company's technology and marketing relationships, and the increasing benefits of the Company's link with the new global distribution system. The Company has also demonstrated its ability to focus promotional activity in the UK on the relatively buoyant domestic leisure market.

Jarvis Hotels has also continued to concentrate on cash management and the tight control of all expenditure, which the directors believe, together with a marginally lower interest cost, has limited the impact of the turnover slowdown on profits before tax. While at the time of the AGM, the board felt that it was prudent to continue to expect a reduction in first half profits before tax for the 28 weeks to 12 October 2002 compared to the prior year, any shortfall now looks likely to be modest. Although world events are uncertain and impossible to predict, the Board will continue to manage actively the Company with a view to mitigating any detrimental effects.

The board views the current trends with cautious optimism and is confident that given the regional hotel base, the broad spread of corporate and leisure business, and the less demanding comparisons with the second half of last year, the Company will remain well placed following the Sale and Leaseback and the Tender Offer.

Commenting on the proposed Sale and Leaseback and Tender Offer, John Jarvis, CBE CVO, Executive Chairman of Jarvis Hotels, said:

"Today's announcement is a considerable achievement after the disruptions and delays we have had to overcome since first announcing the conclusions of our strategic review more than a year ago. The Sale and Leaseback continues our programme to re-position Jarvis Hotels as a hotel management services group, and the proposed Tender Offer will deliver our pledge to return value to our shareholders.

The future for Jarvis Hotels is now clear. We are strategically well positioned as operators of a range of international hotel brands, and are continuing to demonstrate the strength of our management team. We will retain a strong property portfolio and asset base and the financial resources to deliver sustained growth in our clearly targeted core markets."

UBS Warburg is acting as financial adviser and broker to Jarvis Hotels plc in connection with the Sale and Leaseback and Tender Offer and no-one else and will not be responsible to anyone other than Jarvis Hotels plc for providing the protections afforded to clients of UBS Warburg nor for providing advice in relation to the Sale and Leaseback and the Tender Offer.

NOTES TO EDITORS

Background on Jarvis Hotels

Jarvis Hotels plc currently operates 69 hotels throughout the United Kingdom. It is based in High Wycombe, Buckinghamshire, where its Central Reservations Centre is also located, and employs a total of approximately 5,750 employees. The Group's hotel activities are supported by its three successful own-brands - Summit Conferences, Embassy Leisure Breaks and Sebastian Coe Health Clubs.

Details and locations of the Sale and Leaseback properties

• Ramada Jarvis London West 214 rooms
• Ramada Jarvis Hyde Park 213 rooms
• Ramada Jarvis Farnham/ Guildford 96 rooms
• Ramada Plaza Gatwick 151 rooms
• Ramada Jarvis Guildford/ Leatherhead 87 rooms
• Ramada Jarvis Hatfield 128 rooms
• Ramada Jarvis Hemel Hempstead 137 rooms
• Ramada Jarvis Solihull/ Birmingham 145 rooms
• Ramada Hotel and Resort Birmingham 170 rooms

Lioncourt Capital Limited

Each of the properties is being sold to a separate special purpose company owned by a large number of private investors. Negotiations were conducted on behalf of the buyers by the Dublin based Lioncourt Capital Limited.