Life Science REIT (LABS) has received “significant amount of interest” from potential buyers but warned its real estate portfolio fell by nearly 11% in the first half.
The “Golden Triangle” property investor put itself up for sale in March as part of a strategic review launched in response to the wide discount the shares have traded at for most of its four-year history.
Today the company said it had given some interested parties access to additional due diligence materials and meetings with fund manager Ironstone.
The board is assessing how much a managed wind-down of the portfolio would return to shareholders. It said it was considering the views of Ironstone and other real estate fund managers as well as information gathered during the review and the cost of developing assets versus available liquidity.
The amount that could be returned took a knock today as the company said net tangible assets (NTA) had fallen 10.9% from £260.4m at 31 December to £232.1m at 30 June. This represented a decline in NTA per share from 74.4p to 66.3p.
“This reflects a broadly uniform decline across each of the company’s five assets and is representative of the continued challenging backdrop overall together with slower than anticipated leasing activity in the life science market,” it said.
Shares that launched at 100p in November 2021 fell 8% to 40.1p, 40% below the reduced NTA.
The company also disclosed that it had narrowly failed the interest cover test on its debts but was in “active dialogue” with its lenders which continued to be supportive. The projected cover from earnings for debt interest was 193.1% at 30 June, below the 200% threshold set by its banks.
“Further hedging could have been put in place to ensure this test was passed but given the ongoing strategic review the banks were supportive of providing a waiver instead,” the real estate investment trust said.
Our view
QuotedData’s head of investment company research, James Carthew, said: “From one viewpoint, the best that can be said of this morning’s trading update from LABS is that at least we are getting closer to someone putting the trust out of its misery. Another big leg-down in net tangible assets, a covenant breach – however minor – and persistent high vacancies make for depressing reading. Sadly, any bid will almost certainly be at a discount to the reduced NTA. However, as we have said before, we may be getting close to the bottom of the cycle for property valuations, which explains the ‘significant amount of interest from a range of sources’. The winning bidder may pick up a bargain.”
