- US peer swoops for care homes management specialist
- Bid is latest in a string of takeover approaches for UK property stocks
- American offer values CARE REIT at a 9% discount to historic net asset value (NAV)
- UK REITs trade on average discount to historic NAV of 27.5%
“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.
“Private equity investor KKR raised its bid for healthcare building specialist Assura on Monday and a day later another American firm, the New York-listed CareTrust, has swooped for CARE, which manages care homes and other healthcare properties. The all-cash offer from CareTrust for CARE of 108p a share represents a tidy 33% premium to the share price as of Monday’s close.
“CARE’s board is recommending the approach, just as Assura’s management team now believes the increased KKR offer represents fair value for its shareholders. It will be interesting to see if these approaches flush 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 and 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 seventh-worst performer within the 39 sectors that make up the FTSE 350 over the past 12 months, with an 11% drop, compared to a 10.7% advance in the FTSE 350 itself.
Source: LSEG Refinitiv data, to the market close on Monday 10 March.
“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 been 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 or trade 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.”
