Results for the year ended 30 September 2013
For immediate release 10 December 2013
MedicX Fund Limited
("MedicX Fund", "the Fund" or "the Company")
Results for the year ended 30 September 2013
MedicX Fund Limited (LSE: MXF), the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom, today announces its results for the year ended 30 September 2013.
Highlights
Financial results
· Total shareholder return of 13.1% for the year (2012: 9.0%)1
· Quarterly dividend of 1.425p per share announced October 20132; total dividends of 5.7p per share for the year or 7.1% dividend yield (2012: total dividends of 5.6p per share; 7.6% dividend yield)3,4
· Rental income for the year £24.2 million representing a 54.7% increase from prior year
· £3.4 million rent reviews agreed in the year with the equivalent of an average 1.7% per annum increase, 1.2% from open market reviews, 3.2% from RPI reviews, and 2.5% from fixed uplifts5
· 65.3% increase in EBITDA to £20.8 million6 (2012: £12.6 million)
· Adjusted earnings excluding valuation gain of £9.5 million, an increase of £4.3 million or 82.3% from prior year, equivalent to 3.6p per share (30 September 2012: £5.2 million; 2.3p per share)6
· Dividend and underlying dividend cover 63.8% and 70.7% respectively (30 September 2012: 42% and 68%)7
· Discounted cash flow net asset value of £266.7 million equivalent to 97.0p per share (30 September 2012: £239.3 million; 91.9p per share)
· Adjusted net asset value of £173.3 million equivalent to 63.1p per share (30 September 2012: £165.9 million; 63.7p per share)8
· Adjusted net asset value plus the estimated benefit of fixed rate debt of £190.7 million equivalent to 69.4p per share (30 September 2012: £165.7 million; 63.6p per share)8,9
Investments
· New committed investment and approved investments since 1 October 2012 of £66.7 million acquired at a cash yield of 5.85%
· £456.7 million committed investment in 121 primary healthcare properties an increase of 16% in the year (30 September 2012: £394.8 million, 107 properties)3,10
· Annualised rent roll now £28.8 million with 90% of rents reimbursed by the NHS, an increase of £4.0 million since 1 October 20123
· Strong pipeline of approximately £100 million further acquisition opportunities3
Funding
· Market capitalisation £272.8 million3 following share price appreciation and £57.5 million net proceeds raised from 77.8 million shares issued since 1 October 2012 at an average issue price of 75.5p per share
· New £25 million revolving loan facility with an agreed term of three years and an all-in variable rate expected to be 3%
· Acquired debt of £34.7 million with a weighted all-in fixed rate of 4.47% on an average unexpired term of 14.8 years. £63.8 million of previously acquired debt has been reset during the year to a weighted all-in fixed rate of 4.45% on an average unexpired term of 11.6 years
· Total drawn debt facilities of £275.7 million with an average all-in fixed rate of debt of 4.45% and an average unexpired term of 15.8 years, close to unexpired lease term of the investment properties and compared with 4.45% and 16.8 years for the prior year
· Net debt £246.7 million equating to 56.4% adjusted gearing at 30 September 2013, reducing to approximately 45% reflecting the share issue post year end.
David Staples, Chairman said "I am pleased to report another successful year for MedicX Fund, with a total return of 13.1% generated for shareholders in the year and an average return of 10.2% over the last five years.
We continue to maintain our progressive dividend policy with an increase in dividends for the year to 5.7 pence from 5.6 pence the previous year. The shares currently yield 7.1% based on the share price at 6 December 2013 of 80.25 pence. Subject to unforeseen circumstances the Directors expect that the Company will pay dividends totalling 5.8p for the financial year ending 30 September 2014.
We see strong demand for modern purpose-built primary healthcare properties and the Fund has continued to be successful in completing acquisitions that meet its investment criteria. The Fund looks to invest in properties that will generate secure long term cash flows well beyond the original lease term. As part of the GPI portfolio acquisition in May 2013, the Fund put in place a framework agreement giving it first right of refusal to GPI's pipeline thereby expanding the Fund's sources for assets.
Additionally the Fund took advantage of the low interest rate environment in the period and reset certain long term fixed rate debt facilities to the prevailing market rate at the time, crystallising the gap between rental yields and finance costs. The total debt facilities of the Company as at 30 September 2013 have a weighted average unexpired term of 15.8 years, and a weighted average all-in fixed rate of 4.45%. We are very proud of our low cost long term debt and the new RBS revolving loan facility completed in September provides additional financing flexibility for the Fund.
On the back of a successful fund raising in October and with a substantial pipeline of investment opportunities already identified, the Fund is in a prime position to further enhance earnings and continue to deliver attractive long term returns to shareholders."
For further information please contact:
MedicX Group: +44 (0) 1483 869 500
Keith Maddin, Chairman
Mike Adams, Chief Executive Officer
Mark Osmond, Chief Financial Officer
MedicX Fund: +44 (0) 1481 723 450
David Staples, Chairman
Canaccord Genuity Limited: +44 (0) 20 7523 8000
Andrew Zychowski/Lucy Lewis
Buchanan: +44 (0) 20 7466 5000
Charles Ryland/Sophie McNulty
Information on MedicX Fund Limited
MedicX Fund Limited ("MXF", the "Fund" or the "Company", or together with its subsidiaries, the "Group") the specialist primary care infrastructure investor in modern, purpose-built primary healthcare properties in the United Kingdom, listed on the London Stock Exchange in November 2006. It has committed investment of £456.7 million and a portfolio of 121 properties.
The Investment Adviser to the Company is MedicX Adviser Ltd, which is authorised and regulated by the Financial Conduct Authority and is a subsidiary of the MedicX Group. The MedicX Group is a specialist investor, developer and manager of healthcare properties with 31 people operating across the UK.
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.
1 Based on share price growth between 30 September 2012 and 30 September 2013 and dividends received during the year
2 Ex-dividend date 13 November 2013, Record date 15 November 2013, Payment date 31 December 2013
3 As at 6 December 2013
4 Total dividends declared divided by share price at 6 December 2013 (2012: at 4 December 2012)
5 This excludes a 100% fixed uplift on a small nominal rent, which if included increases the overall achieved per annum to 2.0% in the year, and 25.5% per annum on fixed uplift reviews.
6 Excluding (as appropriate) revaluation gain £0.2m, performance fees £0.4m, finance costs £11.0m, and interest income £0.1m
7 Dividend cover excludes revaluation gains, performance fee and fair value on reset of loans. Adjusted dividend cover includes impact of properties under construction as completed properties
8 Net assets adjusted to exclude the impact of deferred tax not expected to crystallise £0.8m, financial derivatives £0.1m, and the impact of resetting debt interest costs £1.5m.
9 Estimated benefit of all fixed rate debt of £17.3m calculated following advice from the Group's lenders
10 Includes completed properties, properties under construction and committed investment
Chairman's statement
Introduction
I am pleased to present the seventh annual report for the Fund, on behalf of the Board.
The objectives and strategy for the Fund remain unchanged - to generate long term income from investment in purpose built primary healthcare medical centres, generating strong and stable returns for investors. We look to invest in properties that will generate returns for shareholders well beyond their original lease term. As a result of this focus, and the value-adding property acquisitions carried out over the past few years the Company has created a market leading modern primary care portfolio. Fund performance has been good and the Fund has generated a total annual shareholder return, as measured by dividends paid and share price growth, over the past five years of 10.2% on average, with a return of 13.1% generated in the year under review.
Results overview
The Fund has performed well over the past year. 2013 has seen continued earnings enhancing growth through significant new investment in primary healthcare properties and taking out further low cost fixed rate long term debt. This follows the significant growth in the previous year and further strengthens the Fund's position within the primary care investment property market. In spite of the significant disruption caused within the NHS by the Health and Social Care Act, the demand for new purpose-built primary healthcare properties continues to be strong with increased demand on primary care, although lead times to bring projects to fruition have lengthened due to the on-going administrative changes within the NHS. The Fund has increased its portfolio with 18 new properties acquired during the period under review. Fourteen of these properties were acquired in May by way of a corporate acquisition with committed investment of £44.7 million. Seven of the fourteen properties were completed and were immediately revenue generating. The Group now has committed investment of £456.7 million across 121 properties of which 10 remain under construction.
The Group's net asset value at 30 September 2013, adjusted to exclude the impact of deferred tax not expected to crystallise, financial derivatives and the impact of resetting debt costs, increased 3% to £173.3 million or 63.1 pence per share. (30 September 2012: £165.9 million or 63.7p per share).
The Fund has continued to take advantage of the low interest rate environment, locking into long term fixed rate debt including resetting interest rates on the Aviva PMPI loan facility to market rates in December 2012. It would not be appropriate to value the Fund's assets without also reflecting the value of all its liabilities and therefore the Fund reports the mark to market value of its debt. Gilt rates have increased markedly since May 2013 resulting in an increase in the mark to market benefit of the Fund's debt facilities. As at 30 September 2013 the market benefit of the Fund's debt is £17.3 million or 6.3p per share. The adjusted net asset value plus the estimated cost of fixed rate debt is 69.4 pence per share.
As at the date of this report the market benefit of the Fund's debt facilities has increased to £22.0m or 6.5 pence per share following an increase in gilt rates since 30 September 2013.
In line with other infrastructure funds and given the long-term predictable cash flows, we believe it is appropriate to calculate a net asset value based upon discounted cash flows. This basis, as set out in the Investment Adviser's report, gives a net asset value of £266.7 million or 97.0 pence per share, based upon a weighted average discount rate of 7.13%. (30 September 2012: £239.3 million; 91.9p per share)
Rental income grew by £8.6 million or 54.7% during the year, with half of this growth from the portfolio acquired in the prior year. Costs are in line with expectations given the level of activity and the acquisitions in the year. Finance costs incurred in the period were £3.8 million higher than in the prior year, in line with expectations, reflecting the additional low cost debt facilities put in place as the portfolio has grown. The long term profile of the debt portfolio held by the Fund and the favourable fixed interest rates on these facilities will continue to deliver value to the Fund over their remaining life.
EBITDA (earnings before interest, taxation and depreciation), excluding the impact of revaluations, fair value adjustments for financial instruments and performance fees has increased 65.3% to £20.8 million for the year to September 2013, from £12.6 million in the previous year.
Capital appreciation of the portfolio for the year was £2.9 million with £2.7 million of purchase and related costs written off (in line with sector norms) generating a valuation gain of £0.2 million.
Adjusted earnings excluding revaluation impact, performance fees, fair value adjustments for financial instruments and deferred taxation was £9.5 million, an increase of £4.3 million or 82.3% from the prior year.
Funding
A highly successful fund raise was completed shortly after the year end. The issue was substantially over subscribed and we thank existing shareholders for their continued support as well as welcoming new investors. The Fund is seeking to deploy the proceeds quickly into appropriate primary healthcare property investments whilst maintaining the quality of its portfolio and targeting investments that will generate long term income and good returns for shareholders.
The fund raising was priced at only a small discount to the share price at the time and a premium of 6.2% to the adjusted Net Asset Value plus mark to market of debt. It is very pleasing to continue to have raised equity on a basis that has been non-diluting to existing shareholders.
The fund raising resulted in the issue of 85 million shares at 75 pence per share, by way of a placing, open offer and offer for subscription, of which 20 million shares were immediately repurchased by the Company and added to those held in treasury. This issue generated net proceeds of £47.6 million excluding those shares held in treasury.
Treasury shares have been and will continue to be utilised to satisfy further demand for shares in the Company, including any demand for shares under the scrip dividend scheme. They will only be sold at a premium to adjusted NAV.
The Fund has taken advantage of movements in borrowing rates over the last two years and put in place long term debt facilities at low fixed cost to achieve a significant spread between its acquisition costs and its cost of debt.
Debt facilities totalling £34.7 million were acquired as part of the portfolio acquisition in May. The facilities have an average remaining term of 14.8 years and was acquired with a weighted average fixed interest rate of 4.47%.
In addition we were delighted to announcein September that the Fund had put in place a £25 million revolving loan facility with The Royal Bank of Scotland. The facility is for a three year term at a rate based on a margin over LIBOR, set according to group loan to value. At current rates the facility is expected to cost approximately 3%. The facility is not secured on any properties. This complements MedicX Fund's existing long term debt facilities and enables the Fund to commit to investments without putting fixed term debt in place on day one. The facility will then be drawn to fund further commitments and repaid on any future fundraising, enabling the Fund to manage its cash more efficiently.
The weighted average unexpired term of all drawn debt is 15.8 years, closely matching the average remaining unexpired lease term of the Fund's portfolio. The debt strategy remains to pick the best time to put in place the right debt facilities of the right cost and appropriate duration.
The adjusted gearing as at 30 September 2013 was 56.4%, increased from 51.2% as at 30 September 2012 as a result of the acquisitions, debt acquired and new debt facilities. If the October fund raise had been concluded by 30 September 2013, and thereby been included in the year end position, the gearing would have been approximately 45%. The Directors continue to target borrowings of approximately 50% on average over time and not exceeding 65% of the Company's total assets.
The covenants on the debt facilities have been complied with in the year. The details of the covenants for each facility and the compliance with the covenants are described in note 12 of the financial statements.
Dividends
The Fund has maintained its progressive dividend policy, with total dividends declared of 5.7p per Ordinary Share in respect of the financial year ended 30 September 2013. This is an increase from the dividends of 5.6p per ordinary share for the year to 30 September 2012. Subject to unforeseen circumstances, the Directors expect that the Company will pay dividends totalling 5.8p for the financial year ending 30 September 2014.
In October 2013 the Directors approved a quarterly dividend of 1.425p per Ordinary Share in respect of the period 1 July 2013 to 30 September 2013. The dividend will be paid on 31 December 2013 to shareholders on the register as at close of business on 15 November 2013 (the "Record Date"). The corresponding ex-dividend date was 13 November 2013.
The Company has offered qualifying shareholders the opportunity to take new Ordinary Shares in the Company, credited as fully paid, in lieu of the cash dividend to be paid on 31 December 2013, by participating in the Scrip Dividend Scheme (the "Scheme") put in place by the Company on 5 May 2010. The results from this offer will be announced on 10 December 2013.
Shareholders are encouraged to consider the advantages of the Scheme. For further information on the Scheme, together with a copy of the Scheme Document (containing the terms and conditions of the Scheme) and relevant mandate forms, please refer to the Scrip Dividend portal on the Company's website (www.medicxfund.com/scrip).
The Fund pays a high proportion of its return in the form of a dividend, yielding 7.1% at the date of this report, which is attractive to shareholders particularly at a time when reliable yield is hard to find. As a consequence of this part of the dividend is paid from capital rather than earnings. The Fund has sought to improve cover over time and I am pleased to report that it has achieved this, with both dividend cover and underlying dividend cover having improved.
Dividend cover measured against adjusted earnings (as disclosed in note 8 of the financial statements) was 63.8% for the year to 30 September 2013. Underlying dividend cover adjusted to reflect completion of the properties under construction was 70.7% (assuming full annual rent on all properties and a full year of associated interest costs and other expenses).
This means that of the dividend yield of 7.1%, the Fund is paying 5.0% fully covered by earnings on an underlying basis with the balance paid out of capital. The Fund will continue to look to improve cover over time.
An average of 8.8% of the dividends paid in the year ended 30 September 2013 were in the form of scrip dividends and did not result in a cash outflow from the Company.
As the Fund continues to grow it is expected that dividend cover and underlying dividend cover will improve further and will align themselves. Inevitably following a fundraise there is a short term impact on dividend cover until proceeds are deployed, and the success of the recent fund raise will have a temporary detrimental impact on cover in the coming year. The underlying dividend cover shows that the direction of travel of dividend cover is positive, and the Fund will continue to drive further improvements in the dividend cover position.
Investment Adviser
On 29 May 2013, the Fund agreed a further reduction in the Investment Adviser base fee and property management fee effective 1 July 2013.
The Investment Adviser fee was amended to be charged on healthcare property assets only rather than assets and a further lower tier of fees was added. From a base fee of 0.75% of assets up to £300 million, the fee reduces to 0.65% on the element from £300 to £500 million, and when gross assets exceed £500 million the fee will be 0.5% on the incremental element. This is designed to bring scale benefits as the Fund grows.
The property management fee also has a tiered structure. During the year the Fund's rent roll reached £25 million and the property management fee is now 3% of gross rents to £25 million, reducing to 1.5% of the incremental gross rents over £25 million.
On completion of the October 2013 fundraising, the cap on the first right of refusal of £500 million was dropped, so the Fund now has first right of refusal on any qualifying property sourced by the MedicX Group as long as the Investment Advisory Agreement remains in place.
Approach to Assura Group Limited
During the year the Fund made a proposal to Assura Group Limited ("Assura") to acquire the share capital of that company with the support of Assura's two largest shareholders, the proposal being conditional on the recommendation of the offer by the Assura Board. The Assura Board rejected the proposal and the Fund has since announced that it was no longer exploring an offer for Assura. No costs were incurred by the Fund regarding this proposal.
Annual General Meeting
At the Annual General Meeting held on 20 February 2013, shareholders passed all of the resolutions proposed. This included authority for the Directors to issue Ordinary Shares for cash or sell from treasury up to an amount representing 10% of the issued Ordinary Share capital on 20 February 2013 on a non-pre-emptive basis, provided that such Ordinary Shares shall be allotted for cash at a price which is not less than the Company's adjusted net asset value at the time of the issue.
In addition a separate resolution was passed giving the ability for the Company to acquire its own shares (either for cancellation or to be held as treasury shares) up to a maximum of 14.99% of total shares issued, at a minimum price of 1 pence per share, and a maximum price per share of either 105% of the average mid-market share price for the five days preceding the purchase, the price of the last independent trade or the highest current independent bid at the time of the purchase. All purchases under this resolution are to be made in the market for cash and at prices below the prevailing net asset value per share as determined by the Directors. These powers expire immediately prior to the date of the Annual General Meeting of the Company, to be held on 18 February 2014, and it is intended that these two resolutions will again be put before shareholders at that meeting.
Share price and outlook
In the year to 30 September 2013, the total shareholder return, as measured by dividends received and share price growth, was 13.1%. Of the return, 7.7% was attributable to dividends received with the remainder from growth in the share price. At 6 December 2013, the mid-market share price was 80.25 pence per share ex dividend, this represents a 7.1% dividend yield based upon the 5.7 pence per share dividends declared for the year, and a premium of 27.2% to the adjusted net asset value of 63.1 pence per share. Additionally, this represents a premium of 15.6% to the adjusted net asset value plus the estimated mark to market benefit of debt of 69.4 pence per share and a discount of 17.3% to the discounted cash flow net asset value of 97.0 pence per share.
The Directors continue to keep the possibility of conversion to a Real Estate Investment Trust under review.
On the back of a successful fund raising and with a substantial pipeline of investment opportunities already identified, the Fund is in a prime position to further enhance earnings and continue to deliver attractive long term returns to shareholders.
David Staples
Chairman
9 December 2013
Investment Adviser's report
Market
In the primary care investment sector, growth in total returns has been steady over the year, driven by a small amount of yield compression for prime assets, although market rental growth has slowed. The IPD UK Healthcare Index 2012 released in May 2013 shows that during the year to 31 December 2012, total return for All Healthcare Property performed slightly below All Commercial Property (2.4% total return versus 3.4% respectively) with Primary Care returning at 6.8% against Secondary Care return of -3.1%. The difference in return was primarily from capital growth with Primary Care property demonstrating capital growth of 0.7% during the period; outperforming Secondary Care and All Commercial Property. The next IPD UK Healthcare Index to 31 December 2013 is due for release in May 2014.
Initial yields on prime primary healthcare assets secured on leases with fixed or RPI linked rent reviews are currently between 5.25% and 5.70%, and those for assets secured on leases with upwards only, open market reviews are between 5.50% and 5.90% with other assets at higher yields.
The ongoing negotiation of the GP contract has brought some clarity to the desired future of primary care, requiring GPs to take a more prominent role in the delivery of care while at the same time necessitating that GPs become more flexible in the provision of care services. It includes the requirement to provide out of hours care for the elderly. This is expected to increase the demand for purpose built premises and associated services which the Fund is well placed to be able to provide. The Fund is a leader in its ability to provide such buildings.
The Fund's assets are well placed to support GPs and the commissioning groups. The current portfolio incorporates a wide range of prime buildings that are well located to deliver the services required. New acquisitions continue to be focussed on their ability to be fit to deliver the demands of the new service driven environment that will meet the primary care estate needs over the next 25 years.
Portfolio update
The Fund now has committed investment of £456.7 million at today's date, an increase of 16% since 1 October 2012, in 121 primary healthcare properties.10 The annualised rent roll of the portfolio properties is £28.8 million, an increase of £4.0 million since 1 October 2012.
The valuation of the portfolio undertaken by Jones Lang LaSalle Limited, independent valuers to the Group, stood at £451.0 million as at 30 September 2013 on the basis that all properties were complete, reflecting a net initial yield of 5.79% (5.84% as at 30 September 2012). The results reflect a valuation gain of £0.2 million for the year of which the capital appreciation of the portfolio was £2.9 million as a result of rental growth with £2.7 million of purchase and related costs written off during the period.
At 6 December 2013, the portfolio of properties had an average age of 6.0 years, remaining lease length of 17.0 years and an average value of £3.7 million. Of the rents payable, 90.4% are from government-funded doctors and the NHS, 7.9% from pharmacies and 1.7% from other parties.
During the year the Group procured a total of 18 properties representing a total commitment of £66.7 million at a cash yield of 5.85%. 14 of the properties were acquired by way of a portfolio acquisition outlined below, with the remaining four properties acquired as individual acquisitions. These represent total commitments of £44.7 million and £22.0 million respectively.
In May the Fund completed the acquisition of a portfolio developed by General Practice Investment Corporation Limited ("GPI"), a leading third party developer of primary care properties. This high quality portfolio consisted of seven operational, fully let primary care medical centres, together with seven further properties under construction. The completed properties within the acquired portfolio were on average less than one year old whilst the total acquired portfolio benefits from 38% RPI indexed leases with a further 5% subject to fixed uplifts, the balance being subject to open market reviews.
The Investment Adviser has also negotiated a framework agreement with GPI, giving the Fund first right to forward fund future projects which added £35 million to the Fund's pipeline.
Four new development projects at Cambridge, Prenton, Wigston and Watford were acquired in the year. Of these Wigston was acquired from GPI. These new investments represent a commitment of £22.0 million. With the exception of Cambridge, which had completed at the year end, the new acquisitions were all under construction as at 30 September 2013.
In the year, successful completion was achieved of properties under construction at Raynes Park, Kingston, Grangetown, Monkseaton, Methil, Uckfield, Tooting, Middlewich, Scholar Green, and Cambridge, representing a total commitment of £38.9 million. All of the completed projects were delivered within budget.
Construction continued on the existing projects at Caerphilly and Arnold, while the construction of new projects at Wigston, Prenton, and Watford commenced in the year. The outstanding commitment on these properties at 30 September 2013 was £23.1 million, with most projects expected to complete in the next year. Of the projects under construction as at 30 September 2013, the properties at Caerphilly and Wiveliscombe have since been completed within budget.
The Fund has a pipeline of identified investment opportunities of £100 million, of which £23 million relates to completed assets and £77 million relates to forward funding opportunities where the Fund is the preferred investment partner.
In March 2013 and August 2013 the Group disposed of two of its smaller properties at Chandlers Ford and Maida Vale, for £1.0 million and £2.1 million respectively, and sold a further two small properties at Wheathampstead (for £0.6 million) and High Wycombe (for £1.0 million) after the year end. The Group will continue to look to dispose of properties selectively where they no longer meet its long term investment criteria.
As noted the valuation yield on investments is 5.79% compared with the Group's weighted average fixed rate debt of 4.45% and a benchmark 20-year gilt rate of 3.54% at 30 September 2013. With committed investment since 1 October 2012 of £66.7 million and the identified investment opportunities of approximately £100 million, the Company is set to continue to grow and deliver value to its shareholders.
Asset management
During the year to 30 September 2013 the fund averaged 1.7% on its rent reviews, with 42 leases and rents of £3.4 million having been reviewed. Of these reviews, 1.2% per annum was achieved on open market reviews, 3.2% per annum was achieved on RPI based, and 2.5% per annum fixed uplift reviews5. Reviews of £9.7 million of passing rent are currently under negotiation as at 6 December 2013.
Whilst the demand statistics for new medical centres are unquestioned with both the overall and elderly population increasing, and that putting pressure on consultations, open market reviews have suffered as construction costs have held below inflation following the last recession. With construction costs now coming under pressure fuelled by general activity and the Help to Buy scheme, it can be expected that there will be pressure on costs of new medical centres and therefore rents of new buildings. This can only be expected to lead to increased rent reviews in the medium term. In the shorter term however, we continue to expect below trend increases from open market reviews.
Valuations have remained flat during the period. Primary healthcare properties continue to provide good value compared with wider prime properties at yields close to or below 5%. In addition previous acquisitions have provided some good asset management opportunities and the Fund has realised some rental uplifts and valuation gains from these.
The Fund continually reviews its portfolio for asset management opportunities and has identified a number of opportunities to enhance the portfolio and increase valuations.
Of the £28.8 million annualised rent roll at 6 December 2013, there was £21.5 million, 74.7% subject to open market review, £5.8 million, 20.1% subject to RPI reviews and £1.5 million, 5.2% subject to fixed uplift reviews, resulting in an average 2.5% per annum increase. The proportion of rent subject to RPI uplifts has increased over the last six years from 6.0% to 20.1%.
Discounted cash flow valuation of assets and debt
On the Fund's behalf the Investment Adviser has carried out a discounted cash flow ("DCF") valuation of the Group 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 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 total of the present values of each property and associated debt cash flows so calculated is then aggregated with the surplus cash position of the Group.
At 30 September 2013, the DCF valuation was £266.7 million or 97.0 pence per share compared with £239.3 million or 91.9 pence per share at 30 September 2012, the increase resulting part from the acquisition of the GPI portfolio and the resetting of the interest rates on the Aviva PMPI debt facility.
The discount rates used are 7% for completed and occupied properties and 8% for properties under construction. These represent 2.5% and 3.5% risk premiums to an assumed 4.5% long term gilt rate. The weighted average discount rate is 7.13% and this represented a 3.59% risk premium to the 20 year gilt rate at 30 September 2013 of 3.54%.
The discounted cash flows assume an average 2.5% perannum increase in individual property rents at their respective review dates. 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), and also assuming the current level of borrowing facilities.
For the discounted cash flow net asset value to equate to the share price as at 30 September 2013 of 80 pence per share, the discounted cash flow calculation would have to assume a 0.1% decrease in rents per annum, or a 1.0% capital reduction per annum, or a weighted average discount rate of 8.9%. These reductions in rents and capital values would need to take place every year until the expiry of individual property leases.
For the discounted cash flow net asset value to equate to the share price as at 6 December 2013 of 80.25 pence per share, the discounted cash flow calculation would have to assume no change in rents per annum, or a 1.0% capital reduction per annum, or a weighted average discount rate of 8.8%.
Taking the adjusted net asset value plus the estimated benefit of fixed rate debt of 69.4 pence per share and assumed purchaser costs of 9.5 pence per share, an implied net initial yield of 5.21% is required to get to the discounted cash flow net asset value of 97.0 pence.
A review of sensitivities has been carried out in relation to the valuation of properties. If valuation yields firmed by 0.5% to a net initial yield of 5.29%, the adjusted net asset value would increase by approximately 15.5 pence per share to 78.6 pence per share and the adjusted net asset value plus debt would increase to 84.9 pence per share.
Pipeline and investment opportunity
The spread between the yields the Fund can acquire properties at and the cost of long term debt and Government gilts remains significant. The Investment Adviser has continued to successfully source properties both through the MedicX Group's development arm, MedicX Property, and through its established relationships with investors, developers and agents in the sector. The Fund currently has access to a property pipeline, subject to contract, which is estimated to be worth approximately £100 million in value when fully developed.
Interest in voting rights of the Company
The Investment Adviser has beneficial interest in the following number shares in the Company:
|
|
2013 |
2012 |
|
MedicX Adviser Ltd |
1,554,384 |
1,445,618 |
In addition the Investment Adviser took up its allocation under the open offer of the October 2013 fundraising purchasing an additional 254,430 Ordinary Shares bringing the total number of shares held by MedicX Adviser Ltd as at the date of this report to 1,808,814, 0.53% of the issued share capital of the Company.
During the year the Investment Adviser received dividends on the holding in the Company in addition to fees received for services. With the Scrip Dividend Scheme in place, the Investment Adviser elected to receive its dividends in the form of new Ordinary Shares. The cash equivalent of the dividends received by the Investment Adviser was £84,359, compared with £57,479 in the year ended 30 September 2012.
Keith Maddin Chairman
Mike Adams Chief Executive Officer
Mark Osmond Chief Financial Officer
MedicX Adviser Ltd
1 Based on share price growth between 30 September 2012 and 30 September 2013 and dividends received during the year
2 Ex-dividend date 13 November 2013, Record date 15 November 2013, Payment date 31 December 2013
3 As at 6 December 2013
4 Total dividends declared divided by share price at 6 December 2013 (2012: at 4 December 2012)
5 This excludes a 100% fixed uplift on a small nominal rent, which if included increases the overall achieved per annum to 2.0% in the year, and 25.5% per annum on fixed uplift reviews.
6 Excluding (as appropriate) revaluation gain £0.2m, performance fees £0.4m, finance costs £11.0m, and interest income £0.1m
7 Dividend cover adjusted to include impact of properties under construction as completed properties
8 Net assets adjusted to exclude the impact of deferred tax not expected to crystallise £0.8m, financial derivatives £0.1m, and the impact of resetting debt interest costs £1.5m.
9 Estimated benefit of all fixed rate debt of £17.3m calculated following advice from the Group's lenders
10 Includes completed properties, properties under construction and committed investment
Principal risks and uncertainties
The key risk factors relating to the Group are listed below:
· 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).
Further details of the Audit Committee's risk monitoring activities may be found in the Report of the directors, the Report of the audit committee, and Corporate governance statement.
Consolidated Statement of Comprehensive Income
|
|
|
2013 |
'Restated1' 2012 |
|
|
Notes |
£'000 |
£'000 |
|
|
|
|
|
|
Income |
|
|
|
|
Rent receivable |
1 |
24,201 |
15,642 |
|
Other income |
1 |
1,336 |
991 |
|
Total income |
|
25,537 |
16,633 |
|
|
|
|
|
|
Realised and unrealised valuation movements |
|
|
|
|
Net valuation gain/(loss) on investment properties |
9 |
248 |
(2,269) |
|
Gain/(loss) on disposal of property |
9 |
156 |
(131) |
|
|
|
404 |
(2,400) |
|
Expenses |
|
|
|
|
Direct property expenses |
|
413 |
283 |
|
Investment advisory fee |
19 |
2,957 |
2,384 |
|
Investment advisory performance fee |
19 |
396 |
515 |
|
Property management fee |
19 |
639 |
436 |
|
Administrative fees |
19 |
75 |
68 |
|
Audit fees |
3 |
134 |
135 |
|
Professional fees |
|
291 |
237 |
|
Directors' fees |
2 |
144 |
125 |
|
Other expenses |
|
268 |
271 |
|
Total expenses |
|
(5,317) |
(4,454) |
|
|
|
|
|
|
Profit before interest and tax |
|
20,624 |
9,779 |
|
|
|
|
|
|
Finance cost |
4 |
(11,084) |
(7,265) |
|
Finance income |
1 |
125 |
127 |
|
|
|
|
|
|
Profit before tax |
|
9,665 |
2,641 |
|
|
|
|
|
|
Taxation |
6 |
(299) |
(213) |
|
|
|
|
|
|
Profit attributable to equity holders of the parent |
|
9,366 |
2,428 |
|
|
|
|
|
|
Other comprehensive income Items that may be reclassified subsequently to profit or loss: |
|
|
|
|
Fair value gain/(loss) on financial derivatives |
5 |
57 |
(125) |
|
|
|
|
|
|
Total comprehensive income attributable to equity holders of the parent |
|
9,423 |
2,303 |
|
|
|
|
|
|
Earnings per ordinary share Basic and diluted |
8 |
3.6p |
1.1p |
|
|
|
|
|
For the year ended 30 September 2013
1. See note 1 of the Notes to the financial statements.
The accompanying notes form an integral part of the financial statements.
Consolidated Statement of Financial Position
As at 30 September 2013
|
|
|
2013 |
'Restated1' 2012 |
'Restated1' 2011 |
|
|
Notes |
£'000 |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
|
Investment properties |
9 |
426,649 |
365,067 |
213,603 |
|
Total non-current assets |
|
426,649 |
365,067 |
213,603 |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
Trade and other receivables |
10 |
11,004 |
6,358 |
5,125 |
|
Cash and cash equivalents |
15 |
27,063 |
66,247 |
18,112 |
|
Total current assets |
|
38,067 |
72,605 |
23,237 |
|
|
|
|
|
|
|
Total assets |
|
464,716 |
437,672 |
236,840 |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
11 |
19,994 |
16,088 |
9,316 |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Long-term loans |
12 |
272,615 |
255,453 |
100,443 |
|
Rental deposits |
|
60 |
- |
- |
|
Deferred tax liability |
6 |
774 |
475 |
262 |
|
Provisions |
7 |
215 |
215 |
- |
|
Financial derivatives |
5 |
68 |
125 |
- |
|
Total non-current liabilities |
|
273,732 |
256,268 |
100,705 |
|
|
|
|
|
|
|
Total liabilities |
|
293,726 |
272,356 |
110,021 |
|
|
|
|
|
|
|
Net assets |
|
170,990 |
165,316 |
126,819 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
13 |
- |
- |
- |
|
Share premium |
13 |
141,283 |
131,328 |
80,315 |
|
Treasury shares |
13 |
(1,108) |
(2,323) |
- |
|
Other reserves |
14 |
30,815 |
36,311 |
46,504 |
|
|
|
|
|
|
|
Total attributable to equity holders of the parent |
|
170,990 |
165,316 |
126,819 |
|
|
|
|
|
|
|
Net asset value per share Basic and diluted |
|
62.2p |
63.5p |
65.8p |
The financial statements were approved and authorised for issue by the Board of Directors on 9 December 2013 and were signed on its behalf by
David Staples
1 See note 1 of the Notes to the financial statements
The accompanying notes form an integral part of the financial statements.
|
|
|
Share |
Treasury Shares £'000 |
Other reserves |
Total |
|
|
|
|
|
|
|
|
'Restated 1' Balance at 1 October 2011 |
|
80,315 |
- |
46,504 |
126,819 |
|
Proceeds on issue of shares |
|
62,857 |
- |
- |
62,857 |
|
Share issue costs |
|
(991) |
- |
- |
(991) |
|
Shares repurchased and held in treasury |
|
- |
(13,176) |
- |
(13,176) |
|
Shares sold from treasury |
|
(10,853) |
10,853 |
- |
- |
|
Total restated 1 comprehensive income for the year |
|
- |
- |
2,303 |
2,303 |
|
Dividends paid |
16 |
- |
- |
(12,496) |
(12,496) |
|
'Restated 1' Balance at 30 September 2012 |
|
131,328 |
(2,323) |
36,311 |
165,316 |
|
Proceeds on issue of shares |
|
11,314 |
- |
- |
11,314 |
|
Share issue costs |
|
(144) |
- |
- |
(144) |
|
Shares sold from treasury |
|
(1,215) |
1,215 |
- |
- |
|
Total comprehensive income for the year |
|
- |
- |
9,423 |
9,423 |
|
Dividends paid |
16 |
- |
- |
(14,919) |
(14,919) |
|
Balance at 30 September 2013 |
|
141,283 |
(1,108) |
30,815 |
170,990 |
|
|
|
|
|
|
|
1 See note 1 of the Notes to the financial statements
The accompanying notes form an integral part of the financial statements.
|
|
|
2013 |
'Restated 1' 2012 |
|
|
Notes |
£'000 |
£'000 |
|
Operating activities |
|
|
|
|
Profit before taxation |
|
9,665 |
2,641 |
|
Adjustments for: |
|
|
|
|
Net valuation (gain)/loss on investment properties |
9 |
(248) |
2,269 |
|
(Gain)/loss on disposal of investment property |
|
(156) |
131 |
|
Financial income receivable |
|
(125) |
(127) |
|
Finance costs payable and similar charges |
4 |
11,084 |
7,265 |
|
|
|
20,220 |
12,179 |
|
|
|
|
|
|
Increase in trade and other receivables |
|
(4,070) |
(792) |
|
Increase in trade and other payables |
|
2,305 |
2,835 |
|
Increase in rental deposits |
|
60 |
- |
|
Interest paid |
|
(11,538) |
(7,853) |
|
Early debt repayment fees |
|
- |
(1,929) |
|
Interest received |
|
43 |
48 |
|
Net cash inflow from operating activities |
|
7,020 |
4,488 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Acquisition of investment properties |
|
(5,310) |
(17,802) |
|
Cash acquired with subsidiaries |
|
6,745 |
2,497 |
|
Proceeds from sale of investment properties |
9 |
3,076 |
1,209 |
|
Additions to investment properties and properties under construction |
|
(34,939) |
(41,697) |
|
Net cash outflow from investing activities |
|
(30,428) |
(55,793) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Net proceeds from issue of share capital |
|
9,861 |
48,300 |
|
New loan facilities drawn |
12 |
399 |
80,700 |
|
Net repayment of long-term borrowings |
12 |
(808) |
(16,615) |
|
Debt refinancing cost |
12 |
(10,345) |
- |
|
Loan issue costs |
12 |
(1,273) |
(1,406) |
|
Dividends paid |
16 |
(13,610) |
(11,539) |
|
Net cash (outflow)/ inflow from financing activities |
|
(15,776) |
99,440 |
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
(39,184) |
48,135 |
|
|
|
|
|
|
Opening cash and cash equivalents |
|
66,247 |
18,112 |
|
|
|
|
|
|
Closing cash and cash equivalents |
15 |
27,063 |
66,247 |
1 See note 1 of the Notes to the financial statements
The accompanying notes form an integral part of the financial statements
Notes to the Financial Statements
For the year ended 30 September 2013
1. Principal accounting policies
Basis of preparation and statement of compliance
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB'') and as adopted by the European Union, interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC'') and applicable legal and regulatory requirements of Guernsey Law. The financial statements have been prepared on a going concern basis. The principal accounting policies are set out below.
Impact of revision to International Financial Reporting Standards
The accounting policies applied and the presentation of figures are consistent with those of the annual financial statements for the year ended 30 September 2012, other than as set out below in connection with business combinations.
The following standards and interpretations have been issued by the IASB and IFRIC with effective dates falling after the date of these financial statements. The Board has chosen not to adopt early any of the revisions contained within these standards in the preparation of these financial statements:
|
International Accounting Standards (IAS/IFRS) |
Effective date - periods beginning on or after |
|
|
|
|
|
|
IFRS 13 |
Fair value measurement |
1 January 2013 |
|
IFRS 10 |
Consolidated financial statements |
1 January 2014 |
|
IFRS 11 |
Joint arrangements |
1 January 2014 |
|
IFRS 12 |
Disclosure of interests in other entities |
1 January 2014 |
|
IAS 27 |
Separate financial statements |
1 January 2014 |
|
IAS 28 |
Investments in Associates and Joint Ventures |
1 January 2014 |
|
IAS 32 |
Financial instruments: Presentation |
1 January 2014 |
|
IFRS 10, 12 & IAS 27 |
Investment entities - amendment to current standards |
1 January 2014 |
|
IFRS 9 |
Financial Instruments |
1 January 2015 |
The listed standards either do not apply to the Fund or are not expected to have a material effect on the financial statements.
Basis of consolidation
The Group financial statements consolidate the financial statements of MedicX Fund Limited and entities controlled by the Company (its subsidiary undertakings) made up to 30 September 2013. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to benefit from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Accounting for acquisitions of investment properties
Since inception the Company has treated acquisitions of portfolios of investment properties within corporate vehicles as business combinations in accordance with IFRS 3 Business Combinations. This involved assessing the fair value of assets and liabilities acquired in the transaction, taking into account deferred taxation and recognising any difference between the consideration paid and the net fair value of the identifiable assets and liabilities acquired as goodwill. It also required that expenses arising on the transaction were immediately expensed.
During the year the Board has considered the appropriate treatment of the acquisition on 24 May 2013 of investment properties within GPG No.5 Limited and after reviewing the relevant facts has concluded that this acquisition does not meet the definition of a "business" in accordance with IFRS 3 because the company had no employees, the previous directors and other company officials resigned at the time of the acquisition, and there were no unique processes or procedures retained from the acquired business after it was integrated into the Group. It therefore falls outside the scope of IFRS 3 and requires treatment as an asset purchase under IAS 40 rather than a business combination. Under this approach the cost of acquisition, including expenses arising on the transaction, is allocated between the individual identifiable assets and liabilities acquired, based on their relative fair value at the acquisition date. As a result no goodwill or deferred tax is recognised on acquisition.
Given this, and the treatment of similar recent acquisitions within the real estate sector and within investment companies similar in nature to the Company, the Board has reviewed and reconsidered the treatment of investment properties acquired in corporate vehicles in previous periods, concluding that these each should be treated as asset purchases, consistent with the GPG No.5 acquisition because the circumstances of each acquisition are very similar to GPG No.5. This requires a re-statement of the 2012 results and financial position. There is a £758,000 reduction of the reported net assets as at 30 September 2011, and this is offset by an increase in profit after tax of £2,295,000 in the year to 30 September 2012, a 1.0 pence increase in earnings per share. The result is an increased opening net assets position at 1 October 2012 of 1,537,000, with a number of other largely compensating movements in amounts within the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position. Within the consolidated statement of cash flows the only significant change is the reclassification of capitalised legal costs, from operating cash flows to investing cash flows. The change does not impact other key measurements previously reported by the Company as these exclude goodwill, valuation and deferred tax movements.
A summary of the effect on the Consolidated Statement of Comprehensive Income for 2012 is set out below:
|
|
2012 |
Restatement |
Restated |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Total income |
16,633 |
- |
16,633 |
|
Realised and unrealised valuation movements |
5,647 |
(8,047) |
(2,400) |
|
Charge for impairment of goodwill |
(1,894) |
1,894 |
- |
|
Total expenses before exceptional costs |
(11,592) |
- |
(11,592) |
|
Legal and professional fees related to corporate acquisitions |
(1,986) |
1,986 |
- |
|
Goodwill written-off on acquisitions |
(7,996) |
7,996 |
- |
|
(Loss)/profit before tax |
(1,188) |
3,829 |
2,641 |
|
Taxation |
1,321 |
(1,534) |
(213) |
|
Profit attributable to equity holders |
133 |
2,295 |
2,428 |
The initial carrying value of the properties acquired has risen as a result of this change from fair value to an allocation of consideration on acquisition, although these uplifts are subsequently reflected as additional losses in the year's revaluation movements at the year end. As a consequence of these adjustments there is a £1,537,000 increase in net assets and reserves as at 30 September 2012.
A summary of the effect on the Consolidated Statement of Financial Position as at 30 September 2012 and 1 October 2011 is set out below:
|
As at 30 September 2012 |
As reported |
Restatement |
Restated |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Goodwill |
9,858 |
(9,858) |
- |
|
Investment properties |
365,067 |
- |
365,067 |
|
Current assets |
72,605 |
- |
72,605 |
|
Current liabilities |
(16,088) |
- |
(16,088) |
|
Long-term loans |
(255,453) |
- |
(255,453) |
|
Deferred tax liability |
(11,870) |
11,395 |
(475) |
|
Provisions |
(215) |
- |
(215) |
|
Financial derivatives |
(125) |
- |
(125) |
|
Net assets |
163,779 |
1,537 |
165,316 |
|
|
|
|
|
|
Share premium |
131,328 |
- |
131,328 |
|
Treasury shares |
(2,323) |
- |
(2,323) |
|
Other reserves* |
34,774 |
1,537 |
36,311 |
|
|
163,779 |
1,537 |
165,316 |
* previously reported as two lines: Distributable reserves and Accumulated gains / (losses)
|
As at 1 October 2011 |
As reported |
Restatement |
Restated |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Goodwill |
6,410 |
(6,410) |
- |
|
Investment properties |
213,603 |
- |
213,603 |
|
Current assets |
23,237 |
- |
23,237 |
|
Current liabilities |
(9,316) |
- |
(9,316) |
|
Long-term loans |
(100,443) |
- |
(100,443) |
|
Deferred tax liability |
(5,914) |
5,652 |
(262) |
|
Net assets |
127,577 |
(758) |
126,819 |
|
|
|
|
|
|
Share premium |
80,315 |
- |
80,315 |
|
Other reserves* |
47,262 |
(758) |
46,504 |
|
Total Equity |
127,577 |
(758) |
126,819 |
* previously reported as two line: Distributable reserves and Accumulated gains / (losses)
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment of business, being investment in primary healthcare properties in the United Kingdom.
Expenses
All expenses are accounted for on an accruals basis.
Employees
The Group has no employees.
Cash and cash equivalents
Cash and deposits in banks are carried at cost. Cash and cash equivalents are defined as cash, demand deposits, and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and deposits in banks.
Revenue recognition
Rent receivable comprises rent for the year in relation to the Group's investment properties exclusive of value added tax. Rent is recognised on a straight line basis over the period of the lease. Rent is accrued for any outstanding rent reviews from the date that the review was due. Incentives offered to tenants to enter into lease agreements are amortised on a straight line basis over the remaining lease term. Any premium paid by tenants is recognised on a straight line basis over the full lease term. Fixed uplifts during the lease term are recognised on a straight line basis over the full lease term.
Other income includes licence fee income of 1,214,000 (2012: £1,044,000), which is receivable on properties under construction, this being a mechanism to realise a rental return over the course of the development period. Licence fee income is recognised on an accruals basis exclusive of value added tax. Finance income from cash balances held at banks is included in the financial statements as it is earned.
Trade and other receivables
Trade and other receivables are measured at initial recognition at their invoiced value inclusive of any value added taxes that may be applicable. Provision is made for any doubtful debts which are not deemed recoverable.
Trade and other payables
Trade and other payables are recognised and carried at their invoiced value inclusive of any value added taxes that may be applicable.
Finance costs
Borrowing costs are taken to profit and loss in the year to which they relate on an accruals basis except where they relate to properties under construction when borrowing costs are capitalised.
Derivative financial instruments and hedging activities
The Group uses interest rate swaps to manage its exposure to interest rate risk. At inception of the hedge the Group documents the relationship between the hedging instrument and the hedged item and its assessment, both at the time of inception and on an ongoing basis, of whether the hedging instrument meets the requirements to be considered an effective hedge in offsetting changes in the cash flows of the hedged item.
All derivatives are initially recognised at fair value at the time of inception, and are subsequently measured at fair value. The fair value of the interest rate swaps are determined by the relevant counterparty to both the interest rate swap and hedged item.
Changes in the fair value of the hedging instrument will be recognised either as part of other comprehensive income if the hedge is considered effective, or as an element of finance costs if it is not considered effective.
Financial derivatives are classified as either current or non-current with relation to the maturity of the underlying hedged item.
Bank loans and borrowings
All bank loans and borrowings are initially recognised at cost, being fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement.
Bank loans that are acquired by means of asset acquisitions are recognised at fair value as at the date of acquisition with the resulting fair value adjustment amortised against finance costs over the life of the loans.
Investment properties
The Group's completed investment properties are held for long-term investment. Freehold properties acquired are initially recognised at cost, being fair value of consideration given including transaction costs associated with the property. After initial recognition, freehold properties are measured at fair value, with unrealised gains and losses recognised in profit and loss. Both the base costs and valuations take account of core fixtures and fittings.
Investment properties under construction are initially recognised at cost and are revalued at the period end as determined by professionally qualified external valuers. Gains or losses arising from the changes in fair value of investment properties under construction are included in profit and loss in the period in which they arise.
The fair value of completed investment properties and investment properties under construction is based upon the valuations of the properties as provided by Jones Lang LaSalle Limited, an independent firm of chartered surveyors, as at the period end, adjusted as appropriate for costs to complete.
Costs of financing specific developments are capitalised and included in the cost of each development. During the year a portion of the Aviva £100m loan facility, the Deutsche Postbank loan facility, the Aviva £50m loan facility and the Aviva GPG loan facility as disclosed in note 12, was utilised to fund development work on investment properties under construction. Interest costs of £742,000 (2012: £602,000) attributable to development work in progress were capitalised.
Taxation
The tax liability represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year.
Deferred tax is the tax that may become payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Full provision is made for deferred tax assets and liabilities arising from all temporary differences between the recognition of gains and losses in the financial statements and recognition in the tax computation, other than in respect of asset acquisitions in corporate vehicles where deferred tax is recognised in relation to temporary differences arising after acquisition.
A net deferred tax asset is recognised only if it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.
Deferred tax assets and liabilities are calculated at the tax rates expected to be effective at the time the temporary differences are expected to reverse. Deferred tax assets and liabilities are not discounted.
Impairment of assets
The Group assesses annually whether there is any indication that any of its assets have been impaired. If such indication exists, the asset's recoverable amount is estimated and compared to its carrying value. Where it is impossible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the smallest cash-generating unit to which the asset is allocated.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount an impairment loss is recognised immediately in profit and loss.
Use of estimates
In the process of applying the Group's accounting policies, the Directors are required to make certain judgements and estimates to arrive at the carrying value for its assets and liabilities. The most significant areas requiring judgement in the preparation of these financial statements were:
Valuation of investment property and freehold land and buildings
The Fund obtains valuations performed by external valuers in order to determine the fair value of its investment properties. These valuations are based upon assumptions including future rental income, anticipated maintenance costs, future development costs and the appropriate discount rate. The valuers also make reference to market evidence of transaction prices for similar properties. Further information in relation to the valuation of investment property is disclosed in note 9.
Asset acquisitions
The Fund's approach to recognising investment properties acquired in a corporate entity is to treat the acquisition as an asset purchase, as described in IAS 40, if the corporate entity is not considered to contain any material processes. Each corporate entity acquired is considered to determine if it meets the criteria to be recognised as a business combination per IFRS 3 or if it is more appropriate to treat it as an asset acquisition.
2. Directors' fees
|
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
During the year each of the directors received the following fees: |
|
||
|
D Staples (Chairman) |
46 |
45 |
|
|
S Mason |
31 |
32 |
|
|
C Bennett (Audit Committee Chairman) |
36 |
36 |
|
|
J Hearle |
31 |
32 |
|
|
|
144 |
145 |
|
|
Less additional fees paid in relation to fundraising |
- |
(20) |
|
|
Total charged in the statement of comprehensive income |
144 |
125 |
|
Those fees paid in relation to the fundraising, reflecting the additional time and duties involved in that exercise, have been expensed against the share premium arising from the issue of new shares at the time of the fundraising.
3. Auditor's remuneration
The amount disclosed in the Consolidated Statement of Comprehensive Income relates to an accrual for audit fees for the year ended 30 September 2013, payable to KPMG LLP (2012: PKF (UK) LLP).
Fees paid to the auditors include the following amounts:
|
|
KPMG |
PKF |
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Audit fees for the current year |
134 |
135 |
|
Total audit fees |
134 |
135 |
|
Review of the interim report |
- |
16 |
|
Tax compliance |
- |
27 |
|
Other tax services |
- |
13 |
|
Reporting accountants in respect of the share issue |
- |
30 |
|
Due diligence and advisory work relating to acquisitions |
- |
130 |
|
Total audit and other fees |
134 |
351 |
4. Finance costs
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Interest payable on long-term loans |
12,117 |
8,066 |
|
Amortisation of Aviva PMPI loan fair value adjustment |
(291) |
(199) |
|
|
11,916 |
7,867 |
|
Interest capitalised on properties under construction |
(742) |
(602) |
|
|
11,084 |
7,265 |
During the year interest costs on funding attributable to investment properties under construction were capitalised at an effective interest rate of 4.45%. The funding was sourced from the Aviva £100m loan facility which has an effective interest rate of 5.008%, the Aviva £50m loan facility which has an effective interest rate of 4.37% and the Deutsche Postbank loan facility which has an effective interest rate of 2.75%. Where properties under construction were secured against a specific loan, the interest for that facility was capitalised.
5. Financial derivatives
As part of its risk management strategy, the Company maintains a policy of, where possible, securing fixed interest rates on all external debt (other than revolving loan facilities) to mitigate its exposure to interest rate risk. Where fixed interest rates are not able to be secured with lenders, an interest rate swap will be utilised to fix the rate and the aim is to achieve a perfect hedge. The fair value of these contracts is recorded in the Consolidated Statement of Financial Position, and is determined by discounting the future cash flows at prevailing market rates as at the reporting date.
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Movement in fair value of interest rate swaps treated as cash flow hedges under IAS39 ("effective swaps"): |
57 |
(125) |
|
|
57 |
(125) |
The movement in fair value of effective swaps is recognised as part of other comprehensive income in the Consolidated Statement of Comprehensive Income.
On 25 November 2011 MedicX Properties VI Limited entered into a floating-to-fixed interest rate swap contract for a notional value of £7.5 million with Deutsche Postbank to fix the interest rate on the drawdown of the facility that was made on the same day. Following completion of the drawdown of the remaining facility on 28 September 2012, a second floating-to-fixed interest rate swap for the notional value of £23.7 million was entered into in October 2012. The swaps exchange the floating rate for a fixed rate of 1.14% and 0.62% respectively until 30 April 2015.
6. Taxation
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Deferred tax |
|
|
|
Change in corporate tax rate |
63 |
11 |
|
Charge for the year |
(362) |
(224) |
|
Total tax charge |
(299) |
(213) |
The Board has estimated that for the year under review the Group does not have any profits chargeable to tax in jurisdictions outside Guernsey.
The Company has obtained exempt company status in Guernsey under the terms of Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 so that it is exempt from Guernsey taxation on income arising outside Guernsey and on bank interest receivable. The Company is, therefore, only liable to a fixed fee of £600 per annum. The Directors intend to conduct the Group's affairs such that the Company continues to remain eligible for the exemption. Guernsey companies are subject to UK taxation on UK net rental income. During the year no tax arose in respect of the income of any of the Guernsey companies. The Company's UK subsidiaries are subject to United Kingdom corporation tax on their profits less losses.
A reconciliation of the tax charge to the notional tax charge applying the average standard rate of UK corporation tax of 23.5% (2012: 25%) is set out below:
|
|
2013 |
'Restated1' 2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Profit on ordinary activities before tax |
9,665 |
2,641 |
|
|
|
|
|
Profit on ordinary activities multiplied by the average standard rate of corporation tax in the UK of 23.5% (2012: 25%) |
2,271 |
660 |
|
Additional taxable income - gains |
162 |
454 |
|
Income/expenses not taxable/deductible for tax purposes |
(175) |
149 |
|
Profits not subject to UK taxation |
(916) |
(5,379) |
|
Effect of change in tax rate on brought forward deferred tax liability |
(63) |
(11) |
|
Effect of difference in deferred and corporation tax rates |
31 |
(47) |
|
Current year losses (utilised) / carried forward |
(1,011) |
4,387 |
|
Total tax charge |
299 |
213 |
1. See note 1 of the Notes to the financial statements.
|
|
Fair value gains |
Accelerated capital allowances |
Unrelieved management expenses |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
At 1 October 2011 'restated' |
5 |
1,554 |
(1,297) |
262 |
|
Adjustment for change in tax rate |
- |
(65) |
54 |
(11) |
|
Provided/(released) in year |
69 |
225 |
(70) |
224 |
|
At 30 September 2012 'restated' |
74 |
1,714 |
(1,313) |
475 |
|
Adjustment for change in tax rate |
(10) |
(224) |
171 |
(63) |
|
Provided/(released) in year |
(14) |
228 |
148 |
362 |
|
At 30 September 2013 |
50 |
1,718 |
(994) |
774 |
As required by IAS 12 "Income taxes", full provision has been made for the temporary differences arising on the fair value gains of investment properties held by UK resident companies that have passed through the Group's Consolidated Statement of Comprehensive Income. In the opinion of the Directors, this provision is only required to ensure compliance with IAS 12. It is the Directors' view that the deferred tax attributable to the fair value gain on the Group's investment property portfolio is unlikely to crystallise as, in common with practice in the sector, the Group would most likely sell the company that holds the property portfolio rather than sell an individual property.
There are accumulated tax losses within MedicX Properties I Limited, MedicX Properties V Limited, MedicX Properties VI Limited and MedicX Properties VII Limited totalling £48.1 million (2012: £67.7 million) which are currently not recognised within the financial statements of the Group on the basis that there is uncertainty over whether these will be utilised in the future.
As a result of the deferred tax recognition exemption for asset acquisitions, deferred tax liabilities of £8,639,000 (2012: £9,797,000) in respect of fair value gains and £2,155,000 (2012: £2,568,000) in respect of accelerated capital allowances, and deferred tax assets of £624,000 (2012: £970,000) in respect of unrelieved management expenses, have not been recognised.
7. Provisions
Investment adviser fee provisions
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Brought forward |
- |
- |
|
Provided in year |
396 |
515 |
|
Utilised at year end |
(396) |
(515) |
|
At 30 September |
- |
- |
No provision was required at 30 September 2013 for performance fees payable to the Investment Adviser that were in excess of 1.5% of gross assets (excluding cash) for the period and would be carried forward for payment in future years. The amount payable at year end has been transferred to trade and other payables due to its short term nature.
Other provisions
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Brought forward |
215 |
- |
|
Provisions acquired with subsidiaries |
- |
215 |
|
At 30 September |
215 |
215 |
The Company has made provision for potential liabilities relating to compliance and employee related matters arising from transactions which occurred in MPVII Investments Ltd prior to 1 December 2010. The provision made is based on the Directors' estimate of the amount that could be payable but it is subject to uncertainty with regards to both the amount and the timing of the likely payment.
8. Earnings and net asset value per Ordinary Share
Basic and diluted earnings and net asset value per share
The basic and diluted earnings per Ordinary Share are based on the profit for the year attributable to Ordinary Shares of £9,366,000 ('restated' 2012: £2,428,000) and on 263,373,173 (2012: 229,412,077) Ordinary Shares, being the weighted average aggregate of Ordinary Shares in issue calculated over the year, excluding amounts held in treasury at the year end. This gives rise to a basic and diluted earnings per Ordinary Share of 3.6 pence ('restated' 2012: 1.1 pence) per Ordinary Share.
The basic and diluted net asset value per ordinary share are based on the net asset position at the period end attributable to Ordinary Shares of £170,990,000 ('restated' 2012: £165,316,000) and on 274,906,714 (2012: 260,419,719) Ordinary Shares being the aggregate of Ordinary Shares in issue at the period end, excluding amounts held in treasury at the year end. This gives rise to a basic and diluted net asset value per Ordinary Share of 62.2 pence per ordinary share ('restated' 2012: 63.5 pence per Ordinary Share).
Adjusted earnings per share and net asset value per share
The Directors believe that the following adjusted earnings per Ordinary Share and net asset value per Ordinary Share are more meaningful key performance indicators for the Group:
|
|
2013 |
2012 |
|
|
|
|
|
Adjusted earnings per Ordinary Share - basic and diluted |
3.6p |
2.3p |
|
Adjusted net asset value per Ordinary Share - basic and diluted |
63.1p |
63.7p |
The adjusted earnings per Ordinary Share is based on the profit for the year of £9,366,000 ('restated' 2012: £2,428,000) attributable to Ordinary Shares, adjusted for tax charge of £299,000 ('restated' 2012: £213,000), adjusted for revaluation gain of £248,000 ('restated 2012: loss £2,269,000), performance fee of £396,000 (2012: £515,000), fair value gain on acquired loans of £291,000 ('restated' 2012: £199,000) giving an adjusted earnings profit of £9,522,000 ('restated' 2012 £5,226,000) and on 263,373,173 (2012: 229,412,077) Ordinary Shares being the weighted average number of Ordinary Shares in issue in the year.
The adjusted net asset value per Ordinary Share is based on the net asset position attributable to Ordinary Shares at the period end of £170,990,000 ('restated' 2012: £165,316,000) as adjusted for deferred tax of £774,000 (2012: £475,000), financial derivatives of £68,000 (2012: £125,000) and fair value adjustment made to reset loans of £1,507,000 (2012: £nil), giving an adjusted net assets figure of £173,339,000 ('restated' 2012: £165,916,000) and on 274,906,714 (2012: 260,419,719) Ordinary Shares, being the aggregate of Ordinary Shares in issue at the period end.
In common with practice in the sector, the Group would most likely sell the UK company or companies that hold the properties rather than sell an individual property. Consequently, it is the Directors' view that the liability represented by the deferred tax provision is unlikely to crystallise.
9. Investment properties
Investment properties are initially recognised at cost, being fair value of consideration given including transaction costs associated with the property. After initial recognition, investment properties are measured at fair value, which has been determined based on valuations performed by Jones Lang LaSalle Limited as at 30 September 2013. The valuation takes account of the rental yield and the fact that a purchaser's offer price to the Group would be less than that in order to cover the purchaser's costs (which are estimated at 5.8% (2012: 5.8%) of what would otherwise be the purchase price).
Investment properties under construction are initially recognised at cost, and are subsequently measured at fair value as at the year end. The fair value has been determined based on valuations performed by Jones Lang LaSalle Limited as at 30 September 2013. In accordance with industry standards, the valuation is the net of the remaining costs to complete properties under construction and purchaser costs.
The freehold and long leasehold interests in the property investments of the Group were valued at an aggregate of £450,970,000 as at 30 September 2013 by Jones Lang LaSalle Limited. This valuation assumes that all properties, including those under construction, are complete. The principal difference between the total valuation and the carrying value is the cost to complete those properties under construction and lease incentive adjustments as at 30 September 2013.
The Valuer's opinion of market value was primarily derived using comparable recent market transactions on arm's length terms. Jones Lang LaSalle Limited has valued these properties for reporting purposes since 31 March 2008.
The valuation was carried out in accordance with the requirements of the Valuation Standards published by the Royal Institution of Chartered Surveyors, and accounting standards. The properties were valued to market value assuming that they would be sold in prudent lots (i.e. not as portfolios) subject to the existing leases, or agreements for lease where the leases had not yet been completed at the date of valuation.
The valuation yield at 30 September 2013 was 5.79%; fair value of investment properties is considered to be based on a number of significant assumptions. If the valuation yield were to shift by 0.25%, this would result in an impact on the valuation of the properties of approximately £19,511,000.
|
|
Completed |
Properties |
Total investment properties |
|
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
'Restated' Fair value/cost 30 September 2011 |
195,589 |
18,014 |
213,603 |
|
|
Additions |
113,127 |
41,946 |
155,073 |
|
|
Disposals at valuation |
(1,340) |
- |
(1,340) |
|
|
Transfer to completed properties |
32,289 |
(32,289) |
- |
|
|
Revaluation |
(1,812) |
(457) |
(2,269) |
|
|
'Restated' Fair value/cost 30 September 2012 |
337,853 |
27,214 |
365,067 |
|
|
|
|
|
|
|
|
Additions |
24,175 |
40,079 |
64,254 |
|
|
Disposals at valuation |
(2,920) |
- |
(2,920) |
|
|
Transfer to completed properties |
39,348 |
(39,348) |
- |
|
|
Revaluation |
1,046 |
(798) |
248 |
|
|
|
|
|
|
|
|
Fair value 30 September 2013 |
399,502 |
27,147 |
426,649 |
|
|
|
|
|
|
|
Some of the investment properties are security for the long-term loans as disclosed in note 12. Of the completed investment properties £69,337,000 (2012: £70,208,000) are leasehold properties.
In March 2013 and August 2013 the Group disposed of two of its smaller properties at Chandlers Ford and Maida Vale, for £1,035,000 and £2,100,000 respectively. The carrying values for these properties were £1,020,000 and £1,900,000. The gain on the disposals of £156,000 recognised in the Consolidated Statement of Comprehensive Income relates to the difference between proceeds and carrying value in the accounts, less agency commissions and other conveyancing costs of £59,000.
During the year a portion of the Aviva £100m loan facility, the Deutsche Postbank loan facility, the Aviva £50m loan facility and Aviva GPG loan facility disclosed in note 12 were utilised to fund development work on investment properties under construction. Interest costs of £742,000 (2012: £602,000) attributable to development work in progress were capitalised.
10. Trade and other receivables
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Rent receivable |
5,432 |
2,930 |
|
VAT recoverable |
454 |
168 |
|
Other debtors and prepayments |
5,118 |
3,260 |
|
|
11,004 |
6,358 |
11. Trade and other payables
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Loans due within one year |
1,129 |
796 |
|
Trade creditors |
3,077 |
4,100 |
|
Other creditors |
1,533 |
838 |
|
Deferred rental income |
5,846 |
5,177 |
|
Interest payable and similar charges |
2,286 |
2,153 |
|
Accruals |
6,123 |
3,024 |
|
|
19,994 |
16,088 |
The current portion of long term loans relates to the amount due in the next twelve months on the Aviva PMPI loan facilities and the Aviva GPG loan facilities; the terms of this loan are disclosed in note 12.
12. Long-term loans
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Total facilities drawn down |
274,553 |
245,163 |
|
|
|
|
|
Loan issue costs |
(13,758) |
(2,140) |
|
Amortisation of loan issue costs |
1,374 |
287 |
|
|
|
|
|
Fair value arising on acquisition of subsidiaries |
11,645 |
12,342 |
|
Amortisation of fair value adjustment on acquisition |
(1,199) |
(199) |
|
|
272,615 |
255,453 |
The Group has five primary debt facilities drawn, being the Aviva £100m loan, the Deutsche Postbank loan, the Aviva £50m loan, the Aviva GPG loan and the Aviva PMPI loan, with a smaller loan facility for a single property. In addition the Group has a revolving loan facility with RBS. The RBS facility is undrawn at 30 September 2013. Details of each facility are disclosed below. Repayments of the loans listed above, including amounts due within one year shown in note 12, fall due as follows:
|
|
|
2013 |
2012 |
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
Due within one year |
|
1,129 |
796 |
|
Between one and two years |
|
32,592 |
848 |
|
Between two and five years |
|
5,417 |
35,040* |
|
Over five years |
|
234,606 |
219,565 |
|
|
|
273,744 |
256,249 |
* change in classification of Deutsche Postbank facility in prior year
Aviva £100m loan facility
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Amount drawn down |
100,000 |
100,000 |
|
Loan issue costs |
(450) |
(450) |
|
Amortisation of loan issue costs |
77 |
68 |
|
|
99,627 |
99,618 |
In November 2006 the Group entered into an agreement with Aviva Commercial Finance ("Aviva"), formerly the General Practice Finance Corporation Limited, for a £100 million loan facility at a fixed rate of 5.008% on an interest only basis. The facility was fully drawn down on 1 December 2006, with the cash held on deposit to meet future investment requirements. This loan is due for repayment in its entirety on 1 December 2036. In a prior year the original loan facility was split into four loans held by subsidiary companies: MedicX Properties I Limited: £30,000,000, MedicX Properties II Ltd: £33,000,000, MedicX Properties III Ltd: £9,000,000 and MedicX Properties IV Ltd: £28,000,000.
Under the terms of the Aviva £100m loan facility, further charges are incurred when properties are secured or released from charge under the facility. Any costs incurred are added to the loan issue costs and amortised over the remaining life of the facility.
The Aviva £100 million loan is secured on some of the Group's investment properties. The value of properties provided as security for this facility is £158,564,000. As at 30 September 2013, the Group had cash of £201,000 (30 September 2012: £201,000) on deposit. The cash deposit is secured against the loan.
Deutsche Postbank ("DPB") facility
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Amount drawn down |
31,200 |
31,200 |
|
Loan issue costs |
(1,016) |
(930) |
|
Amortisation of loan issue costs |
520 |
205 |
|
|
30,704 |
30,475 |
On 1 August 2011 the Group agreed the facility for a total of £37.1 million. The key terms of the agreement were that the facility would not be amortised, and the draw downs could not exceed 62.5% of the market value of the mortgaged property. The facility has a five year term, expiring in April 2015.
The first significant draw down of the facility was made on 25 November 2011 for £7,000,000. The interest rate was fixed at an all-in rate, including margin, of 3.14%. Further draw downs of £3,700,000 and £20,000,000 were made in July 2012 and September 2012 respectively, and these amounts were fixed at an all in interest rate of 2.62% in October 2012. In the year ended 30 September 2012, the Group allowed the remaining facility of £5.9 million to lapse, leaving a total facility of £31.2 million.
The facility is secured against the ten investment properties held by MedicX Properties VI Limited. The value of the property provided as security is £53,410,000.
Aviva £50m loan facility
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Amount drawn down |
50,000 |
50,000 |
|
Loan issue costs |
(1,179) |
(624) |
|
Amortisation of loan issue costs |
51 |
12 |
|
|
48,872 |
49,388 |
On 4 February 2012 the Group entered into an agreement for a £50 million loan facility with Aviva. The facility is for a period of 20 years at a fixed all-in interest rate of 4.37% including margin. Initially the facility is interest only for the first ten years, and subsequently amortises to £30 million over the remaining ten years with the remaining principal repayable on expiry of the facility. The facility was fully drawn at the time the agreement was completed with the proceeds placed on deposit secured against the loan, to be released once investment properties are secured against the facility.
Draw downs must not exceed the lower of 65% of the market value of the property secured against the facility or 50% of the expected market value of the property at the time the facility expires.
The value of properties provided as security for this facility is £87,650,000. As at 30 September 2013, the Group had cash of £4,622,000 on deposit secured against the loan. These cash deposits are restricted until such time as sufficient properties are secured to meet the loan draw down covenants mentioned above.
Aviva PMPI loan facility
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Amount drawn down |
62,078 |
62,876 |
|
Fair value arising on acquisition of subsidiaries |
12,342 |
12,342 |
|
Amortisation of fair value adjustment |
(1,199) |
(199) |
|
Debt renegotiation cost |
(10,345) |
- |
|
Amortisation of debt renegotiation cost |
709 |
- |
|
Loan issue costs |
(136) |
(136) |
|
Amortisation of loan issue costs |
13 |
2 |
|
|
63,462 |
74,885 |
On 20 July 2012 the Fund acquired the Aviva PMPI loan facility of £62.9m, which is comprised of three separate facilities all on largely similar terms. The facilities start as interest only and then amortise over their remaining life with a residual amount payable on expiry. In December the interest rates on these loans were reset to more favourable rates. As this is not considered to be a substantial modification the cost of resetting the interest rates has been capitalised, and will be amortised over the life of the loans.
The major facility of £54,597,000 expires in February 2027 and is secured at an all-in fixed interest rate of 4.45% (2012: 6.35%). The smaller facilities of £8,000,000 and £279,000 expire in November 2032 and October 2031. These facilities are also secured at an all-in fixed interest rate of 4.45% (2012: 5.60% and 6.82% respectively).
The major facility and the smallest facility are currently amortising, while the other facility is currently interest only and will begin to amortise from January 2015. The residual payment for the major facility is £28,650,000, with the residual payments for the smallest facility being £81,000 and £2,890,000 on the other facility.
A fair value adjustment was recognised on acquisition of the loan facility in accordance with accounting standards. The fair value adjustment will be amortised over the remaining life of the loan facility, and the amount recognised above represents the amortisation since acquisition.
The Aviva PMPI loan facility is secured on the Group's investment properties. The value of properties provided as security for this facility is £83,943,000. Additionally, £3,335,000 is held in a restricted deposit account with Aviva to provide security for and ensure compliance with the interest cover covenant on the £8,000,000 facility. Amounts held in this deposit will be released against future payments of the facility.
Aviva GPG loan facility
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Amount drawn down |
30,248 |
- |
|
Fair value arising on acquisition of subsidiaries |
(697) |
- |
|
|
29,551 |
- |
On 24 May 2013 the Fund acquired the Aviva GPG loan facility of £34.9m, which comprises 14 separate facilities. 12 of the loan facilities have fixed interest rates and the remainder have variable interest rates which are expected to be fixed before becoming fully drawn. The facilities start as interest only, until practical completion, and then amortise over their remaining life with a residual amount payable on expiry.
|
Facility |
Facility Amount |
Amounts due after more than one year |
Date of expiry |
Interest rate |
|
Aviva Worle facility |
£1,750,000 |
£1,668,000 |
December 2031 |
4.75% |
|
Aviva Colchester facility |
£2,640,000 |
£2,539,000 |
November 2036 |
5.00% |
|
Aviva Gravesend facility |
£5,355,000 |
£5,197,000 |
November 2032 |
4.44% |
|
Aviva Moorside facility |
£1,810,000 |
£1,763,000 |
May 2032 |
4.32% |
|
Aviva Ravensbury Park facility |
£1,955,000 |
£1,896,000 |
October 2036 |
4.69% |
|
Aviva Kendal facility |
£3,300,000 |
£3,236,000 |
December 2037 |
4.60% |
|
Aviva Thurgoland facility |
£1,179,000 |
£1,150,000 |
November 2037 |
4.57% |
|
Aviva Maidstone facility |
£1,600,000 |
£1,600,000 |
20 years from completion |
4.13% |
|
Aviva Shoreham facility |
£2,694,000 |
£2,694,000 |
20 years from completion |
4.13% |
|
Aviva Wiveliscombe facility |
£1,505,000 |
£1,505,000 |
20 years from completion |
4.21% |
|
Aviva Felixstowe facility |
£2,800,000 |
£2,800,000 |
20 years from completion |
4.54% |
|
Aviva Grange over sands facility |
£3,137,000 |
£3,137,000 |
20 years from completion |
4.21% |
|
Aviva Potters bar facility |
£2,848,000 |
£952,000 |
21 years from completion |
4.50% |
|
Aviva Rugby facility |
£2,285,000 |
£111,000 |
25 years from completion |
4.50% |
|
Total |
£34,858,000 |
£30,248,000 |
|
|
The Aviva GPG loan facility is secured on the Group's investment properties. The value of properties provided as security for this facility is £33,173,000. Additionally, £5,109,000 is held in a restricted deposit account with Aviva and will be made available as the properties secured are developed.
Aviva Verwood loan facility
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Amounts due after more than one year |
1,027 |
1,087 |
A mortgage was taken out by the subsidiary MedicX (Verwood) Limited and is secured on that company's investment property. Interest on the mortgage is charged at 6.25%.
RBS loan facility
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Loan issue costs |
(632) |
- |
|
Amortisation of loan issue costs |
4 |
- |
|
|
(628) |
|
On 20 September 2013 a £25 million revolving loan facility was put in place with The Royal Bank of Scotland Plc. The facility is for a three year term at a rate based on a margin over LIBOR, set dependent on group loan to value. At current rates the facility is expected to cost approximately 3%.
Covenants
All of the covenants on the loan facilities were complied with in the year. A summary of the covenants for each facility is described in the table below:
|
Facility |
Covenant Type |
Description |
30 Sep 2013 |
|
Aviva £100m |
Interest cover |
Rental income from secured properties in the immediately preceding period must be 140% or greater of interest payable |
202.0% |
|
|
Loan to value |
The loan must not be more than 75% of the market value of properties secured against the facility |
62.9% |
|
|
Source of Income |
Unless otherwise agreed by the lender, 90% of the rental income of the property secured against the facility must be reimbursable by the NHS or other approved tenants |
90.9% |
|
|
Draw down limit |
65% of the market value of the property secured against the facility |
N/A |
|
DPB facility |
Interest cover |
Rental income from secured properties in the immediately preceding quarter and following twelve months must be 140% or greater of interest payable |
381% |
|
|
Loan to value |
The loan must not be more than 70% of the market value of properties secured against the facility |
62.5% |
|
|
Draw down limit |
62.5% of the market value of the property secured against the facility |
62.5% |
|
|
Withdrawal of properties |
The loan to value on properties after a disposal must be 60% or lower before surplus proceeds can be released to the borrower |
N/A |
|
Aviva £50m |
Interest cover |
FRI-equivalent rental income must be 110% or greater of interest payable |
116.3% |
|
|
Loan to value |
The loan must not be more than 50% of the estimated exit value of properties secured against the facility |
48.3% |
|
Aviva PMPI |
Interest cover |
Interest payable must not exceed 95% of rental income receivable in the prior period |
63.1% |
|
|
Interest cover* |
FRI-equivalent rental income in the preceding period is 103% or higher of the aggregate interest and amortised capital repayment |
164.2% |
|
|
Draw down limit |
65% of the market value of the property secured against the facility |
N/A |
|
Aviva GPG |
Interest cover |
Interest payable must not exceed 100%-110% of rental income receivable in the prior period |
153.2%-188.05% |
|
Aviva Verwood |
Interest cover |
Rental income in the preceding period is 100% or higher of the aggregate interest and amortised capital repayment |
132.6% |
* Specific covenants for the £8 million loan in the Aviva PMPI loan facility.
Mark to market of fixed rate debt
The Group 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. The unamortised fair value adjustment of acquired loans was £10,446,000 as at 30 September 2013. A mark to market calculation gives an indication of the benefit or cost to the Group of the fixed rate debt given the prevailing cost of debt over the remaining life of the debt. An approximate mark to market calculation has been undertaken following advice from the Group's bankers, with reference to the fixed interest rate on the individual debt facilities, and the fixed interest rate, including margin, achievable on the last business day of the financial period for a loan with similar terms to match the existing facilities.
The debt benefit or cost is calculated as the difference between the present values of the debt cash flows at the two rates over the remaining term of the loan, discounting the cash flows at the prevailing LIBOR rate. The approximate mark to market benefit of the total fixed rate debt to the Group was £17,334,000 as at 30 September 2013 (30 September 2012 cost: £211,000).
Cash flow movements
|
|
|
Year ended 30 September 2013 |
Year ended 30 September 2012 |
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
Draw down of DPB loan facility |
|
- |
30,700 |
|
Draw down of Aviva £50m facility |
|
- |
50,000 |
|
Draw down of GPG loan facility |
|
399 |
- |
|
New loan facilities drawn |
|
399 |
80,700 |
|
|
|
|
|
|
Repayment of mortgage principal |
|
(57) |
(52) |
|
Repayment of Aviva PMPI loan facility |
|
(751) |
(178) |
|
Repayment of loans acquired |
|
- |
(16,385) |
|
Net repayment of long-term borrowings |
|
(808) |
(16,615) |
|
|
|
|
|
|
Aviva £50m facility arrangement fee |
|
(555) |
(624) |
|
Aviva PMPI loan facility costs |
|
- |
(152) |
|
DPB loan facility draw down fees |
|
(86) |
(418) |
|
Aviva £100m loan facility costs |
|
- |
(47) |
|
RBS loan facility costs |
|
(632) |
- |
|
Other costs |
|
- |
(165) |
|
Loan issue costs |
|
(1,273) |
(1,406) |
|
|
|
|
|
|
Debt renegotiation cost |
|
(10,345) |
- |
13. Share capital
Ordinary Shares of no par value were issued during the period as detailed below:
|
|
Number of shares |
Issue price per share |
|
Total shares issued as at 30 September 2012 |
263,645,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other shares issued for cash: |
|
|
|
18 June 2013 |
3,600,000 |
79.0 pence |
|
15 July 2013 |
3,700,000 |
78.0 pence |
|
20 August 2013 |
3,000,000 |
77.5 pence |
|
10 September 2013 |
2,500,000 |
78.0 pence |
|
|
|
|
|
Total shares issued as at 30 September 2013 |
276,445,780 |
|
|
Shares held in treasury (see below) |
(1,539,066) |
|
|
Total voting rights in issue as at 30 September 2013 |
274,906,714 |
|
Treasury shares were utilised to satisfy the demand for shares in lieu of cash payment for the dividend payable. The transactions and relevant price per share are noted below:
|
|
Number of shares
|
Price per share |
|
Total shares held in treasury as at 30 September 2012 |
3,226,061 |
72.00 pence |
|
|
|
|
|
Shares utilised in lieu of cash payment of dividends: |
|
|
|
|
|
|
|
31 December 2012 |
(396,751) |
73.90 pence |
|
29 March 2013 |
(467,453) |
77.43 pence |
|
28 June 2013 |
(387,574) |
80.75 pence |
|
23 September 2013 |
(435,217) |
78.25 pence |
|
|
|
|
|
Total shares held in treasury as at 30 September 2013 |
1,539,066 |
72.00 pence |
Any cash consideration received in excess of the price the treasury shares were purchased at has been included as part of share premium.
|
|
2013 |
2012 |
|
Share premium |
£'000 |
£'000 |
|
|
|
|
|
At 1 October |
131,328 |
80,315 |
|
Net proceeds arising on issue of Ordinary Shares for placing and offer |
-
|
49,543 |
|
Net proceeds arising on issue of Ordinary Shares via a Tap Issue |
9,882 |
- |
|
Net proceeds arising on issue of Ordinary Shares pursuant to block listing |
- |
668 |
|
Value of Ordinary Shares issued in lieu of dividends |
- |
97 |
|
Net excess consideration on sale of treasury shares |
- |
673 |
|
Net excess of consideration arising on utilising Ordinary Shares from treasury in lieu of dividends |
73 |
32 |
|
Share premium at 30 September |
141,283 |
131,328 |
The above proceeds are net of issue costs totalling £144,000 (2012: £991,000) and exclude the cost of shares issued from treasury.
14. Other reserves
The movement in other reserves is set out in the Statement of Changes in Equity.
The Companies (Guernsey) Law 2008, as amended ("2008 Law") made new provisions as to how the consideration received or due for an issue of shares is accounted for and how these sums may be distributed to members.
The other reserves are freely distributable with no restrictions. In addition, distributions from the share premium account do not require the sanction of the court. The Directors may authorise a distribution at any time from share premium or accumulated gains provided that they are satisfied on reasonable grounds that the Company will immediately after the distribution satisfy the solvency test prescribed in the 2008 Law and that it satisfies any other requirements in its memorandum and articles.
15. Cash and cash equivalents
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Cash and balances with banks |
27,063 |
66,247 |
Cash and cash equivalents comprise cash held by the Group and short term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.
Included in the above amounts are balances that are held in restricted accounts which are not immediately available for use by the Group of £13,267,000 (2012: £41,396,000). These amounts will be made available when sufficient property has been secured against the facility in accordance with the draw down covenants detailed in note 12.
16. Dividends
|
|
2013 |
2012 |
||
|
|
|
Dividend |
|
Dividend |
|
|
£'000 |
per share |
£'000 |
per share |
|
|
|
|
|
|
|
Quarterly dividend declared and paid 31 December 2012 |
3,646 |
1.400p |
2,648 |
1.375p |
|
|
|
|
|
|
|
Quarterly dividend declared and paid 29 March 2013 |
3,717 |
1.425p |
2,711 |
1.400p |
|
|
|
|
|
|
|
Quarterly dividend declared and paid 28 June 2013 |
3,723 |
1.425p |
3,499 |
1.400p |
|
|
|
|
|
|
|
Quarterly dividend declared and paid 30 September 2013 |
3,833 |
1.425p |
3,638 |
1.400p |
|
|
|
|
|
|
|
Total dividends declared and paid during the year |
14,919 |
|
12,496 |
|
|
|
|
|
|
|
|
Quarterly dividend declared after year end |
4,844 |
1.425p |
3,646 |
1.400p |
|
Cash flow impact of scrip dividends: |
|
|
|
|
|
Cash equivalent value of scrip shares issued on quarterly dividend |
293 |
|
106 |
|
|
Cash equivalent value of scrip shares issued on quarterly dividend |
362 |
|
240 |
|
|
Cash equivalent value of scrip shares issued on quarterly dividend |
313 |
|
187 |
|
|
Cash equivalent value of scrip shares issued on quarterly dividend |
341 |
|
424 |
|
|
Total cash equivalent value of scrip shares issued |
1,309 |
|
957 |
|
|
Cash payments made for dividends declared and paid |
13,610 |
|
11,539 |
|
|
|
|
|
|
|
Dividends are scheduled for the end of March, June, September and December of each year, subject to Board approval. On 30 October 2013, the Board approved a dividend of 1.425 pence per share, bringing the total dividend declared in respect of the year to 30 September 2013 to 5.7 pence per share. The record date for the dividend was 15 November 2013 and the payment date is 31 December 2013. The amount disclosed above is the cash equivalent of the declared dividend. The option to issue scrip dividends in lieu of cash dividends, with effect from the quarterly dividend paid in June 2010, was approved by a resolution of Shareholders at the Company's Annual General Meeting on 10 February 2010. On 29 October 2013 the Board announced an opportunity for qualifying Shareholders to receive the December 2013 dividend in new Ordinary Shares instead of cash.
17. Financial instruments risk management
The Group's operations expose it to a number of financial instrument risks. A risk management programme has been established to protect the Group against the potential adverse effects of these financial instrument risks. There has been no significant change in these financial instrument risks since the prior year.
The financial instruments of the Group at both 30 September 2013 and 30 September 2012 comprised trade receivables and payables, other debtors, cash and cash equivalents, non-current borrowings, current borrowings and interest rate swaps. It is the Directors' opinion that, with the exception of the non-current borrowings for which the mark to market benefit is set out in note 12, the carrying value of all financial instruments in the statement of financial position is equal to their fair value.
Credit risk
The Group invests some of its surplus funds in high quality liquid market instruments. Such investments have a maturity of no greater than six months. To reduce the risk of counterparty default the Group deposits the remainder of its surplus funds subject to immediate cash flow requirements in AA rated (or better) institutions.
Concentrations of credit risk with respect to customers are limited due to the Group's revenue being largely receivable from UK government derived sources. As at the year end 90% of rental income was derived from NHS tenants who are spread across several Clinical Commissioning Groups which further reduces credit risk from this area. The default risk is considered low due to the nature of NHS funding for GP practices.
The Group's maximum exposure to credit risk on financial instruments was as follows:
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Financial assets |
|
|
|
Trade receivables |
5,432 |
2,930 |
|
Other current assets |
5,118 |
3,260 |
|
Cash and cash equivalents |
27,063 |
66,247 |
|
|
|
|
It is the Group's policy to assess debtors for recoverability on an individual basis and to make provision where it is considered necessary. Of the Group's trade receivables balance £4,334,000 (2012: £2,517,000) is neither impaired nor past due. £1,098,000 (2012: £413,000) is past due and of this £657,000 (2012: £304,000) is more than 120 days past due. The Board takes active steps to recover all amounts and has assessed that a provision of £63,000 (2012: £57,000) against trade receivables is appropriate.
All financial assets are categorised as loans and receivables.
Market risk
Market risk is the risk that the fair value or future cash flows of the Group's financial instruments will fluctuate because of changes in market prices. The Group is exposed to interest rate risk. The Group operates solely within Guernsey and the United Kingdom and all of the Group's assets, liabilities and cash flows are in pounds sterling which is the reporting currency. Therefore the Directors do not consider the Group to be exposed to foreign currency risk at present.
Interest rate risk
Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises on interest bearing financial assets and liabilities the Group uses.
The Group's Aviva borrowing facilities of £100,000,000 (2012: £100,000,000), £50,000,000 (2012: £50,000,000) and £62,876,000 (2012: £63,617,000) were negotiated at a fixed rate of interest of 5.008%, 4.37% and 4.45% respectively. 12 of the Aviva GPG loan facilities are also fixed, with a weighted average rate of 4.45%, as disclosed in note 12. The remaining two Aviva GPG loan facilities are charged at variable interest rates at 2.5% margin.
The Group's Deutsche Postbank loan facility of £31,200,000 (2012: £31,200,000) has a variable rate of LIBOR plus 2%. At the year end £7,500,000 of this facility was fixed at 3.14%, the remaining £23,700,000 was fixed at 2.62% by way of swaps agreements. These swaps, which are the only swaps the Group has, are matched to the terms of the facility and effectively fix the interest rate for the full term of the loan.
The Group's RBS loan facility of £25,000,000 (2012: £nil) has a variable rate based on a margin over LIBOR, set dependent on group loan to value. At current rates the facility is expected to cost approximately 3%. At the year end the facility had not been drawn against.
These facilities represented 99% of the drawn borrowing facilities at the year end. The Directors consider interest rate risk on borrowings to be immaterial and do not consider it appropriate to perform sensitivity analysis on these items. The Group holds excess monies in deposit accounts until the funds are required, with no amounts held in deposit at the end of the year (2012: £nil). This does not include any balances held in restricted accounts. Of the restricted cash balances held at the year end, £13,267,000 was held in an Aviva deposit account which is AA+ rated with an average interest rate of 0.2%.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. The Directors regularly review the Company's forecast commitments against the future funding availability, with particular reference to the utilisation of and continued access to existing debt facilities and access to restricted cash balances and the ongoing commitments to development projects and proposed acquisitions. The Directors also review the Company's compliance with covenants on lending facilities.
Contractual maturity analysis for financial liabilities including interest payments at 30 September:
|
|
Due or due less than one month |
Due between 1 and 3 months |
Due between 3 months and 1 year |
Due between 1 and 5 years |
Due after 5 years |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Trade and other payables |
4,100 |
- |
- |
- |
- |
4,100 |
|
Accruals |
2,331 |
693 |
- |
- |
- |
3,024 |
|
Non-current borrowings |
||||||
|
Principal* |
- |
- |
- |
35,888 |
219,565 |
255,453 |
|
Interest payments |
2,376 |
805 |
9,031 |
45,766 |
161,951 |
219,929 |
|
|
2,376 |
805 |
9,031 |
81,654 |
381,516 |
475,382 |
|
Current portion of non-current borrowings |
||||||
|
Principal |
64 |
130 |
602 |
- |
- |
796 |
|
Interest payments |
337 |
674 |
3,020 |
- |
- |
4,031 |
|
|
401 |
804 |
3,622 |
- |
- |
4,827 |
|
|
|
|
|
|
|
|
|
Liabilities at 30 September 2012 |
6,495 |
823 |
602 |
35,888 |
219,565 |
263,373 |
|
Future costs of non-current borrowings |
2,713 |
1,479 |
12,051 |
45,766 |
161,951 |
223,960 |
|
|
|
|
|
|
|
|
|
Balances at 30 September 2012 |
9,208 |
2,302 |
12,653 |
81,654 |
381,516 |
487,333 |
|
* change of classification for Deutsche Postbank facility (Due between 1 and 5 years; previously shown as Due after 5 years) |
||||||
|
|
Due or due less than one month |
Due between 1 and 3 months |
Due between 3 months and 1 year |
Due between 1 and 5 years |
Due after 5 years |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Trade and other payables |
3,077 |
- |
- |
- |
- |
3,077 |
|
Accruals |
3,412 |
2,711 |
- |
- |
- |
6,123 |
|
Non-current borrowings |
||||||
|
Principal |
- |
- |
- |
38,009 |
234,606 |
272,615 |
|
Interest payments |
1,892 |
143 |
6,247 |
44,633 |
146,313 |
199,228 |
|
|
1,892 |
143 |
6,247 |
82,642 |
380,919 |
471,843 |
|
Current portion of non-current borrowings |
||||||
|
Principal |
83 |
194 |
852 |
- |
- |
1,129 |
|
Interest payments |
310 |
610 |
2,742 |
- |
- |
3,662 |
|
|
393 |
804 |
3,594 |
- |
- |
4,791 |
|
|
|
|
|
|
|
|
|
Liabilities at 30 September 2013 |
6,572 |
2,905 |
852 |
38,009 |
234,606 |
282,944 |
|
Future costs of non-current borrowings |
2,202 |
753 |
8,989 |
44,633 |
146,313 |
202,890 |
|
|
|
|
|
|
|
|
|
Balances at 30 September 2013 |
8,774 |
3,658 |
9,841 |
82,642 |
380,919 |
485,834 |
|
|
|
|
|
|
|
|
All financial liabilities are categorised as financial liabilities at amortised cost.
18. Commitments
At 30 September 2013, the Group had commitments of £23.1 million (2012: £19.6 million) to complete properties under construction.
19. Material contracts
Investment Adviser
MedicX Adviser Ltd is appointed to provide investment advice under the terms of an agreement dated 17 October 2006 as subsequently amended 20 March 2009, 17 February 2012 and 24 September 2013 (the "Investment Advisory Agreement" or "Agreement"). Fees payable under this agreement are:
(i) a tiered investment advisory fee set at 0.75% per annum on healthcare property assets up to £300 million subject to a minimum fee of £2.25 million, with an additional 0.65% per annum payable on assets between £300 million and £500 million, 0.5% per annum payable on assets between £500 million and £750 million, 0.4% per annum payable on assets between £750 million and £1 billion, and 0.33% per annum payable on assets over £1 billion;
(ii) a property management fee of 3% of gross rental income up to £25 million, and 1.5% property management fee on gross rental income over £25 million;
(iii) a corporate transaction fee of 1% of the gross asset value of any property owning subsidiary company acquired;
(iv) a performance fee based upon total shareholder return.
The annual performance fee is 15% of the amount by which the total shareholder return (using an average share price for the month of September) exceeds a compound hurdle rate calculated from the 69.0 pence issue price at 8 April 2009, subject to a high watermark. If in any year the total shareholder return falls short of this hurdle, the deficit in the total shareholder return has to be made up in subsequent years before any performance fee can be earned. The compounding of the hurdle rate is adjusted upwards to compound from the high watermark level at which the performance fee was last earned.
The hurdle rate applied in the year ended 30 September 2013 was 10% per annum (2012: 8%). The high watermark used for the calculation of the performance fee for the year to 30 September 2013 was set with reference to the average share price during September 2012, being 76.45 pence per share. The current high watermark is set with reference to the average share price during September 2013, being 78.99 pence per share.
The investment advisory base fee and performance fee earned in aggregate in any one financial year cannot be paid in excess of 1.5% of gross assets (excluding cash), such limit being equivalent to the investment advisory base fee that was in existence prior to the change. The excess, if any, of the aggregate of the investment advisory base fee and performance fee earned in any one financial year over 1.5% of gross assets (excluding cash) is not payable but is carried forward to future years or termination of the Investment Advisory Agreement, subject at all times to the annual 1.5% of gross assets (excluding cash) fee limit. The Agreement is terminable at the end of an initial seven year term and each three year term thereafter, provided 12 months' notice is given.
On 23 July 2012 the Fund announced that the Investment Adviser had agreed to the renewal of the Investment Advisory Agreement, with the Investment Adviser continuing to advise the Fund for a further three year term, commencing 2 November 2013, and had at the same time agreed, effective 1 October 2012, to increase the hurdle for its performance fee from 8% to 10% such that the Investment Adviser will only earn a performance fee if the total return to Shareholders in terms of share price growth and cumulative dividends received exceeds 10% (rather than 8% previously) per annum.
The Investment Adviser also provides accounting administration services for no additional fee.
During the year, the agreements with MedicX Adviser gave rise to £4,268,000 (2012: £4,384,000) of fees as follows:
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Expensed to the consolidated statement of comprehensive income: |
||
|
Investment advisory fee |
2,957 |
2,384 |
|
Investment advisory performance fee |
396 |
515 |
|
Property management fees |
639 |
436 |
|
Capitalised as part of property acquisition costs: |
|
|
|
Corporate acquisition fees |
276 |
1,049 |
|
Total Fees |
4,268 |
4,384 |
Of these fees, £391,000 (2012: £1,364,000) remained unbilled or outstanding at the end of the year. This excludes the performance fee which was billed after the year end and is included within accruals and provisions due within one year.
During the year property development costs of £15,771,000 (2012: £24,867,000) were paid to MedicX Property Ltd, a member of the same group of companies as MedicX Adviser Ltd. At the year end there was a total of £1,867,000 that remained unbilled or outstanding (2012: £2,292,000). In addition, licence fee income of £1,214,000 (2012: £946,000) was recognised on properties under construction by MedicX Property Ltd during the year. At 30 September 2013 licence fees totalling £441,000 (2012: £564,000) remained unbilled or outstanding.
Administrator
Each Group company has entered into a separate administration agreement with International Administration Group (Guernsey) Limited for the provision of administrative services. Under these agreements fees were incurred totalling £75,000 (2012: £68,000) for the provision of corporate secretarial services to all Group companies and other administrative services.
Of these fees £12,700 (2012: £12,000) remained unbilled or outstanding at the year end.
20. Related party transactions
During the year fees of £99,000 (2012: £65,000) were paid to Aitchison Raffety Limited to negotiate rent reviews, and to act as agent for the disposal of properties, of which £49,000 (2012: £nil) remained unbilled or outstanding at the year end. John Hearle is Group Chairman of Aitchison Raffety Limited.
During the year Aitchison Raffety Limited were appointed to manage the service charges for a number of properties held by the Group. No fees have been paid to date for this service, nor are any payable as at 30 September 2013. The estimated annual fee expected to be earned by Aitchison Raffety for providing this service is £59,000 (2012: £nil).
21. Operating leases
At 30 September 2013 the Group had entered into leases in respect of investment properties for the following rental income, excluding any future rent reviews:
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
Amounts receivable under leases |
|
|
|
Within one year |
25,326 |
21,745 |
|
Between one and five years |
101,305 |
86,558 |
|
After more than five years |
290,812 |
255,495 |
|
Total |
417,443 |
363,798 |
The length of a typical lease is between 18 and 25 years, with provision for rent reviews mostly every three years. Rent reviews are usually agreed with reference to open market value or the retail price index.
22. Subsidiary companies
The following were the subsidiary companies in the Group at 30 September 2013:
|
Name |
Country of incorporation |
Principal activity |
Ownership percentage |
Nominal value of shares in issue |
Type of share held |
|
Held Directly: |
|
|
|
|
|
|
MedicX Properties I Limited |
Guernsey |
Property Investment |
100% |
2 |
Ordinary |
|
MedicX Properties II Ltd |
England & Wales |
Property Investment |
100% |
2 |
Ordinary |
|
MedicX Properties III Ltd |
England & Wales |
Property Investment |
100% |
1,000 |
Ordinary |
|
MedicX Properties IV Ltd |
England & Wales |
Property Investment |
100% |
25,000 |
Ordinary |
|
MedicX Properties V Limited |
Guernsey |
Property Investment |
100% |
2 |
Ordinary |
|
MedicX Properties VI Limited |
Guernsey |
Property Investment |
100% |
Nil |
Ordinary |
|
MedicX Properties VII Limited |
Guernsey |
Property Investment |
100% |
Nil |
Ordinary |
|
MedicX GPG Holdings Limited |
Guernsey |
Property Investment |
100% |
Nil |
Ordinary |
|
Held indirectly: |
|
|
|
|
|
|
MedicX (Verwood) Ltd |
England & Wales |
Property Investment |
100% |
1,000 |
Ordinary |
|
MPVII Investments Ltd |
England & Wales |
Property Investment |
100% |
1 |
Ordinary |
|
CSPC (3PD) Limited |
England & Wales |
Holding company |
100% |
550 |
Ordinary |
|
Primary Medical Properties Limited |
England & Wales |
Holding company |
100% |
8,420 |
Ordinary |
|
Primary Medical Property Investments Limited |
England & Wales |
Property Investment |
100% |
966,950 |
Ordinary |
|
DK Properties (Woolston) Ltd* |
England & Wales |
Property Investment |
100% |
2 |
Ordinary |
|
GPG No5 Limited |
England & Wales |
Property Investment |
100% |
48,500 |
Ordinary |
* Dormant companies
23. Capital management
The Group's objectives when managing capital are:
· To safeguard the Group's ability to continue as a going concern, and continue to provide returns for shareholders and benefits for other stakeholders; and
· To provide an adequate return to shareholders by sourcing appropriate investment properties and securing long term debt at attractive rates commensurate with the level of risk.
The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, purchase shares in the Company, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the adjusted gearing ratio. This is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt, per the statement of financial position, less cash and cash equivalents. Adjusted capital comprises all equity components less cash and cash equivalents and goodwill. The Group is not subject to any externally imposed capital requirements. However the Directors intend to secure and utilise long term borrowings of approximately 50% on average over time and not exceeding 65% of the Company's total assets.
The adjusted gearing ratios at 30 September 2013 and 30 September 2012 were as follows:
|
|
|
|
|
|
2013 |
2012 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Total debt |
273,744 |
256,249 |
|
Less: cash and cash equivalents |
(27,063) |
(66,247) |
|
Net debt |
246,681 |
190,002 |
|
|
|
|
|
Total assets |
464,716 |
437,672 |
|
Less: cash and cash equivalents |
(27,063) |
(66,247) |
|
Adjusted capital |
437,653 |
371,425 |
|
|
|
|
|
Adjusted gearing ratio |
0.56:1 |
0.51:1 |
24. Post year end events
On 25 October 2013 the Company raised gross proceeds of £48.75 million through the Placing, Open Offer and Offer for Subscription of 85,000,000 New Ordinary Shares, at the issue price of 75p each, of which 20,000,000 were immediately bought back by the Company at the Issue Price and held in treasury to satisfy demand under the scrip dividend scheme and to be issued into the market for general corporate purposes.
On 16 October 2013 the Company sold a GP surgery in Wheathampstead, Hertfordshire. The total consideration received was £600,000, being above the property's valuation as of September 2013.
On 11 November 2013 the Company sold a GP surgery in High Wycombe, Buckinghamshire. The total consideration received was £1,045,000, being above the property's valuation as of September 2013.
End
This information is provided by RNS
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