- KKR swoops for healthcare building management specialist
- Private equity bid is the latest in a string of takeover approaches for UK property stocks
- Bid offer values Assura at a 3% discount to historic net asset value (NAV)
- UK REITs trade on average discount to historic NAV of 27%
“Investors do not seem to be particularly interested in UK real estate plays, judging by the poor performance of the FTSE 350 Real Estate Investment Trusts (REITs) sector and the wide discounts at which many property plays trade relative to their asset value, but private equity and trade buyers continue to snap them up,” says AJ Bell investment director Russ Mould.
“Healthcare building specialist Assura is the latest to draw a predator as American private equity investor KKR offers 48p a share in cash, a 28% premium to the share price last Thursday, the day before the would-be American buyer’s interest first became public.
“It will be interesting to see if KKR’s move, assuming it succeeds, flushes out any more interest from would-be buyers of UK real estate assets, be they private equity or industry players, or institutional or retail investors.
“The combination of interest rates that may stay higher for longer than thought, the relentless onslaught faced by brick-and-mortar retailers from online rivals, and hybrid working means that the FTSE 350 REITS sector continues to lag, as the wider UK stock market moves higher. The industry benchmark is the fifth-worst performer within the 39 sectors that make up the FTSE 350 over the past 12 months, with a 7.4% drop, compared to a 14.7% advance in the FTSE 350 itself.
Source: LSEG Refinitiv data, to the close on Friday 14 February
“However, underperformance can signify an asset class is unloved and unloved can mean it is undervalued, and a series of bids for UK real estate plays suggest that someone, somewhere thinks there is an opportunity to be had.
Source: Company accounts, LSEG Refinitiv data
“The bids of the last three years, which have come in the form of all cash, all stock or a mixture of the two, have come at an average discount to historic net asset value per share of just under 8%.
“That compares to the average discount of nearly 28% that prevails across 25 leading REITs and Real Estate Investment and Services companies that are listed in London, many of which come with a juicy dividend yield thanks to the rental income they generate (and the requirement to pay out at least 90% of profits to maintain REIT status).
Source: Company accounts, LSEG Refinitiv data
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, LSEG Refinitiv data
“It is therefore easy to see why REITs might attract the attention of private equity buyers, given the combination of cash flow from rents, asset backing and lowly valuations. It now remains to be seen whether investors take the hint and show any further interest, although it may take further clarity on the trajectory of both the UK economy and interest rates for them to do so.”
