Shares in pub groups fizzed this morning after Enterprise Inns gave its clearest indication yet that it is considering converting its business into a Real estate investment trust (Reit).

Enterprise Inns, which also announced its interim results for the six months to March 31, 2007, saw its shares climb by 6.67 per cent to 776p after it admitted that it was examining whether it could change the structure of the business into a Reit without undergoing significant restructuring.

By becoming a Reit, Enterprise would split out its pub property assets, believed to be worth £5.5 billion, into a separate division from its operating unit. The company would receive significant tax benefits from becoming a Reit, which requires the company to distribute 90 per cent of its profits.

The company said today that there were many uncertainties surrounding the long-term benefits to shareholders of converting into a Reit, which became legal in the UK on January 1 this year, adding that "value parameters have yet to be established by the market".

There has been speculation that Mitchells & Butlers (M&B) may outline plans to become a Reit on May 22 when it announces it interim results, thereby providing a benchmark for other companies in the sector to convert. Shares in the company rose to 855.5p to 850p this morning.

M&B is being stalked by Robert Tchenguiz, the property entrepreneur, who has built up a 16 per cent holding in the company and is hoping to persuade the pub group to release value from its real estate portfolio.

Mr Tchenguiz has attempted a similar move with J Sainsbury and after building up a five per cent share in the supermarket group while it defended itself against a bid from a private equity consortium led by CVC, hoped that the management would agree to split out its property assets.

Punch Taverns, which recently said that it was keeping all property-related options under review, saw its shares rise by 4.24 per cent to £14.00.

Enterprise Inns said today that it will increase the level of debt it has secured on it property portfolio by £750 million on top of its current £3.5 billion borrowings.

Interim revenues at Enterprise fell to £453 million from £473 million but during the six months the company sold off 769 pubs to Admiral Taverns as well as an additional 137 pubs in its Scottish estate. Pre-tax profits increased to £183 million from £176 million in the previous six months.

Enterprise said that it has made a positive start to the second half of its financial year, when the smoking ban will come into force in England on July 1. The company said that while it was too early to tell what the impact of the ban would be, it expected to gain new customers and had installed outside areas at 90 per cent of its pub estate.

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