Unlock the Editor’s Digest without cost
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
What higher place to check the well being of the UK property market than a physician’s workplace? A takeover battle for NHS landlord Assura — which entails a non-public fairness bidder slugging it out with a listed competitor — has renewed the talk over the way forward for the Metropolis of London.
Assura, which owns a portfolio of primarily GP surgical procedures and healthcare centres, appeared set to change into the newest within the procession of UK firms taken personal after it agreed in April to a £1.6bn bid by KKR and Stonepeak. Now, nevertheless, the FTSE 250 group is contemplating an alternate supply from its closest competitor, Major Well being Properties. Each are providing a value near Assura’s web asset worth, however PHP’s bid — at current value about £1.7bn — can be paid largely in shares.
The selection dealing with the board and traders appears to be like at first look like a take a look at of confidence: money out now after years of underperformance, or combat again in opposition to the procession of UK take-privates with a guess on future progress. However the actuality shouldn’t be as minimize and dried.
KKR says PHP is underplaying the dangers of a mix, which certainly provides to the danger of accepting fairness. The associated fee financial savings from a merger, which PHP pegs at £9mn a 12 months — value about £80mn as a lump sum, Lex reckons — look scant.
Alternatively, PHP argues that KKR is swooping in to purchase Assura on a budget simply because the business turns a nook. That, too, checks out. Assura’s shares have been notably weak, however shares throughout the sector had been weighed down by excessive rates of interest. The temper is shifting, although. The FTSE EPRA Nareit UK Whole Return index is up 9 per cent within the 12 months to this point, forward of the 4 per cent rise within the broader FTSE 250 on a complete return foundation.
PHP’s major drawback is that KKR’s money gives certainty and optionality. In spite of everything, if all the sector is undervalued, an investor can at all times take the fast win on Assura and reinvest their funds in one other low cost actual property funding belief, as a approach of using the rising tide twice over. They might even be spared the execution danger that comes with PHP’s plan to promote Assura’s personal hospitals.
One strategy to clinch the argument is likely to be for PHP to supply additional cash itself. Ought to it achieve this, its traders are more likely to be forgiving. PHP’s shares are up about 10 per cent since February 13, suggesting traders see extra potential for worth creation than the meagre acknowledged price financial savings point out.
Whoever wins, KKR has carried out the true property sector a favour. It has nudged traders to begin reconsidering the worth of UK property property that, for a very long time, seemed distinctly underneath the climate. The notion of rising valuations, and a mergers and acquisitions market that’s as soon as once more exhibiting indicators of life, might get the remainder of the sector on the mend too.
nicholas.megaw@ft.com
