Price is REIT: CNBC’s UK Exchange Newsletter

This report comes from CNBC’s UK Exchange Newsletter this week. Every Wednesday, Ian King brings expert insights into the most important business stories from the UK and other important developments you don’t want to miss. Like what you see? You can subscribe here.

The episode where the mighty KKR receives his bloody nose is a collector’s item, but I had it in the UK last week.

The private equity giant was hampered to buy Assura, a real estate company that owns more than 600 doctor surgeries and medical centres.

Instead, shareholders accepted a rival offer of £1.8 billion ($2.4 billion) in cash and stock from Assura’s peer, Primary Health Properties (PHP).

Apart from the novelty of KKR teaming up with infrastructure investor Stonepeak, we lost this battle between David and Goliath, but the PHP acquisition in particular is still facing scrutiny by the UK’s competitive watchdog, Competitive and Markets Bureau (CMA).

It was also the fact that by making a large portion of that offer with stocks whose prices fell towards the end of the takeover battle, PHP was actually offering a slightly less than KKR and Stonepeak when investors had to make a decision.

And what’s most impressive in the market that has been struggling for years and years after many take private transactions is that investors were happy to embrace the execution risks associated with this acquisition and maintain their expanded PHP shareholding, rather than taking cash from KKR and Stonepeak.

It’s a bigger story. In other words, UK stock market investors have concluded that the country’s REIT (real estate investment trust) sector has fallen incredibly low.

There was a feeling that KKR and Stonepeak were getting an incredible bargain. Also, founded 30 years ago, PHP was founded by property entrepreneur Harry Hyman, who remains the company’s chairman, but after years of consistent performance, it deserves support.

In the face of that, Assura – and in that respect, PHP must be a very healthy investment.

The UK National Health Agency is exposed to what should be a rapidly expanding sector when the population is aging, not to a hospital in the city centre, but to what should be a sector that is expanding rapidly when the population is aging, and more patients have complex long-term health needs.

It also means increasing dependence on civil medicine. This is a great opportunity for business. Furthermore, Assura – again, like PHP – enjoys a very predictable cash flow.

As Chief Executive Jonathan Murphy stated in his annual report and account last month, “Our total contract rental income, a combination of our acceptance contract rental income and lease length, is £2.5 billion, with our weighted average lease term of 12.7 years, with 97% of our revenue being GPS, NHS, HEATERESTERE sector (health hygiene), Health

Yet, despite this, Assura’s shares continued to change their hands at a 21% discount on net asset value (NAV) when KKR’s interest was first disclosed in February. That’s surprising given that the majority of rent paid by the NHS is effectively undertaken by the government.

This discount helps explain the interests of KKR, but Astera is just an example. The UK REIT sector has seen a wave of mergers and acquisitions over the past few years as private equity and trade buyers have tried to scoop up bargains as well.

Among the most active is the Tritax Big Box REIT. This is a £3.4 billion landlord specializing in a large warehouse portfolio specializing in the logistics sector, but is now moving to data centres. It caught my eye last February when it acquired a small UK commercial real estate REIT for £924 million.

It aims to follow this with the acquisition of warehouse REIT, but like PHP with Assura, it faces competition with another US private equity house in the form of Blackstone. It offers £489 million to the business, but in itself receives a massive discount from warehouse REIT NAV.

In the same part of the commercial real estate jungle, another player that makes the waves is London Metric Properties.

I bought the CT Property Trust for £199 million in late 2003. It followed last year with the £1.9 billion acquisition of LXI, the owner of the land occupied by the famous Thorpe Park and Alton Towers Amusement Park.

Ambitious co-founder and CEO Andrew Jones is currently acquiring Urban Logistics REITs for £700 million and another REIT, a smaller Highcroft investment, for £44 million.

Jones told the Industrial Bible Estate Gazette last November. Many small REITs had 19 listed in London with a market capitalization of less than £1 billion – which was misprived and said “we can afford it, get a correct rating and get a proper rating to do something about it.”

He added: “You have to wonder what the purpose of a small cap is.” If you’re under £1 billion and are externally managed, I don’t know where your future is in the space listed. ”

That opinion appears to be shared by the growing number of cited corporate investors preparing to support things like Jones and Hyman.

Others who promote integration include New River Reit, the owner of the retail park and center. At the end of last year, I bought last year’s small capital and region, a mixed cash and stock mix, for £147 million.

What all these transactions have in common is that, with the exception of the fact that all acquired companies were trading at NAV discounts, investors are increasingly looking at REITs that allow investors to build scale in niche areas such as healthcare and student housing, and stocks also offer greater liquidity.

This raises questions about how the traditional Big 2 of UK commercial real estate (land securities (land) and UK land) react. Both operate in different parts of the real estate market and are undoubtedly offering conglomerate discounts.

Both are led by energetic CEOs of Mark Allan and Simon Carter, and in the case of UK lands, it can often portend M&A with a well-known banker (former Lazard’s chair is lacquer) as chairman.

Since 2019, investors have clearly been scaling and focused on the number of cited REITs in London, but this could be saving the problem if the market recovers properly and there are few options to choose from.

But there is a driving force for action. Especially in the now-most unloved property sector, there are signs of a revival.

Though feelings for the office have been declining as the Covid pandemic unleashed a wave of homeworking, last week there have been a rise in Canary Wharf, owned by Canadian investment giants Brookfield and Qatar Investment Bureau, as well as the likes of Barclays, Morgan Stanley, City and JP Morgan, in their first offices in three years.

The office has not actually been featured in recent years in the integration that cleans UK REITs.

What surprised me was that.

Private money is becoming more and more ubiquitous in European football as private equity and VC companies build stocks in several major clubs. Pitchbook Nicholas Moura, senior EMEA private capital analyst at Pitchbook, will be taking part in Squawk Box Europe to discuss the phenomenon.

CNBC’s Ritika Gupta reports from Canary Wharf about London returning to its office following the Covid-19 pandemic.

Dr. Kavita Patel, a contributor to NBC News & MSNBC Medical, will be joining “Fast Money” to speak with Eli Lilly increasing the price of Mounjaro.

– Holly Eliatt

The FTSE 100 regained upward momentum last week, earning around 0.4%. This brought the index to a record high of 9,189.22 points on Tuesday, with top performers like retailers JD Sports and Burberry.

Meanwhile, Sterling rose slightly against both the US dollar and the euro. As of Tuesday, just before the July inflation print, Money Market prices suggest that there is less than 50% chance of a further decline from the current 4% this year. The move to 3.75% was previously fully priced.

Hopes that BoE would remain Hawkish put pressure on the UK government bonds. Despite Tuesday’s dip, the 10-year golden yield rose from 4.585% to 4.72% in a week, with two-year yields rising from 3.897% to 3.958%.

August 20: UK inflation data for July

August 21: UK Flash PMI for August

August 22nd: GFK Consumer Trust Data

– Holly Eliatt