What is an OpCo/PropCo?
Updated: Oct 2
An Operating Company / Property Company (OpCo/PropCo) structure splits a business in two: an operating company that runs the trade and a property company that owns the buildings. The OpCo leases its premises from the PropCo and pays rent. Nothing changes operationally — the same business trades from the same sites — but the property now sits in a separate entity that can be financed, sold, or held independently.
The central idea - a trading business and a property portfolio are different types of assets, valued on different bases by different buyers (see our article on Sale and leaseback as a tool for value creation). If they are held together, they are valued as one. However, separated, each can be financed or sold on its own terms.
It is a structural change rather than a transaction — the property isn't necessarily sold to anyone (although 3rd party equity can be brought in). It is a reorganisation that creates the option to do things later and is common in sectors where property is integral to trading but not the trade itself: hospitality, healthcare, care homes, leisure, and larger retail estates.
How It Works
The properties are transferred into a newly formed PropCo. A lease is put in place between PropCo and OpCo, with a rent set on agreed terms — often described as an internal or intra-group lease where both entities remain under common ownership.
The two entities can then be financed separately: PropCo borrows against the property, OpCo against its trading cashflows. Lenders to each are looking at different things.
Why a Business Would Do It
Financing flexibility: property-backed debt is generally cheaper and longer-dated than trading-business debt, so separating the two can lower the overall cost of capital.
Ring-fencing: risk in one entity doesn't automatically contaminate the other — relevant where the trading business is cyclical but the property underneath is stable.
Creating optionality for later: once separated, the PropCo can be part-sold, refinanced, or brought into a wider transaction without disturbing the trading business. Succession and shareholder exits often drive this — the property can be retained while the trade is sold, or vice versa.
What are the complications?
The rent is set internally, which means it isn't automatically a market rent. Set it too high and the OpCo's profitability is understated; too low and the PropCo is undervalued. It is a decision with consequences for how each entity is judged.
If a site underperforms, the OpCo is still contractually obliged to pay rent to the PropCo. Because the two are related, the PropCo may be less willing to release the site than an arm's-length landlord would be — so the structure can reduce flexibility rather than increase it.
Ongoing cost and complexity: two sets of accounts, intra-group agreements and more involved reporting. Only worth it where the property is material enough or simple enough to justify it.
Most relevant where property is a significant part of the balance sheet, the trading business and the property have genuinely different risk profiles, and there's a reason to want them financeable or saleable separately.
Overall: this is a structural reorganisation with real cost and complexity attached. It is worth doing where it creates optionality a business actually intends to use — not as a tidying-up exercise.
The final word
OpCo/PropCo structuring is typically a pre-cursor to additional financing being brought in. We often see larger more sophisticated businesses with property heavy portfolios looking at this as a tax and control efficient way of bringing in 3rd party capital. It could also be used as a pre-cursor to a business sale where there is appetite to retain the freehold interests. The structuring and implications thereof create many permutations – getting the right one for your business takes time and experience.
