Property developer Assura sees profits dive amid interest rates hikes

Assura profits plummet as boss blames interest rate rises and ‘unhelpful’ economic backdrop

  • Assura’s pre-tax profits plunged by 55.4% in the six months ending September 
  • The FTSE 250 group incurred a £19m negative swing on its portfolio valuation
  • Problems have been worsened by a ‘mini-budget’ that sent gilt yields surging 

Assura has seen profits more than halve as higher interest rates and economic uncertainty led to a downturn in property valuations.

Pre-tax earnings at the FTSE 250 investment trust and healthcare property developer plummeted to £30.9million for the six months ending September, from £69.3million in the equivalent period last year.

Though the firm’s net rental income grew by 15 per cent to £70.9million, it incurred a £19million negative swing on the value of its estate, compared to a £28.1million uplift the previous year.

Leader: Assura’s chief executive, Jonathan Murphy, (pictured) blamed the ‘currently unhelpful’ economic backdrop and rising interest rates for the downward pressure on valuations

Chief executive Jonathan Murphy blamed the ‘currently unhelpful’ economic backdrop and rising interest rates for the downward pressure on valuations.

The Bank of England has hiked the base rate on eight successive occasions since December 2021 in response to soaring inflation caused largely by rocketing energy and food prices following the loosening of lockdown restrictions.

This has made mortgages and finance for new commercial property deals more expensive for homebuyers and investors, thereby discouraging some real estate investment and slowing or reversing price growth.

Problems were exacerbated in September by a ‘mini-budget’ full of unfunded tax cuts that sent gilt yields surging and an acceleration of investors looking to exit UK property funds.

Since September, Assura has put a moratorium on new property acquisitions, partly because of the increase in bond yields but also the broader headwinds impacting the UK economy.

It also continues to be hurt by cost inflation and supply chain delays affecting the construction industry, with schemes commonly being prolonged by two to three months during the building phase.

However, the Warrington-based business believes it should benefit handsomely 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 equalling around £2.8billion are held in the group’s investment portfolio.

In the most recent reporting period, the passing rent roll from this estate tipped up to £139.3million, with 60 per cent of this deriving from general practitioner tenants.

Murphy said the firm sees ‘a growing and consistent demand for high-quality community healthcare buildings that is not linked to the economic cycle.’

He added: ‘The need to invest in primary care has widespread cross-party political support – given it is cheaper for the NHS to deliver services in this setting and as pressure on hospital resources becomes increasingly unsustainable.’

Assura shares closed trading 0.8 per cent higher at 57.55p on Tuesday, although their value has fallen by 18 per cent in the past six months.

Today’s trading update from Assura mirrors similar announcements last week from British Land and Land Securities, both of whom plunged to a loss following a decline in the valuation of their London office premises.

Though economic troubles and interest rate hikes have hit their portfolio valuations, they have also been affected by the expansion in hybrid working since the Covid-19 pandemic started.