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What is the best place to test the health of the UK real estate market than a doctor’s office? The acquisition battle for NHS landlord Asayra has updated discussions about the future of the city of London, private equity bidders slug it along with listed competitors.
Assura, which primarily owns a portfolio of GP surgery and health care centres, appears to be the latest in a private company queue after agreeing to a £1.6 billion bid by KKR and Stonepeak in April. However, the FTSE 250 Group is currently considering offering alternatives from its closest competitor, the primary health characteristics. Both offer prices close to Assura’s net asset value, but PHP bids are currently worth around £1.7 billion, and are primarily paid for shares.
The choices faced by boards and investors are taking a glance at it like a test of confidence first. Cash out after years of inadequacy or fight a procession of British take-prive people on future growth. However, the reality is that it is not too cut and dry.
According to KKR, PHP underestimates the risk of combinations, increasing the risk of actually accepting fairness. Lex looks scarce as the cost savings from the merger, where PHP pegs at £9 million a year, is worth around £80 million as a lump sum.
Meanwhile, PHP claims that KKR is swooping down to buy Assura for cheap, just as the industry is turning the corner. I’ll check that out too. Assura’s stocks were particularly weak, but stocks across the sector were overwhelmed by high interest rates. But the mood is changing. The FTSE EPRA Nareit UK Total Return Index has grown 9% so far, ahead of a wider increase in FTSE 250 on a total revenue basis.
The main problem with PHP is that KKR cash offers certainty and options. After all, if the entire sector is undervalued, investors can always get a quick win at Astera and reinvest their funds in another cheap real estate investment trust as a way to get a quick win at Astera and ride Rising Tide twice. They also escape the execution risks associated with PHP’s planning to sell private hospitals in Assura.
One way to clinch the discussion is for PHP to provide more cash itself. If so, the investor could be tolerant. PHP stock has grown by around 10% since February 13th, and investors have suggested that small cost savings have more potential for value creation than the slightest possible cost savings show.
Anyone who KKR won has given favor to the real estate sector. Investors have tweaked it to begin rethinking the value of UK real estate assets, which have been visible under the weather for a long time. A rise in valuations and perceptions of mergers and acquisition markets that are showing signs of life again could repair the remaining sectors.
nicholas.megaw@ft.com
