Liberum upgrades Assura as NHS doctors' rents keep rising

Broker Liberum upgraded its recommendation on healthcare property developer Assura to 'buy' from 'hold' as the fall in the share price to around a six-month low belies the predictability of the business.

Assura’s third-quarter update confirmed continued improvement in rents, with 84 reviews agreed in the year to date at a weighted average increase of +1.72%.

This is up from the +1.6% the interim stage and ahead of Liberum's +1.5% March 2017 forecast.

Open market reviews, comprising 72% of the portfolio, delivered an average uplift of +1.15%, up from +1.11% in the first half, with the balance delivered by the remainder of the portfolio directly linked to fixed RPI uplifts.

Liberum forecast further steady improvement in rental growth, with inflationary pressure reflected in RPI linked leases.

Open market rents would be expected to continue to rise as new GP developments, analysts said, potentially supported by the NHS’ targeted 200 new build Estates and Transformation Fund, which provided district valuers with "sufficient market evidence to reflect the significant land and construction cost inflation which has been experienced in UK real estate over several years into rent reviews".

Analysts said Assura continues to deliver an attractive combination of inflation linked return enhanced by scale benefit as it consolidates a fragmented low risk industry and, given the predictability of the business, they believe the recent share price weakness is "unwarranted".

"The shares offer high visible earnings growth, backed by low risk assets, with a 4.6% dividend yield growing at roughly 9% per annum."

Liberum left its target price unchanged 60p.