Tough first year for Life Science REIT

240617 macro biotech

Life Science REIT has reported a 8.9% fall in net asset value (NAV) in maiden annual results.

Rising interest rates in the second half of the year and property acquisition costs (as it invested its IPO proceedings) resulted in a 7.5% drop in the value of its portfolio on book value to £387.6m. An outward yield shift of 29 basis points was recorded, which was partly offset by a 4.7% like-for-like growth in the ERV of the portfolio.

IFRS net asset value was 91.3 pence per share at the year end, down 8.9% from 31 December 2021. The company paid or declared dividends totalling 4.0 pence per share in the period from admission in November 2021 to 31 December 2022, meeting its IPO target.

During the year the company agreed a £150.0m debt facility with HSBC, comprising a £75.0m three-year term loan and a £75.0m revolving credit facility, at 225 basis points (2.25%) over SONIA. Gross debt is £110.8m, including a £35.8m facility on the Oxford Technology Park asset which was acquired during the year, resulting in a loan to value (LTV) of 16.8%. An interest rate cap on the HSBC term loan at 2.0% was put in place and an existing SONIA cap on the Oxford Technology Park facility at 0.75% results in interest rate protection of 94.1%.

Operational highlights

During the year the company acquired:

  • Oxford Technology Park for £120.3m, comprising two complete multi-let office/lab buildings, an on-site hotel and a forwardfunded development site
  • 7-11 Herbrand Street, London, for £85.0m, which is fully let as offices until 2026 and has excellent potential for lab conversion

Contracted rent roll on the portfolio increased from £9.3m at 31 December 2021 to £13.8m at 31 December 2022, primarily as a result of the acquisitions. The portfolio’s estimated rental value (ERV) is £17.2m, reflecting a reversionary percentage of 8.7% on let space. Like-for-like ERV growth in the year was 4.7%.

The portfolio has a WAULT to expiry of 6.2 years and occupancy rate of 82.0%. Post period end lettings has increased occupancy to 88.6%.

Claire Boyle, chair, commented:

“At the end of the group’s first full year, I am delighted to say that we have delivered on the promises we set out at our IPO in November 2021. We achieved our goal of fully deploying the IPO proceeds within six months, completed our move from AIM to the Main Market and met our dividend target. Our focus now is on executing our business plans for each of the assets, to drive capital values and income growth whilst embedding rigorous ESG practices in all our operations.”

Simon Farnsworth, investment adviser, added:

“The group continues to benefit from the enduring strong occupier demand and ongoing limited supply of suitable space for life science companies in the Golden Triangle, and we expect this imbalance to continue to drive lettings and rental growth in the future. Our success to date with leasing events and ongoing development activity at Oxford Technology Park and the substantial rental uplift with the post year end letting at Rolling Stock Yard, all clearly demonstrate the portfolio’s potential to drive further earnings growth and support our asset valuations. We will continue our development programme at OTP, where we are targeting to complete a further 388,100 sq ft of space by mid-2024.”

LABS : Tough first year for Life Science REIT

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