Whitbread, the leisure group, yesterday announced a £100 million expansion of its Premier Inn hotel chain in London over the next three years, putting it in prime position to cash in the 2012 Olympics.

The company, which recently held abortive talks over a £900 million acquisition of Travelodge, its main budget hotel rival, is buying three hotels from the Real Hotel Company (RHC) and will develop three more by 2011.

The RHC deal comprises the Quality Hotel in Westminster, the Comfort Inn, Kensington, and the Purple Hotel in the City, adding 400 new rooms. It is paying £18.5 million for the three properties and will spend £12 million converting them to the Premier brand.

Whitbread has secured the right of first refusal to acquire all 12 of the remaining Purple hotels from RHC, should they be put up for sale, although the group said it had no plans to sell. Purple is a new RHC brand to replace the franchised Sleep Inn brand.

Premier is developing three new-build hotels in the Greater London area that will add about 700 rooms. Extensions to existing Premier Inns will add another 100 or so rooms. The new-builds are located at Waterloo, Ealing and Old Street in the City. The equivalent of £70 million will be invested in the leasehold developments, with Whitbread injecting £6.5 million.

Premier Inn is the largest hotel group in London by number of properties with 44 hotels and 5,300 rooms. Its latest plans will increase the total number of rooms in the capital to 6,500, with another 2,000 rooms likely to be announced in the next 12 months.

Alan Parker, Whitbread’s chief executive, said: “The capital is an important focus for Premier Inn. There is a growing need for high quality, affordable accommodation. Our further pipe-line will position us as the largest hotel chain in London with at least 8,500 rooms before the Olympics in 2012.” He added that all new Premier Inns in the capital would have on-site coffee shops under Whitbread’s Costa brand.

RHC said the disposals was part of its strategy of exiting the mid-market to focus on its budget Purple brand. It said it had sold its Purple in the City to aid the sale of its two other properties.

Michael Prager, RHC’s chief executive, said: “Exiting London for a temporary period at this time allows us to extract maximum value from this transaction while concentrating on the regional strengths of the brand.” He said that £11 million of the proceeds would be used to reduce debt, although the total reduction in net debt would be £25 million after lease disposals.

Geof Collyer, leisure analyst at Deutsche Bank, said that the RHC deal equated to a multiple of less than six times underlying earnings. Yesterday the first Premier Inn in Dubai was opened, the forerunner of 50 planned for the Middle East over the next five years.

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