With the new Labour government in power, certain types of FTSE shares have recaptured my attention. This is particularly true for real estate investment trusts (REITS).
These trusts invest in various types of real estate projects across the country, such as housing, energy projects, or office space. REITs are attractive because they provide tax benefits and are required to distribute 90% of profits back to shareholders as dividends.
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The government’s focus on affordable housing could result in more funding allocated to real estate initiatives. Naturally, this would provide a boost to the UK rproperty industry. It’s also put forward proposals to improve healthcare services, which is why I think this healthcare-focused REIT is in a good place to benefit.
Assura
Assura (LSE: AGR) is an Altrincham-based REIT that specialises in healthcare premises. A relatively new and small company, the shares are currently trading at 42p with a market cap of £1.3bn.
At first glance, the price chart isn’t very impressive. The shares are down 38.5% in the past five years, having traded at around 80p in mid-2020.
So what makes me think things are going to improve?
Although Assura is currently unprofitable, earnings are forecast to improve and bring its price-to-earnings (P/E) ratio down to 11. That would be well below the industry average of 26.9 and comparable to Primary Health Properties — another REIT stock that I already hold. It’s also unprofitable but has already begun to improve, with the share price up 5% in the past six months.
I believe Assura could enjoy a similar recovery.
Supporting that thesis, the stock is estimated to be undervalued by 31% using a discounted cash flow model. Should it realise that deficit, it would bring the price up to 61p. And if regulatory reform boosts the property market as expected, the stock could be on track towards regaining previous highs above 80p.
A tough market
Assura is at the whim of the property market, which has struggled recently under a weakened economy. The hope of further interest rate cuts may improve this but if they don’t materialise, the share price could continue to fall.
It also faces stiff competition from the substantial number of other healthcare REITs in the UK. Many of its larger rivals enjoy greater success than Assura and it’s a cut-throat business, so the trust is at risk of losing some of its market share.
So while I feel it’s already showing signs of improved performance, I wouldn’t say it’s in the clear yet. I plan to keep a close eye on developments in the UK economy and real estate market over the coming months to better determine the likelihood of its success.
Golden value
With an 8% yield, I think there’s great value in Assura regardless of the price. Admittedly, the recent declines have somewhat negated this value but as things steady off it’s becoming increasingly attractive.
I grabbed myself some Primary Health shares when it began showing signs of recovery and already they’ve delivered me decent returns. I’d like to do the same with Assura so I plan to buy the shares next month.
