Pub operator Mitchells & Butlers rules out REIT conversion for now

All Bar One owner Mitchells & Butlers (M&B) has become the latest pub giant to spurn the use of a tax efficient real estate investment trust (REIT).

Speaking at the release of the company’s interim results today chief executive Tim Clarke said the market for a REIT conversion was “as yet insufficiently developed” to provide shareholders with “sustainable value enhancement” if a pure split between property and operations was undertaken.

In recent weeks fellow FTSE 100 listed operators, Punch Taverns and Enterprise Inns, have ruled out short-term REIT conversions citing similar uncertainty, as has rival JD Wetherspoon.

Instead Mitchells & Butlers is continuing talks with R20, the investment vehicle headed by property tycoon Robert Tchenguiz, over a sale-and-lease-back of the pub its property.

Tchenguiz, who has a 15% shareholding in M&B after a failed takeover bid last June, was described by Clarke as the “most competitive bidder” for the 50% of the pub estate the operator is willing to sell.

M&B said the sale and leaseback of as much as half of its portfolio, valued at around £4b, would yield potential market rent of £270m per year for its long leasehold and freehold pubs.

M&B is reported to have offered a number of property packages to investors in recent weeks with the smallest worth £500m up to £4b at the top end.

In the 28 weeks ending 14 April the O’Neils owner saw turnover rise for by 12% to £995m (2006: £887m) but its pre-tax profits dipped 2% to £89m (2006: £91m).

Average weekly sales per managed pub increased 7.6% year-on-year but M&B, which makes more than half its turnover from food sales, warned the impending smoking ban in England on 1 July was increasing competition in the pub food market while interest rate rises were squeezing consumers’ disposable income.

Punch Taverns rules out REIT in short term >>

JD Wetherspoon not to become a REIT company >>

Enterprise Inns mulls REIT as half-year turnover falls >>

By Christopher Walton

E-mail your comments to Christopher Walton here.