Life Science REIT cuts dividend

240617 macro biotech

Life Science REIT has rebased its dividend as the macroeconomic environment remains challenging.

The company paid a dividend of 4p in 2022 – its first full year, but has reduced this to 2p for 2023.

The company said: “With macroeconomic uncertainty continuing and interest rates now expected to remain elevated for some time, the board has taken the decision to rebase the dividend to a level that is sustainable and substantially covered by adjusted earnings over time. The additional financial flexibility will enable the group to effectively progress its strategy to deliver on the value accretive opportunities it has created.”

The board added that it will look to maintain a sustainable dividend going forward, with the intention that future dividends reflect the progression in underlying earnings.

The company’s earnings for 2023 were £6.7m (or 1.9p per share), with contracted rent roll of £14.0m (up slightly on 2022, with £1.6m of new rent offset by disposals and the expiry of rental guarantees).

The company posted a 11.2% fall in EPRA net tangible asset (NTA) to 79.9p per share, as the office element of its portfolio negatively impacted on values.

The company’s portfolio valuation was down 7.1% on a like-for-like basis to £382.3m, driven by market movements on offices, with laboratory space more resilient. The valuation movement reflected an outward yield shift of 58 basis points (bps – equivalent of 0.58%), partially offset by like-for-like ERV growth of 5.0%.

Space defined as laboratories saw a marginal value decline of 1.6%, with space defined as offices down 9.8%, in line with the market.

Balance sheet

Loan to value (LTV) ratio was 24.7% as at 31 December 2023 (2022: 16.8%), comfortably below its target range of 3040%. The key event in the period was the £150.0m refinancing of its term loan and revolving credit facility (RCF), which repaid an expensive debt acquired with Oxford Technology Park. The debt is fully hedged at 4.5%.

Operational highlights

  • 69,700 sq ft of space delivered at Oxford Technology Park (OTP), with four new occupiers adding £0.6m to contracted rents and a further pre-let providing an additional £0.6m
  • Secured the first life science letting at Cambourne Park Science & Technology Campus to Rakon (£25.0 per sq ft) and are due to commence a repurposing project to convert vacant space in Building 2020 to fully fitted laboratories
  • Completed refit at Rolling Stock Yard and let 7,322 sq ft at £110.0 sq ft to Beacon Therapeutics, a record rent for life science space
  • Occupancy reduced to 79.0% (2022: 82.0%) reflecting recent completions and disposal of Lumen House; like-for-like occupancy increased to 86.6% (2022: 81.4%)
  • Embedded reversion of 10.3%, equating to £1.5m of additional rent; £4.1m to come from completed development buildings and repurposing activities, resulting in estimated rental value (ERV) of £19.6m
  • Further £5.5m rent expected from on-site developments with an additional £1.1m recognised in 2023, taking total target ERV to £26.2m

Claire Boyle, chair, commented:

“We have made good progress on our strategy; Oxford Technology Park is now nearly 50% complete and we have increased rents at the park by 33% since acquisition; at Cambourne, we welcomed our first new life sciences occupier and we are embarking on our first full laboratory repurposing. However, with macroeconomic uncertainty continuing, we have taken the difficult decision to rebase our dividend, as detailed below, in order to ensure that we retain the operational flexibility we need to progress these projects while aiming to provide a dividend which is sustainable and substantially covered by earnings going forward. Having taken these decisions, and with leverage low and our debt fully hedged, we are now well placed to progress our asset management and development initiatives through to completion. We believe these will be transformational for our business and will drive total returns for our shareholders over time.”

Simon Farnsworth, managing director of the investment adviser, Ironstone Asset Management Limited, added:

“While the macro-economic backdrop has been challenging and occupiers are postponing decisions where they can, the Group has continued to sign rents ahead of expectations and to attract occupiers from across the life sciences spectrum. In particular, we are delighted that quantum computing businesses are starting to cluster at Oxford Technology Park. This demonstrates that the Group’s assets are in the right locations, and that the offer is both attractively priced and tailored to growing parts of the UK life science market. With further opportunities in the portfolio and a sound financial position, we have every confidence that the Group will continue to deliver on its strategy going forward.”

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