Quarterly NAV announcement and business update

RNS Number : 2468G

The MedicX Fund Limited

04 August 2016

 

For immediate release                                                                           

4 August 2016

MedicX Fund Limited

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

Quarterly Net Asset Value ("NAV") announcement and business update

MedicX Fund Limited (LSE: MXF), the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom and Ireland, today announces its quarterly NAV as at 30 June 2016.

The fundamental market drivers for primary healthcare remain strong despite wider market uncertainty following the results of the recent EU referendum. Since the end of June, the Company, underpinned by a high quality portfolio with secure, long term income and funding, has demonstrated resilience and is well positioned for the future.

The unaudited EPRA NAV at 30 June 2016 is £275.1 million (31 March 2016: £267.2 million), which equates to an EPRA NAV of 72.8 pence per share (31 March 2016: 71.2 pence per share). The Company also paid a quarterly dividend of 1.4875 pence per share on 30 June 2016.

Market update

The demand for new modern primary care infrastructure continues in both the UK and Republic of Ireland as populations age and a wider range of clinical services is sought to be delivered over longer hours by GPs in their local communities.

Politically, cross-party support remains in place for primary care and its front line pivotal role in providing care. Transforming the NHS through improved access to services, better working efficiency and implementing new ways of working are not expected to change as priorities following the vote to leave the EU.

Reform is also being led by clinical commissioning groups ("CCGs") and GPs, with provider groups emerging to meet increasing patient and regulatory demands. This modernisation creates opportunities for the Fund to partner with providers and invest in new modern purpose built infrastructure capable of delivering care with increased efficiency.

The Fund continues to work with its strategic development partners, engaging with provider groups and working with its tenants to deliver new schemes and premises improvements.

The Republic of Ireland demonstrates similar demographic pressures and political will which has enabled the Health Service Executive to drive forward its programme of putting in place a modern purpose-built estate to deliver new world class healthcare. MedicX Fund is now supporting three schemes underway in Mullingar, Crumlin and Rialto.

Financial position

Between 1 October 2015 and 30 June 2016, MedicX Fund has selectively invested in six standing let UK properties, one forward funded UK property and committed to forward funding its second property in the Republic of Ireland. These acquisitions will have a combined value of £27.4 million when completed. In addition to this, on 25 July 2016, the Fund announced its commitment to invest in a third new Irish medical centre in Rialto, a suburb of Dublin with a completed value of €8.6 million.

Yields in the primary care asset class have continued to fall because of the favourable fundamentals and continued scarcity of new development approvals or modern standing stock. Following the EU referendum the wider real estate market has suffered volatility as a result of increased uncertainty. However transactions in primary care real estate have continued unabated with no evidence of any changes in market sentiment or valuations. Naturally the Fund will monitor the market closely for any evidence of market change as the UK exit from the EU unfolds.

The quarterly valuation of the UK portfolio undertaken by Jones Lang LaSalle LLP as at 30 June 2016 stood at £599.0 million on the basis that all properties were complete. This reflects a Net Initial Yield of 5.28% (31 March 2016: 5.36%) and has resulted in a net valuation gain of £7.4 million during the quarter ended 30 June 2016, after allowing for purchasers' costs. This represents a 1.25% uplift on a like for like basis. The UK portfolio Net Initial Yield of 5.28% compares extremely favourably with a benchmark 20-year gilt rate of 1.79% and current weighted average fixed cost of 14 year debt of 4.45%.

In addition, as at 30 June 2016, Jones Lang LaSalle LLP continued to value the two assets under construction in the Republic of Ireland at €18 million on a completed basis.

Incorporating the June 2016 valuation, the unaudited NAV at 30 June was £270.6 million, equivalent to 71.6 pence per share, compared with 70.0 pence per share as at 31 March 2016. The unaudited EPRA NAV at 30 June 2016 is £275.1 million, equivalent to 72.8 pence per share at 30 June 2016, compared with 71.2 pence per share at 31 March 2016. Following a significant decrease in gilt rates over the quarter and following the EU referendum, the unaudited EPRA NNNAV is estimated to be £213.5 million, equivalent to 56.5 pence per share at 30 June 2016, compared with 60.3 pence per share at 31 March 2016.

Discounted cash flow valuation of assets and debt

The Investment Adviser has undertaken a discounted cash flow ("DCF") valuation of the Group's assets and associated debt at each period end. The basis of preparation is similar to that calculated by infrastructure funds.  The values of each investment are derived from the present value of each 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 total of the present values of each property and associated debt cash flows so calculated are then aggregated with the surplus cash position of the Group.

At 30 June 2016, the DCF valuation was £361.6 million or 95.6 pence per share, compared with £359.8 million or 95.8 pence per share as at 31 March 2016.

The assumptions applied in previous periods remain unchanged. The discount rates used are 7% for completed and occupied properties and 8% for properties under construction.  The weighted average discount rate is 7.05% which represents a 5.26% risk premium relative to the 20 year gilt rate of 1.79% at 30 June 2016. 

The discounted cash flows assume an average 2.5% per annum increase in individual property rents at their respective review dates and also assume the level of gearing and cost of debt are maintained at current levels. Residual values continue to be based upon capital growth at 1% per annum from the current valuation until the expiry of leases (when the properties are notionally sold). 

Rent reviews

Since 1 October 2015, 47 leases and rents of £4.0 million have been reviewed and the equivalent of a 1.15% per annum increase was achieved. Of these reviews, an uplift of 0.78% per annum was achieved through open market reviews, an uplift of 1.94% per annum was agreed for RPI reviews and an uplift of 1.76% per annum was agreed for fixed reviews. Reviews of £15.9 million of passing rent currently remain under negotiation.

Investment activity

In the quarter ended 30 June 2016, construction of the property at Kingsbury reached practical completion and the property was brought into use.

At 30 June 2016 six properties were under construction at Stevenage, Streatham, Benllech, Brynhyfryd, Mullingar and Crumlin. All of these properties are due to complete within the next twelve months.

The portfolio, at 30 June 2016 consisted of 151 properties which continue to perform in line with the long-term objectives of the Fund.

Following the quarter end, the Company contracted to acquire, by way of forward funding, a new primary healthcare medical centre in Rialto, a suburb of Dublin. The property is due to be completed in April 2018. The completed development will be let to the Health Service Executive, a pharmacy and associated medical service providers. The Health Service Executive lease will be for a term of 25 years from practical completion with the majority of rent from the building being subject to five-yearly CPI reviews. The total acquisition cost of the property is €8.6 million.

The Investment Adviser has access to a strong pipeline in both the UK and Ireland with approximately £95 million of assets either in solicitors' hands or under negotiation.

Share issues

On 1 June 2016, the Company sold for cash from treasury 2,500,000 Ordinary Shares at a price of 86 pence per share.

On 30 June 2016 the Company sold in lieu of cash dividend 173,426 Ordinary Shares from treasury pursuant to the Scrip Dividend Scheme, based on a scrip calculation price of 87.50 pence per share.

Following the scrip dividend, the total number of Ordinary Shares of the Company in issue at 30 June 2016 was 394,252,182, of which 16,104,422 were held in treasury, compared with 394,252,182 Ordinary Shares with 18,777,848 held in treasury at 31 March 2016. The total voting rights at 30 June 2016 were 378,147,760, with each Ordinary Share carrying one vote.

On 8 July 2016, the Company sold for cash from treasury 2,000,000 Ordinary Shares at a price of 84.25 pence per share. As of today's date, the total voting rights are 380,147,760, and the Company holds 14,104,422 Ordinary Shares in treasury.

Dividends

On 30 June 2016 a quarterly dividend of 1.4875p per Ordinary Share in respect of the period 1 January 2016 to 31 March 2016 was paid to Ordinary Shareholders on the register as at close of business on 20 May 2016.

On 1 August 2016 the Directors announced a quarterly dividend of 1.4875p per Ordinary Share in respect of the period 1 April 2016 to 30 June 2016.  The dividend will be paid on 30 September 2016 to Ordinary Shareholders on the register as at close of business on 19 August 2016.  Shareholders will be offered the opportunity to take new Ordinary Shares in the Company in lieu of receiving a cash payment under the Scrip Dividend Scheme put in place on 5 May 2010.

The Company expects, subject to unforeseen circumstances, to pay dividends totalling 5.95p per Ordinary Share in respect of the financial year ending 30 September 2016, an increase of 0.05p per Ordinary Share over the previous year.

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For further information please contact:

MedicX Fund                                                                  [phone]

David Staples, Chairman

Octopus Healthcare                                                     [phone]

Mike Adams, Chief Executive Officer

Canaccord Genuity Limited                                              [phone]

Andrew Zychowski / Helen Goldsmith

Buchanan                                                                      [phone]

Charles Ryland / Vicky Hayns

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 and Ireland, listed on the London Stock Exchange, with a portfolio comprising 152 properties.

The Investment Adviser to the Company is Octopus Healthcare Adviser Ltd, which is part of the Octopus Healthcare group. Octopus Healthcare invests in and develops properties as well as creating partnerships to deliver innovative healthcare buildings to improve the health, wealth and wellbeing of the UK. It currently manages over £1 billion of healthcare investments across a number of platforms, with a focus on four core areas: GP surgeries, care homes, retirement housing and private hospitals. Octopus Healthcare is part of the Octopus group, a fast-growing UK fund management business with leading positions in several specialist sectors including healthcare property, energy, property finance and smaller company investing. Octopus manages £5.5 billion of funds for more than 50,000 retail and institutional investors.

Octopus Healthcare Adviser Ltd is authorised and regulated by the Financial Conduct Authority.

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), nor the contents of any website accessible from hyperlinks within this announcement, are incorporated into, or forms part of, this announcement.

 

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