MedicX Fund seeks more cash

Healthcare property investor MedicX Fund plans to raise cash next year in order to take advantage of opportunities in the healthcare property market. Although the government is trying to rein back spending, primary healthcare will continue to be a favoured area because it is a less costly way of treating patients than hospitals. MedicX Fund owns up to date primary care properties that are designed so that they can take on more work carried on in hospitals. By renting to GPs, MedicX Fund effectively has government guaranteed leases, which tend to last 20 years. MedicX Fund does not take any development risk, but it does help to forward fund developments where there is already a tenant signed up. The cash yield on the property portfolio is 5.96%, whereas the cost of borrowings is 5.01%. MedicX Fund has a £100m debt facility with Aviva which lasts until the end of 2036. This is fully drawn down and has a fixed interest rate of 5%. A £25.5m loan from Deutsche Postbank lasts until April 2015 and it has an effective interest rate of 4.2%. Only £500,000 of this loan has been drawn down. There is also cash of £17.3m in the bank. MedicX Fund has a progressive dividend policy and it is paying quarterly dividends totalling 5.4p a share for the year to September 2010.The fund reported a gain of £8.16m for the year to September 2010 but that includes a net valuation gain of £5.58m. There was £2.05m generated in cash during the period but the dividend cost £6.41m. The fund manager is comfortable paying out dividends based on unrealised gains because of the strength of the portfolio and its tenants. MedicX Fund has a net asset value of 65.7p a share - excluding goodwill and deferred tax. There is also the additional benefit of having the secured funding from Aviva.On a discounted cash flow basis, assuming a weighted discount rate of 7.2%, the NAV is 91.5p a share. That assumes annual rental growth of 2.5% and a rise in asset values of 1% a year. Last year's annualised rent increase was 2.6% and it has been higher than that in two of the three previous years. Rent reviews are upwards only.