Proposed Fundraising of up to ?48.75 million

RNS Number : 9185O

The MedicX Fund Limited

25 September 2013

 



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

25 September 2013

MedicX Fund Limited

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

Proposed Fundraising of up to £48.75 million

The board of directors of MedicX Fund (LSE: MXF), the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom, has today published a prospectus (the "Prospectus") in relation to a Placing, Open Offer and Offer for Subscription (together the "Issue") of up to 85 million New Ordinary Shares at a price of 75p per New Ordinary Share to raise up to £48.75 million before expenses, assuming 20 million New Ordinary Shares will be bought back into treasury (as further explained below). Canaccord Genuity Limited ("Canaccord Genuity") is acting as Sponsor and Bookrunner in respect of the Issue.

A copy of the Prospectus has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

Expected timetable

Event	Time and Date (2013)
Record Date for entitlement under the Open Offer	Close of business on 23 September
Ex entitlement date for the Open Offer	8 a.m. on Thursday, 26 September
Open Offer Entitlements and Excess CREST Open Offer Entitlements credited to stock accounts of Qualifying CREST Shareholders into CREST	Thursday, 26 September
Last time and date for receipt of Forms of Proxy	10 a.m. on Thursday, 17 October
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 Friday, 18 October
Last time and date for receipt of completed Application Forms and payment in full under the Offer for Subscription	1 p.m. on Friday, 18 October
Extraordinary General Meeting	10 a.m. on Monday, 21 October
Last time and date for receipt of Placing commitments	Midday on Monday, 21 October
Admission and commencement of dealings in New Ordinary Shares	8 a.m. on Friday, 25 October
CREST Stock Account to be credited	Friday, 25 October
Certificates in respect of New Ordinary Shares in certificated form despatched	Week commencing Monday, 28 October

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.

The Issue

The Company intends to issue up to 85 million New Ordinary Shares under the Issue, of which a minimum of 20 million will be bought back on Admission at the Issue Price and held in treasury.

The Issue is not being underwritten.

The Open Offer Shares are being offered to Qualifying Shareholders on the basis of 1 Open Offer Share for every 6 Existing Ordinary Shares held and registered in their names on the Record Date.  Excess applications can be made under the Open Offer and may be allocated in such manner as the Directors determine, in their absolute discretion, and no assurance can be given that applications by Qualifying Shareholders under the Excess Application Facility will be met in full or in part or at all.  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.

Background to and reasons for the Issue

Following its successful acquisition programme to date, the Company has committed £458.5 million to investments in 123 primary healthcare properties.

Acquisition opportunities and forward funding opportunities brought to the Company's attention by the Investment Adviser have remained significant. The Company also benefits from the right of first refusal from the Investment Adviser's sister company, MedicX Property Ltd, and third party General Practice Investment Corporation Limited, who are both leading developers in the sector. The Directors believe that it would be in the interests of the Company to maintain the ability to acquire such properties, and to deploy additional funds raised through the Issue.

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

Benefits of the Issue

The Directors expect that the raising of additional monies through the Issue, combined with the use of the Facilities, should enhance the Company's earnings significantly over the medium term due, principally, to the following:

-              the Company being able to take advantage of opportunities to acquire further properties at attractive running yields;

-             the current significant differential between the cost of debt funding available under the Facilities and the running rental yield on the properties;

-             the fixed running costs of the Company being spread over an enlarged asset base; and

-             the step reduction in fees under the Investment Advisory Agreement as the gross assets increase.

Use of Proceeds

The Company intends to use the proceeds of the Issue to fund new investments and to take advantage of future pipeline opportunities (as described below) in accordance with the Company's Investment Policy. Accordingly, the Board expects to commit the net proceeds of the Issue to investment principally in primary healthcare property within six months of Admission and aims to be fully committed with associated borrowings within twelve months of Admission.

Pending investments being made in primary healthcare or other properties in accordance with the Company's Investment Policy, the Net Proceeds may be held in cash, deposits, government securities or money market instruments.

Extraordinary General Meeting

The Issue is conditional upon, inter alia, the passing of a resolution by Shareholders at an Extraordinary General Meeting of the Company. The Prospectus contains notice of the General Meeting, which will be held at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 1WW, Channel Islands on 21 October 2013 at 10.00 a.m.

ISINS

The ISINs for the Open Offer Entitlements and Excess Open Offer Entitlements are as follows:

Open Offer Entitlements - GG00B8SBNH83

Excess Entitlements - GG00B8N0D817

The Company

The Company was established 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.

As at today's date, the Company has approximately 274.47 million Ordinary Shares in issue (excluding Ordinary Shares held in treasury) and a market capitalisation of approximately £215.5 million.

Investment Adviser and Investment Adviser's Subscription

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

The Investment Adviser currently holds 1,526,584 Ordinary Shares in the capital of the Company and has indicated its intention to take up its entitlement under the Open Offer.

Property Portfolio

As at 31 August 2013, the property portfolio of the Company, which is geographically spread throughout the UK, comprised 122 primary healthcare properties of which 111 are leased to medical practices, NHS Property Services Limited and related services, nine are under construction and two are yet to start construction.

In the period from 1 October 2012 to 31 August 2013 the Company has committed to £59.0 million of investments being three further development properties and the acquisition of a property portfolio.

In May 2013, the MedicX Fund Group completed a corporate acquisition of a portfolio of seven operational, fully let primary care medical centres, together with seven further properties under construction, for a total acquisition cost of £44.7 million. On the same date, MedicX Fund Group entered into a framework agreement with GPIC, providing the MedicX Fund Group with the right of first refusal to forward fund future projects.

Pursuant to that framework agreement, in July 2013, MedicX Fund Group entered into an agreement to acquire a new primary healthcare medical centre in Wigston, Leicestershire which is due to be completed in July 2014. In the period MedicX Fund Group also entered into agreements to acquire properties at Cambridge and Prenton, under its framework agreement with MedicX Property. The total acquisition cost of these three properties is anticipated to be £14.3 million.

Construction completed on properties at Grangetown, Kingston-upon-Thames, Methil, Monkseaton, Uckfield, Raynes Park, Middlewich, Cambridge, Tooting and Scholar Green representing a total commitment from the MedicX Fund Group of approximately £38.9 million of investment.

Also in the period the investment property at Chandlers Ford was sold at its valuation of £1.2 million and the investment property at Maida Vale was sold for £0.2 million more than its valuation of £1.9 million.

As at 31 August 2013, the average age of the 122 properties was 6.1 years, the average value of the properties was £3.6 million and the average term remaining on the leases was approximately 17 years. 90 per cent. of the aggregate rents were payable by PCTs (prior to April 2013) or by NHS Property Services Ltd and GPs, 8 per cent. by pharmacies and 2 per cent. by others. The total acquisition cost of the 122 properties was approximately £450.7 million, including £19 million of purchaser or transaction related costs. The anticipated annualised rent roll on the 122 properties was approximately £28.3 million per annum.

The 122 properties which were held by the Company on 31 August 2013 have been valued as at that date at approximately £443 million (£401 million in relation to completed properties and £42 million in relation to properties under construction) by Jones Lang LaSalle. This valuation of the properties is equivalent to an anticipated Net Initial Yield of approximately 5.79 per cent.

Since 31 August 2013, one further property at Watford was acquired under a Forward Funding Agreement with a total acquisition cost of £7.7 million, and this has commenced construction.

Net Asset Value

As at 31 August 2013, the Ordinary Shares had an unaudited NAV per Ordinary Share of 62.6p, derived from the Company's unaudited management accounts, which incorporates the valuation of the Company's property portfolio at 31 August 2013 as carried out by Jones Lang LaSalle.

The Board believes that a more meaningful calculation of NAV per Ordinary Share should exclude goodwill, the fair value of financial derivatives and deferred tax that is not expected to crystallise, unamortised value of debt reset costs and debt fair value uplift and financial derivatives. On this basis, as at 31 August 2013 the unaudited Adjusted NAV per Ordinary Share was 64.1p.

The unaudited Adjusted NAV as at 31 August 2013 reflects a property valuation with a 5.79 per cent. NetInitial Yield (based on the Valuation Report) compared to 5.84 per cent. as at 30 September 2012. This NAV figure is stated before deducting the amount of 1.425 pence representing the dividend payable on 30 September 2013 to shareholders appearing on the register as at 16 August 2013.

Net asset value as at 31 August 2013 - debt at fair market value

The Company does not mark to market its fixed interest debt in its Financial Statements, other than the recognition of a fair value adjustment on the acquisition of debt facilities in a corporate acquisition or other business combination. However, following advice from the Company's lenders as to the appropriate interest rate margin over the gilt yield over each of its fixed interest loans, the Investment Adviser has calculated a mark to market valuation of its fixed interest debt.

As at 31 August 2013, the unaudited Adjusted NAV, reflecting the fixed rate debt at its mark to market fair value, was equivalent to 70.6p per Ordinary Share.

Since 31 August 2013, gilt yields have increased. Had the gilt yields as at 23 September 2013 (being the latest practicable date prior to publication of the Prospectus) been applied in the calculation of the fair value of the Company's debt on 31 August 2013, the Company's unaudited adjusted NAV at 31 August 2013 reflecting debt at that fair value would be 71.0p.

There is no material adjustment to the mark to market valuation of the £0.1 million swap in respect of the DP Facility.

Borrowings

The Directors intend to continue to secure and utilise long term borrowing facilities of, in aggregate, approximately 50 per cent., but not exceeding 65 per cent., of the Company's total assets attributable to the Existing Ordinary Shares and the New Ordinary Shares.

As at 31 August 2013, the MedicX Fund Group had total debt facilities of £279.7 million (of which £4.4 million remained available to be drawn) with an average all-in fixed rate of 4.45 per cent. and an average unexpired term of 15.9 years. As at 23 September 2013, being the latest practicable date prior to publication of the Prospectus, the MedicX Fund Group had total debt facilities of £279.7 million, of which £4.2 million remains available to be drawn. In addition, the MedicX Fund Group has a £25 million revolving loan facility with the Royal Bank of Scotland plc, entered into on 19 September 2013, none of which has been drawn as at the date of the Prospectus.

As at 31 August 2013, the Company had cash of £33.3 million of which £24.7 million is committed under Forward Funding Agreements where the commitment has not yet been funded by the Company. Since 31 August 2013 £7.7 million has been committed under the Forward Funding Agreement for the Watford property. In addition £3.8 million of the £33.3 million has been set aside in order to pay a dividend per Ordinary Share of 1.425p, payable on 30 September 2013, the record date in respect of which was 16 August 2013. This amount is excluded from the NAV as at 31 August 2013.

The MedicX Fund Group has seven principal loan facilities. The MedicX Fund Group has no swap agreements, other than in respect of the £31.2 million  DP Facility which is repayable on 30 April 2015. The Company has complied with, and remains in compliance with, all covenants under the Facilities.

Discounted cash flow valuation of assets and debt

The Board believes that MedicX Fund has similar characteristics to infrastructure funds which typically calculate the value of their investments based upon discounted cash flows. The Investment Adviser, on the Company's behalf, has carried out an unaudited discounted cash flow valuation of the Company's assets and associated debt as at 31 August 2013.

The basis of preparation is similar to that used by infrastructure funds. The value of each investment is derived from the present value of the property's expected future cash flows, after allowing for debt and taxation, using reasonable assumptions and forecasts based on the predominant lease at each property. The present values of each property and associated debt cash flows so calculated are then aggregated with the surplus cash position of the Company.

The discount rates used are 7 per cent. for completed and occupied properties, and 8 per cent. for properties under construction. These represent 2.5 per cent. and 3.5 per cent. risk premia to an assumed 4.5 per cent. long-term gilt yield. The weighted average discount rate of approximately 7 per cent. reflects the high proportion of completed and occupied properties in the Current Portfolio.

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 current level of borrowings. The discounted cash flow valuation of the Company's assets and debt, as at 31 August 2013, was equivalent to 97.9p 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;

·         the pipeline of MedicX Property Ltd;

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

·         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;

-        the ability to extend or refurbish existing buildings; and

-        relocation services; and

·         long term debt at attractive rates.

In addition, the Company has entered into a framework agreement with General Practice Investment Corporation Limited, a leading developer of primary care properties, providing the MedicX Fund Group with the right of first refusal to forward fund future projects.

Development Agreements and Pipeline

The Company's Investment Policy is principally to acquire the freehold and long leasehold of mainly modern, purpose built primary healthcare properties in the UK, some of which may have the potential for enhancement. These properties will either be completed and operational or development opportunities where the premises requires construction. Properties which are yet to be constructed will be the subject of a forward funding agreement whereby the seller (usually a developer) agrees to construct the property for a fixed price and the Company agrees to fund the construction. Where a development is the subject of a Forward Funding Agreement, the GPs or relevant Commissioning Body/NHS Property Services Ltd as the case may be, will have already contracted to lease the premises at an agreed rent from the Company on completion. The fixed price agreed with the developer will reflect the agreed rent payable. The Company does not engage in speculative development and will only enter into a Forward Funding Agreement if it has an agreement for lease in place on the development in question.

The Investment Adviser will source properties (both completed and subject to Forward Funding Agreements) for the Company from the following:

-      third parties;

-      the pipeline of the MedicX Holdings Limited group of companies (which includes the Investment Adviser (the "MedicX Group pipeline")); and

-      General Practice Investment Corporation Limited, a leading developer of primary care properties, with whom MedicX Fund Group entered into a framework agreement in May 2013, providing the MedicX Fund Group with the right of first refusal to forward fund future projects (the "GPIC pipeline"). GPIC has been, for over 20 years, a specialist developer of primary healthcare properties with 20 people operating across the United Kingdom and has delivered over £450 million of new medical centres in that time.

In aggregate, the Investment Adviser has identified, subject to contract, 30 potential properties of which 10 are completed and 20 are development projects. This pipeline is estimated by the Investment Adviser (on the basis of expected rent and historic and current expected yields) to be worth approximately £95 million in value when fully developed. Of this pipeline, transactions with an expected value of approximately £9.6 million have been agreed in principle and are being legally documented. Properties with an aggregate value of £30 million are completed properties and development projects offered by third parties. Approximately £25 million represents the MedicX Group pipeline of potential primary healthcare development opportunities, where companies within the MedicX Group have been appointed by GPs or the relevant Commissioning Body/NHS Property Services Limited as Preferred Developer. The remaining approximately £28 million represents the GPIC pipeline.

Although no assurance can be given that any of the above projects will ultimately be acquired or completed by the Company, the Company has the right of first refusal (subject to Admission) over all primary healthcare properties offered for sale by the Investment Adviser.

In addition to the sources referred to above, the Investment Adviser is also aware of a number of other completed projects and development opportunities that are available but where terms have not been agreed.

Dividend Policy

The Directors intend to maintain a progressive dividend policy by growing dividends throughout the life of the Company, although no assurance can be given that this will be achieved. This intention is also subject to the Company's performance, to available cash and to the Directors being satisfied that the Company will pass the applicable solvency test in accordance with the provisions of the Companies Law, at the relevant time.

The New Ordinary Shares will have the same right to participate in the profits of the Company as the Ordinary Shares and, consequently, will benefit from any dividend declared in respect of those shares. The New Ordinary Shares will rank pari passu in all respects with the Ordinary Shares on and with effect from the date of issue.

The Directors expect, subject to unforeseen circumstances, to pay dividends totalling 5.7p per Ordinary Share in respect of the financial year ending 30 September 2013. A dividend of 1.425p per Ordinary Share was paid in March 2013, a dividend of 1.425p per Ordinary Share was paid in June 2013 and a dividend of 1.425p is payable on 30 September 2013. A further dividend of 1.425p per Ordinary Share in respect of the financial year ending 30 September 2013 is expected to be payable in December 2013 which holders of New Ordinary Shares will be eligible to receive.

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

Key Risk Factors

·      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.

·       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.

·       As regards England, prior to April 2013 the rental costs of premises used for the provision of primary healthcare were usually reimbursed to GPs (subject to the fulfilment of certain standard conditions) by PCTs. Currently, NHS England is given the power (pursuant to the Health and Social Care Act 2012 and The National Health Service (General Medical Services - Premises Costs) Directions 2013) to reimburse GPs their rental costs for premises for the provision of primary healthcare, in appropriate cases subject to certain standard conditions being met and having regard to its budgetary targets. In the event that a Clinical Commissioning Group 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 also 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 and those borrowings may not be available at the appropriate time or on appropriate terms. In addition, movements in interest rates may affect the cost of financing.

·       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.

·       The Company is exposed to risks and uncertainties on financial instruments. The principal areas are credit risk (the risk that a counterparty fails to meet its obligations), interest rate risk (the risk of adverse interest rate fluctuations), and liquidity risk (the risk that funding is withdrawn from the business).

·       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.

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

Canaccord Genuity:                                                                                        [phone]

Andrew Zychowski (Corporate)

Lucy Lewis (Corporate)

Neil Brierley (Sales)

Will Barnett (Sales)       

Dominic Waters (Sales)

Buchanan Communications:                                                                       [phone]

Charles Ryland

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").  Copies of the Prospectus may, subject to any applicable law, be obtained at no cost at the registered office of the Company or Canaccord Genuity. 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 and the Prospectus 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 Canaccord Genuity nor 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 their date.

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.

Canaccord Genuity 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 Canaccord Genuity Limited nor for providing advice in connection with the Issue and the contents of this announcement or any other matter referred to herein. Canaccord Genuity  Limited is not responsible for the contents of this announcement. This does not exclude or limit any responsibilities which Canaccord Genuity Limited may have under the Financial Services and Markets Act 2000 or the regulatory regime established thereunder.

 

END

 

 

MSCSEIFIIFDSEIU