Operating Company/Property Company Deal - Opco/Propco Deal

DEFINITION of 'Operating Company/Property Company Deal - Opco/Propco Deal'

A type of business arrangement in which a subsidiary company (the property company) owns all the revenue-generating properties instead of the main company (operating company). Opco/propco deals allow all financing and credit rating related issues for the companies to remain separate.

BREAKING DOWN 'Operating Company/Property Company Deal - Opco/Propco Deal'

In the U.K., opco/propco deals are a very popular method in which a parent company can create a real estate income trust (REIT). This can be done by initially selling income-generating assets from the operating company to a subsidiary. The subsidiary then leases the property back to the operating company. The operating company can then spin off the subsidiary as an REIT. The advantage of doing this is that the company can then avoid the double taxation on its income distributions.