April 24 (Bloomberg) -- Punch Taverns Plc, the largest U.K. pub landlord, said first-half profit declined 24 percent after the company sold outlets, a smoking ban kept drinkers at home and consumer spending slowed.

Net income fell to 87 million pounds ($172 million), or 32.4 pence a share, in the 28 weeks ended March 1, from 113.8 million pounds, or 42.4 pence, a year earlier, Burton-on-Trent, England-based Punch said today. Profit was also reduced by a 19.2 million-pound loss on interest-rate swaps. Revenue declined 12 percent to 813.5 million pounds.

Punch, which said it's had to reduce rents for some pubs' tenant managers, fell the most in more than a month in London trading. The company had never posted a first-half profit decline since its 2002 initial share sale. Rivals Enterprise Inns Plc and J.D. Wetherspoon Plc have also suffered since England banned smoking at bars and other public places in July.

``The consumer and economic slowdown is having a major impact on the pub sector with further bad news to follow,'' Christopher Gower, an analyst at MF Global in London with a ``sell'' recommendation on the stock, said after the report. ``This does not bode well for the tenant pub sector.''

Punch, which leases out 90 percent of its pubs and runs the remainder itself, last week opted against merging those managed pubs with smaller competitor Mitchells & Butlers Plc. Punch reserved the right to take part in a transaction if Mitchells replaces its chief executive officer. Punch Chief Executive Officer Giles Thorley said today that his company won't resume negotiations unless M&B changes its position.

Shares Slide

Punch declined 46.5 pence, or 7.9 percent, to 539 pence, the steepest drop since March 17. That extended this year's drop to 29 percent. The stock slid 40 percent in 2007, snapping four years of gains since its initial public offering.

``The pressures on disposable income are unlikely to ease for the remainder of the financial year,'' Punch said in the statement, adding that third-quarter sales are little changed from the second quarter.

Food sales stagnated in the first half, compared with 6 percent gain last year, as U.K. consumers reined in spending.

More drinkers are buying beer to consume at home as higher mortgage payments, taxes and utility bills leave them with less to spend. U.K. online sales of beer, wine and spirits rose 60 percent from the previous year in the first quarter, as cold weather and the smoking ban combined to keep many drinkers at home, according to a report by Interactive Media in Retail Group and Capgemini SA.

REIT Status

Punch said it continues to discuss with the U.K. government the possibility of splitting its property into a low-tax real estate investment trust. The company's property is worth about 7 billion pounds, CEO Thorley said today.

The CEO said on a conference call he couldn't predict when the government may make a decision. All the company's real estate could be considered for REIT status, not just pubs leased to tenants, he said. There is no certainty Punch would adopt a REIT structure if the government gives it the go-ahead, Thorley said. Commercial property values have declined since August, when the subprime mortgage crisis in the U.S. caused to the wider debt markets to seize up.

Punch said today it has reduced the number of pubs it owns by 9 percent to about 8,450 since the first half of last year.

Same-outlet profit at pubs leased to tenants dropped 2 percent in the first half, Punch said. Sales at company-managed bars open at least a year declined 2.8 percent.

Including acquisitions and disposals, earnings before interest, taxes, depreciation and amortization per pub rose 10 percent at leased pubs and 4 percent at managed outlets, after Punch sold some of its less profitable outlets.

Rent Concessions

The number of tenants requiring concessions on rent payments increased during the first half, the company said. They account for about 2 percent of the total rent Punch collects compared with about 1 percent last year, CEO Thorley said.

Punch withdrew an offer for all of Mitchells in March, and went on to hold talks with unspecified other suitors about a joint purchase. People familiar with the situation have said Blackstone Group LP was among buyout firms interested in a minority stake in Mitchells, whose chains include All Bar One.

Turmoil in credit markets makes transactions ``very challenging'' at present, the CEO said. Still, Punch continues to look at acquisitions, he said, adding that declines in pub stocks over the last year means now may be a ``good time'' to buy. He declined to name any potential targets.

Mitchells had also said this month that it was interested in buying Punch's managed pub division. The unit, known as Spirit Group, may be worth 1.4 billion pounds, Kaupthing analysts have said. That's about equal to the market value of Mitchells, owner of the O'Neill's and All Bar One chains.

Punch will pay a first-half dividend of 5.5 pence a share, an 8 percent increase on the previous year's 5.1 pence.

To contact the reporter on this story: Amy Wilson in London at awilson23@bloomberg.net.

Last Updated: April 24, 2008 11:45 EDT