Placing / Open Offer / Offer

RNS Number : 5398A

The MedicX Fund Limited

02 February 2011

 



THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, REPUBLIC OF IRELAND, REPUBLIC OF SOUTH AFRICA, NEW ZEALAND OR JAPAN

For immediate release

2 February 2011

MedicX Fund Limited

("MedicX Fund", the "Fund" or the "Company")

Placing, Open Offer and Offer for Subscription of New Ordinary Shares

MedicX Fund (LSE: MXF), the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom, is pleased to announce a Placing, Open Offer and Offer for Subscription (together the "Issue") of up to 75,000,000 New Ordinary Shares at a price of 72.0p per New Ordinary Share.  Collins Stewart Europe Limited ("Collins Stewart") is sponsoring and acting as Lead Bookrunner in respect of the Issue.  A prospectus relating to the Issue (the "Prospectus") will be published shortly.

Expected Timetable

Event	Time and Date (2011)
Record Date	Close of business on 1 February
Ex entitlement date for the Open Offer Open Offer Entitlements and Excess CREST Open Offer Entitlements credited to stock accounts of Qualifying CREST Shareholders into CREST	8 a.m. on 3 February
Last time and date for receipt of Forms of Proxy	11.30 a.m. on 22 February
Last time and date for receipt of completed Application Forms and payment in full under the Open Offer or Settlement of the relevant CREST Instruction	11 a.m. on 23 February
General Meeting	11.30 a.m. on 24 February
Last time and date for receipt of completed Application Forms and payment in full under the Offer for Subscription	1 p.m. on 24 February
Last time and date for receipt of Placing commitments	Noon on 28 February
Admission and commencement of dealings in New Ordinary Shares	8 a.m. on 4 March
CREST Stock Accounts to be credited	4 March
Certificates in respect of New Ordinary Shares in certificated form despatched	Week commencing 14 March

Each of the times and dates in the above timetable is subject to change, in which event details of the new times and/or dates will be notified to the UK Listing Authority and the London Stock Exchange and, where appropriate, Shareholders. References to times in the Prospectus are to GMT.

The Issue

The Issue will comprise an issue of up to 75,000,000 New Ordinary Shares under the Placing, Open Offer and the Offer for Subscription.  The Issue will not be underwritten.

The Open Offer Shares are being offered to Qualifying Shareholders on the basis of 1 Open Offer Share for every 3 Existing Ordinary Shares held and registered in their names on the Record Date.  Excess applications can be made under the Open Offer. To the extent that Qualifying Shareholders do not take up their Open Offer Entitlements and apply for further Open Offer Shares under the Excess Application Facility, the Shares will be available under the Offer for Subscription and thereafter under the Placing.

New Ordinary Shares are being offered at 72.0p each under the Issue, payable in full in cash. The Ordinary Share mid-market price as at the close of the market on 31 January 2011 (being the latest practicable date prior to the publication of the Prospectus) was 73.75p.

Background and Reasons for the Issue

Following its successful acquisition programme to date, the Company has committed £226.6 million to investments in 57 primary healthcare properties and has now become capital constrained as regards further investments.

The level of potential acquisitions that are brought to the Company's attention by the Investment Adviser remains significant and the Directors believe that it would be in the interests of the Company to maintain the ability to acquire such properties by raising additional funds through the Issue.

Benefits of the Issue

·         current market conditions within the primary healthcare property sector are such that the Company can still make further investments at attractive prices;

·         the Directors believe that the proceeds raised through the Issue will, in current market conditions, enable the Company to take on additional debt secured on beneficial commercial terms and at attractive prices;

·         the Directors expect that the raising of additional monies should be significantly earnings enhancing to the Company over the medium term due, principally, to the following:

−    the opportunities available to the Company to acquire further properties at attractive running yields;

−    the current significant differential between the cost of debt funding and the running rental yield on properties;

−    the fixed running costs of the Company will be spread over an enlarged asset base; and

−    the investment advisory base fee will not be payable in relation to properties acquired using the proceeds of the Issue, as no such fee is payable on gross assets between £150 million and £300 million.

Use of Proceeds

The Company intends to use the proceeds of the Issue to fund ongoing investments and to take advantage of future pipeline opportunities in accordance with the Company's Investment Policy, and thereby expects to commit the net proceeds of the Issue to investment in primary healthcare property within six to nine months of Admission and aims to be fully committed with associated borrowings within twelve to eighteen months of Admission.

The Company

The Company was incorporated and registered in Guernsey on 25 August 2006 for the purpose of investing in primary healthcare properties. The Company's investment objective is to achieve rising rental income and capital growth from the ownership of a portfolio of mainly modern, purpose-built, primary healthcare properties.

Investment Adviser

The Company receives investment advice and management services from MedicX Adviser Ltd (the "Investment Adviser"), a member of the MedicX Group, which is a specialist investor in, developer of and manager of healthcare properties.

Property Portfolio

The Current Portfolio comprises 57 primary healthcare properties of which 49 are leased to medical practices, PCTs and related services, six are under construction and two are due to start construction this year. During the financial year ended 30 September 2010, successful completion was achieved at properties under construction at Ossett, Abergele and Ruabon, representing a total commitment from the MedicX Fund Group of approximately £13.9 million of investment. Construction started during the year on new properties at Halifax, Apsley, Hounslow, Bilborough and Bermondsey Spa. In addition, the completed medical centre at Boston was acquired and the Company has entered into a Forward Funding Agreement in respect of a medical centre at Clapham which is due to complete in August 2011. Since 1 October 2010, Forward Funding Agreements have been entered into for properties at Raynes Park and West Wirral. The total acquisition cost of the two properties is anticipated to be £14.5 million. These new investments represent a total commitment of £41.9 million.

As at 31 December 2010, the average age of the completed Properties is 3.7 years, the average value of the properties is £3.8 million and the average term remaining on the relevant leases is approximately 18.5 years, 91 per cent. of the aggregate rents are payable by PCTs and GPs, 7 per cent. by pharmacies and 2 per cent. by others. The total acquisition cost of the completed properties is approximately £226.6 million, including £7.5 million of purchaser or transaction related costs. The anticipated annualised rent roll on the 57 Properties is approximately £13.7 million per annum representing a Cash Yield on the total acquisition cost of those properties of approximately 6.0 per cent.

The properties, which are geographically spread throughout the UK, have been valued as at 31 December 2010 at approximately £215 million (£177 million in relation to completed properties and £38 million in relation to properties under construction) by King Sturge LLP based on an anticipated Net Initial Yield of approximately 5.87 per cent. and on the assumptions set out in the independent Valuation Report prepared by King Sturge LLP.

Net Asset Value

As at 31 December 2010, the Ordinary Shares had an unaudited NAV per Ordinary Share of 66.0p, derived from the Company's unaudited management accounts, which incorporates the valuation of the Company's property portfolio at 31 December 2010 as carried out by King Sturge LLP.

The Board believes that a more meaningful calculation of NAV per Ordinary Share should exclude goodwill and deferred tax that is not expected to crystallise. On this basis, as at 31 December 2010 the Ordinary Shares had an unaudited Adjusted NAV per Ordinary Share of 65.8p.

Borrowings and Mark to Market Valuation

The MedicX Fund Group has a £100 million debt facility (the "Aviva Loan") provided by Aviva, at a fixed annual rate of 5.008 per cent. on an interest only basis. The debt was fully drawn down on 1 December 2006 and is secured against certain of the MedicX Fund Group's investment properties. The loan is repayable in its entirety on 1 December 2036.

The Company does not mark to market its £100 million fixed interest debt in its Financial Statements. Following advice from the Company's lenders, the fixed interest rate payable on a similar dated loan for the same duration, as at 31 December 2010, would have been 1.8 per cent. over the gilt yield (equivalent in aggregate to approximately 6.0 per cent.). In order for the Aviva Loan to have a gross redemption yield equivalent to 6.0 per cent., the fair value of the Aviva Loan on 31 December 2010 would be £87.6 million. This results in a mark to market benefit of the Aviva Loan to the Company of £12.4 million equivalent to 8.7p per Ordinary Share. As at the same date, the unaudited Adjusted NAV, reflecting the fixed rate debt at its mark to market fair value was equivalent to 74.5p per Ordinary Share.

In December 2009, the Company agreed terms with Deutsche Postbank for a £25.5 million facility over an approximate 5 year-term from 29 December 2009, repayable on 30 April 2015. The loan amortises at 1 per cent. per annum. Should the entire amount available under the DP Facility be drawn down as at 28 January 2011 (being the latest practicable date prior to publication of the Prospectus), the Board expects that the rate would be fixed at 4.6 per cent. As at the date of this announcement £0.5 million has been drawn under the DP Facility. There is a 1 per cent. per annum non-utilisation fee on any undrawn amounts after 30 September 2010.

In addition to the Aviva Loan and the DP Facility, as at 31 January 2011, the Company had a separate loan secured on one investment property of £1.2 million.

Accordingly, as at 31 January 2011 (the latest practicable date prior to the publication of the Prospectus), the Company had debt facilities of £126.7 million, of which £101.7 million had been drawn. At 31 December 2010 the Company had cash reserves of £10.6 million, of which £5.8 million was held with solicitors pending the current completion of the acquisition of one property (30 September 2010: £17.3 million), and there have been no material changes to such reserves prior to publication of this announcement.

Discounted Cash Flow Valuation of Assets and Debt

The Board believes that the Company has similar characteristics to infrastructure funds which typically calculate the value of their investments based upon discounted cash flows. The Investment Adviser has independently carried out an unaudited discounted cash flow valuation of the Company's assets and associated debt as at 31 December 2010.

The discount rates used are 7 per cent. for completed and occupied properties and 8 per cent. for properties under construction. The discounted cash flows assume an average 2.5 per cent. per annum increase in individual property rents at their respective review dates, residual values based upon capital growth at 1 per cent. per annum from current valuation until the expiry of leases, (when the properties are notionally sold), and also assuming the current level of borrowings. The discounted cash flow valuation of the Company's assets and debt, as at 31 December 2010, was equivalent to 92.4p per Ordinary Share.

Investment Opportunity

The Company intends to enhance its position as a leading investor in modern, purpose built primary healthcare property.

The Directors believe that this segment of the primary healthcare property market represents an attractive opportunity for the following reasons:

·         continued demand for modern assets with flexible design characteristics;

·         average lease terms of 15 to 25 years;

·         low default risk due to the nature of primary care funding;

·         properties are generally let when acquired with low levels of rental voids;

·         rental growth potential; and

·         potential for significant capital values at lease expiry.

Competitive Advantages

The Company believes that, through its long-term relationship with the Investment Adviser, it has a number of competitive advantages through access to:

·         established industry contacts and development opportunities;

·         coverage through the Investment Adviser's regional offices in Godalming, Nottingham and Edinburgh;

·         considerable knowledge of the sector allowing better identification and delivery of asset management opportunities:

−    assistance in identifying and securing relevant finance;

−    enhanced product design capability, tailoring the product to the customer's needs;

−    the ability to extend or refurbish existing buildings; and

−    relocation services.

Dividend Policy

The Directors intend, subject to the Company's performance and to available cash, provided that the Company satisfies a solvency test under the Companies Law, to have a progressive dividend policy by growing dividends throughout the life of the Company, although no assurance can be given that this will be achieved.

The Directors expect, subject to unforeseen circumstances, to pay dividends totalling 5.5p per Ordinary Share in respect of the financial year ending 30 September 2011. The first interim dividend in respect of that financial year of 1.375p per Ordinary Share will be payable on 31 March 2011 to those holders of Ordinary Shares recorded on the register of members of the Company on 18 February 2011.

The Company pays dividends on a quarterly basis comprising of four equal quarterly dividends payable on the last business day of March, June, September and December of each year. Subscribers for New Ordinary Shares will not be entitled to receive the dividend payable to shareholders on the register as at 18 February 2011, but will be eligible for the dividend the Directors intend to pay in June 2011.

Shareholders can elect for scrip dividends in lieu of cash dividends in respect of the Company's quarterly dividend payments.

ISINs

The International Security Identification Number for the Open Offer Entitlements is GG00B3V5J859.

The International Security Identification Number for the Excess Open Offer Entitlements is GG00B3PW6Y74.

Key Risk Factors

·      The market value of and the income derived from, the New Ordinary Shares can fluctuate. There is no guarantee that the market price of the New Ordinary Shares will fully reflect their underlying net asset value or earnings potential. There can be no guarantee that the investment objectives of the Company will be met.

·      A property market recession could materially adversely affect the value of properties.

·      Property and property related assets are inherently difficult to value and valuations are subject to uncertainty. There can be no assurance that the estimates resulting from the valuation process will reflect actual realisable sale prices.

·      Rental income and the market value for properties are generally affected by overall conditions in the local economy, demographic trends, inflation and changes in interest rates, which in turn may impact upon the demand for properties. Movements in interest rates may also affect the cost of financing.

·      Investments in property are relatively illiquid and usually more difficult to realise than listed equities or bonds.

·      Any change in the tax status or tax residence of the Company or in tax legislation or practice (in Guernsey or the UK) may have an adverse effect on the returns available on an investment in the Company. Similarly, any changes under Guernsey company law may have an adverse impact on the Company's ability to pay dividends.

·      The rental costs of premises used for the provision of primary healthcare are usually reimbursed to GPs (subject to the fulfilment of certain standard conditions) by the PCTs. In the light of the Health and Social Care Bill and the proposal that PCTs will be abolished by 2013, there is no guarantee that rental costs will continue to be reimbursed to GPs in this way or what will replace PCTs under the existing arrangements. The Board is closely monitoring government proposals in this area.

·      Initiatives introduced by the previous government pledged increased funding to provide modernisation of GP premises. Whilst the Company is confident that the modernisation program is not sensitive to the change of government, the Company has no influence over the future direction of primary care initiatives in the public sector. In particular, a reduction in the funding of PCTs or their successors may reduce the funds available for the development of, or investment in, NHS properties and adversely affect the Company's ability to grow its assets and source appropriate opportunities in accordance with its investment policy.

·      In the event that a PCT or other tenant found itself unable to meet its liabilities, the Company may not receive rental income when due and/or the total income received may be less than that due under the relevant contract. NHS budgetary restrictions might restrict or delay the number of opportunities available to the Company.

·      Prospective investors should be aware that the Company intends to use borrowings which may have an adverse impact on NAV or dividends.

·      The Company is in compliance with financial covenants in its borrowing facilities. The Directors consider a breach of the Company's financial covenants under its borrowing facilities to be very unlikely. However, should circumstances arise in the future, where the Company would be unable to remedy any breach, it may be required to repay such borrowings requiring the Company to sell assets at less than their market value.

Defined terms in this announcement (except where the context otherwise requires) bear the same meaning as those terms when used in the Prospectus.

For further information please contact:

MedicX Group:                                                                                       [phone]

Keith Maddin, Chairman

Mike Adams, Chief Executive Officer

Mark Osmond, Chief Financial Officer

MedicX Fund:                                                                                         [phone]

David Staples, Chairman

Collins Stewart Europe Limited:                                                               [phone]

Andrew Zychowski (Corporate)

Stephen Newby (Corporate)

Dominic Waters (Sales)

Neil Brierley (Sales)

Will Barnett (Sales)       

Buchanan Communications:                                                                     [phone]

Charles Ryland

Suzanne Brocks

Information on MedicX Fund Limited

MedicX Fund Limited ("MXF", the "Fund" or the "Company", or together with its subsidiaries, the "Group") is the specialist primary care infrastructure investor in modern, purpose-built primary healthcare properties in the United Kingdom, listed on the London Stock Exchange, with a portfolio comprising 57 properties.

The Investment Adviser to the Company is MedicX Adviser Ltd, which is authorised and regulated by the Financial Services Authority and is a subsidiary of the MedicX Group. The MedicX Group is a specialist investor, developer and manager of healthcare properties with 30 people operating across the UK.  

The Company's website address is www.medicxfund.com. 

Important information

This announcement and the information contained herein is restricted and is not for publication, release or distribution in whole or in part in the United States, Japan, Canada, Australia, Republic of South Africa, New Zealand or the Republic of Ireland.

This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any securities of the Company and any purchase of securities of the Company pursuant to any equity issue undertaken by the Company should only be made on the basis of the information contained in the final prospectus published by the Company and any supplement or amendment thereto (the "Prospectus").  A copy of the Prospectus will shortly be submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do. Copies of the Prospectus may, subject to any applicable law, be obtained at no cost at the registered office of the Company or Collins Stewart. The Prospectus will supersede all information provided before the date of the Prospectus and any investment decision must be made only on the basis of the information contained therein.

Certain statements contained in this announcement may be forward-looking statements.  By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements.  These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Neither Collins Stewart or the Company undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  A prospective investor should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

The shares of the Company have not and will not be registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act") or any U.S. state's securities laws, and may not be offered or sold within the United States, unless an exemption from the registration requirements of the U.S. Securities Act is available.  There will be no public offering of the Company's shares in the United States.  Accordingly, any offer or sale of the Company's shares will only be offered or sold (i) within the United States, only to "qualified institutional buyers" as defined in Rule 144A under the U.S. Securities Act in private placement transactions not involving a public offering, and (ii) outside the United States in offshore transactions in accordance with Regulation S promulgated under the U.S. Securities Act.  Any purchaser of shares in the United States will be required to make certain representations and acknowledgments, including without limitation that the purchaser is a "qualified institutional buyer."  Prospective purchasers are hereby notified that a seller of the Company's shares may be relying on the exemption from the registration requirements of the U.S. Securities Act provided by Rule 144A thereunder.

The contents of this announcement have been prepared by and are the sole responsibility of the Company. The Company's website address is www.medicxfund.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

Collins Stewart Europe Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as sponsor to MedicX Fund Limited and is acting for no-one else in connection with the Issue and the contents of this announcement, and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Collins Stewart Europe Limited nor for providing advice in connection with the Issue and the contents of this announcement or any other matter referred to herein. Collins Stewart Europe Limited is not responsible for the contents of this announcement. This does not exclude or limit any responsibilities which Collins Stewart Europe Limited may have under the Financial Services and Markets Act 2000 or the regulatory regime established thereunder.

 

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