Inside The Life Sciences REIT IPO That Smashed The UK Fundraising Piñata

The UK life sciences real estate sector has expanded incredibly rapidly in the past couple of years, as investors and developers look to tap into a sector seen as having strong demographic and economic factors driving growth. 

A major signpost of the clamour to get into the sector?

Today, a new publicly listed company, Life Science REIT, announced that it had raised £350M in an initial public offering, and will now start trading on the AIM stock market.

That is the biggest REIT IPO in the UK since 2016, and the £350M raised is £50M ahead of the £300M it was looking to raise, such was the interest from stock market investors. 

Here’s everything you need to know about the significant new player in the roster of listed UK property companies. 

What Does Life Science REIT Own?

A sign of the interest from investors in life sciences real estate is the fact that the company does not currently own a single asset: Shareholders have given the company £350M on the basis of a pipeline of potential deals the company has identified.

That pipeline totals £445M, of which £305M is either in exclusivity or in advanced negotiations, Life Science REIT said in its IPO prospectus. That £305M portfolio includes £220M of income-producing assets and £85M of forward-funding deals. There is a further £140M of deals it has identified, and the company said it expects to deploy that £350M in the next six months. 

That £220M income-producing portfolio is priced at a net initial yield of 5%, producing £11.1M of rent a year. It is 84% occupied and has a weighted average lease term of 6.3 years. It is all in the life sciences ‘golden triangle’ with 45% in Oxford, 35% in London and 20% in Cambridge.

In terms of the type of space in the portfolio, 61% is hybrid office and lab space, 31% pure office space, 2% pure lab space and 6% ancillary space.

Why Are Investors So Excited About Life Sciences Real Estate?

Life Science REIT said in its prospectus that over the next 20 years, Oxford and Cambridge alone will require about 15M to 20M SF of new office and lab space to accommodate the growth of the life sciences sector. The sector currently employs about 250,000 people in the UK, with 133,000 more jobs expected to be added over the next 10 years, jobs that will need real estate to house them. Life Science REIT pointed out that in Oxford and Cambridge, the vacancy rate for lab space is 0%.

That imbalance between supply and demand is expected to lead to rental growth in the sector. Life Science REIT said the income-producing portfolio in its pipeline had an average rent of £29 per SF, whereas recent nearby deals had been completed at £45 per SF or higher.

The company said that this growth will help it achieve annual returns of more than 10%. 

Who’s Running The Show?

Life Science REIT is a listed company that is managed by an external manager, Ironstone Asset Management. Ironstone is led by Managing Director Simon Farnsworth, who set the company up after leaving the role of Head of UK Funds at CBRE Global Investors. Savills Global Capital Markets Chairman Simon Hope is Ironstone’s non-executive vice chairman.

Life Sciences REIT is chaired by Claire Boyle, an accountant and fund manager who has held roles at Coopers & Lybrand and Robert Fleming Investment Management. Another of the nonexecutive directors is Sally Ann Forsyth, a molecular biologist turned real estate professional who has worked on the Colworth Science Park and Harwell Campus. 

How Will The REIT’s Portfolio Be Structured?

Life sciences real estate is a sector that is going to need to build so that supply can keep up with demand, but Life Science REIT said that no more than 50% of its assets will be in development schemes, with this figure dropping to 30% by the end of 2023.

No single asset will be allowed to account for more than 35% of the portfolio, and no one tenant will account for more than 20% of the portfolio.

As is usually the case with listed companies, leverage will be low compared to the average across real estate. The company will aim for a gearing level of between 30% and 40% of total assets.