Although it only came to market in November 2021, the UK’s first listed real estate investment trust focused on life science properties has had a busy year.

Not only has it already invested the net proceeds of its £350 million IPO (initial public offering), its NAV (net asset value) has risen this year thanks to revaluation gains on its specialist portfolio.

The most recently declared NAV per share as of the end of June was 102.1p, which means at today’s price of 72p the shares are trading on a discount of almost 30% to book value.

Part of the reason for this discount is the poor performance of REITs in general following the UK ‘mini-Budget’ which saw long bond yields soar, reducing the net present value of future earnings from ‘long duration’ assets such as property.

Another reason for the share-price weakness is the fact the trust is geared towards growth rather than income, resulting in a low dividend payout (4p per share) which compares poorly with the returns being offered on some cash deposits.

What this means, however, is investors who missed the shares the first time round now have the chance to enjoy significant potential upside as the trust taps into the unrelenting demand for high-quality UK lab space.

Life science firms are investing heavily in research and development to bring forward new technologies and treatments to meet the needs of an ageing UK population and the associated increase in healthcare costs.

The trust specialises in providing real estate, ranging from offices to labs and production facilities, in the ‘Golden Triangle’ from Oxford and Cambridge to the Knowledge Quarter of north London which is attracting the most investment and therefore has the tightest supply and the lowest vacancy rate.

Companies which want to set up in this ‘cluster’ are typically looking for flexible space where they can have all their operations in one building, with rents ranging from £60 per square foot to more than double that depending on the level of specification.

This compares with maximum rents of less than £15 per square foot on big-box units for online retail and multi-let industrial units.

The trust has a blue-chip list of clients and is seeing increasing demand from outside the traditional life science disciplines, with agri-tech and food technology firms also competing for laboratory space.

While interest rate fears are likely to hang over the REIT sector, the trust took the precaution of capping the coupon on its debt over the summer, meaning it is largely hedged against future rate rises, which gives us added confidence in management.

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