what is an operating company property company deal opco propco 
an operating company property company opco propco deal is a business arrangement in which a subsidiary company i e the property company or propco owns all of the revenue generating properties instead of the main company the operating company or opco opco propco deals allow all financing and credit rating related issues for both companies to remain separate this business structure is common in real estate deals and in the structuring of real estate investment trusts reits understanding operating company property company deals opco propco parent companies can be conglomerates or holding companies a conglomerate such as general electric owns companies with distinct business models in addition to its core operations in contrast a holding company is created with the specific purpose of holding a group of subsidiaries and does not conduct its business operations holding companies normally form to realize tax advantages master limited partnerships or mlps also employ a similar parent subsidiary structure most mlps are publicly traded for tax purposes investors may choose how they would like to receive the income the company generates a mlp has a pass through tax structure meaning that all profits and losses are passed through to the limited partners the mlp itself is not liable for corporate taxes on its revenues and thus avoids the double taxation of most corporations 1 most mlps operate in the energy industry subsidiaries own shares officially units of the parent company mlp redistributing the passive income through the corporation as a regular dividend criticisms of an operating company property company deal opco propco opco propco arrangements allow the operating company to rent or lease property from the property company in practice this looks like a sale and a leaseback however the company never relinquishes the property in any real way as the propco and opco are part of the same group of companies while this might sound like the corporate equivalent of having your cake and eating it there can be several downsides to creating a propco if a business works out of multiple locations rather than a primary one a propco arrangement locks the company into a situation where closing any location becomes more difficult in a traditional business setup for example a company might choose to close an underperforming location or office and likely sell the property by contrast in a propco arrangement the propco owns the property and may not choose to offload it if the market won t return enough to cover the debts as a result the opco may be required to pay rent on a property even if it is not utilizing it because the propco depends on that income to service the debt financed off the properties example of an operating company property company deal opco propco in the u k opco propco deals are a very popular method in which a parent company can create a reit a reit owns operates and or finances real estate that produces income most reits specialize in a specific sector such as office reits or healthcare reits in general reits will pass on collected rent payments to investors in the form of dividends the creation of a reit via an opco propco deal can occur 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 subsequently spin off the subsidiary as a reit the advantage of doing this is that the company can then avoid double taxation on its income distributions 2