Placing and Open Offer,etc

PEEL HOTELS PLC
10 August 1999

                                                                              
         1 FOR 3 PLACING AND OPEN OFFER AT 180P TO RAISE £3.9 MILLION         
                            in connection with the
                                ACQUISITIONS OF
                          THE GOLDEN LION HOTEL, LEEDS
                               AIRE HOUSE, LEEDS
                                      and
                   THE CALEDONIAN HOTEL, NEWCASTLE-UPON-TYNE


1.   Introduction

The  Company  intends to raise £3.9 million (£3.77 million net  of  expenses)
through  a  Placing  and  Open Offer by Peel Hunt of 2,166,666  new  Ordinary
Shares at 180p per share.  The net proceeds of the Placing and Open Offer are
to  fund part of the aggregate purchase price, stamp duty and other costs  of
acquiring the Golden Lion Hotel and the Caledonian Hotel from Grace Hotels, a
subsidiary of Lehman Brothers International (Europe) Limited, and Aire House,
an  office  block  adjacent to the Golden Lion, from a group of  individuals.
The Placing and Open Offer has been underwritten by Peel Hunt.

The  Company  has entered into a conditional agreement with Grace  Hotels  to
acquire   the   Golden  Lion  Hotel  and  the  Caledonian  Hotel   for   cash
considerations  of  £4.75 million and £4.0 million respectively,  payable  on
completion.  The Company has entered into an unconditional agreement with the
Aire House vendors to acquire Aire House for a cash consideration of £900,000
payable  on  completion.  The Company is borrowing £7.0 million in  ten  year
secured debt from The Royal Bank of Scotland plc, of which approximately £6.1
million  is  to fund those hotel acquisition costs which are not financed  by
the  Placing and Open Offer and the remainder to fund the development of Aire
House.

Grace  Hotels  is  the  owner of a portfolio of  27  hotels,  all  of  which,
including  the Golden Lion Hotel and the Caledonian Hotel, are  run  by  Peel
Hotels  under  a  Management Agreement.  Pursuant to  that  agreement,  Grace
Hotels  has Warrants to subscribe for 500,000 Ordinary Shares.  The terms  of
the  Warrants are set out in paragraph 7 of Part III.  Grace Hotels currently
holds no issued Ordinary Shares.

2.   Information on the Golden Lion Hotel and Aire House

The  Golden  Lion  Hotel  is located in the city centre  of  Leeds,  England's
largest  financial services centre outside London.  It occupies a corner  site
at the junction of Lower Briggate and Sovereign Street, which form part of the
city's inner ring road.  The business and shopping areas are close by and  the
main-line railway station is a two minute walk.

The Golden Lion Hotel is a commercial hotel dating back over 250 years and has
a  basement  and  four upper floors.  The accommodation comprises  89  letting
bedrooms,  a restaurant, a bar and three function/meeting rooms.  There  is  a
car  park for a small number of vehicles in an enclosed courtyard at the rear,
but  there is ample additional public car parking close by.  The hotel  has  a
three star AA/ RAC rating.

Aire  House  is a building formerly used as offices, abutting the Golden  Lion
Hotel with 12,900 square feet of office and retail space.

Subject  to  obtaining planning permission, the Company intends to expand  the
capacity  of  the Golden Lion Hotel by constructing 25 additional bedrooms  in
Aire House's office space while letting the retail space on the ground floor.


3.   Information on the Caledonian Hotel

The Caledonian Hotel is located in Newcastle-upon-Tyne.  The hotel is sited on
Osborne  Road, approximately one mile to the north east of the city centre  in
Jesmond,  Newcastle's university area.  It occupies a terrace  of  bay-fronted
Victorian  houses  converted  to hotel use.  The  accommodation  comprises  89
letting bedrooms and suites, a restaurant, bar and six function/meeting rooms.
Car parking is available for approximately 50 vehicles.  The hotel has a three
star AA/ RAC rating.


4.   Reasons for the Acquisitions

The Company's strategy is to build an hotels business in the UK by identifying
opportunities where value can be added and superior shareholder returns can be
achieved.  By applying the criteria of location, quality, value for price  and
the current and continuing needs of the market, the Company actively seeks out
ownership and management opportunities within the hotel and catering sector.

With  the  Management Agreement, which came into effect in October  1998,  the
Company  was  granted options to purchase both the Golden Lion Hotel  and  the
Caledonian  Hotel.  Both hotels are situated in areas of economic growth,  and
are  sufficiently large (89 bedrooms in each) to provide worthwhile  economies
of  scale.   Further,  and more importantly, they have  scope  for  expansion,
giving the Company the opportunity to improve earnings and add value.

The acquisition of Aire House is expected to enable the Company to expand the
Golden Lion Hotel to up to 114 bedrooms, while the Caledonian Hotel grounds
have the capacity for further expansion of the hotel buildings in the future.

The Directors consider the Acquisitions to be immediately earnings enhancing.


5.   Current trading and prospects

During  the half year ending 5 September 1999 the Company will have  benefited
from  full  contributions  from the Management Agreement  and  the  Pennington
Midland Hotel in Bradford, which was acquired in December 1998.

The Directors are confident that a satisfactory result will be achieved in the
full year to 20 February 2000.


6.   Terms of the Grace Acquisition Agreement

The  Company  has  entered  into a conditional  agreement  with  Grace  Hotels
relating to the acquisition of the Golden Lion Hotel and the Caledonian  Hotel
for  cash  considerations  of  £4.75 million and  £4.0  million  respectively,
payable  on  completion.  As announced on 4 September 1998,  the  Golden  Lion
Hotel  was  the  subject of an option for the Company to  acquire  it  granted
pursuant  to  the Management Agreement.  The option was exerciseable  until  5
January  1999  for  a  consideration of £4.75 million.  The  Caledonian  Hotel
(formerly  named  the Hospitality Inn Hotel) is currently the  subject  of  an
option  for the Company to acquire it, also granted pursuant to the Management
Agreement.  This option is exerciseable between 5 October 1999 and 5  November
1999  for  a  consideration of £4.0 million.  The option over the Golden  Lion
Hotel  was  never  exercised  because at the exercise  date  the  Company  had
recently  completed the acquisition of the Pennington Midland Hotel, Bradford.
In  order  to minimise the expense which would result from acquiring  the  two
hotels separately, Grace Hotels has agreed to sell the Caledonian Hotel to the
Company in advance of the first exercise date of the option over that hotel.

One  of  the  terms  of  the Management Agreement was that  should  any  hotel
comprised  in  the  Portfolio be purchased by the Company from  Grace  Hotels,
whether or not pursuant to either of the options referred to above, the  first
such  hotel would be acquired pursuant to a new 99 year lease granted by Grace
Hotels.  Since the Grace Acquisition will be the first such purchase, a  lease
over the Golden Lion Hotel will be granted for 99 years from completion.   The
rent payable under the Lease will be one peppercorn until 5 October 2001.   If
at  that date Grace Hotels has achieved a minimum ungeared cash return on  its
cash  investment  in the Portfolio of 10 per cent. per annum,  the  rent  will
remain  at a peppercorn for the remainder of the Lease term.  If the  ungeared
cash  return of 10 per cent. per annum referred to above is not achieved,  the
rent  will  be increased to £100,000 per annum for the remainder of the  Lease
term.

The  Lease  is  transferable to any subsequent purchaser of  the  Golden  Lion
Hotel.   The Lease will also contain an option for the Company to acquire  the
freehold  interest  in  the Golden Lion Hotel for a sum  of  £1  even  if  the
aforementioned ungeared cash return of 10 per cent. per annum is not achieved.
However,  in such circumstances the Company would be bound by a term  of  that
option  to  transfer  the freehold of an hotel of equivalent  value  to  Grace
Hotels  and  lease that hotel back at the same rent as that contained  in  the
Lease for a term expiring on the same date as the Lease.

The Caledonian Hotel will be acquired with a freehold interest.

Completion  of the Grace Acquisition Agreement is conditional on  the  Placing
Agreement  having become unconditional, Grace Hotels obtaining the consent  of
its  bankers  and  Admission.   Completion is expected  to  take  place  on  6
September 1999.


7.   Terms of the Aire House Acquisition Agreement

The  Company has entered into an unconditional agreement with the  Aire  House
Vendors relating to the acquisition of a freehold interest in Aire House for a
cash consideration of £900,000, payable on completion.  Completion is expected
to take place on 8 September 1999.


8.   Details of the Placing and Open Offer

The  Placing  and Open Offer is intended to raise £3.9 million (£3.77  million
net  of  expenses) by the placing of 2,166,666 new Ordinary Shares subject  to
the  rights of Qualifying Shareholders to apply for such shares under the Open
Offer.   Qualifying  Shareholders will be given the opportunity  to  subscribe
under the Open Offer for the new Ordinary Shares at a price of 180p per share,
payable in full on acceptance, on the following basis:

               1 new Ordinary Share for every 3 Ordinary Shares

and  so  in  proportion for any other number of Ordinary Shares  held  on  the
Record  Date.  Qualifying Shareholders may apply for any whole number  of  new
Ordinary  Shares  up  to  their maximum entitlement shown  in  Box  B  on  the
Application Form.  Entitlements to new Ordinary Shares will be rounded down to
the  nearest whole number of shares.  The fractional entitlements which  would
otherwise have arisen will not be allotted to Qualifying Shareholders but will
be  aggregated and subscribed under the Placing Agreement for the  benefit  of
the Company.

The  net proceeds of the Placing and Open Offer will be used predominantly  to
fund  part  of the consideration for the Acquisitions and to cover stamp  duty
and other associated expenses.

The  new Ordinary Shares will be allotted credited as fully paid and will rank
pari  passu  in all respects with the existing Ordinary Shares, including  the
right to receive all dividends and other distributions declared, made or  paid
after the date of their issue.

Peel  Hunt  has agreed that it will use its reasonable endeavours  to  procure
placees  for  all  of the new Ordinary Shares (other than new Ordinary  Shares
that  are the subject of undertakings from Qualifying Shareholders to take  up
their  entitlements),  subject  to the rights of  Qualifying  Shareholders  to
acquire such shares under the Open Offer.  Peel Hunt will itself subscribe for
any  new  Ordinary Shares (other than new Ordinary Shares that are the subject
of  undertakings  from Qualifying Shareholders to take up their  entitlements)
which are not taken up under the Open Offer.

The  Placing and Open Offer is conditional, inter alia, on completion  of  the
Grace  Acquisition,  the  Placing  Agreement  becoming  unconditional  in  all
respects and not having been terminated in accordance with its terms prior  to
Admission and on Admission becoming effective.

Undertakings have been given to the Company by Robert Peel and John Govett  to
take  up their entitlements under the Open Offer to 80,000 new Ordinary Shares
in  aggregate  (representing approximately 3.7 per cent. of the  new  Ordinary
Shares).  Robert Peel has undertaken to the Company not to subscribe  for  the
remainder of his entitlement under the Open Offer, being 945,000 new  Ordinary
Shares (representing approximately 43.6 per cent. of the new Ordinary Shares).
Such  shares have been conditionally placed firm with institutional and  other
investors.

The  remaining 1,141,666 new Ordinary Shares (representing approximately  52.7
per  cent.  of  the new Ordinary Shares) have been conditionally  placed  with
institutional  and  other  investors, subject to  clawback  to  satisfy  valid
applications under the Open Offer.


9.   Timetable

Record Date for the Open Offer                                   3 August 1999

Despatch of Application Forms                                   10 August 1999
and Posting of Documents

Latest time for splitting application forms          3.00 p.m., 26 August 1999
(to satisfy bona fide market claims only)           

Latest time for receipt of completed                 3.00 p.m., 31 August 1999
Application Forms and payment in full       

Dealings to commence in the new Ordinary                      6 September 1999
Shares

Crediting of CREST accounts                                   6 September 1999

Share certificates in respect of new                          9 September 1999
Ordinary Shares despatched by


Application  Forms  in relation to the Open Offer are personal  to  Qualifying
Shareholders  and  may not be transferred except to satisfy bona  fide  market
claims.