I am a great supporter of both pubs and REITs so it's a bit strange why I can't get excited about the recent stories about various pubs companies announcing that they're going to convert to REIT status.
Lots of other people seem to be doing so and at one point the pub sector seemed to be about to be going through a significant re-rating on the strength of the announcements. After all, pub companies own lots of real estate and their share prices don’t appear to reflect the value of that property – all sounds like a no brainer.
Well sorry to be a spoilsport, but lets take a reality check: just as the property companies who converted to REITs have found over the last 18 months, a change in tax status doesn’t change the market in which you operate. It improves your balance sheet, it makes income investors happier (as they receive higher dividends paid for out of the tax savings) and it will, in the long-term, make you a more attractive and effective investment vehicle. But, and it’s a big but, it won’t make your property any more attractive to tenants or customers in the short-term.
So too with pubs - I’m not going to choose which pub to drink or eat in just because it’s owned by a REIT; that’s down to good management creating a great proposition and caring about customers. I’ll be waiting to see how this pans out, but just as last year the smoking ban was top of the agenda for pub owners, so this year I hope that the fight to attract customers in a slowing economy is number one – oh and by the way, only Enterprise Inns have so far come anywhere close to actually announcing a plan to convert!
All of which makes me wonder again why sentiment seems to play such a huge part in property - after all the UK is probably one of the most transparent and sophisticated commercial real estate markets in the world. Property owners have to regularly publish third party valuations that are based on tried and tested principles; our public property companies are amongst the largest and most stable and we have the world’s leading property derivatives market that is really starting to mature. It’s fascinating to see L&G and Scottish Widows starting to explore this and I believe that over the next 12 months the value of transactions on the derivatives market will be larger than on the real market.
All of this means that there is a huge amount of information coming to market about what has happened, what is happening now and what’s likely to happen in the future – yet most of us fail to read or take note of this information and are continually surprised by the future. Or maybe there’s just too much information coming out and we still need ‘wise men’ to provide us with clues.
Having complained last month about Brussels bureaucrats designing euro-REITs, I’ve been a bit hoist by my own petard. On my return to the office after a couple of days off researching into the potential for pub REITs, I find that I’m scheduled to brief the Finnish Minister of Housing and a delegation all about opportunities for residential REITs and their potential application to the Finnish housing market – help!
Maybe I should keep my mouth shut in future or maybe its time to remind whoever decides these things that the world’s most developed REIT market is in Australia and that I haven’t wangled a business trip to Sydney since the days when my former employers, AMP, were managing the conquest of the UK from Circular Quay.
Dave Butler is head of external affairs at REITA
The views expressed in this blog are those of the individual
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