Life Science Reit Share Discussion Threads

[cousinit] 01/8/2024 19:31

It's funny, I don't mind that there are some laggards about... Does give an opportunity to recycle cash. Have to say I've passed over LABS so far. Looking for names with near term catalysts even if the potential upside is more like 25% than 50%+

[spectoacc] 01/8/2024 13:32

Hope your other holdings are substantial @ghhghh, just about everything has been on a tear lately and the Opportunity Cost of being stuck in LABS has been enormous, irrespective of how far it's fallen.

[ghhghh] 24/7/2024 06:58

The short term risk is Oxford Technology Park. LABs need to start letting out the speculative new space they are building. Accepted we’ve had an Election and everyone appears to be on holiday at the moment but I will begin to worry if nothing announced by mid August.

All LABs have told me is that very busy….

However mid term I think LABs is a stunning buy.

OTP is immediately north of Begbroke’s existing Science Park owned by the University. OTP is better located, fronting Oxford Airport.

The University are currently seeking planning for:



Begbroke Science Park is in the middle of all the fields. OTP is a field away from the proposed Innovation site boundary. Google search….

This is encouraging for two reasons. It illustrates significant future demand and that OTP is well located.

[chrisdgb] 03/7/2024 14:00

Just creeping higher........

[arthur_lame_stocks] 23/6/2024 22:02

I've had a quick think about it and that's a very fair point. Thanks.

[loglorry1] 23/6/2024 21:55

Arthur you are missing the debt service cost and management costs which could, I agree, be partially reduced if they were bought.

[arthur_lame_stocks] 23/6/2024 16:38

I bought a few shares here recently and here is my incredibly simplistic analysis of why.

In last year's finals gross property income was £15.5m. Fully let they claim a gross property income of £19.6m. Sell the company to a larger property company on a 10% yield and you're looking at £150-200m for the company.

I can't find statistics for directly comparable properties but 10% is a very high yield.

hxxps://www.statista.com/statistics/975962/commercial-real-estate-prime-yields-in-united-kingdom/

Is there much more to it than that?

[ghhghh] 21/6/2024 11:08

I’m out and about but I believe they replaced expensive debt with a cheaper green loan during the year and the hedge is a cap so actual paid interest 2023 YE is a net figure?

I will find out

[cc2014] 21/6/2024 10:19

The cost of debt is 7.3% now. Imho. It's not 100% clear. I'm happy to be corrected.

Page 18 of the presentation says SONIA hedged to March 2025 at 4.8% all in. But I believe that does not include the margin over SONIA which the accounts state as 250bp. So, 7.3% in total.

I assume after March 2025 it reverts to floating SONIA plus 250bp which if interest rates are 4.75% by then will be 7.25% roughly where we are now.


the accounts show in note 17 on page 128 opening and closing balances on debt of £110m give or take a few million.

And note 8 on page 122 shows loan interest of £8.2m ignoring a load of break and arrangement fees etc.

[loglorry1] 20/6/2024 19:05

Herbrand is valued at £70.5m and brings in £4m of contracted rent. If it can be sold at valuation it will reduce debt from £108m to 37.5m. This makes sense when the hedge ends because it only yeilds 5.7%.

Then the P&L
Revenue 26.2 - 4m (from HS) = 22.2m assuming build out as to plan.

Expenses 7m (assumes no extra costs for running a higher turnover which is bananas, although some of the void costs go away and possibly some of it is not recurrent)
Finance expenses 6.6m (£80m at 250bp above SONIA). It was 150m but 70m received from sale of HS.

Produces 8.6m of income after interest and management costs after build out assuming HS can be sold at valuation and no selling fees etc.

Still pretty meh!

Appologies for any mistakes I did this on my phone.

There are 350m shares in issue assuming you could buy back 100m at say 35p thats £35m more debt costing £2.7m in interest which drops earnings to £5.9m over 250m shares is 2.36p/share before tax. A better but still not fantastic.

[wshak] 20/6/2024 15:59

There is a clear and obvious thing to do.Sell the prime asset, Herbrand St, use a bit to lower debt and the rest to tender for shares in a reverse Dutch auction.It is an obvious move, given the share price.If they don't do it, someone will take them out.

[ghhghh] 20/6/2024 13:34

Recent results

The business continues to benefit from a robust financial position; our leverage is low, our debt is fully hedged and we have significant cash and headroom in our facilities. We have also demonstrated a readiness to realise capital from investments where we see better uses for it.

[loglorry1] 20/6/2024 08:45

I think there are just two ways of looking at this.

One is from a revert to NAV basis - if they can sell everything close to book value AND return funds to shareholders and close up shop and kill off all the costs then sure that's the absolute best strategy. We all know that's not the plan and that's not what they will do, and probably can't do anyway.

Two, is to produce a sustainable growing dividend through the development and let of Lab space. That is clearly the plan.

So in case 2 how do they generate enough money to cover and increase the dividend? We've shown that after interest costs (esp when hedge ends) and their own management costs there's about £7m left over even after the build out. Do you agree with that?

Furthermore, if case 2, the current plan, is correct why would anyone want to pay close to NAV for HS when its empty in 2 years and they have to find a new tenant?

There probably is a clever way to navigate all this but I can't see it.

Let's not forget the motivation of these managers is to grow assets and charge large fees. they don't own the stock and don't really give a toss about equity returns. If the stock trades at an 80% discount to NAV they don't care cos they get paid based on NAV.

[ghhghh] 20/6/2024 08:23

Log

But they don’t want an empty building in two years if not then ready to immediately convert to labs. Better to sell now and do a share buyback?

Obviously if they can sell anything at close to BV it will be good news!

[loglorry1] 20/6/2024 08:03

I'm not sure selling Herbrand St makes any sense. It's fully let so getting rid of it instead of increasing debt at 4.5% won't help earnings. It just makes the whole thing even more subscale where the large fixed costs will dominate further. Further risking the dividend.

Anyway, I've said enough bearish things. I own the stock and the point of BBs is to ramp stuff you own not deramp it!

[wshak] 19/6/2024 14:43

Paul,

I doubt they'll be in a rush to sell Herbrand Street unless put under pressure to do so by investors.

It's a vanity project and developers want to develop, not necessarily what's best to restore value to shareholders.

Even an £15m drop from £85m to £70m is quite a hit in 2 years. Will they be ruthless enough to take it?

[spectoacc] 19/6/2024 14:41

"In the meantime, the company is subscale and an obvious takeover target for a cheap underbidder, given where the shares are trading."


And yet the MMs had to marshal some PI's to take on an alleged overhang at 33.75p.

[ghhghh] 19/6/2024 14:39

The hedge is to March 2025.

I assume the plan is to flog Herbrand Street when interest rates finally turn and pre YE. They get VP end of 2026 but will they be in a position to convert to Labs?

The tenant seems happy so with the building so could extend or possibly buy.

[wshak] 19/6/2024 14:20

It's not for me to persuade anyone to buy, but LABS strikes me as being very similar to Quintain Estates (QED) back in the day during the financial crisis.

Traded at a fraction of NAV which no-one believed in. Management was overly ambitious and had paid too much for assets, and a large part of them were at development stage.

Bought at the right price, the shares were a great buy - and they didn't even pay a dividend.

I still remember picking up a load of shares in Quintain Estates when everyone wanted out - I think the market cap was £200m at the time.

A few years later, it was bought out for £700m by Lone Star.

A few years after that, Guy Hands was in the market to buy it for £2.5bn.

I didn't make nearly as much out of it as I should have but, even so ...


I agree with Paul that the main risk is not that the NAV of the properties is fake but in making sure they get tenants in once build-out is complete.

There are "easier" property REITs to buy into out there but the discount available here justifies a place in the portfolio, alongside the others.

Maybe the shares go to 25p if selling continues - who knows? I still think that the shares I've bought will all be sold at a profit eventually, nevertheless.

In the meantime, the company is subscale and an obvious takeover target for a cheap underbidder, given where the shares are trading.

[loglorry1] 19/6/2024 14:00

£150.0 million refinancing of our HSBC facility, extending the term to June 2026 and adding Bank of Ireland to the Group's lenders

Debt fully hedged at 4.5% interest payable


but the hedge wont' last forever.

[cc2014] 19/6/2024 13:42

No I'm not sure at all.

The accounts are a bit vague. They do say SONIA plus 250bp but on a quick scan I couldn't figure out if they had hedged it before interest rates rose.

I am moving on and will leave you guys to it. Based on opportunity cost I see better value elsewhere.

[loglorry1] 19/6/2024 13:27

Thanks both. The 46m may be available but it comes at a cost right?

I need to go and recheck a few things @CC2014 are you sure your finance costs are as much as 11.6m?

[cc2014] 19/6/2024 13:18

The additional spend of £46m for the buildout
If you assume which I do the Accordion is not available they only have 2.4m of working capital after the buildout. That's insufficient in the real world

With regard to the P&L
Revenue 26.2
Expenses 7m (assumes no extra costs for running a higher turnover which is bananas, although some of the void costs go away and possibly some of it is not recurrent)
Finance expenses 11.6m (£150m at 250bp above SONIA)

So, profits once build out complete 7.6m

There are 350m shares in issue