REITs off the menu
The prospect of a major pub group becoming a real estate investment trust (REIT) has evaporated, as companies look at alternative means of unlocking value for investors.
Industry insiders say it is clear companies are looking at innovative ways of enhancing shareholder value but REITs do not offer the best way of achieving this.
"Pubcos choosing to become REITs will find little in the structure to improve their business at the operational end," said one, who preferred not to be named. "The division such a move requires could lead to an unacceptable level of uncertainty on the part of the operator."
The comments came as Mitchells & Butlers (M&B) was poised to sign its own 50:50 joint venture property deal with shareholder Robert Tchenguiz's R20 group, a move the managed pubco prefers as an alternative to becoming a REIT.
Tchenguiz, who holds around 16 per cent of M&B's stock and launched an unsuccessful 550p a share bid for the group last year, has been keen to get M&B to release value to shareholders - including Tchenguiz himself - for several months.
M&B announced its intention to pursue a property joint venture at its interim results in May, citing Tchenguiz's R20 as preferred partner. Analysts believe a joint ownership arrangement of M&B's property assets could unlock up to £1.5bn.
Meanwhile, Greene King recently announced its intention of creating an OpCo/PropCo structure for around 860 of its pubs not covered by existing securitisation deals, and Enterprise Inns continues its "informal" talks with the tax authorities to see if wet rents can be included in the REIT calculations.
However, Punch Taverns and Marston's have both effectively closed the door on becoming a REIT, claiming the costs of conversion outweigh any prospective benefits.
