M&B to pursue Reit conversion
Mitchells & Butlers (M&B) is to actively pursue conversion to tax efficient Real Estate Investment Trust (Reit) status in order to maximise the value of its property estate.
Announcing the results of its strategic review, M&B also confirmed that both Tim Smalley and Aaron Brown, from Robert Tchenguiz's investment vehicle R20, would take a seat on the board as non-executive directors.
M&B also said it would "actively explore opportunities for managed pub sector consolidation" and maintain its dialogue with private equity investors over potential funding for acquisitions.
To convert to the lower taxes of Reit status, 75% of revenue must come from rent with most of the profit being distributed to investors.
Reit conversion would involve the setting up of an Opco/Propco model.
Growth potential
"We believe a dedicated property company with stable and growing rental streams and a strong dividend payout would enable greater transparency in the valuation of the estate," said chief executive Tim Clarke.
"The tax advantages of a Reit would also be a source of significant value.
"Furthermore, with an appropriate starting level of rents and a long term lease structure, we also believe the strength of the brands and formats, the quality of the sites and the operating capabilities of the company would ensure a robust operating company business model, with attractive equity growth prospects."
However, regulatory clearance would be still be required and M&B said that conditions in the financial market were not conducive for restructuring at present due to the related costs and lack of funding available for the necessary debt requirements.
Tchenguiz will have his two men on the board as long as his interest in the company is greater than 25% - if the level falls to between 15-25%, this will be reduced to one.
Drummond Hall, currently deputy chairman, will replace Roger Carr as chairman on 20 June.
The managed operator will also continue to dispose of "gold brick" properties where high values on EBITDA multiples can be realised.
Results
Meanwhile, M&B reported same outlet like-for-like sales were up 0.8% for the 32 weeks to 10 May fuelled by a same outlet food sales increase of 5.1%.
The decline in drinks sales was limited to 1.5%, M&B said.
Same outlet like-for-like sales in the first four weeks of second half are up 3.4%, it reported.
"The comprehensive strategic review has explored all options for creating value," said Clarke.
"The conclusions reaffirm our commitment to capturing the value of the property for shareholders.
"We will also focus on accelerating our trading out-performance and pursuing consolidation in managed pubs.
"Strong food sales growth, sizable drinks market share gains and further productivity improvements have delivered these resilient trading results. The second half has started well."
