Medicx Fund Regulatory News (MXF)

For immediate release

13 December 2016

MedicX Fund Limited

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

Results for the year ended 30 September 2016

MedicX Fund Limited (LSE: MXF) is a specialist primary care infrastructure investor in modern, purpose built primary healthcare properties in the United Kingdom & Republic of Ireland.

Financial Highlights

Unadjusted performance measures

Adjusted performance measures

The Directors believe that presenting the above adjusted performance measures assists readers of the accounts in understanding and analysing the performance and position of the Group, as well as providing industry standard measures for benchmarking against other companies. In particular, the Directors believe EPRA measures provide more meaningful key performance indicators.

Adjusted earnings per Ordinary Share are EPRA earnings for the current year, excluding the performance fee, if any, which is uncertain and cannot be accurately forecast.

Underlying dividend cover shows the expected outcome once all properties under construction are completed from existing resources and generating rental income.

Key Achievements of 2016

Financial results

· A 2.7% increase in EPRA earnings per Ordinary Share adjusted to exclude the performance fee, from 3.7p per share to 3.8p per share

· Quarterly dividend of 1.4875p per share announced in October 20166; total dividends of 5.95p per Ordinary Share for the year or 6.7% dividend yield (2015: total dividends of 5.9p per Ordinary Share; 7.6% dividend yield)6,7

· Rent receivable for the financial year to 30 September 2016 has increased by 7.0% to £35.1m. This is due to the annualised rent roll increasing by £2.4m to £37.2 million of which 89.2% is directly from or reimbursed by the NHS, Irish GPs or HSE.

· EPRA NAV total return for the financial year was 11.8% (2015: 17.2%) and Total Shareholder Return was 22.5% (2015: -0.4%)

Investments

· New committed investments in UK and Republic of Ireland, since 1 October 2015, of £35.0 million with an average cash yield of 6.02%8

· The value of the portfolio has increased by 10.6% in the financial year to £612.3 million. This is as a result of a £15.5 million valuation gain and £43.3 million of capital investment to acquire standing let properties and fund developments through forward funding schemes4

· Strong pipeline of approximately £108 million of acquisition opportunities9

Funding

· Market capitalisation £344.4 million following share price appreciation and £19.0 million net proceeds raised from 22.3 million shares issued since 1 October 2015 at an average issue price of 85.3 pence per share8

· Total drawn debt facilities of £336.3 million with an average all-in fixed rate cost of debt of 4.45% and an average unexpired term of 14.0 years, close to the average unexpired lease term of the investment properties of 15.5 years and compared with 4.45% and 15.8 years for the prior year

· Net debt of £315.3 million equating to 50.8% adjusted gearing at 30 September 2016 (30 September 2015: £281.4 million; 50.2%)8,10

1 As calculated in note 8 to the financial statements

2 Dividend cover excludes revaluation gains, performance fee and fair value on reset of loans. Underlying dividend cover includes impact of properties under construction treated as completed properties

3 Based on share price movement between 30 September 2015 and 30 September 2016 and dividends paid and reinvested during the year

4 As shown in note 9 to the financial statements

5 Movement on EPRA NAV per share between 30 September 2015 and 30 September 2016 and dividends paid during the year, divided by opening EPRA NAV per share

6 Ex-dividend date 17 November 2016, record date 18 November 2016, payment date 30 December 2016

7 Total dividends declared divided by share price at 30 September

8 As at the financial year end of 30 September 2016

9 As at 7 December 2016

10 As shown in note 24 to the financial statements

For further information please contact:

MedicX Fund +44 (0) 1481 723 450

David Staples, Chairman

Octopus Healthcare Group +44 (0) 20 3142 4820

Mike Adams, Chief Executive Officer

Canaccord Genuity +44 (0) 20 7523 8000

Andrew Zychowski/Helen Goldsmith

Buchanan +44 (0) 20 7466 5000

Charles Ryland/Victoria Hayns

A meeting for analysts will be held at Buchanan, 107 Cheapside, London, EC2V 6DN today, Tuesday 13 December 2016 commencing at 9am. MedicX Fund Full Year Results 2016 are available at www.medicxfund.com 

An audio webcast of the analysts' meeting will be available from 12 noon today:

http://vm.buchanan.uk.com/2016/medicx131216/registration.htm

Information on MedicX Fund Limited

MedicX Fund Limited (the "Fund" or the "Company", or together with its subsidiaries, the "Group") is the specialist primary care infrastructure investor in modern, purpose-built primary healthcare properties in the United Kingdom and Ireland, listed on the London Stock Exchange, with a portfolio comprising 153 properties.

The Investment Adviser to the Company is Octopus Healthcare Adviser Ltd, which is part of the Octopus Healthcare group. Octopus Healthcare invests in and develops properties as well as creating partnerships to deliver innovative healthcare buildings to improve the health, wealth and wellbeing of the UK. It currently manages over £1 billion of healthcare investments across a number of platforms, with a focus on four core areas: GP surgeries, care homes, retirement housing and private hospitals. Octopus Healthcare is part of the Octopus group, a fast-growing UK fund management business with leading positions in several specialist sectors including healthcare property, energy, property finance and smaller company investing. Octopus manages £6 billion of funds for more than 50,000 retail and institutional investors.

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

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

Chairman's Statement

I am pleased to present the tenth annual report for the Company, on behalf of the Board.

The demand for new modern primary care infrastructure continues to be strong in both the UK and Republic of Ireland as the population ages and a wider range of clinical services is sought to be delivered over longer hours by GPs in their local communities. Transforming the NHS through improved access to services, better working efficiency and implementing new ways of working remain high priorities. Reform is being led by clinical commissioning groups ("CCGs") and GPs, with provider groups emerging to meet increasing patient and regulatory demands. This modernisation creates opportunities for the Fund to partner with providers and invest in new modern purpose built infrastructure capable of delivering care with improved efficiency.

The Fund has continued to work with its strategic development partners, engaging with provider groups and working with its tenants to deliver new schemes and premises improvements. We continue to seek opportunities to invest in properties that will generate returns for shareholders well beyond their current lease terms. We do this by acquiring assets that are both tailored to the current needs of our tenants and also their evolving needs as they respond to increasing pressure and demand for extensive primary care services. As a result of this focus on value-adding property acquisitions carried out over the past few years, the Fund has created a market leading modern primary care portfolio.

The UK market has remained highly competitive with relatively high values being paid for assets of variable quality. Despite these market conditions the Fund has maintained its price discipline and continued to only acquire UK assets of the highest quality which meet the Fund's investment criteria. The Republic of Ireland demonstrates similar demographic pressures and political will which has enabled the Health Service Executive to drive forward its programme of putting in place a world class modern purpose built estate to deliver healthcare. The Fund is now supporting three new schemes underway in Mullingar, Crumlin and Rialto. We continue to believe there are good opportunities to invest in the Republic of Ireland at attractive yields in high quality properties.

Results overview

Since my statement last year, I am pleased to report that total shareholder return has recovered following the dip in the share price that occurred over the Company's previous year end. The share price recovered from 77.5 pence at 30 September 2015 and was 88.75 pence at 30 September 2016 underlying the total shareholder return for the year of 22.5%, putting the Fund back on track with its long term returns.

Fund progress and performance has been good with unadjusted NAV at 30 September 2016, having increased 3.0% to 71.7 pence per share (30 September 2015: 69.6 pence per share). EPRA NAV at 30 September 2016 has also increased by 3.4% to 73.2 pence per share (30 September 2015: 70.8 pence per share), after paying dividends for the year. Together with dividends paid in the year of 5.9375 pence per share this led to an EPRA NAV total return (being growth in EPRA NAV plus dividends paid) of 8.3375 pence per share or 11.8%.

As explained in my introduction, we maintained our investment discipline in a tough market and consequently the pace of property acquisitions slowed somewhat compare to recent years. At 30 September 2016, the Group had committed investment of £580.6 million across 152 properties of which six are under construction. The portfolio value was £612.2 million which is an increase of 10.6% above last year's value. In addition, since the year end, the Fund has committed to a further asset in the UK which will add £0.3 million to the rent roll.

The rent roll grew by £2.4 million or 6.9% during the year. The costs incurred by the Fund, including the finance costs, were in line with expectations given the level of activity and the acquisitions in the year. The Company's earnings for the year to 30 September 2016 were 7.1 pence per share, which is a reduction of 2.8 pence per share or 28.3%. The EPRA earnings for the current year excluding the performance fee earned by the Investment Adviser were £14.2 million (30 September 2015: £13.4 million) or 3.8pence per share, an increase of 2.7% (30 September 2015: 3.7pence per share).

Funding

The weighted average unexpired term of all drawn debt at 30 September 2016 is 14 years, closely matching the average remaining unexpired lease term of the Fund's portfolio of 15.5 years. The debt strategy remains to try to pick the optimal time to put in place the best available debt facilities with the most favourable terms whilst ensuring adherence to the Company's gearing target.

The adjusted gearing as at 30 September 2016, as detailed in note 24, was 50.8% which is in line with target and marginally increased from 50.2% as at 30 September 2015. The Directors will continue to target borrowings of approximately 50% on average over time but not exceeding 65% of the Company's total assets.

During September 2016, the Group renewed its unsecured RBS revolving credit facility for a further three years. The renewal provides for an option, with lender consent, that the immediately committed £20 million facility be extended by a further £10 million to £30 million or additional lenders be added with a view to increasing the facility on existing terms. Interest is payable on amounts drawn under the facility at a margin of 2% over LIBOR. The facility enables the Group to move quickly if needed when attractive opportunities come to market.

Demand for the Company's shares continued to be high during the year and the Company was able to raise £19.0 million from the sale of its shares held in treasury including £1.7 million raised through the issue of new shares under a block listing established in September 2016. Both treasury shares and new 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. These shares will only be sold or issued at a premium to EPRA NAV and so will be accretive to NAV per share for existing shareholders.

Dividends

The Company declared dividends totalling 5.95 pence per Ordinary Share in respect of the financial year ended 30 September 2016, an increase of 0.8% compared to 5.9 pence per Ordinary Share in the prior year. This resulted in a dividend yield of 6.7% as measured using the year end share price. The Board is maintaining the Company's progressive dividend policy for the forthcoming year. In response to the current very low interest rate environment and continued low rental growth, the dividend increase will be 0.05 pence per Ordinary Share. Therefore, subject to unforeseen circumstances, the Directors expect that the Company will pay dividends totalling 6.0p for the financial year ending 30 September 2017.

Dividend cover measured against adjusted earnings was 64.0% for the year to 30 September 2016 (2015: 63.3%). Underlying dividend cover, which is dividend cover adjusted to reflect completion of the properties under construction (assuming full annual rent on all properties and a full year of associated interest costs and other expenses) was 68.5% (2015: 68.0%).

As the Fund continues to grow its rental income, deploy capital and complete properties under construction, and when taken with the cap on the Investment Adviser base fee, it is expected that dividend cover and underlying dividend cover will improve further and will align themselves over the medium term.

Potential Conversion to a REIT

We have for some while mentioned that the Company has been considering whether it would be in its best interests to convert to a REIT. Our five year plans and forecasts now strongly indicate that it will be advantageous to effect a conversion possibly on 1 October 2017, the start of the Company's next financial year. However, I would stress that there has been no final decision by the Board to put this proposal to shareholders yet but we expect to make an announcement in the first quarter of 2017.

Board succession

Succession planning is regularly discussed at board meetings. Mr. Hearle and Mrs. Mason, having been with the Company since launch, have served on the Board for ten years and are standing for re-appointment as directors at the forthcoming Annual General Meeting along with the rest of the Board. Mr. Hearle and Mrs. Mason both hold relevant professional qualifications and have considerable expertise which is of great value to the Board, its diversity and effectiveness. Mrs Mason is a highly experienced commercial property lawyer as well as having many years of experience of being on the boards of property/infrastructure listed investment companies. She is of great assistance to the Board in relation to commercial property issues and governance. Mr. Hearle is widely recognised within the primary healthcare property industry as a leading figure and his experience of the asset class is an enormous benefit to the Board and its ability to constructively challenge the Investment Adviser. The Board recognises the benefit of refreshing its membership from time to time and it is proposed that Mrs. Mason will retire from the Board within the next financial year and once a suitable replacement for her has been found. There are likely to be further changes to the composition of the Board within the next two years, the nature and timing of which will depend upon when and whether the Company converts to REIT status.

Outlook

There is no doubt that markets have shown and will continue for some time to show considerable volatility given such things as the Brexit issue, how policies in the US will change, worries over upcoming elections in certain Eurozone countries and the slowdown of the Chinese economy. The fact that the Company's share price has continued to remain strong despite this environment is testament to the relative safety many investors see in primary healthcare property and the yields it can provide.

We believe our strong discipline on investment and funding, our focus on the quality of our portfolio and strong pipeline of investment opportunities provide the foundation for continued sustainable growth of the Fund and the delivery of solid returns for shareholders.

David Staples

Chairman

12 December 2016

 Investment Adviser's Report

Market

It is widely accepted primary care has to play a bigger role in health provision due to rising life expectancy and increasingly complex long term health conditions. The policy announcement from the NHS in April, entitled "General Practice Forward View", states that there has been under investment in the sector. The Forward View promises a greater share of the NHS England recurrent budget being directed towards primary care in future, to help GPs respond to the increasing pressure on primary care services. The market remains attractive to investors due to the government backed covenant and demand has remained high whilst supply has been limited due to the well-publicised delays in commissioning of new schemes. To accelerate reform, the NHS has announced high profile initiatives such as the £1 billion Estates and Technology Transformation Fund and the establishment of the network of 44 Sustainability and Transformation Plans ("STPs"). STPs are intended to bring all significant stakeholders together within health and social care systems to give structure to local integration which will lead to efficiency savings within the national health budget.

Achieving the objectives of the NHS Five year Forward View is a significant challenge to the wider health service and the plan was only introduced twelve months ago so it is too early to tell if it will succeed.

The Fund is working with a number of GP tenants and provider groups to support the upgrading of their premises to meet their estate needs.

There is a push to develop new models of care including Multi Speciality Community Providers and Accountable Care Organisations which is encouraging innovation. GPs are beginning to lead transformation and the pace of change is accelerating with practices merging, federating or forming larger provider groups which want to deliver the new models of care from modern purpose built primary care centres such as those owned by the Fund. The limited supply of new property schemes, continues to drive yield compression leading to higher prices. The Fund has maintained a disciplined buying approach, resisting the downward pressure on yields and has continued to acquire best in class assets through its relationship with its framework partners. The increased competition for limited stock has reflected positively on the property valuations of the Fund's portfolio.

As mentioned in last year's report, the Fund has diversified its approach and has invested in the Republic of Ireland where there are opportunities to acquire and/or forward fund large purpose built modern dominant assets at more attractive yields than those seen in the UK. The Fund has now made three investments in the Republic of Ireland and on each has entered into framework agreements with experienced developers for future schemes. Mullingar, the first of the Fund's Irish forward funding deals, is expected to reach practical completion before the end of December.

Portfolio update

As at the year end the Fund has committed investment of £580.6 million in 152 primary healthcare properties, an increase of £35 million or 6.4% since 1 October 2015. The annualised rent roll of the property portfolio was £37.2 million, an increase of £2.4 million, or 6.9%, since 1 October 2015. Subsequent to the year end the Fund invested into one further property.

The valuation of the portfolio undertaken by Jones Lang LaSalle Limited, independent valuers to the Group, stood at £621.7 million as at 30 September 2016 on the basis that all properties were complete, reflecting a UK net initial yield of 5.25% (5.46% as at 30 September 2015). The results for the year include a net valuation gain of £15.5 million.

At 30 September 2016, the portfolio of properties had an average age of 8.0 years, remaining lease length of 15.5 years and an average value of £4.1 million. Of the rents receivable, 89.2% are from government-funded doctors and the NHS or HSE, 8.6% from pharmacies and 2.2% from other tenants.

The Group added a total of nine properties representing a total commitment of £35.0 million at a cash yield of 6.02% between 1 October 2015 and 30 September 2016. Two of the new developments acquired by the Fund were in the Republic of Ireland. This demonstrates the proactive approach of MedicX Fund; diversifying into the Irish market whilst the UK market is experiencing aggressive pricing conditions and a scarcity of available stock.

During the year, successful completion was achieved on properties previously under construction at Stevenage, Briton Ferry, Kingsbury and Maidstone. All of the completed projects were delivered within budget.

Construction continued on the existing projects at Streatham, Benllech and Mullingar, while the construction of the newly acquired projects at Brynhyfryd, Crumlin and Rialto commenced during the year. The outstanding commitment to complete these properties at 30 September 2016 was £11.7 million excluding the Rialto project where construction is yet to start and the site is carried at cost.

The Fund had a pipeline of identified investment opportunities of approximately £108 million, with £58 million in the UK and £50 million in the Republic of Ireland.

Despite only one small disposal during the year, the Fund will continue to look to sell properties which no longer meet its long term investment criteria or have been identified within the CCG's estates strategy as less likely to be used for delivery of primary care beyond their existing lease term.

As described above, the initial valuation yield on investments in the UK is 5.25% compared with the Group's weighted average cost of fixed rate debt of 4.45% and a benchmark 20-year gilt rate of 1.52% at 30 September 2016. This positive spread has enabled growth through committing investment during the year of £35 million. The Group remains well placed to continue to grow and deliver value to its shareholders as it locks into the differential available between long term returns and the cost of long term funding.

Rent review performance

For the year ended 30 September 2016, the Fund averaged an uplift of 1.2% on its rent reviews, with reviews of 68 leases and rents of £6.1million having been concluded. Of these reviews, 0.8% per annum was achieved on open market reviews, 1.8% per annum was achieved on RPI based reviews and 1.8% per annum on fixed uplift reviews. Reviews of £16.1 million of passing rent were under negotiation as at 30 September 2016.

Of the £37.2 million annualised rent roll at the year end, there was £26.6 million (71.5%) subject to open market review, £9.1 million (24.5%) subject to RPI reviews and £1.5 million (4.0%) subject to fixed uplift reviews. The proportion of rent subject to RPI uplifts has increased over the last year from 22.6% to 24.5%.

Asset management

The Fund continually reviews its portfolio for asset management opportunities and has identified a number of opportunities to enhance the portfolio mainly through extensions, refurbishments, re-configurations, new pharmacy opportunities and lease re-gearing to increase valuations. The Fund is engaging with CCGs to identify further asset management opportunities and is monitoring closely how GP federations, new provider groups and 'Super Practices' are forming in each locality.

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's assets and associated debt at each year 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 is calculated and then aggregated with the surplus cash position of the Group.

At 30 September 2016, the DCF valuation was 96.6 pence per share compared with 94.9 pence per share at 30 September 2015.

In order to provide a consistent approach the assumptions applied in previous years have remained unchanged. 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 7.06% and this represented a 5.54% risk premium to the 20 year gilt rate at 30 September 2016 of 1.52%.

The discounted cash flows assume an average 2.5% per annum 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 2016 of 88.75 pence per share, the discounted cash flow calculation would have to assume a 1.1% increase in rents per annum, or a 0.1% capital appreciation per annum, or a weighted average discount rate of 7.9%. These movements 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 7 December 2016 of 90.25 pence per share, the discounted cash flow calculation would have to assume a 1.4% increase in rents per annum, or a 0.3% capital reduction per annum, or a weighted average discount rate of 7.7%.

Taking the EPRA NAV of 73.2 pence per share and assumed purchaser costs of 10.6 pence per share, an implied net initial yield of 4.84% would be required to match the discounted cash flow net asset value of 96.6 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 4.75%, the EPRA net asset value would increase by approximately 16.0 pence per share to 89.2 pence per share and the EPRA NNNAV would increase to 69.8 pence per share.

Pipeline and investment opportunity

The spread between the yields at which the Fund can acquire properties and the cost of long term debt and Government gilts remains significant. The Investment Adviser has continued to successfully source properties both through Octopus Healthcare's development arm, Octopus Healthcare Property Ltd, 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 £108 million in value when fully developed.

Interest in voting rights of the Company

The Investment Adviser has a beneficial interest in the following number of shares in 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 for the year was £122,437, compared with £116,543 in the prior year.

Mike Adams

Chief Executive Officer

Octopus Healthcare Adviser Ltd

Risk Management

The principal risks and uncertainties relating to the Group are regularly reviewed by the Board along with the internal controls and risk management processes that are used to mitigate these risks. The principal risks and the management of those risks are described below:

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2016

The presentation of the comparative period has been updated to show direct property expenses as a deduction in arriving at net rental income.

Consolidated Statement of Financial Position

As at 30 September 2016

The financial statements were approved and authorised for issue by the Board of Directors on 12 December 2016 and were signed on its behalf by

Shelagh Mason

David Staples

Consolidated Statement of Changes in Equity

For the year ended 30 September 2016

Consolidated Statement of Cash Flows

For the year ended 30 September 2016

Notes to the Financial Statements

For the year ended 30 September 2016

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 principal accounting policies are set out below.

The Group has cash reserves and assets available to secure further funding if required, together with long term leases across different geographic areas within the United Kingdom and the Republic of Ireland. The Directors have reviewed the Group's forecast commitments, including commitments to development projects and proposed acquisitions, against the future funding availability, with particular reference to the utilisation of, and continued access to, existing debt facilities and also access to restricted cash balances. The Directors have also reviewed the Group's compliance with covenants on lending facilities.

The Group's financial forecasts show that it can remain within its lending facilities and meet its financial obligations as they fall due for at least the next twelve months. The Directors also believe that the Group is well placed to manage its business risks successfully in the current economic environment. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

These consolidated financial statements are presented in pounds sterling, which is the company's functional currency and the Group's presentational currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

Impact of revision to International Financial Reporting Standards

The accounting policies applied are consistent with those of the annual financial statements for the year ended 30 September 2015. As disclosed at the foot of the Consolidated Statement of Comprehensive Income, the presentation of the comparative figure for direct property expenses has been relocated to make it clearer that those expenses are not administrative in nature.

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:

The Directors have assessed the impact of the new standards and do not believe the above will have a material impact on the financial statements. As a lessor, the treatment of the Group's property leases is expected to be broadly the same and changes to the treatment of the Group's revenue will also remain broadly the same when IFRS 16 becomes effective.

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 2016. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Accounting for acquisitions of investment properties

Where the Group acquires subsidiaries that own real estate, at the time of acquisition, the Group considers whether each acquisition represents the acquisition of an asset or a business. The Group accounts for an acquisition as a business combination where an integrated set of activities, including processes, is acquired in addition to the property.

When the acquisition of subsidiaries does not represent a business combination, it is accounted for as an acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair values, and no goodwill or deferred tax is recognised.

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 and the Republic of Ireland.

Expenses

All expenses are accounted for on an accruals basis.

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 based on a best estimate of the new expected rent. Any lease incentives taken by tenants to enter into lease agreements, any premium paid by tenants to the Group or any fixed rent uplifts during the lease term are recognised on a straight line basis over the full lease term.

Foreign exchange

Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the foreign exchange rate ruling at the reporting date. Differences are recognised in profit and loss.

Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are translated to the functional currency using the exchange rate at the date of the transaction.

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at foreign exchange rates ruling at the dates the fair values were determined. Differences are recognised in profit and loss.

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of the statement of financial position;

• Income and expenses for each statement of comprehensive income are translated at average rates (unless the average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

• All resulting exchange differences are recognised directly within equity in the Group's other reserve.

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 charged 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.

Bank loans and borrowings

All bank loans and borrowings are initially recognised at 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 any resulting fair value adjustment being amortised against finance costs over the life of the loans, on an effective interest basis.

Investment properties

The Group's completed investment properties are held for long-term investment. Freehold and long-leasehold properties acquired are initially recognised at cost, being fair value of the consideration given including transaction costs associated with the property. After initial recognition, freehold and long-leasehold 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 recognised in profit and loss in the period in which they arise.

The fair values of completed investment properties and investment properties under construction are based upon the valuations of the properties as provided by Jones Lang LaSalle Limited, an independent firm of chartered surveyors, as at each period end, adjusted as appropriate for costs to complete, head lease liabilities (the net present value of which are recognised as separate liabilities) and lease incentives.

In rare situation where the Group has purchased a site intended to be developed, but where construction has not started, the site is held at cost unless there are indications of a significant change in value. Sites with a value of £2.3 million were not formally revalued at 30 September 2016.

Costs of financing specific developments are capitalised and included in the cost of each development. During the year the loan facilities, as disclosed in note 12, were utilised to fund development work on investment properties under construction. Interest costs of £228,000 (2015: £250,000) attributable to development work in progress were capitalised.

Current and deferred taxation

The tax liability represents the sum of the current tax and deferred tax payable. The current tax 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.

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 by reference to the tax rates substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

Impairment of assets

The Group assesses annually whether there are any changes in circumstances indicating 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.

Fair value measurements

The Group measures certain financial instruments and non-financial assets such as investment property, at fair value at the end of each reporting period. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole:

• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Use of judgements and 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

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 have regard for observable 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 in accordance with IFRS 3 or if it is more appropriate to treat it as an asset acquisition.

Rent reviews

The Fund estimates and accrues the expected uplift in rent for rent reviews from the effective review date to the period end. This estimation of future rent takes into account the terms of the underlying occupational leases and the available observable market rental evidence.

Deferred tax assets

The Fund only recognises deferred tax assets if it is considered probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.

2. Directors' fees

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 2016, payable to KPMG LLP (2015: KPMG LLP).

4. Finance costs

During the year interest costs on funding attributable to investment properties under construction were capitalised at an effective interest rate of 4.45% (2015: 4.63%). The funding was sourced from all of the loan facilities outlined within note 12. Where properties under construction were secured against a specific loan, the interest for that facility was capitalised.

5. Finance income

The foreign exchange gain is derived from the retranslation of monetary assets and liabilities denominated in Sterling (which is a foreign currency for the Group's Irish property owning subsidiary, MedicX Properties Ireland Limited, which has a functional currency of the Euro). The Company has provided Sterling loans to MedicX Properties Ireland Limited to enable it to invest in properties. To settle these loans, which are eliminated on consolidation, MedicX Properties Ireland Limited will be required to repay fewer Euros than were received by virtue of the Euro having strengthened against Sterling over the year.

6. Taxation

For the year under review, the Company 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 £1,200 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 sourced 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 taxable profits.

A reconciliation of the actual tax charge to the notional tax charge applying the average standard rate of UK corporation tax of 20.0% (2015: 20.5%) is set out below:

Deferred Taxation

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 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 significantly crystallise as, in common with practice in the sector, the Group would most likely sell the companies holding the property portfolio rather than sell all properties individually.

The Group's subsidiary undertakings have gross unrelieved management expenses of £12.5 million (2015: £16.1 million) which after the IAS 12 recognition exemption leaves the Group with unrelieved management expenses of £8.9 million (2015: £12.6 million) which gave rise to a recognised deferred tax asset of £1.7 million (2015: £2.5 million) at an average rate of 19.2% (2015: 20%) which reflects the future UK corporation tax rate of 17% and the UK income tax rate of 20%. The deferred tax assets are netted off the deferred tax liabilities where they may be offset in future against the same components of tax.

There are no accumulated Group tax losses within the Group (2015: none), which are currently not recognised as a deferred tax asset within the financial statements of the Group. All of the existing tax losses of the Group are now recognised as part of the net deferred tax liability.

As a result of the deferred tax recognition exemption for asset acquisitions,, deferred tax liabilities of £9.2 million (2015: £9.9 million) in respect of fair value gains and £2.3 million (2015: £2.3 million) in respect of capital allowances, and deferred tax assets of £0.7 million (2015: £0.7 million) in respect of unrelieved management expenses, have not been recognised.

7. Provisions

Other provisions

The Company had previously made provision for potential liabilities relating to compliance and employee related matters arising from transactions which occurred in MPVII Investments Ltd. This provision was reversed during the previous year as MPVII Investments Ltd was sold on 8 July 2015.

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 £26,631,000 (2015: £35,829,000) and on 374,517,179 (2015: 361,323,024) Ordinary Shares, being the weighted average aggregate of Ordinary Shares in issue calculated over the year, excluding amounts held in treasury. This gives rise to a basic and diluted earnings per Ordinary Share of 7.1 pence (2015: 9.9 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 £278,161,000 (2015: £254,097,000) and on 388,066,844 (2015: 365,125,306) Ordinary Shares being the aggregate of Ordinary Shares in issue at the year end, excluding amounts held in treasury. This gives rise to a basic and diluted net asset value per Ordinary Share of 71.7 pence per Ordinary Share (2015: 69.6 pence per Ordinary Share).

EPRA earnings per share and net asset value per share

The Directors believe that the following EPRA and adjusted earnings per Ordinary Share and net asset value per Ordinary Share are more meaningful key performance indicators for the Group:

9. Investment properties

Investment properties are initially recognised at cost and then subsequently measured at fair value, which has been determined based on the market valuations performed by Jones Lang LaSalle Limited for the properties held within the United Kingdom as at 30 September 2016. The valuation takes account of the fact that a purchaser's offer price to the Group would be net of purchaser's costs (which are estimated at 6.1% (2015: 5.8%) of what would otherwise be the purchase price).

Investment properties under construction located in the Republic of Ireland have been valued by Jones Lang LaSalle Limited, Dublin office subsequent to the year end at 2 December 2016 for a potential third party lender. Jones Lang LaSalle have confirmed that they do not consider there to be a material difference to the value at 30 September 2016. The properties have been valued in line with the approach taken within the UK outlined below although purchasers' costs are lower since Irish stamp duty is generally charged at a rate of 2% (4.46% adopted).

The sites purchased for forward funding schemes were acquired before the year end, and as part of the acquisition process were valued by Jones Lang LaSalle Limited, and are valued at cost which approximates to fair value at 30 September 2016.

The freehold and long leasehold interests in the property investments of the Group were valued at an aggregate of £621,746,000 as at 30 September 2016 (2015: UK only; £561,704,000) by Jones Lang LaSalle Limited. This valuation assumes that all properties, including those under construction, are complete. The difference between the total valuation and the carrying value is the cost to complete those properties under construction, adjustments for the fair value of ground rents and lease incentive adjustments as at 30 September 2016.

The valuer's opinion of market value was derived using valuation techniques and 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 market 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 valuer's fee is a set fee applied to the number of properties in the portfolio, the valuer's fees for the year were £77,000 (2015: £72,000).

During the year a garage, which was acquired as part of a portfolio acquisition, was disposed of because it did not fit the criteria of the Group acquisition policy. This was disposed of for cash of £121,000 which resulted in a profit on disposal of £31,000.

The average net initial yield for assets located within the UK at 30 September 2016 was 5.25% (2015: 5.46%).

Fair value hierarchy

The valuation of all investment properties is classified in accordance with the fair value hierarchy described in note 1. As at 30 September 2016 (and as at 30 September 2015), the group determined that all investment properties be included at fair value as Level 3, reflecting significant unobservable inputs.

There were no transfers between Levels 1, 2 or 3 during the year.

Valuation techniques

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As is common for investment property, valuation appraisals are performed using a combination of market and income approaches.

Under the market comparable method (or market comparable approach), a property's fair value is estimated based on comparable observable transactions.

Under income approaches, unobservable inputs are applied to model a property's fair value. The following unobservable inputs are applied:

• The Estimated Rental Value is the amount that an area could be let for, based on prevailing market conditions at the valuation date;

• The Equivalent Yield is the internal rate of return from the cash flows generated from renting a property;

• Rental Growth is an estimate of rental increases expected for contractual or prevailing market conditions; and

• The physical condition of a property, which would normally be visited by a valuer on a rotational basis.

Properties under construction have been measured at their fair value by taking the fair value at completion and subtracting the contractual costs to complete the assets under the development contracts. The technique inherently assumes that construction will be completed to an acceptable standard and leases will be entered into under the terms and time line agreed.

The 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% on each property, this would result in an impact on the valuation of the properties of approximately £32 million. If rent reviews of 2% were achieved on the full portfolio with no yield movement the valuation of properties would increase by approximately £13 million.

The property yields of the Fund excluding three outlying properties range from 7.25% to 4.31%.

The property ERVs of the Fund range from £104 to £387 per square metre.

The majority of investment properties are charged as security for the long-term loans as disclosed in note 12.

Of the completed investment properties £141,823,000 (2015: £129,837,000) are leasehold properties.

During the year the loan facilities, as disclosed in note 12, were utilised to fund development work on investment properties under construction. Interest costs of £228,000 (2015: £250,000) attributable to development work in progress were capitalised during the year.

10. Trade and other receivables

11. Trade and other payables

12. Loans

The current portion of long term loans relates to the amount due in the next twelve months on the Aviva PMPI, GPG and Fakenham loan facilities; the terms of these loans are disclosed in note 12.

The Group has six primary debt facilities drawn and a smaller loan facility for a single property. In addition the Group has a revolving loan facility with RBS. The RBS facility was undrawn at 30 September 2016. Details of each facility are disclosed below. Repayments of the loans listed above fall due as follows:

1 During the year, £4,336,000 of the Aviva GPG loan facility was novated to another group company, MedicX (Fakenham) Ltd.

Covenants

All of the covenants on the loan facilities were complied with during the year and subsequently.

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 £7,581,000 as at 30 September 2016 (30 September 2015: £8,517,000).

A mark to market calculation gives an indication of the benefit or liability 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 lenders, 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 year for a loan with similar terms to match the existing facilities. The debt benefit or liability 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 liability of the total fixed rate debt to the Group was £59.1 million as at 30 September 2016 (30 September 2015: £25.2 million).

Fair value hierarchy

The valuation of loans is classified in accordance with the fair value hierarchy described in note 1. As at 30 September 2016 (and as at 30 September 2015), the Group determined that loans be included at fair value as Level 3, reflecting significant unobservable inputs.

There were no transfers between Levels 1, 2 or 3 during the year.

Cash flow movements

During the year, the principal cash flow movements on the Fund's loan facilities were as follows:

Any directly attributable costs incurred relating to the loans are added to the loan issue costs and amortised over the remaining life of the specific loan facility.

13. Head lease liabilities

The Group holds certain long leasehold properties which are classified as investment properties. The head leases are accounted for as finance leases. These leases typically have lease terms between 32 and 999 years and fixed rentals.

14. Share capital

Ordinary Shares of no par value were issued during the year as detailed below:

Demand for shares remained strong throughout the year and in order to satisfy this demand the Group made an application to the UK Listing Authority for a block listing of 23,981,109 Ordinary Shares of no par value on 15 September 2016. At 30 September 2016, 21,981,109 shares remain within the block listing.

During the year, treasury shares were utilised to satisfy market demand for shares and in lieu of cash payment for the dividends payable. The transactions and relevant price per share are noted below:

The closing value of shares held in treasury issued at 83.50 pence per share each is £6,834,924.

Any cash consideration received in excess of the price the treasury shares were purchased at has been included as part of share premium.

15. Other reserve

The movement in other reserve is set out in the Consolidated 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 reserve is 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 Articles of Incorporation.

The Company's other reserve is used to accumulate annual profits or losses for each year, other comprehensive income comprising of foreign exchange differences created on consolidation of foreign operations less dividends declared and paid.

16. Cash and cash equivalents

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 £100,000 (2015: £11,030,000).

At 30 September 2015, cash and cash equivalents, included £25 million of cash in transit related to the second close of the Standard life loan note facility which completed on 30 September 2015.

17. Dividends

Dividends are scheduled for the end of March, June, September and December of each year, subject to Board approval and shareholder approval at the AGM of the dividend policy. On 1 November 2016, the Board approved a dividend of 1.4875 pence per share, bringing the total dividend declared in respect of the year to 30 September 2016 to 5.95 pence per share. The record date for the dividend was 18 November 2016 and the payment date is 30 December 2016. 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 1 November 2016 the Board announced an opportunity for qualifying shareholders to receive the December 2016 dividend in new Ordinary Shares instead of cash.

18. 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 2016 and 30 September 2015 comprised trade receivables and payables, other debtors, cash and cash equivalents, non-current borrowings and current borrowings. It is the Directors' opinion that, with the exception of the non-current borrowings for which the mark to market liability or benefit is set out in note 12, the carrying value of all financial instruments in the statement of financial position was equal to their fair value.

Credit risk

From time to time the Group invests surplus funds in high quality liquid market instruments with a maturity of no greater than six months. To reduce the risk of counterparty default, the Group deposits its surplus funds subject to immediate cash flow requirements in A- 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 backed sources. As at the year end 89% (2015: 90%) of rental income receivable was derived from government backed tenants who are spread across a large number of Clinical Commissioning Groups which further reduces credit risk in this area. The default risk is considered low due to the nature of government backed funding for GP practices.

The Group's maximum exposure to credit risk on financial assets was as follows:

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 £3,862,000 (2015: £2,317,000) is neither impaired nor past due. £514,000 (2015: £599,000) is past due and of this £216,000 (2015: £525,000) is more than 120 days past due. The Board takes active steps to recover all amounts and has assessed that a provision of £51,000 (2015: £71,000) against trade receivables is appropriate at the year end.

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 primarily within Guernsey and the United Kingdom and the majority of the Group's assets, liabilities and cash flows are in pounds sterling which is the reporting currency. The Directors have approved terms to enter into a Euro denominated loan facility and this is in the process of being documented. The facility will provide a natural hedge against current and future Euro denominated investments outside of Guernsey and the United Kingdom but will in itself expose the Group to foreign currency risk related to the monetary financial loan instrument.

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 (2015: £100,000,000), £50,000,000 (2015: £50,000,000) and £59,777,000 (2015: £61,045,000) were negotiated at a fixed rate of interest of 5.008%, 4.37% and 4.45% respectively. 12 of the Aviva GPG and Fakenham loan facilities are also fixed, with a weighted average interest rate of 4.45%, as disclosed in note 12. The remaining two Aviva GPG loan facilities are charged at variable interest rates with a 2.5% margin.

On 15 September 2016, the Group extended the term of the RBS loan facility. The amendment also provides for an option, with lender consent, that the immediately committed £20 million revolving credit facility may be extended by a further £10 million to £30 million or additional lenders be added with a view to increasing the facility on existing terms (2015: maximum facility of £25 million). Interest is payable on amounts drawn under the amended facility at a rate equal to LIBOR plus a lending margin of 2.00% per annum. A non-utilisation fee of between 1.10% and 0.75% will be payable on the undrawn, £20 million immediately available commitment.

The Group's private loan note facility of £50,000,000 (2015: £50,000,000) has a fixed rate of 3.99% and the loan facility with Standard Life of £50,000,000 has a fixed rate of 3.838%.

These facilities represented 99% of the drawn borrowing facilities at the year end and if the RBS loan facility was fully drawn at the year end, the exposure to variable rate borrowings would be approximately 6%. Therefore the Directors consider interest rate risk on borrowings to be immaterial and do not consider it appropriate to perform sensitivity analysis on these items. Of the restricted cash balances held at the year end, £100,000 (2015: £627,000) was held in an Aviva deposit account which is A+ rated with an average interest rate of 0.2%.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty 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:

19. Commitments

At 30 September 2016, the Group had commitments of £21.2 million (2015: £16.0 million) to complete properties under construction including sites purchased for forward funding schemes.

20. Material contracts

Investment Adviser

Octopus Healthcare 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 2013, 24 September 2013 and 20 November 2015 (the "Investment Advisory Agreement" or "Agreement"). Fees payable under this agreement are:

(i) a tiered investment advisory fee set at 0.50% per annum on healthcare property assets up to £750 million, 0.40% per annum payable on assets between £750 million and £1 billion, and 0.30% per annum payable on assets over £1 billion subject to a total minimum annual fee of £3.878 million or, if lower, the fee that would have been payable under the old fee structure until the consolidated property asset value reaches £782 million after which no minimum fee shall apply;

(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 2016 was 10% per annum (2015: 10%). The high watermark used for the calculation of the performance fee for the year to 30 September 2016 was the theoretical price which would have given a compounded 10% total shareholder return over the high watermark at 30 September 2015 (85.50 pence per share) with dividends reinvested. The current high watermark as at 30 September 2016 is set with reference to the average share price during September 2016 of 89.6 pence per share which will form a base for measuring shareholder return over the next year for the purpose of assessing whether a performance fee is payable.

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. On 20 November 2015 the Fund agreed to the renewal of the Investment Advisory Agreement, with revised renewal and notice terms to provide a rolling contract subject to the Company's ability to serve two years' notice at any time.

The Investment Adviser provides accounting administration services for no additional fee.

During the year, the agreements with Octopus Healthcare Adviser Ltd gave rise to £6,362,000 (2015: £4,574,000) of fees as follows:

Of these fees, £nil (2015: £nil) remained unbilled and £1,034,000 (2015: £nil) outstanding at the end of the year with the exception of the performance fee which was billed after the year end and is included within accruals due within one year in the statement of financial position.

During the year property development costs of £nil (2015: £552,000) were paid to Octopus Healthcare Property Ltd, a member of the same group of companies as Octopus Healthcare Adviser Ltd. At the year end there was a total of £nil that remained unbilled or outstanding (2015: £nil). In addition, licence fee income of £nil (2015: £7,000) was recognised on properties under construction by Octopus Healthcare Property Ltd during the year. At 30 September 2016 there were no licence fees (2015: £nil) 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 which was renewed with effect from 1 May 2015. Under these agreements fees were incurred totalling £116,000 (2015: £83,000) for the provision of corporate secretarial services to all Group companies and other administrative services.

Of these fees £1,000 (2015: £37,000) remained unbilled or outstanding at the year end.

21. Related party transactions

During the year fees of £29,000 (2015: £56,000) were paid to Aitchison Raffety Limited to negotiate rent reviews, and to act as agent for the disposal of properties, of which £nil (2015: £nil) remained unbilled or outstanding at the year end. John Hearle was Group Chairman of Aitchison Raffety Limited until October 2015.

During the year Aitchison Raffety Limited managed 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 2016.

The management agreement with Aitchison Raffety was terminated with effect from 31 December 2015.

22. Operating leases

At 30 September 2016 the Group had entered into leases in respect of investment properties for the following rental income, excluding any future rent reviews:

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 by reference to open market value or the Retail Price Index.

23. Subsidiary companies

The following were the subsidiary companies in the Group at 30 September 2016: