Life Science REIT reports positive first-half progress

26th Sep 2024 08:46

(Sharecast News) - Life Science REIT reported a positive first-half performance on Thursday, driven by development progress and a rebound in the occupier market, which supported earnings growth.

The London-listed real estate investment trust's contracted rents for its investment portfolio increased 7.9% to £15.1m for the six months ended 30 June, with an additional £0.6m from development projects, bringing total contracted rents to £15.7m.

Adjusted earnings rose 6.3% to £3.4m, while adjusted earnings per share increased 11.1% to 1p.

The portfolio's value stood at £382.6m at the end of the period, up slightly from £382.3m at the end of 2023.

However, on a like-for-like basis, the portfolio value declined 3.8%, primarily due to a 33-basis-point outward movement in the net equivalent yield to 5.6%, partially offset by an 8.2% growth in estimated rental value (ERV).

Laboratory spaces saw a modest 1.9% decline, with strong ERV growth of 8.6%, while office spaces experienced a larger drop of 5.8%.

Life Science REIT maintained a sound balance sheet, with a loan-to-value ratio of 28.3%, reflecting the period's development progress and associated debt drawdown.

All debt was fully hedged at a 4.5% interest rate, with no major refinancing requirements until June 2026.

Operationally, the firm saw a significant uptick in leasing activity post-period, following a slower start to 2024, mirroring trends in the broader life science market.

It reported £3.2m of ERV under offer or in advanced negotiations, including at its repurposing project in Cambourne, due for completion in the fourth quarter.

Occupancy levels rose to 82.5%, up from 79.0% at the end of 2023, with three new leases adding £1.7m to total contracted rents.

The group said it continued to unlock further value through development and reversion opportunities, targeting a portfolio ERV of £27.8m.

That would represent a significant uplift from the current total contracted rent, with £3.2m of the uplift expected by next March, and a further £4.9m by September 2025, which would take total contracted rents to an estimated £23.8m over the coming year.

In sustainability efforts, Life Science REIT achieved 100% EPC A-C ratings across its properties, up from 87% at the end of 2023, and received EPRA sBPR gold for its 2023 sustainability reporting.

The company said it was also advancing a renewable energy plan for the Oxford Technology Park as part of its commitment to developing sustainable buildings.

"The board is encouraged that after a prolonged period of uncertainty, characterised by a highly cautious occupational market, our current leasing interest is now at its highest level in a year," said chair Claire Boyle.

"This activity reinforces the fundamentals which have underpinned our strategy since IPO, namely a focus on the delivery of high quality, bespoke assets in the supply-constrained markets of the Golden Triangle of Oxford, Cambridge and London.

"At the same time, the investment adviser has strengthened its team and undertaken selective asset management initiatives which are now gaining traction."

Boyle said that as a result, with structural demand drivers still intact, it remained confident that its strategy for driving value from its portfolio had the potential to deliver rents "very significantly ahead" of their current levels.

"However, the board is cognisant of the challenges facing the group, with significant headwinds faced since IPO, in common with the wider REIT sector, including higher inflation and elevated interest rates which have driven a fundamental slowdown in leasing activity.

"As a result, our share price continues to trade at a significant discount to net asset value.

"While the board remains confident that as the improvement in underlying demand gains momentum, and leasing activity drives occupancy across our assets, we will see a narrowing of the discount over time, we continue to evaluate a variety of options which best position us to maximise value for shareholders and we remain alert to all potential opportunities available to achieve this."

At 0827 BST, shares in Life Science REIT were up 3.11% at 33.2p.

Reporting by Josh White for Sharecast.com.