Jack: M&B's Reit plan is flawed
A leading City analyst, a consistent critic of Mitchells & Butlers (M&B) strategy in the past year, has poured cold water on its plan to convert to real estate investment trust (Reit) status.
Douglas Jack, of Panmure Gordon, said a Reit structure is unlikely to create value.
He said: "The tax saving would be a minimal £20m per annum against an upfront cost of £200m to £225m.
"In addition, the operating company would lose property flexibility."
"In addition, the OpCo would face RPI-linked rental inflation on £240m of its initial £285m annual rent roll.
"This could result in financial distress in the OpCo on the basis that uninvested like-for-like sales have always been below the current rate of RPI during any reported 6-month period (certainly in this decade)."
Review costs
Jack also criticised the amount M&B has spent on the strategic review that started in January - a total of £12m.
He said: "In our view, this is excessive in comparison to the quality of the outcome."
He also noted that management lost another £16m on hedging positions in its first half.
He added: "Overall, the operational presentation was as much about tough conditions and competitor weaknesses as M&B's strengths.
"We do not entirely disagree, although data showing M&B average beer prices to be 40p cheaper than tenanted pubs is inaccurate; the latest CGA data shows M&B to be 2.2% (6p per pint) more expensive than Enterprise Inns and Punch Taverns.
"M&B is performing well operationally, aided by good assets, in a tough sector.
"However, there is no material upside from a Reit other than efforts to extract freehold property value."
