The chief executive of Enterprise Inns has put the dampeners on any swift move to converting the FTSE 100 pubs group into a real estate investment trust (Reit).

Stock markets have been buzzing with speculation for six months that several of Britain’s largest pubs and hotels groups could change their holding structures to enjoy the tax benefits afforded by the recently introduced Reits for quoted companies. Enterprise, Britain’s second-largest owner of pubs, with about 7,700 tenanted hosteleries, put a £5.5 billion value on its property portfolio at the company’s year end last September.

Delivering a half-year trading update, Ted Tuppen told The Times: “The chances of the pub company becoming a Reit are slim and, therefore, the only route is a splitting of the company into a pubco [pubs company] and an opco [operating company]. There are too many unknowns in the equation. We are talking to a lot of people. Whether or not it makes sense for shareholders is something we will only know over a lot of time.”

To benefit from Reit status, a company must earn at least 75 per cent of income from property rental. That means that a pubs company such as Enterprise, which also sells drinks to the managers of its tenanted pubs, would have to split. Should Enterprise take the Reit route it would have to sell its property into a separately listed company that would then lease back the assets to the operating company. That would trigger a potential multibillion-pound windfall to shareholders, but management will have to weigh up the risks of losing considerable operational control over the estate.

Mr Tuppen said: “Just like a sale-leaseback arrangement, it is a question of what price you sell — what is the value of the pubs transferred. If you are setting up a Reit pubco, it assumes the company can justify a higher valuation due to the Reit’s tax-free status. No one knows what that will be.”

Robert Tchenguiz, the property tycoon who has been stake-building in J Sainsbury, has amassed a 15 per cent stake in Mitchells & Butler, the rival pubs group. It is thought that he wants to put pressure on that group to turn into a Reit.

Ian Elliott, a partner at Knight Frank, the agents, said: “The provincial hotels market tends to mirror retail price index fluctuations for turnover, so there are arguably greater synergies to convert the property assets into Reits than there are for pub assets.”

Reits are exempt from corporation tax or capital gains tax on property disposals, leaving investors to pay tax on a high dividend distribution.

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