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The PropCo-OpCo (Property Company-Operating Company) structure is a business model that separates a company's real estate assets from its operational activities. This arrangement is particularly popular among asset-heavy industries such as hospitality, retail, and healthcare. 

1. PropCo (Property Company):

• Owns and manages the real estate assets
• Generates income by rent out properties to the OpCo
• Often benefits from stable, long-term cash flows.

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2. OpCo (Operating Company):

• Manages day-to-day business operations
• Leases necessary properties from the PropCo
• Focuses on core business activities without the burden of property ownership

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Benefits:

• Risk Segregation: Isolates property assets from operational risks
• Enhanced Financing Options: PropCo can secure loans based on property values
• Tax Efficiency: Potential for optimised tax strategies
• Operational Focus: Allows OpCo to concentrate on core business functions
• Asset Protection: Safeguards valuable real estate from operational liabilities

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Financial Dynamics:

• PropCo charges market-rate rents to OpCo
• OpCo’s lease payments are typically tax-deductible
• PropCo can access lower-cost rent estate capital markets.

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Strategic Advantages:

• Scalability: Easier to expand operations when property acquisition is separate
• Valuation Clarity: Investors can evaluate PropCo and OpCo separately.
• Downturn Management: Greater control over assets during economic downturns.

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Considerations:

• Requires careful planning and professional advice
• Needs clear agreements outlining responsibilities and liabilities
• Must navigate complex tax regulatory environment.