Punch Taverns and REITs: It's not now, but it's not never either

It's definitely a 'no'. Well, for now. After much holding of breath, etc, industry watchers were put out of their misery last week when Punch Taverns made its case for not becoming a real estate investment trust (REIT).

Boiling down the technical jargon, Punch's rationale for choosing to eschew the REIT route for the time being could be read as "if it ain't broke, don't fix it".

There are many issues surrounding REITs and pubcos, much relating to debt leveraging and the like, but Punch says its current model works. Basically there's no need to do it.

Then there's the tax situation. Punch doesn't pay much. And since paying no tax is a large part of a REIT's raison d'etre then the estimated cost to become one - around £140m in Punch's case - meant the economics didn't stack up.

Punch's shares took a hammering as the City digested the news, but chief executive Giles Thorley was quicker than Valentino Rossi riding in a Moto GP to point out that its stock had risen in recent times as much because of the fact that it had "sold the model" as people anticipating it would become a REIT.

A fall was inevitable, he said, given no 'positive' REIT news was forthcoming.

Any road up, now is not the time. But 'not now' doesn't necessarily equate to 'never ever'. The opportunity to create more value for shareholders by going down this route might - with the emphasis on 'might' being heavily accented - make it worthwhile at some future juncture.

Conversely, no-one wants to be 'The First'. Like its rival Enterprises Inns, Punch appears content to watch developments and let someone else be a REIT pioneer.

After all, we know what happens to pioneers. They tend to end up with a back full of arrows.