Assura profits plummet as boss blames rising interest rates and ‘useless’ economic backdrop
- Assura’s pre-tax profits fell 55.4% in the six months to September
- The FTSE 250 group suffered a negative swing of £19m on the valuation of its portfolio
- The problems were compounded by a “mini-budget” that drove up gilt yields
Assura saw profits more than halve as rising interest rates and economic uncertainty led to lower property valuations.
The pre-tax profit of the FTSE 250 investment fund and healthcare property developer fell to £30.9m for the six months to September, from £69.3m for the equivalent period from last year.
Although the business’s net rental income increased by 15% to £70.9 million, the value of its estate suffered a negative change of £19 million, compared to an increase of £28.1 million. pounds sterling the previous year.
Leader: Assura chief executive Jonathan Murphy (pictured) blamed the ‘currently unnecessary’ economic backdrop and rising interest rates for the downward pressure on valuations
Chief executive Jonathan Murphy blamed the “currently unnecessary” economic backdrop and rising interest rates for the downward pressure on valuations.
The Bank of England has raised the base rate on eight successive occasions since December 2021 in response to soaring inflation caused largely by soaring energy and food prices, as well as concerns of supply chain.
This has made mortgages and financing new commercial real estate transactions more expensive for buyers and investors, discouraging some real estate investment and slowing or reversing price growth.
The problems were exacerbated in September by a “mini-budget” full of unfunded tax cuts that pushed gilt yields higher and an acceleration of investors seeking to exit UK property funds.
Since September, Assura has imposed a moratorium on new property acquisitions, partly due to rising bond yields, but also broader headwinds affecting the UK economy.
It also continues to suffer from cost inflation and supply chain delays affecting the construction sector, with programs set to be extended by two to three months.
However, the Warrington-based company believes it stands to benefit greatly from the need to upgrade the NHS estate, which it said was ‘not fit for purpose and requires significant investment’.
Just over 600 primary care properties with a total valuation of around £2.8bn are held in the group’s investment portfolio.
In the most recent reporting period, this estate’s walk-in rent has rocked up to £139.3million, 60% of which came from GP tenants.
Murphy said the company sees “steady and growing demand for high-quality community healthcare buildings that is unrelated to the economic cycle.”
He added: “The need to invest in primary care enjoys broad cross-party political support – given that it is cheaper for the NHS to provide services in this context and that pressure on resources hospitalization is becoming more and more unsustainable.”
Shares of Assura rose 1.1% to 57.75p late Tuesday afternoon, although their value has fallen 18% in the past six months.
Today’s trade update from Assura mirrors similar announcements from British Land and Land Securities, which both plunged into loss following a fall in the valuation of their London offices.
Although economic turmoil and interest rate hikes have affected the valuations of their portfolios, they have also been affected by the growth of hybrid work since the Covid-19 pandemic began to lower demand for leases. offices.