Doing the REIT thing

Until last week the likelihood of significant pub sector corporate activity in the near future was relatively low. Money - or rather debt - to fund deals was and remains for the most part in short supply.

People were coming to terms with deals drying up for a while, or at least being niche in nature. Heck the executive mantra in recent weeks has been about the need to focus on - wait for it - the fundamentals of one's business. Like running pubs to the best of their ability. And in this market that's no mean ambition.

But following Enterprise Inns' announcement that the tax man has confirmed it can progress to becoming a real estate investment trust (REIT) if it so wishes the mood has changed, at least in the City.

Shares in a number of pubcos, not least Enterprise's and those of Punch Taverns, have followed a rocket-like trajectory in the past few days. Why? Well, partly because of the tax benefits such a conversion will bestow upon those doing the conversion and those who own stock in them, and partly because those companies deciding to convert into a REIT will be even better placed to acquire those companies which don't.

We're some way off this becoming a reality, apparently. I'd love to pretend I'm an expert on REITs and say with conviction what is likely to happen next. The truth is I don't know. But I suspect I'm not alone in my ignorance.

Looking back to my start at The Publican - three years ago now - the scale of corporate activity was positively leviathan-esque by comparison with today, for fairly obvious reasons.

This doesn't mean deals have ground to a halt, far from it. Look at the package of pubs Greene King is looking to get away. Plus Churchill Taverns is hoping to sell up. And Regent Inns. And CI Traders. Etc.

Smaller in scale, true, but asset packages are available, although might yet have to reflect the current credit malaise.

But wanting to sell is one thing. Finding a buyer in today's market with the readies even for bottom end stuff is no show-in.

OK, money is still available to the 'right' buyer, but banks are being more circumspect in their lending; the rules are tightening. There is a 'flight to quality' on the part of the banks, which is fair enough, yet had the financial institutions applied such traditional loan criteria during the boom years I doubt we'd be in the mess in which we currently find ourselves.

The size and (in)frequency of deals today is an indication of our times, notwithstanding the REIT Thing. But the market is a fickle creature. If, say, the Greene King pubs are sold off with little fuss - either as a complete package or in small chunks - then perhaps people will start to view the market more positively.

Then again, so what if pub companies' corporate activity is restricted to docking their estates' tails for a while? At least management can have no excuses for lacking the time to devote to the operational side of their businesses.

For some chief executives this might come as a welcome relief from dealing with investment bankers - and trade journalists looking for a deal to write about.