M&B could 'crystalise' property to release £950m
Mitchells & Butlers (M&B) could follow the example of Tesco by creating a joint venture property company that crystalises property value but avoids a full conversion to a real estate investment trust (Reit), according to Deutsche Bank analyst Geof Collyer.
A move by M&B to copy the Tesco model would release as much as £950m - 220p a share - to hand back to shareholders, he said.
Control has been one of the key negatives for the pub companies when considering ReitsDeutsche Bank analyst Geof Collyer.
Tesco banked £570m of cash last week after injecting sites worth £366m at book value into a joint venture with British Land.
Both parties put in £80m of equity each and the properties were revalued at £650m and leased back to Tesco at an initial yield of 4.46%.
The deal was broadly profit-and-loss neutral with Tesco planning to return most of the £570m to shareholders.
Tesco retained a call option that allows it to buy back the properties in ten years' time.
Collyer said that M&B could sell 20% of its estate, worth £625m at 1999 book value, into a joint venture like the Tesco one and raise £1.1bn less the equity - around £137m - it injected into the joint venture.
He added: "This would leave it with over £950m to hand back to shareholders.
"This is equivalent to about 30% of the group's current market capitalisation.
"This would leave M&B with scope for further asset revaluations - notably from the Whitbread pub conversions - and retain control over an estate that would be 70% freehold /30% leasehold with an option to buy back 20% in ten years' time."
Collyer noted the Tesco deal "seems to be a way of crystalising current property values whilst retaining at least 50% ownership and control over the properties versus a maximum of 10% ownership under a Reit structure".
He added: "Control has been one of the key negatives for the pub companies when considering Reits."
