Marston's, the pub group, today ruled over converting its property to a REIT.
The operator of around 2,500 managed and leased pubs said it had examined the potential for creating a REIT but concluded that the costs of implementing the appropriate structure by splitting the business into an operating company and property company would largely offset the potential tax benefits of doing so.
REIT rules state that at least 75% of a REIT's income must come from property rent. This means that a pub company like Marston's, which also sells beer to its tenants as well as managing its own pub estate, would probably have to have spin off its property, thereby losing control of it.
However, rival Enterprise Inns is in discussions with HM Revenue & Customs about converting itself to a REIT lock stock and barrel. Enterprise is hoping that drink sales will count as ‘wet rent’, thereby meeting the REIT criteria without the need for an opco-propco split.
Marstons’s said that owning its own pubs gave it critical flexibility in today's ‘rapidly changing trading environment’: ‘Consequently, we do not plan at this stage to split the business into an operating and property company, but will continue to review the situation as the market for REITs in the pub sector develops,’ it added.
Enterprise is the only pub company so far to have shown enthusiasm for converting to a REIT. Earlier this week, Mitchells & Butlers discounted the REIT route, at least in the short term, opting instead to put its property into a joint venture with 15% shareholder Robert Tchenguiz.