After falling nearly 5% in a day, Main Well being Properties (LSE:PHP) has slipped again to 99p. However the FTSE 250 actual property funding belief (REIT) has had some probably large information.

It seems to be as if the agency has managed to hijack KKR’s takeover of fellow healthcare REIT Assura (LSE:AGR). And the consequence might be a really attention-grabbing inventory for passive earnings buyers.

Please word that tax therapy will depend on the person circumstances of every shopper and could also be topic to vary in future. The content material on this article is offered for data functions solely. It isn’t supposed to be, neither does it represent, any type of tax recommendation.

M&A exercise

There was loads of curiosity in UK REITs over the previous few months. In addition to Assura, Care REIT, Warehouse REIT, and City Logistics REIT have all been attracting consideration.

After a brief bidding conflict, Assura introduced it supposed to simply accept a best-and-last provide of £1.7bn from a consortium led by  US funding agency KKR. But it surely’s now switched programs.

Formally, the popular provide from Main Well being Properties values the corporate at £1.8bn. There are, nonetheless, a few issues to regulate. 

The deal entails merging the 2 firms to create a a lot larger healthcare REIT. And Assura shareholders are set to obtain the next (for every share they at present personal):

• 12.5p in money
• A 0.84p particular dividend
• 0.3865 shares within the mixed firm

The agency at present has a market worth of £1.62bn – round 10% beneath the proposed takeover price. However the last worth of the deal will depend on what occurs to the Main Well being Properties share price.

With that in thoughts, I’m not searching for a fast win based mostly on the deal going by means of. However I’m within the mixed firm as a possible long-term passive earnings alternative. 

Passive earnings

Of their present types, Assura and Main Well being Properties are very related companies. Each earn money by proudly owning and leasing portfolios of healthcare properties – notably GP surgical procedures.

There’s a slight distinction when it comes to the stability of state (principally NHS) and personal tenants. However combining the 2 clearly presents some advantages of scale for shareholders.

The similarities between the 2 companies imply additionally they have related threat profiles. Each use their dependable earnings stream to function with unusually excessive debt ranges. Assura and Main Well being Properties each have internet debt ranges roughly equal to their whole market worth. That’s one thing buyers have to issue into their calculations.

Each shares at present have dividend yields of round 7%. So even when the mixed firm has to challenge shares to repay a few of its debt, buyers may nonetheless hope for a very good return.

An growing old inhabitants and the UK authorities’s need to make use of personal healthcare to try to cut back NHS ready occasions ought to each be advantages. Because of this, I feel that is an attention-grabbing alternative.

Which inventory to purchase?

I’ve owned shares in each Main Well being Properties and Assura previously, however I’ve since offered each. Trying again, I feel that was most likely a mistake. The merger of the 2 firms may effectively be my probability to get again in. However I’ve a transparent desire for which inventory I want at this stage.

There’s nonetheless a threat the deal doesn’t undergo. And in that scenario, I anticipate each share costs to return to the place they have been earlier than the most recent information. Which means up (barely) for Main Well being Properties and down (barely) for Assura. So to cowl that chance, I feel I want the previous.