Mitchells & Butlers unveils strategic review alongside plans for Reit

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The Independent Online

The pubs-to-restaurant operator Mitchells & Butlers has revealed plans to convert to a real estate investment trust (Reit), as it unveiled a strategic review and posted "resilient" interim results.

The group, which owns the O'Neills, All Bar One and Toby Carvery chains, also said Robert Tchenguiz's R20 investment vehicle would appoint two non-executives, Tim Smalley and Aaron Brown, to the M&B board. Mr Tchenguiz has a 27 per cent stake in M&B.

M&B finance director Jeremy Townsend said: "R20 have a great deal of expertise in real estate financing."

Mr Townsend said it plans to introduce a reit, intended to deliver more value to shareholders from its £5bn property estate, when the credit crunch the debt markets improve.

M&B has calculated that a Reit, a tax-efficient way of managing a large property portfolio, has the potential to deliver £20m of tax savings based on an estimate of £70m pre-tax profit in the first year of the propco.

Yesterday the company posted interim results for the 28 weeks to 12 April that exceeded City expectations. The pubs group delivered a 4.3 per cent increase in operating profit to £168m but its pre-tax profits fell by 5.6 per cent to £84m.

Tim Clarke, the M&B chief executive, said a key contributor to its uplift in operating profit was strong sales of food in its pubs, with same outlet food sales growing by 5.1 per cent over the 28-week period. M&B posted flat sales of £995m for the 28-week period, but same outlet like-for-like sales rose by 0.8 per cent for the 32 weeks to May 10.

Mr Clarke added: "These are a very resilient set of trading results in the face of smoking ban and consumer slowdown." However, he hopes that the smoking ban, which came into effect last summer in England and Wales, would follow the pattern of the second year of the ban in Scotland, where any lower sales of drinks are being more than offset by stronger food sales in pubs.

Investec analyst Matthew Gerard said: "While food is the star of the show... market share gains in drinks are equally impressive and helping to boost margin relative to competitors.

Mr Clarke said M&B would still consider small and large acquisitions at the right price. Previously, M&B has approached Punch Taverns about a potential purchase of its managed pubs business, Spirit, but talks ended without a deal.

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