British Land (BLND), the £4bn, FTSE 100 real estate investment trust has made a recommended cash and share bid for Life Science REIT (LABS) agreeing to pay 14.1p per share in cash and 0.07 of its shares in a deal that values the beleaguered property fund at £150m.
It means LABS shareholders will receive around 42.8p per share, a 21% premium to yesterday’s 35.4p closing price. The shares responded with a jump of over 19%, or 6.8p, to 42.2p, a six-month high.
Although priced at a 26% discount to net tangible assets, analysts expected this to be acceptable to shareholders given the uncertain outlook and the 7.8% valuation decline the company suffered in the second half of last year. The shares have more than halved from 105p in early 2022, shortly after launch by Ironstone Asset Management, and traded at a steep discount to asset value for much of that time with the business weighed down by rising inflation, higher borrowing costs and a slowdown in leasing activity. At yesterday’s close, the shares stood 40% below their net asset value of 57.7p at 31 December.
Saba Capital, the activist hedge fund that had built a 14.3% position in the shares through total return swaps, has undertaken to vote for the bid if it converts any of its derivative holdings into shares. Including its position, a total of 31.1% of shares are supportive.
With the transaction expected to complete in three months, LABS shareholders should be eligible for the final British Land dividend due to be declared in May. After the acquisition, they will hold around 2.4% of the enlarged group and British Land shareholders 97.6%, such is the disparity in size between the two companies.
British Land approached LABS after it began a managed wind-down last September. The company owns £9.8bn of a total £15.2bn portfolio that it manages, 90% of which is in campuses and retail parks. Science and technology is a growing part of its campus strategy and it already has a strong presence in the “Golden Triangle” of Oxford, Cambridge and London where LABS’ five laboratories and development projects are based.
Our view
Richard Williams, senior analyst at QuotedData, said: “LABS launched at the top of the property market and so it is little wonder that it has struggled pretty much from day dot. Add to that the wobble that the life science sector had following enormous growth post-COVID and it has been tough going for the company on all fronts. The illiquidity in its shares has been another factor in its poor performance, with the initial cohort of institutional investors trapped in a sinking ship. Today’s offer will be of great relief, then, and while a 26% discount to an already trampled on NAV feels a bit excessive, the earnings accretion on offer in BLND’s far more diverse life science portfolio and exposure to its wider portfolio just about justifies this, in my view.”
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