You ready? Great. Well, good morning, everyone. I'm pleased to be presenting the 2024 R esults for Life Science REIT, and to provide you with an update on the further progress that we're making. My name is Simon Farnsworth. I'm the Managing Director of Ironstone, the REIT's investment advisor, and I'm joined by Ian Harris, our Head of Asset Management. David Lewis, due to unforeseen circumstances, won't be here today, so I'm gonna also be covering off the finance piece. So I'm gonna start by setting the scene and providing a market update, and then I'll walk you through our financial results for the year. Ian will then dive into some of the detail on the key portfolio activity, ongoing asset management initiatives. Just before we kick off, I'll briefly mention two things.
Firstly, the presentation is being recorded, and a replay will be available on our website afterwards. And secondly, there will be an opportunity for investors and analysts to ask questions at the end of the presentation. I'd like to start the presentation with an update on the most recent trading performance. Following the general election, and with a more favorable interest rate environment, leasing interest has increased significantly, and prime life science yields are stabilizing. So the outlook for rental and capital values is much more promising. However, the first half of the year did mark a low point for both leasing and capital markets in our sector, with just over 200,000 sq ft of leasing and only a handful of investment deals across the Golden Triangle.
But since then, we've made good progress on each of our strategic priorities, which is delivering sustainable space for life science users, progressing our leasing program, and ensuring that the business remains well-financed. So starting with the first, having completed fifty-seven thousand sq ft at Oxford Technology Park in the first half of the year, an additional hundred and eighty-three thousand sq ft is scheduled for completion in the next few weeks. And at Cambourne Park, our lab repurposing project, which began in April, is expected to complete by year-end. We've strengthened our resources at Ironstone by expanding the leasing and occupier engagement teams, including employing a dedicated life science leasing specialist. This investment, along with rising confidence, is delivering results. Since July 1st, we've had more viewings across the portfolio than in the entire first half of the year, and that's despite the summer holidays.
This is translating into leasing activity, which I'll set out shortly, and encouragingly, all this activity is at or above our valuer's ERVs. At no point, even when the markets were more challenging, have we ever seen any downward pressure on rents in this sector. Finally, we have maintained a strong focus on our financial position. Loan-to-value is low at 28%, and our debt is fully hedged. We rebased the dividend earlier in the year, and this adjustment has ensured that we have sufficient liquidity to complete all our planned capital expenditure. How do we build on this activity, and what does this mean for the company going forward? We'll go through the details shortly, but I wanted to give you a high-level view of what we expect over the next 6 to 12 months.
The total ERV of the portfolio is GBP 27.8 million when fully built out, and that represents significant upside to our current contracted rent of GBP 15.7 million. This can be broken down into four distinct buckets. First, we have GBP 3.3 million of in-built reversion to be captured, and we're currently in advanced discussions on GBP 1.1 million of that, which we expect to conclude in the next few months. Secondly, we have GBP 3.9 million of income to come through the lease-up of vacant space at Rolling Stock Yard, Oxford Technology Park, and Cambourne Park. We are under offer or in advanced negotiations on GBP 2.1 million of that, including the remaining space at Rolling Stock Yard and all the lease space within our repurposing project at Cambourne Park.
Thirdly, we have a further GBP 3.1 million to be realized through the letting of under-construction buildings at Oxford Technology Park, and we expect all of that to be captured within the next 12 months. And finally, future developments for Oxford Technology Park are forecast to contribute a further GBP 1.8 million of income. Obviously, the timing of this element depends on when we commence buildings 10 and 11, which Ian will update you on shortly. So together, this totals a further GBP 12.1 million of achievable rent. We expect to capture GBP 3.2 million of that in the next six months, all of which is now under offer or in advanced negotiations, and a further GBP 4.9 million should complete by September 2025.
In addition to this income growth, we are also in advanced negotiations with a number of our major occupiers regarding lease extensions. As things stand, this would see over 30% of our current rental income extend by a further five years on average. This would extend our current WALT from 5.6 years across the portfolio to 7.3 years, and we would expect to see further positive valuation impact at year-end. It's important to note that we're basing all this analysis off our valuer's ERVs, and we're not factoring in any growth beyond today's rents, and in addition to the impact on income, as we capture this rent, reduce leasing risk, we should see an uptick in valuations and subsequent NAV improvement.
We fully acknowledge that this potential is not yet reflected in the share price, but we are confident if this leasing momentum continues as we expect, that will drive value going forward. So now turning to the period under review, the total portfolio value remains stable at around GBP 382 million. On a like-for-like basis, values declined by 3.8%, driven entirely by yield shift. ERV growth was robust at 8.2%, with ERV growth on our life science space particularly strong, increasing by 8.6%. Importantly, we've significantly grown the proportion of our space defined as labs, which is now 40% and expected to rise to over 50% by the end of the year. Leasing activity has been slower, but we've seen the benefit of deals agreed in previous periods starting to come through.
GBP 1.7 million of new rent commenced in the first half of the year, and occupancy rose to nearly 83%.... So it's nearly three years since our IPO, and after a challenging few years for the real estate sector, I thought it was appropriate to remind you of our investment case and how that's evolved. Long-term drivers, which underpin demand, remain strong, and while it's true that VC funding, for example, has been weaker over the past year or so, that's compared to an exceptional spike post-pandemic, and it does look to be stabilizing ahead of pre-pandemic levels. That's been complemented by other sources of funding. For example, big pharmaceutical companies increasingly looking to M&A now to bolster their research and development capabilities. Our focus on supply-constrained markets, namely the Golden Triangle, has been central to our strategy, and that still holds true.
While development has stepped up in London, much of that is outside the Knowledge Quarter, and our thesis is always focused on being located close to key academic centers, particularly UCL and the Francis Crick Institute. The role of technology is probably where we've seen the biggest change. Advances, particularly in AI, are accelerating innovation, enabling clinical tests to be done much more quickly and expanding the definition of what is a life science company. And finally, we've had a general election. Not only does that help confidence, but the new government has set down some very practical ways in which they will make it easier to do business. Now, the proof will obviously be in the actions here, but the atmosphere of increasing positivity and stability is no doubt helping occupiers plan with more confidence.
Looking at the funding environment in more detail, it's clear that UK life sciences looks to be on course for a much-improved year. What is really interesting here is that follow-on financing has really picked up as well. That's particularly relevant for labs, as a lot of our space is targeting those businesses that are in that next phase of growth. For example, Beacon Therapeutics, based at Rolling Stock Yard, recently raised $175 million in their second phase funding, only twelve months after the company was launched in June 2023. Now, typically, we see a nine to twelve-month lag between increasing funding and investment translating into take-up of space. And encouragingly, we're already seeing this improvement feeding through into inquiry levels and viewings. So turning now to our markets, demand for lab space in Cambridge continues to exceed supply, even with the slowdown observed earlier this year.
Consequently, lab availability remains extremely low at just 1.3%. Our offer at Cambourne Park plays really well to these dynamics, and we're delivering smaller fitted units, which is exactly where demand is strongest, and our price point looks highly affordable. We're soon to complete our fitted lab refurbishment, which Ian will talk more about, so we're well placed to capitalize on the opportunities that we're seeing. Looking forward, a lot of the planned development is likely to be postponed, partly because of the cost of finance remaining high, but there are also very real structural issues around power and water, which are an issue for a lot of new developments, but not for our Cambourne scheme.
Turning to Oxford, the lab and tech box supply has increased, and although there remains a weight of demand for life science space, given the wider economic macro backdrop, occupiers have been more cautious about taking space. Crucially, in the tech box market, where we're focused, demand and supply dynamics remain very favorable. This particular subsector involves flexible buildings with substantial power capacity and the ability to accommodate multiple uses under one roof. Our development at OTP exemplifies this approach. We also design buildings and leases with expansion capabilities to adapt to evolving occupier needs. Given the complexities of relocating operations, flexibility is highly attractive and often more cost-effective for occupiers. As a leading provider of this type of space in Oxford, we're well positioned to meet this growing demand.
Then finally, turning to London, take-up in the first half of the year has been minimal, in line with overall market sentiment, but we have seen a significant increase in occupier engagement since June, with a notable increase in the number of viewings at our Knowledge Quarter asset, Rolling Stock Yard, and Ian will update you on this shortly. The area around King's Cross and St Pancras has clearly emerged as Europe's premier life science cluster. Recently, we've seen the Francis Crick Institute announce an expansion of their space. We've seen Novo Nordisk open a new AI research facility, and GSK's relocation back to central London underpins the Knowledge Quarter as the location for life sciences in Europe. On that note, I will now discuss our financial results and our debt strategy.
So I'm now going to provide you with some further detail on our half-year results, which reflect a continued improvement in net rental income and adjusted earnings in comparison to the equivalent period in the prior year. Net rental income is up 12.1% in 2024 to GBP 7.4 million, as we lease up our available space at Oxford Technology Park, which Ian will discuss further. This additional leasing then flows through to our total cost ratio, which continues to fall, down 7.7% to 36.6%, as void costs on available space reduce. This strong operational performance, supported by 100% rent collection, has delivered an increase in adjusted earnings by 6.3% to GBP 3.4 million.
The June thirtieth portfolio valuation is 3.8% down on a like-for-like basis compared to the prior year end, due to the impact of the office element of the portfolio. In line with our expectations, we continue to develop Oxford Tech Park and repurpose Cambourne. We've drawn further on our secured debt facility, and this has resulted in higher net borrowings at GBP 108.2 million, but still with a net LTV of 28.3%, well below our target. Of the total increase in adjusted earnings of GBP 0.2 million, GBP 0.7 million reflects new lettings at Rolling Stock Yard and Oxford Tech Park compared with 2023, and administrative cost savings of GBP 0.2 million.
These increases are primarily offset by lower capitalized interest costs of GBP 0.8 million as the buildings at Oxford Tech Park complete. Turning now to the portfolio valuation, the recent trend of market-driven outward yield shift has continued to impact values, despite a healthy growth in like-for-like ERVs. As a result, the portfolio value fell 3.8% on a like-for-like basis, but this compares to a like-for-like fall of 5.9% in the second half of last year. So encouragingly, the rate of decline has slowed, and we've seen the resilience of our lab space, where outward yield shift has been less marked, and ERV growth more pronounced when compared to space still in transition and considered as offices. Importantly, the pace of transition is increasing as our repurposing projects approach completion.
The lab element of our portfolio has increased from 18% eighteen months ago to 40% today, and is expected to reach 54% by the end of this year. Given the ongoing repositioning and the uptick in leasing activity, we're confident that this is the bottom of our valuation cycle. The next slide shows the main components of the movement in NTA per share, from GBP 0.799 at December 2023 to GBP 0.755 at June 2024. This decrease is mainly driven by a GBP 0.034 like-for-like valuation decline due to a thirty-three basis point outward yield shift, somewhat offset by the ERV growth, as previously mentioned, and by GBP 0.01 from the final 2023 dividend payment in May 2024. On the next slide, looking at liquidity and debt position, we continue to seek to minimize our net finance costs.
Post-period end, we recently extended the duration of all our hedges to September 2025, so our expected debt position is 100% hedged for the next 12 months. We will continue to carefully manage our balance sheet and intend to maintain a fully hedged position until the current expiry of the existing facility in June 2026. From the pro forma liquidity table on the right, we have sufficient debt capacity at 41.8 million to fund the remaining development required at Oxford Technology Park and the repurposing of offices to labs at Cambourne 2020. With that, I'll hand you over to Ian to review our portfolio in more detail.
Thanks, Simon, and good morning, everybody. Let's start with our usual snapshot of the portfolio. Our five assets are at various stages of their repurposing or development journey. At Oxford Technology Park, 183,000 sq ft of tech box space is due to complete imminently, taking total space delivered at the park to over 400,000 sq ft. At Cambourne, our repurposing project is on site and due to complete by the year end. The Merrifield Centre and the two floors at Rolling Stock Yard have already been fully repurposed as lab space, and Herbrand Street in Bloomsbury is a longer term repurposing opportunity.
Looking at the key portfolio statistics, contracted rents on the investment portfolio is up GBP 1.1 million from the year end to GBP 15.1 million, and a further GBP 600,000 worth of contracted rent has been added on development assets. That compares to an ERV on the investment portfolio of GBP 22.3 million, up GBP 2.7 million, reflecting our development progress and an increase in like-for-like rents of 8.2%. So there's plenty of upside in the portfolio still to shoot for. Occupancy is also up since year end to 82.5%, with a number of leases signed in the previous period now kicking in.
Turning to leasing, the GBP 1.7 million of incremental rent I just referenced included one new letting to Oxford Ionics, who took 30,000 sq ft at OTP, as well as the lease commencement to Fortescue Zero, also at OTP, for GBP 1.1 million. ColdQuanta fit out at the Innovation Quarter at OTP has just achieved practical completion this week, and the lease will automatically be granted next week, securing a further GBP 300,000 worth of rent. As Simon has set out, we've been really encouraged by the significant increase in inquiries and viewings that we've seen since year end. To provide an example, during the first six months of the year, we had three viewings at Rolling Stock Yard, with no terms issued at all.
However, in the past ten weeks, we've conducted nine viewings, and I'm very pleased to be able to let you know that as of yesterday, the remaining space at the first floor is now under offer to a life science occupier at the full asking rent of GBP 110 per sq ft. Looking at the sector split, our development and repurposing strategy is steadily increasing the percentage of rental income derived from life science occupiers, up 30% since the last interims. The numbers are skewed considerably by Thought Machine, a leading fintech company and the sole occupier at Herbrand Street. Excluding them, 74% of our contracted rent is derived from life science occupiers. Moving on to Cambourne. The office-to-lab conversion of 10,000 sq ft in Building 2020 is now well advanced and scheduled to complete by the year end.
The project will be very value accretive. As offices, it's valued on a yield of over 7%, but when converted to labs, we'd expect to see yield compression of around 150 basis points, and to see the ERV double from GBP 25-GBP 50 per sq ft. Even at that level, though, the rents are still very competitive when compared to other locations in the Cambridge market, where fitted lab rents have now reached GBP 70 per sq ft. So for a CapEx spend of around GBP 320 per sq ft, we'd expect capital values to increase by over GBP 500, generating a profit of GBP 200 per sq ft. This equates to a yield on cost of around 7%.
Interest so far has been very encouraging, which is a strong endorsement of our strategy, and positions us well to consider a further rollout of fully fitted space in the future. Looking at the wider opportunity at Cambourne, as you know, we've comprehensively rebranded the park as a science and technology campus. We've also refined our approach to leasing and invested in our team, enabling us to more effectively target pockets of demand. These initiatives are now bearing fruit. Of the 44.5 thousand sq ft of currently vacant space across the park, we are under offer or in advanced negotiations on all but 4,000 sq ft of it. So in brief, current interest of note includes terms out on all of the lab space currently being delivered in Building 2020, which I've just talked about, and the floor above.
All of the vacant space in Building 1020 is in solicitor's hands, equating to a further 450,000 sq ft of additional income, and we aim to have this lease completed before the year end. Terms are also out on 30,000 sq ft in a detached building, where we're looking to secure a surrender, and we also have terms agreed with a major existing occupier looking to extend its lease by an additional 5 years. All of these deals are at rents at or above our valuer's most recent ERVs, underscoring the park's appeal within the science and technology sectors. We estimate that there's 182,000 sq ft of potential lab repurposing we can deliver over time.
In the short term, what we're doing is relocating some of the occupiers around the park, simultaneously ensuring that they stay with us for longer, but also freeing up more space in Building 2020 for the next phase of our lab repurposing. So if we turn now to OTP. In terms of construction progress, Buildings 1 to 5 are now all fully complete. Buildings 6 to 9 are expected to complete next month, when the final phase of power has been delivered by SSEN. We're holding off on Buildings 10 and 11 to maximize our optionality. The designs have been reworked to provide buildings in the 10- to 20,000-sq ft range, but we're also aware of one or two live requirements in the market that may require a much larger single building across both plots.
We completed the letting to Oxford Ionics, I mentioned earlier, and also signed an agreement for lease with ColdQuanta for 7,000 sq ft in the Innovation Quarter. Their turnkey fit-out is now complete, and the lease itself will complete in the next few days. The GBP 45 per sq ft rent agreed with them sets a new record for the park, and a benchmark for future deals, especially in the smaller market, where tenants prefer fitted spaces and are prepared to pay higher rents in return. Like with Cambourne, we've seen a marked uptick in inquiries and viewings post year-end. We're currently talking to occupiers in respect to space in Building 1, two units at the IQ, 6B and 7, and we're optimistic at the prospect of converting this renewed interest to further income.
Importantly, with a number of leases commencing in the period, we've seen a real increase in people coming to the park on a day-to-day basis. That's really helping to foster a sense of community, and that, in turn, is very supportive of further leasing. 450 people are now employed there, and at the IQ, we've hosted several industry events, which are helping to establish OTP as a leading life sciences destination. In line with our net zero strategy, we're progressing our plans to install PV panels across virtually all the roof space currently without it, and we're working with a third party who will install, own, and manage the panels, so there's no upfront CapEx cost to the business. We're also pleased to have made significant progress on the cafe and event space at the IQ, which we've named Nexus.
Construction is due to start next month and will complete in early Q1 next year, and with that, I'll hand you back to Simon.
Great. Thanks very much, Ian. So to wrap up, despite difficult market conditions, we have maintained our focus on initiatives that will drive rental growth, earnings, and NAV uplift. Today's sentiment is improving, and I started the presentation by setting some key milestones we expect to deliver over the next year. We're targeting an additional GBP 3.2 million in rent over the next six months, and a further GBP 4.9 million in the following six months. That should take our contracted rent to GBP 23.7 million by September next year. Given the volume of deals under offer or in advanced negotiations, we're confident we can deliver that. This is in the context of a more supportive interest rate environment. We expect valuation yields to further stabilize and liquidity to return to the capital markets, which should be beneficial for our portfolio and for leasing prospects.
In the longer term, we see more opportunities to deliver life science space, and for more of our portfolio to benefit from the rent and yield premium that can be achieved. Finally, the management team has a very collaborative relationship with the board. They share our confidence that we have a high-quality portfolio, which benefits from positive structural and market tailwinds, and that our asset management projects will deliver high rents and capital growth over time. We will always be alert to any opportunity to create value for our shareholders, but we are well-resourced, our markets are more supportive, and our leasing activity is gaining real momentum, so we're confident that progressing our plan is the most effective means of driving value for shareholders. And on that note, I'd like to hand over now to questions from the floor.
Miranda Cockburn from Berenberg. Just one question. You mentioned previously that you'd maybe consider joint ventures. Is that still on the cards? Are you still looking at that?
Yeah, it's something we would look at. We're not actively pursuing it at the moment, Miranda, but you know, where the assets are in the cycle, it probably wouldn't be the right time, but we're in the... You know, we're not ruling that out in the future.
Hello, Adam Shapton from Green Street. Just wonder if you could elaborate a bit more on the positive trend in viewings. I know you gave the Rolling Stock Yard example.
Could you describe it as very widespread? It's in every location. Is it more concentrated in-
To a greater or lesser extent, yes.
Yeah.
I think we've seen that uptick replicated across all three of our key locations.
Yeah, yeah.
Most pronounced, what would you say, Cambourne?
Probably Cambourne, actually.
Yeah.
Yeah.
Okay.
I think Cambourne has been, yeah.
but it's noticeable, as I say, in every one of our locations.
Yeah. And just on the, again, you mentioned smaller tenants have a preference for fitted.
Yeah.
Is there any sense that that's changing as the funding environment improves? If there's more capital available to tenants, they might be looking at enabled, and do their own fit-out.
I don't see it changing. I mean, yes, you're right, there is more capital available, but tenants generally, at that early stage, are reluctant to tie up that hard-earned capital in a fit-out, when they might only be in that building for three years before moving on.
Yeah.
So they would much prefer the landlord to put his hand in his pocket and fund the fit-out, and they're happy to pay a higher rent in return.
Okay, and just two more, if you don't mind me hogging the mic. Appreciate this might be one for David, but could you say what your marginal cost of debt would be if you... I don't know, you set out the liquidity situation. But if you needed to go out for new lending today, do you know what your sort of spread or marginal, you know, all-in cost of debt would be compared to six, 12, 18 months ago?
Yeah. I mean, I think if we were going out today, which obviously we're not, you know, we're looking at a sort of five-year swap now in the sort of mid, mid-fours. Spreads have come down. I mean, I would expect the margin now to be under two hundred basis points-
Okay
If you look at what's happening in the market.
And how does that compare all in then to-
We're two and a half margin at the moment, and we're fixed at three. We're hedged at three-
Yeah
So we're all in at about five and a half.
Okay, so margin's in more than fifty-
Yeah
50 basis points.
Yeah.
Okay, that's good.
So I'd expect, if you look at the, the projections from some of the banks at the moment of where that five-year swap's gonna go over the next 18 months, I mean, you know, we, we should be broadly back at the same levels, I think.
Yeah.
Yeah.
Sweet, so, then one kind of general one, it might be a repeat of Miranda's question, but strategic options. What's on the table in general terms, other than JVs? Obviously, mentioned in the chair's statement as well.
I mean, the chair has said it all really. I think, you know, she concurs with our view. We've got a clear plan for the assets, which is, you know, driving rental income, driving earnings, and driving NAV growth. That's the strategic plan, as you know, and hopefully you've seen from today's presentation, it's got real traction now, so.
Good.
Yeah.
Thank you.
Thanks, Tim Leckie, Panmure Liberum. A lot of the questions have already been asked, so I've just got one left on my list. The increased leasing resource-
Yeah.
Has that been a reallocation from other activities, or is that an increased cost, or how is that gonna impact?
It's additional resource.
Yeah.
That we brought in, Tim, to be fair.
Yeah.
On the manager side, so it shouldn't.
Yeah.
It won't show up in the trading.
It won't show up in the trading.
Not a cost to the company.
Yes, not a cost. Exactly, yeah.
Yeah.
Absolutely right. So we have a dedicated leasing advisor, well.
Specialist.
Associate specialist.
Yeah
... basically, who does nothing else but get out on site, meet tenants-
Yeah
... accompany every viewing to the properties, and we're really seeing the feedback from that-
Yeah
... coming through now. That's been instrumental in helping us convert some of this interest into real deals.
It's been really interesting, Tim, that we make sure, because we're a relatively small portfolio, we make sure that someone from the home team goes to every viewing, even if it's a relatively tenuous interest from a particular occupier that, you know, we think may or may not be that interested. Someone from the home team, whether it's me, Ian, Alex, always goes, and that's bearing fruit. Yeah.
Great.
Yeah.
And as I said, most of my questions were already asked, but anything from the new government that could be supportive going forward? Any programs that might have benefited-
Yeah
your tenants or?
I mean, there's a lot of, there's a number of things which they've been talking about. As I said, the proof will come in the actions, but one of the things is improving the regulatory environment for life science, for drug discovery, for businesses that are looking to grow, so making the U.K. more attractive for R&D by doing that. There's potentially carrying on with the tax breaks for R&D, as well. The planning-
Ease of planning, probably. I was gonna say the same thing.
Yeah.
Yeah.
They've put life sciences into the sort of strategic bucket for planning, along with infrastructure, which is actually, you know... But again, the proof comes when they start to deliver on these things, so.
Thanks.
Any questions from online or?
Yeah, one from Matthew Saperia at Peel Hunt: Have you had any discussions with Thought Machine ahead of their lease expiry at Herbrand? Any ideas on the potential CapEx requirement, were you to look at a repurposing of the asset?
Yeah. We Thought Machine have got just over two years left on their lease. They're a fast-growing company. We have a regular dialogue with them. There's nothing specific at the moment. We're in sort of, I'd say, a sort of general dialogue with them about their intentions.
We meet with them every two weeks-
Yeah
... for an hour.
Yeah.
So those discussions are ongoing.
CapEx requirements are, you know, we looked at a full lab appraisal, if you like, when we acquired the building, and those CapEx requirements are still broadly the same. It's sort of GBP 15-20 million, but it's not something that we're, you know, we're working actively on at the moment.
That's all.
All right. Any other... All right. Well, thanks very much, everyone.
Thank you.