The American private equity group KKR has moved ahead again in the race to own hundreds of doctors’ surgeries after increasing its offer for Assura, the NHS landlord, to £1.7 billion.

KKR, which has teamed up with Stonepeak Partners, has thrown in an extra £100 million after Primary Health Properties, one of Assura’s peers, tabled a more lucrative merger proposal.

Its “best and final offer” works out at 52.1p for each Assura share, a few pence more than its previous bid, and Assura’s board is recommending that shareholders accept it. A number of the directors are expected to stay with the business if KKR succeeds.

Ed Smith, Assura’s chairman, said he and the board had undertaken a “careful and thorough evaluation of both offers”.

He added: “KKR and Stonepeak are highly experienced investors in healthcare and infrastructure and I am confident that with their support, and the additional capital they will provide, Assura will continue to deliver the high-quality healthcare infrastructure our communities need.”

PHP’s bid equates to about 52.6p per share, although only £410 million of that is in cash. The rest is in PHP shares, which would give Assura shareholders 48 per cent of the enlarged group should they merge.

Both offers are marginally above Assura’s last reported net asset value of 50.4p per share, the most recent estimation of what its portfolio was worth.

Given the certainty of KKR and Stonepeak’s all-cash offer, Assura’s board believes it offers “materially less risk” than PHP’s, despite the latter valuing Assura more highly. PHP is not giving up and has said it “strongly disagrees” with Assura’s assessment of its proposal and is “considering its options”.

Assura shares were up a penny, or 2.1 per cent, to 50p by the close on Wednesday. PHP shares rose 3¼p, or 3.2 per cent, to 103¼p.

Assura, based in Altrincham, Greater Manchester, was set up in 2003 and now owns more than 600 healthcare buildings worth £3.2 billion. Primary Health Properties owns 516 surgeries, dental practices and medical centres from Ramsgate up to the Scottish Highlands and across to Cork.

Between them they generated rental income of £333 million last year, close to 85 per cent of which is ultimately underpinned by the UK and Irish governments.

Despite winning over the board, a number of analysts and shareholders are yet to be convinced by KKR and Stonepeak’s proposal. They argue that property valuations, having fallen sharply over the past couple of years, are starting to rise again, while the consensus in the industry is that healthcare rents will pick up meaningfully over the coming years, given the growing need for healthcare facilities with an ageing population.

They also believe that private equity should be paying a greater premium to acquire a property portfolio that Assura has spent two decades building and which cannot be easily — or cost efficiently — replicated.

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“All else being equal and the macro environment remaining stable, we will be voting against the board recommendation of the [KKR] bid,” said Marcus Phayre-Mudge, fund manager at TR Property Investment Trust, which has stakes in both Assura and PHP.

A date for the vote has not yet been set, although it is likely to be at some point in July. KKR and Stonepeak have tweaked the terms of their offer, such that they only require the support of more than 50 per cent of shareholders to succeed. Under the previous scheme of arrangement, they needed 75 per cent of the vote.

Bjorn Zietsman, a real estate industry analyst at Panmure Liberum, said even with KKR putting more money on the table, “PHP’s offer remains structurally superior”. He described KKR’s bid as “a short-term cash exit at what still appears to be the cycle’s trough”.

Andrew Saunders, an analyst at Shore Capital, said accepting KKR and Stonepeak’s cash offer would “hand the business at the bottom of the cycle to private equity”.

Assura has countered those claims by pointing out that a combined Assura-PHP would be too highly leveraged and has noted the “execution risk” involved in selling assets to bring those debt levels down.

KKR and Stonepeak’s deep pockets would allow for greater investment in the business, the Assura board argues, whereas a tie-up with PHP would, in its view, “restrict both investment and development expenditure”, which would ultimately affect “the ability of the combined business to support the NHS”.

Long Harbour makes lower-than-expected offer for PRS Reit

The owner of 5,500 rental homes across the UK, which put itself up for sale last year, is in talks with a London-based real estate manager over a takeover that would value it above £630 million (Tom Howard writes).

Long Harbour has told PRS Reit’s board that it is considering making an offer of 115p-a-share in cash, which equates to about £632 million. “Discussions with Long Harbour are ongoing,” PRS said, adding that it expected to update shareholders about its sales process again before the end of June.

Long Harbour’s offer is almost a fifth below PRS’s last reported net asset value of 139.6p per share, which is the most recent estimate of what its portfolio is worth.

Stock market investors had been expecting that PRS would be able to fetch much more than what Long Harbour is proposing. Its share price briefly touched 125p on Wednesday morning before dropping sharply after Long Harbour’s proposal was confirmed. By the close the stock was down 4¼p, or 3.5 per cent, at 114½p.

PRS Reit was launched on the stock market in May 2017, since when it has tapped investors for £560 million which it has used to build a portfolio of family rental homes, which are typically traditional two-storey houses rather than big blocks of flats. It generated rental income of £58.2 million last year.

The company launched a strategic review last October under pressure from Harwood Capital, which agitated to install Christopher Mills and Robert Naylor, the activist investors, on the board. Harwood, along with other shareholders, was frustrated at the discount between the estimated value of PRS’s portfolio and the company’s stock market value.

In theory, the company operates in a resilient part of the property market: house prices have held up better than values of offices or shopping centres.

Since October PRS has held talks over a possible takeover with “number of parties”, suggesting that other bidders may emerge. Long Harbour, which invests on behalf of pension funds and has £3.5 billion of assets under management, has been investing in the residential sector since 2013.