The price is REIT: CNBC’s UK Exchange newsletter

Episodes in which the mighty KKR receives a bloody nose are collector’s items — but we had one in the U.K. last week.

The private equity giant was thwarted in an attempt to buy Assura, a property company that owns more than 600 doctor’s surgeries and medical centers.

Shareholders instead accepted a £1.8 billion ($2.4 billion) rival offer in cash and shares from Primary Health Properties (PHP), a peer of Assura, which now becomes the U.K.’s biggest publicly traded healthcare landlord.

Apart from the novelty of KKR — which had teamed up with Stonepeak, the infrastructure investor — losing this David and Goliath battle, there were several striking elements to the contest, not least that PHP’s takeover still faces scrutiny by the Competition and Markets Authority (CMA), the U.K.’s competition watchdog.

There was also the fact that by making most of its offer in its shares, whose price fell toward the end of the takeover battle, PHP was actually offering slightly less than KKR and Stonepeak when investors had to decide.

And, most striking in a market tormenting itself for years over de-equitization after scores of take-private deals, is that investors were happy to maintain a shareholding in the enlarged PHP, accepting the execution risk that comes with this takeover, rather than just take KKR and Stonepeak’s cash.

That speaks to a bigger story — which is that U.K. stock market investors have concluded valuations in the country’s REIT (real estate investment trust) sector had become ridiculously low.

There was a sense that KKR and Stonepeak were getting an outrageous bargain and also that PHP, founded 30 years ago by the property entrepreneur Harry Hyman, who remains the company’s chairman, deserved backing following years of consistent performance.

On the face of it, Assura — and, for that matter, PHP — should be a very sound investment.

As Britain’s National Health Service pivots to preventative treatment and delivering care to patients in their communities, rather than in city center hospitals, it is exposed to what should be a rapidly expanding sector when the population is ageing and where more patients have complex long-term medical needs.

That also means a growing reliance on private medicine — a huge opportunity for the business. Moreover, Assura — again, like PHP — enjoys highly predictable cashflows.

As Jonathan Murphy, the chief executive, noted in last month’s annual report and accounts: “Our total contracted rental income, which is a combination of our passing rent roll and lease length, stands at £2.5 billion, our weighted average unexpired lease term is 12.7 years and 97% of our income now comes from GPs, the NHS, the HSE (Health & Safety Executive), pharmacies and established independent sector healthcare operators.”

And yet, despite all that, Assura’s shares were still changing hands at a 21% discount to their net asset value (NAV) when KKR’s interest was first disclosed in February. That is remarkable given the majority of its rents, paid by the NHS, are effectively underwritten by the government.

The discount helps explain KKR’s interest, but Assura is just one example. The U.K.’s REIT sector has seen a wave of mergers and acquisitions over the last few years as private equity and trade buyers alike have sought to scoop up bargains.

Among the most active has been Tritax Big Box REIT, a £3.4 billion landlord specializing in the logistics sector with a portfolio of large warehouses, but which is now moving into data centers. It caught the eye when, in February last year, it acquired the smaller U.K. Commercial Property REIT for £924 million.

It is seeking to follow this with the acquisition of Warehouse REIT although, like PHP with Assura, faces competition from another U.S. private equity house in the form of Blackstone, which has offered £489 million for the business, itself still a significant discount to Warehouse REIT’s NAV.

In the same part of the commercial property jungle, another player making waves is LondonMetric Property, which has come seemingly from nowhere to become the U.K.’s second-largest quoted property company and a FTSE-100 constituent.

It bought CT Property Trust for £199 million in late 2003, following it last year with the £1.9 billion acquisition of LXI, owner of the land occupied by the famous Thorpe Park and Alton Towers amusement parks.

Andrew…