Great! Well, good morning, everyone. I'm pleased to be presenting the June 2023 Half Year Results for Life Science REIT, and to provide you with an update on the further progress that we're making as a business. My name is Simon Farnsworth. I'm the Managing Director of Ironstone, the REIT's investment advisor. I'm joined by David Lewis, our Finance Director, and Ian Harris, our Director of Asset Management. I'm gonna start by setting the scene and providing you with a market update. David will then walk you through our financial results for the six months, and Ian will then dive into some of the detail on key portfolio activity and ongoing asset management initiatives.
Just before we kick off, I just want to mention two things: firstly, today's 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. The first six months of 2023 has been a period of solid operational performance, that's despite the ongoing macroeconomic headwinds. Real estate values across all sectors have been recalibrating in response to the risk-free rate, but sectors such as Life Sciences, with compelling occupational themes and supply-demand imbalances, have weathered the storm well and are well positioned for continued growth. Here are the headlines.
The valuation of our portfolio is up in absolute terms, 3.9%, reflecting good progress on developments, and we've added GBP 1.2 million of contracted rent, driven by leasing at our assets, including Rolling Stock Yard in London's Knowledge Quarter, where we've set new record rents for lab space in London. So while the market has undoubtedly cooled, we are signing rents ahead of our business plan, and this is set to continue. As a result of our activity, 75% of completed developments are now let or under offer, and we've increased our overall portfolio occupancy by 7%- 89%. The ERV of the investment portfolio is more than GBP 17 million, offering significant further earnings upside to be captured through our leasing activity.
While maintaining our development and refurbishment program is key, we are very aware of the wider economic context, and we remain measured and flexible in our approach. We're evolving our offer to take advantage of plug-and-play laboratory shortages in our core markets, and Ian will talk about this more later. Turning to the financial performance, we've increased earnings per share to 0.9p, enabling us to pay a 1p dividend at the interim stage, in line with last year. NTA per share is lower, mainly driven by last year's second half dividend payment. But balance sheet management has proven to be absolutely critical over the last 12 months across the entire real estate sector. Our successful refinancing means we are well placed to deliver on our strategy.
We can fund development and refurbishments at a relatively low cost, and we have sufficient liquidity to complete all our committed CapEx over the next two years. I'm now gonna provide an update on what's happening in the U.K. Life Science industry and what that means for the real estate sector. The U.K. is well positioned, as you're aware, as a global leader in the world of science and technology, underpinned by the excellence of its academic institutions and a talented labor pool, particularly in the Golden Triangle, where we are focused. Life Sciences has demonstrated resilience so far in 2023, but it's not entirely avoided the broader economic challenges.
On this slide, I've set out some of the long-term key structural drivers, which you'll all be familiar with, and these continue to underpin a very positive long-term outlook for UK Life Sciences, with the recent agreement for the U.K. to remain in the Horizon Europe program being a further boost for the sector. In the shorter term, economic uncertainty has had an impact on the real estate markets. Investment volumes are down, but this partly reflects a reluctance to sell, and deals are actually still transacting at tight yields. At the end of June, there was over GBP 600 million worth of Life Science-related properties under offer to a wide variety of investors, ranging from private equity to sovereign wealth funds, and this suggests an uptick in volumes is on the near horizon. There's certainly been a shift in the funding dynamics across UK L ife Sciences.
Sorry, I'll just remove my microphone. There we go. While venture capital funding has slowed down, other sources of capital have emerged to compensate. Big pharma and M&A has been very active, with more than GBP 3.6 billion invested in the last six months, as they look to accumulate smaller, innovative businesses to supplement their own R&D activities. Private equity, including sovereign wealth funds, who typically invest at later stages in venture capital when the business model is better established, have also been more active, as you can see from this chart here. This underscores a broadening investor base in the industry and enduring confidence in the sector, driven by these long-term structural themes. So I'd now like to look at the demand-supply imbalance in our real estate markets.
In Cambridge, take-up is higher year-over-year, and current requirements have increased to over 1.2 million sq ft now for laboratories alone. This compares to available space back at the end of June of just over 7,000 sq ft of fitted labs. We're seeing rents for fully fitted labs increased to over 70 GBP per sq ft and continue to rise. So in this context, our offer at Cambourne Park looks highly affordable. We've just completed our rebranding there, targeting Science and Technology businesses, and Ian will talk more about that in due course. A similar story can be seen in Oxford, which has 48,000 sq ft of available laboratory space. This represents just a third of the average annual take-up in the city, and we're currently seeing more than 500,000 sq ft of known laboratory requirements in the market.
Office rents in Oxford now have exceeded GBP 60 a sq ft, and fitted labs are now in excess of GBP 75 a sq ft and continuing to rise. Again, this compares with GBP 30 a sq ft for offices, and GBP 55 for fully fitted labs at Oxford Technology Park, for high-quality space in an excellent location. We're right next to Begbroke Science Park, the source of our two most recent lettings, and we're forging a strong network across Oxford, for example, through Oxford Science Enterprises, to help us source new occupiers for the park. So in both these cities, the chronic supply-demand imbalance is expected to persist for at least the next few years.
As a result, annual rental growth is forecast at 2.6% for Oxford and 3.8% for Cambridge over the next 5 years, which compares very favorably with the rest of the property sector. Just turning to London, here, the market is developing rapidly, and we're firm believers that the Knowledge Quarter around King's Cross and St Pancras has the potential, and in our view, already is, the premier Life Science cluster in Europe, and this has been demonstrated by MSD's recent commitment to their GBP 1 billion headquarters opposite King's Cross Station. Specific Life Science real estate data is less readily available in the London market, but 2023 looks like being around 45,000 sq ft of takeup to the half year, and that compares to Life Science-related requirements of around 700,000 sq ft across the London market.
Of course, much has been made about the ability to turn offices into laboratory space, and while this can be done successfully in some cases, not all offices are suitable for conversion. Proximity to academic and scientific institutions is absolutely key. That's what's driven the success of Oxford and Cambridge and the Knowledge Quarter. Structural features of the building are also important, so while supply is likely to creep up, not all of that is gonna be suitable for the kind of Life Science occupiers that we're targeting. The predominant requirement in London particularly, is for smaller, fitted laboratory space, so understanding the market and having a specialist team who can assess occupier business plans and credit quality is absolutely paramount.
Our recent letting at Rolling Stock Yard, at 110 GBP/sq ft, a record rent for London, to a Syncona-backed company, is a great example of that strategy. So on that note, I'm now gonna hand over to David, who will talk you through our financial results and our debt strategy. You got it.
Thanks, Simon. So I'm delighted to present some further detail on our half-year results, which now reflect a full six months of revenue and costs of the assets acquired in early 2022. We continue to deliver a strong operational performance, with a focus on development activity and asset management initiatives, as well as ongoing new lettings, which will significantly benefit our earnings performance for the full year. Headline numbers are an NTA of GBP 306 million, and an NTA per share of 87.4 pence, with positive adjusted earnings of GBP 3.2 million or 0.9 pence per share. Net borrowings are GBP 82 million, which gives a net LTV of 20.3%, on a property valuation of GBP 402.9 million.
Turning first to adjusted earnings, which were GBP 3.2 million for the period, a GBP 2.5 million increase on the comparable period in 2022. This is driven by an increase in revenue to GBP 7.6 million from GBP 5.6 million, primarily from the 2022 acquisitions. Operationally, we have excellent rental collectibility of 99%, and property operating expenses at GBP 1 million are stabilizing as we lease up space at Cambourne Park and Rolling Stock Yard, reducing our void costs. Net finance costs reflect the refinancing of the existing HSBC facility in June, adding Bank of Ireland as an additional lender, and repayment of the OTP Fairfield facility in February.
We have also declared a 1 pence per share interim dividend in respect to the first half of the year—half of 2023, payable in October. The next slide shows a bridge of the NTA per share from 90 pence at December 2022 to 87.4 pence at June 2023. On the right-hand side of the slide, you can see that this has been driven by the 3 pence 2022 interim dividend payment and the 1.2 pence like-for-like portfolio valuation decline. This is actually offset on the left-hand side of the slide by the 2 pence increase in the value of the development portfolio. On the next slide, looking at the liquidity and debt position.
At June 2023, net borrowings were GBP 82 million, and available liquidity was GBP 68 million, a reduction from GBP 138.2 million at year-end. That reduction was primarily due to the repayment of the OTP Fairfield debt development debt in February 2023, the dividend payment of GBP 10.5 million, and funding further development of our assets. The new facility, announced in June, comprises a GBP 100 million fully drawn term loan, capped at a maximum interest payable of 4.5% per annum until March 2025, and GBP 40 million of that is defined as a green loan and represents the group's first green financing.
There is also a GBP 50 million RCF tranche at SONIA plus 2.5%, which will be drawn on a quarterly basis to fund development at OTP with expected CapEx drawdown profile, with SONIA fixed by a forward-starting interest rate caps at 2.2%. The next slide attempts to demonstrate that. This is purely for illustrative purposes, to demonstrate that we have sufficient liquidity to meet our committed OTP CapEx requirements whilst being 100% hedged against interest rate risk. At June 2023, the gross LTV was 25.1%, and as we draw on the RCF, the gross LTV will increase to a maximum of 36.3%. We're very confident we will remain within our 30%-40% gearing target. The drawdown profile matches our forward-starting caps.
This assumes also that a CapEx is valued pound- for- pound, and there is no further uplift in valuations as the buildings are completed and move from development to investment. And now I'll hand you over to Ian to discuss our ESG commitments and our portfolio. Thank you.
Thanks, David, and good morning, everyone. I'd like to start by saying a few words about ESG. It is central to the way we do business because our occupiers are global leaders in science and technology. They expect a modern and sustainable place to work, and they have highly ambitious ESG commitments of their own. Reducing our impact on the environment is a key focus, therefore, and to drive that, we'll be setting our own net zero carbon pathway later this year. Right now, we're working on improving the quality of our data, so we can better measure occupier emissions to inform our activity and support our occupiers with their carbon reduction plans. Other environmental initiatives include introducing green lease clauses on all new leases, setting our own sustainability standards for acquisitions, refurbishments, and developments, and engaging generally with our occupiers.
We've also made good progress on EPCs. 97% of the portfolio is now A to C rated, as compared to 65% just a year ago. Most of those C-rated properties are at Cambourne, and they'll be addressed through our refurbishment and repurposing plans, which I'll come onto a little bit later. This slide gives a snapshot of the portfolio. We have 6 assets with a range of opportunities, from ground-up development at OTP to near and longer-term laboratory repurposing opportunities, notably at Cambourne and Rolling Stock Yard. You can also see the key portfolio stats here. 2 highlights, particularly to point out, are the jump in occupancy to 89% from 82% in December, reflecting our leasing activity, and the significant uplift that we've seen on developments, which has driven our valuation performance, which I'll come on to now.
The total value of the portfolio is now nearly GBP 403 million, up 3.9% on an absolute basis. The like-for-like movement on the investment portfolio was down 1.3%, with declines mainly attributable to two assets, where the current valuation is aligned more to offices than it is to lab space. They are pre-repositioning, in other words, so they, they took the hit that the office sector took generally. Developments are up 8%, driving a blended revaluation gain of 0.8%. Our continued leasing activity and the repositioning initiatives that we've delivered, and the positive market dynamics that Simon talked about, have all supported positive like-for-like ERV growth on average across our core locations.
Turning to leasing, we were pleased to welcome four new Life Science occupiers to the portfolio in the first half of the year, taking a total of 22,600 sq ft across Rolling Stock Yard, Oxford Technology Park, and the newly repositioned Cambourne Park Science and Technology Campus. Getting deals over the line is taking longer, as Simon has said, but we are encouraged by the level of inquiries we're seeing, and they are firmer and generally less speculative than they were perhaps a year ago. We're achieving higher rental levels with deals ahead of December's ERVs. The occupiers we're signing span the range of Life Sciences and have taken a mix of wet lab, dry lab, write-up space, and pure office accommodation, adding a total GBP 1.2 million to the rent roll.
Post-period end, further Life Science lettings of 11,000 sq ft have completed at Oxford Technology Park to Oxford Gene Technology, adding a further GBP 200,000 to the rent roll, and we have a further 37% of the Innovation Quarter under offer. As we repurpose from offices to laboratories, and we deliver more Life Science space to the market at Oxford Technology Park, the proportion of our rental income that we derive from the Life Science tenancy is increasing significantly. As of December 2022, that proportion stood at 39%. This has increased to 47% at the half year, with lettings to Beacon Therapeutics, Oxford Ionics, Arcturis Data, and Rakon. Post-period end, it's increased again to 51% with the lettings to OGT that I referred to earlier.
Including deals currently under offer or where terms are agreed, the figure rises yet again to 55%, and I think this evolution really demonstrates that we are delivering on the strategy that we set out at IPO. Turning now to the progress we're making at some of our major assets. Let's start with OTP, Oxford Technology Park. Our building program is progressing well. Five of the 12 buildings are now completed, and five more are due to complete on a phased basis between now and May of next year. We completed two Life Science leases in the period, one post-period end, and five leases are currently in solicitor's hands. So overall, 75% of the completed development space is now either let or under offer.
Most importantly, over the past 16 months since acquisition, we've driven a 33% increase in the rental rates of the larger hybrid units at OTP, from 15 GBP to 20 GBP. That's a really strong endorsement of the quality of the space we're delivering, as well as the strength of demand. Following the success of the fully fitted lab project at Rolling Stock Yard, we're looking to replicate this strategy at Oxford Technology Park in Unit Seven of the IQ. These will be smaller, more flexible units, targeting growing Life Science businesses, a part of the market that's critically undersupplied, particularly in that fitted sector. When it comes to that all-important amenity offer that I keep referring to, we've submitted a planning application to change the use of one of the IQ units to a sustainably themed cafe, together with co-working space, bookable presentation room, and event space.
Subject to planning being received, this will be operational by Q2 of next year. Going forward, we're working with the professional team to amend the design of the final two buildings, buildings 10 and 11 at the park. We feel that there's a gap in the market for unit sizes between what we can currently offer in the IQ, at the smaller end of the scale, and the larger hybrid units. So we're working up a scheme for two terraces of units between 10 and 20,000 sq ft, which will target higher rents and complete our offering to potential tenants. Turning now to Cambourne. The rebranding and repositioning exercise that we've been working on is now complete, and Cambourne Park Science and Technology Campus has been launched to the market.
This coincided with our first Life Science letting in the period to Rakon, who took just under 5,000 sq ft of dry lab, write-up space, and offices in Building 2020. So to build on this, we're now looking at converting 10,000 sq ft of vacant offices to four small, fully fitted wet lab facilities, again, using the Rolling Stock Yard model. We are in for planning, and we expect to receive consent next month. Subject to that consent, we'd expect this project to deliver rents in the region of GBP 50-55 a sq ft, compared to the prevailing level for offices at GBP 25. And on that note, I'll pass you back to Simon.
Thanks. Thanks very much, Ian. What does all this activity mean for the company as we look forward? As it can be seen from this income bridge, there is significant upside to come through reversion and asset management activities. We've broken this down into easily identifiable buckets. Firstly, we have GBP 1.3 million of in-built reversion, and by this, I mean mark to market of existing income that will largely be captured through reviews and lease expiries. Secondly, we have GBP 1.9 million of income to come through the lease-up of existing vacant space, one floor remaining at Rolling Stock Yard, space at Oxford Technology Park and at Cambourne. Thirdly, we have GBP 6.5 million of rent to be realized through the letting of the under construction buildings at Oxford Technology Park.
As of today, 39% of that is already pre-let or under offer. Finally, we have the remaining buildings, 10 and 11, which Ian's just talked about at OTP, which are forecast to contribute a further GBP 1.8 million of income, although we expect that number to rise as we redesign those, those units, as Ian's just discussed. This totals a further GBP 10.2 million of achievable rent, representing almost 3 pence per share in earnings. It's important to note that we're basing this analysis off our valuers existing, today, ERVs. We're not factoring in any growth into these numbers beyond today's rents. Of that GBP 10.2 million, we now have 25% either secured or in legals. This is significant progress, but there is a lot more to do.
Despite the headwinds and the malaise impacting the economy, and even more specifically, the real estate sector over the last year, we've continued to deliver on the asset management initiatives to drive rental and capital growth and provide much needed space for a growing sector at the heart of the U.K. economy. We expect key market indicators to continue to stabilize and liquidity to return to the capital markets, presenting us with further opportunities for the business. Our strategy of actively de-risking development exposure through pre-letting and fixed price funding contracts is the right one in the current environment, and positions us well to drive returns for shareholders and to capitalize on the demand that we're seeing in these key markets today. We're having encouraging conversations with a range of prospective occupiers, and I look forward to providing further updates on leasing progress in the very near future.
At the same time, we are maintaining our discipline around capital allocation, and our strict focus on this strong growth sector puts us on an exciting trajectory, building this best-in-class portfolio with a range of opportunities to enhance value for our shareholders. That concludes the formal part of the presentation, and we'd now welcome questions from the floor or from people listening online.
Hi, I just wonder if you could provide a bit more color around the, the ERV uplift that you saw this year, specifically against the offices, against the Life Science buildings, and how the performance was, between those two?
Yeah. I mean, the bulk of the ERV uplift is, has come through the, the refurbishment projects that we're carrying out, so, and the development at Oxford Tech Park. So as Ian alluded to, I think the ERVs now on the bigger units and even the smaller units at the Tech Park have moved on anything between 20% and 33% of, since acquisition back in May 2022. The ERVs have been relatively flat on the va- as Ian said, on offices that are valued as offices. So Herbrand Street in Bloomsbury, for instance, we have had an uptick in the ERV there. But generally, we're seeing, you know, good growth across the portfolio, and we expect that to continue.
The forecast of the brokers of sort of 2.8%-3.5% per annum over the next five years, I think are sort of fairly straight-line forecast. What we're seeing is some fairly hefty jumps on a deal-by-deal basis across the portfolio.
Morning, it's James from Peel Hunt. Just when we look at the yields of some of your assets in Rolling Stock Yard in particular, versus a comparable office building in the same location, they're quite a bit lower. I'm just wondering, is that because some of the upside is already in the kind of the valuation for the conversion from office? to labs, or is that what you're seeing kind of Life Science buildings going for in those locations?
I think we're, we're seeing it across the, across the board. I mean, I think it reflects the rental growth prospects for these, for these buildings. I think if you look at London offices generally, I think they were down about 2.5% in June to December on the CBRE index. Whereas what we're seeing, you know, in the Life Science world at the moment is, it's a real rental growth play. I think Rolling Stock Yard demonstrates that. I mean, we've achieved, as I say, at the time, we've taken the base office rent there from GBP 65 to a lab rent of GBP 110. We know that rents now, further down the road, they're quoting GBP 130 at Tribeca and various other schemes.
So we're looking to sort of move those rents on already.
Okay. So, so the upside is still to come when you do convert from basic office space to-
Yes
to the labs? Yeah.
I mean, Cambourne, I think, Ian, do you want to talk through the economics of the, the Cambourne? Because that's even more competitive.
Absolutely. I mean, the basic, so the letting to Rakon, for instance, which was effectively done at office levels, was at GBP 25 a sq ft. If we spend the money on converting 10,000 sq ft in building 2020, we'll be providing a fully fitted product, and we'll be doubling the rent. We'll be looking at certainly a rent beginning with a five-
Yeah
. which more than justifies the CapEx expenditure in the first place, and that's still a low base to come from when you look at the Cambridge market, in a wider perspective.
Yeah.
All right. Thank you.
Do you have any more? You, you're sort of all up ERV of GBP 96 million. I mean, is that all funded by the GBP 68 million of liquidity you have in your balance sheet, and remains within your target gear ratio?
Yes. That's all existing, contained within the portfolio as it stands at the moment, and doesn't reflect any year-on-year rental growth.
Herbrand Street, was it, was this the outlier in terms of a reduction in value in the period?
Yes.
Can you just. I've not seen the asset. I don't really understand it. Can you just tell us a little bit more about it?
Yeah, Herbrand Street's a, sort of an iconic, sort of art deco building tucked into, in Bloomsbury. It's currently let to a company called Thought Machine, which is a Fintech company. They've got 3 years left on their lease. I mean, we bought it as part of a, obviously a Knowledge Quarter play. I mean, it is tucked in right behind UCL. Thought Machine occupy it. It's, it's a very high-tech building inside, even though it's sort of, nearly 100 years old in terms of the fabric of the building. It's got huge, clear floor plates, big concrete slabs, good floor-to-ceiling height. We'll make a wonderful Life Science building as and when we, we get that space back. I think the key there is that it's not all happening at once, Mike.
We're sort of building out OTP, doing what we want to do at Cambourne, and then when we've finished those projects, then Herbrand Street will be the next major sort of capital project in probably 3, 3.5 years' time.
Is there a zoning barrier to get into the Life Science usage?
No, you don't need planning to change use. The building's listed Grade II. We actually don't have entry rates on it either, if it does ever become vacant. Thought Machine are a really, really well-capitalized business. I mean, they're well backed by sort of J.P. Morgan and Lloyds, and they're a very strong financial covenant. You don't need planning to change, change use. Yeah.
Thanks so much.
I think that concludes-
No further questions. Anything coming through on, No?
No questions.
Okay. All right, then, well, look, thanks, everyone, for attending this morning and, we look forward to sort of seeing you all in the near future. Thanks very much.