Enterprise Inns, the tenanted pub company, delivered a shot in the arm to the beleaguered sector yesterday by revealing that it had been given the go-ahead by HM Revenue & Customs (HMRC) to convert to a real estate investment trust (Reit).

The news, which lifted sentiment in a sector hit by the smoking ban and declining beer sales, came amid speculation that Robert Tchenguiz, the property entrepreneur, had lifted his stake in Mitchells & Butlers, the All Bar One operator, from 23 per cent to almost 27 per cent after buying shares from Alliance Bernstein.

Shares in Enterprise, which has been investigating Reit status for a year, jumped by 115p to 510p - a rise of 29 per cent - as it confirmed that HMRC had ruled that the company was “eligible to convert to Reit status if an internal restructuring of the group is undertaken”.

The company said it was evaluating the decision, but that because of the complexity of the issues involved it could be several months before a decision on whether to recommend such a move to investors. However, analysts thought the company would go ahead and estimated that tax-efficient Reit status could be worth 200p a share.

Observers believe that conversion would reduce Enterprise's tax bill from 30 per cent to about 6 per cent and allow it to double dividend payments in return for a one-off entry fee equivalent to 2 per cent of its asset value, or about £120 million.

Reit applicants must derive at least 75 per cent of their income from property rents. Although Enterprise makes about half its income from rent, it intends to create separate operating and property companies under the Enterprise umbrella. The operating company would collect rent, beer sales and machine income from tenants, then pay most of such income to the property company in rent.

Ted Tuppen, chief executive, said that there had never been any question of a demerger or sale of property assets: “The key thing is we wouldn't be demerging our pubs, making expensive changes to our financing or changing the relationship with our tenants.”

News of HMRC's ruling seeped into the market in a note by MF Global, a brokerage. It is said to have sourced the news to a meeting with Giles Thorley, chief executive of Punch Taverns, which is also in talks over Reit status.

Punch welcomed the HMRC decision and said that it “continues to consider the opportunity of a potential conversion to Reit status on its merits”. However, analysts said that it would have to sell Spirit Group, its managed pub division, to qualify.

The announcement alerted the market to the hidden value of pub assets, sending Marston's 34p higher to 234p, Punch up 60p to 600p and Greene King 55p higher to 590p.

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