Reit conversion under consideration by M&B

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by Lin Freestone

Mitchells & Butler, the leading operator of managed pubs and pub restaurants in the UK, has formed a new property sub-committee to consider converting to a real estate investment trust, or Reit.

Should such a move be contemplated, it would involve splitting M&B into separate property and operating companies.

In 2007, the company abandoned a proposed property joint venture with R20, Robert Tchenguiz’s investment firm. Following this, a strategic review into the company’s operations began and one of the aspects under consideration was the pursuing of real estate investment trust status.

Two executives from R20, which holds 27% of Mitchells & Butler’s shares, have joined its board, and will also sit on the property sub-committee.

It is estimated that the cost of a Reit conversion would be in the region of £200m, but such a move would not happen until there is an improvement in debt markets.

Real Estate Investment Trusts were introduced in 2007 and give investors a tax-efficient way of getting exposure to commercial property.

They are normal corporate vehicles which make an election to confer exemption from tax on relevant property profits. In return, the Reit must withhold tax from distributions paid to shareholders out of these profits.

Most of the UK’s largest listed property companies have converted to Reit status, including Land Securities, British Land, Hammerson, Liberty International, Brixton, Great Portland Estates, Primary Health Properties, Workspace and Slough Estates.

Mitchells & Butlers has a high quality estate of pubs and pub restaurants with an asset value of £5.0bn.