Enterprise Inns given go-ahead to convert to a REIT
Enterprise Inns' shares rocketed yesterday after the pubco confirmed it had been given the green light to convert to a real estate investment trust (REIT).
The group's stock closed up 115.25p at 510p after it had released a statement to the stock exchange reporting that the tax authorities had approved conversion to REIT status if an internal restructuring of the group was carried out.
"Accordingly, in conjunction with its tax, legal and financial advisers, Enterprise is progressing the detailed analysis required to decide whether the board will recommend to shareholders at an extraordinary general meeting that the group should elect into the REIT regime.
"We expect this work to take several months to complete and a further announcement will be made in due course," the group's statement added.
Enterprise has been mulling over becoming a REIT for nearly a year.
Some companies have been wary of REIT structures since the tax saving on income might not be cost effective and concerns over the relationship between the property-owning entity and the operational side of the company.
In March, Enterprise said it believed it could convert into a REIT without having to demerge its business, via the creation of a new operating company which would take an intermediate lease on arm's length terms over the freehold pub estate from Unique Pub Properties.
Enterprise also said in March that it believed "the revised corporate structure contemplated as part of [a] proposed refinancing exercise would enhance the Group's ability to convert".
It seems its belief was correct, and following last night's statement Enterprise's shares rose sharply, as City analysts looked forward to a shareholder windfall.
Shares in Punch Taverns - whose chief executive Giles Thorley recently sounded less than enthusiastic about the proposition of converting to a REIT - also soared, up 60.5p to 600p.
Following Enterprise's news, Punch said it noted the statement from Enterprise Inns "and welcomes the news from Her Majesty's Revenue & Customs (HMRC) regarding the eligibility of that business for potential conversion to REIT status which is consistent with Punch's own discussions with HMRC.
"As stated previously, Punch continues to consider the opportunity of a potential conversion to REIT status on its merits."
Hamish Champ, City & Business editor writes: The taxman's decision to grant Enterprise Inns its wish to become a REIT comes after a year of what one might imagine were delicate negotiations between the pubco's team of crack financial advisers and government beancounters. The pubco has yet to decide whether it will jump, but assuming it does will others follow suit? Punch Tavern's Giles Thorley didn't sound like a fully paid-up member of the REIT fanclub when he spoke on the subject recently. While he never said 'never', he won't play follow-the-leader for its own sake.
Meanwhile the City got jolly excited by Enterprise's news, as evidenced by the spike in both its and Punch's shares late yesterday, a move which was reminiscent of the stock hikes wintessed last year when REIT speculation was its height.
The precise mechanism of a pubco REIT has yet to be thrashed out - its complexities yet to be completely understood by few save the canniest of tax experts, if one is being honest.
Operationally a REITed pubco might well look no different from a non-REITed one. Whatever the eventuality, like all pioneers Enterprise looks set to enter uncharted territory.
