The REIT stuff?

It's hard to imagine Tim Clarke, the reserved chief executive of Mitchells & Butlers, dancing on the tables of one of his establishments. But M&B's latest set of annual figures might just have tempted him into the odd heel-kick.

Amid all the good news about food sales growth and beer sales holding their own the group is considering the idea of becoming a Real Estate Investment Trust, or REIT - pronounced 'reet', apparently, as in 'petite'.

Several pubcos are considering moving to a REIT. While they offer upsides there are caveats. As Clarke suggests, the issue of incentivising leaseholders is a pertinent one.

The operator would want an equitable rent situation, but if rental growth is pegged back to terms suitable for the leaseholder, where is the property-owning benefit? And with no control over the asset, a leaseholder's drive to invest in the property may slow somewhat.

M&B says capturing freehold property appreciation "is an integral part of [our] strategy" due to the relationship between the operating cashflows of a pub and its property value. Common ownership ensures this relationship continues, it adds.

While sale and leaseback deals offer upfront cash, ensuing leasing arrangements may not be ideal. It costs to become a REIT, too. At two per cent of the property value it would cost Clarke's business between £80m and £100m in conversion charges. Then there is the renegotiation of a group's financing, which might add a further £100m to the bill.

As a tax expert said to me last week, if the numbers work and the cost of borrowing looks like going up, then people may go for it. But, the expert added, a REIT "is not a panacea, merely another tool in the box". I couldn't have put it better myself.