REITdom beckons for Punch Taverns
Punch Taverns said today it believed it could become a real estate investment trust (REIT) and continue to own and control its existing pub estate.
In an interim management statement (IMS) released this evening - more than a week earlier than scheduled - Punch said it thought a structure had been identified that would allow it to hang on to its managed pub business, Spirit Group, as opposed to running the business along OpCo/PropCo lines.
"The benefit of retaining our managed business is clear and includes the retention of material operational synergies, the opportunity to capture upside from improving performance and maintaining the strategic flexibility to maximise value in the future," the group said in the statement.
"Punch is continuing to discuss with its advisers and Her Majesty's Revenue & Customs (HMRC) the feasibility of this structure in light of its operating and financing arrangements, and intends to submit a clearance application to HMRC in the near future."
The group said it was "important to note that whilst the conversion to REIT would yield tax advantages over an already tax efficient capital structure, conversion would involve material implementation costs and would introduce a significantly increased dividend requirement which must be weighed up against the tax benefits.
"Punch will progress this structure in order to create REIT optionality for its shareholders, so as to enable an assessment of the merits for shareholders of conversion to a REIT relative to the current business structure."
A further announcement would be made "in due course", it added.
Punch's move follows Enterprise Inns' announcement that it had been given the go-ahead by the tax man to become a REIT if it made financial sense to do so.
In its IMS Punch said like-for-like trading across its core managed estate fell 3.6 per cent in the 44 weeks to June 21 2008, and in its leased estate like-for-like turnover fell 3.4 per cent.
Trading in the last fortnight had seen "an improvement", epsecially in the managed operation, and the group "remains confident of meeting the market's full-year profit expectations".
Giles Thorley, Punch Taverns' chief executive said: "Punch remains extremely robust from both an operational and financing perspective, despite the challenging consumer environment.
"We continue to be confident of meeting the market's full year profit expectations as well as continued value creation over the medium and long term."
