Mitchells & Butlers has this morning announced it is giving “serious consideration” to converting to a Real Estate Investment Trust (Reit) in order to unlock the value of its property assets.
The company said it had received a proposal from R20, Robert Tchenguiz’s investment vehicle, in respect of a demerged Reit structure, “the attractiveness and feasibility of which” it was now exploring.
It said that the proposal would include R20 procuring a fixed price underwriting in the region of 25% of a wholly demerged Reit, which would offer shareholders the option to realise part of their investment in the property company for cash.
The group said it was currently reviewing the details of the underwriting, the ability to reorganise debt and the implications for pensions, tax and legal structure before progressing with the proposal.
The move towards a Reit conversion comes after the company’s planned £4.5bn property joint venture with R20 was postponed earlier this year due to the instability in the credit market.
M&B said that the current post-tax deficit on the hedges taken out against the planned transaction had risen to £180m on a mark to market post-tax basis from £155m.
However, it said it remained “committed to a property-based refinancing”.
M&B said that given the continued focus on the value of its estate, it had completed a revaluation of its fixed assets, which gave its properties a revised value of £5bn, representing a net increase of £1.1bn.
News of the company considering to apply for Reit status came as it reported a 3% increase in like-for-like sales for the year to 29 September 2007.
However, it reported a slowdown in trade for the seven weeks to 17 November, with like-for-like sales up 1.4%. It said it had seen a material improvement in the three weeks to 17 November with like-for-likes increasing 2.4% helped by the launch of its new winter menus.
Overall operating profit for the year was up 11% to £343m, while pre-tax profits fell 0.5% to £207m, impacted in part by an exceptional charge relating to the hedges taken out against the proposed property deal.
Turnover increased 10.1% to £1.89bn, while average weekly sales per pub climbed 6% to £18,500.
In the 20 weeks since the introduction of the smoking ban like-for-likes for its pubs excluding those previously converted to non-smoking had increased 1.5%, with food sales climbing 5% and drinks sales marginally up.
In the last seven weeks these pubs grew by 0.7% on a same outlet basis.
It reported a 6.7% rise in like-for-like sales within its Scottish estate, partly helped by the Euro 2008 football.
For the year, the group said that like-for-like sales for its Residential outlets increased 3.3%, driven by a good performance from its Local pubs, strong food sales, drinks market share gains, and the benefit of the Rugby World Cup.
However, it reported that the tournament had a negative effect on its Pub Restaurants where like-for-likes were marginally positive. It said that the launch of the new menus helped like-for-likes rise 2.6% across the division in the last three weeks.
Like-for-like sales through its High Street outlets climbed 2.5%, driven by strong growth in food sales. It said that trading in central London had remained buoyant.
The company said it was now selling 107 million meals a year, with total food sales growing by 22% during the 12 months.
It said that like-for-like food volumes increased by 6% in the 12 months against a pub food market up 3%.
Like-for-like drinks sales increased by 2.2%, with its same outlet beer and cider volumes maintained against the background of a 4% decline in the on-trade.
M&B said that the integration of the 239 pub restaurants it acquired from Whitbread in August 2006 had progressed well, with 172 of these sites converted to its formats.
The group said that to date the average weekly sales uplift on the converted sites was 20% above the levels at which they were acquired.
It said it remained confident that the acquired sites would deliver uplifts of 30% in average weekly sales in the year 2008/9.
The company said that the outlook for consumer spending remained uncertain and that the first winter of the English smoking ban would be challenging.
It said that the full benefit from the conversion of the acquired sites and reinvestment in its food offers would help it offset additional regulatory costs of £12m and upward pressures on food costs going forward.
The group said that it anticipated a resilient performance “amidst more challenging market conditions”.
