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Enterprise on Reit track as shares jump 29%
Independent, The (London), May 8, 2008 by Nick Clark
Shares in Enterprise Inns soared almost a third yesterday after it received approval to become the first UK pub group to convert into a lucrative real estate investment trust (Reit), pot-entially cutting its tax bill by 80 per cent.
The Solihull-based company released a statement half an hour before the London market closed, saying HM Revenue & Customs "confirms that Enterprise is eligible to convert to Reit status if an internal restructuring of the Enterprise group is undertaken".
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The group initially announced it was holding discussions with HM Revenue & Customs over the plan at its pre-close statement at the end of March, although market sources said there was not certainty it would receive approval. Rumours began to circulate yesterday that Enterprise would confirm a positive conclusion to the negotiations at next week's results, sending the shares up more than 10 per cent in the afternoon. When the pub group officially announced the news just after 4pm, the traders piled in, sending the shares soaring to close 29.2 per cent higher at 510p.
Reits were designed to allow a wide range of investors access to property assets. It is a company which owns and operates property to generate income. In return for distributing 90 per cent of that income, it is exempt from corporation tax.
The majority of UK property companies converted as soon as the rules were enacted in January last year.
Paul Hickman, an analyst at KBC Peel Hunt, said: "Enterprise could potentially save a lot of money from tax savings if it goes through with the move to Reit status." Another market expert predicted the group's bills could be slashed from the current 70m to as low as 15m per year.
Enterprise, which owns about 7,800 sites, said yesterday it had called in financial experts to help confirm whether the board should recommend the strategy at an extraordinary general meeting later this year. "We expect this work to take several months to complete and a further announcement will be made in due course," it added.
While the market feels the board will push ahead with the recommendation, there are some questions to consider, Mr Hickman said.
Under Reit conversion rules, companies have to pay a charge of 2 per cent of the market value of its assets, which amounts to about 110m for Enterprise.
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