Medicx Fund Regulatory News (MXF)

For immediate release

12 December 2017

MedicX Fund Limited

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

Results for the year ended 30 September 2017

BUILDING A BRIGHTER FUTURE FOR PRIMARY HEALTHCARE INVESTMENT

MedicX Fund is a leading investor in modern purpose-built primary healthcare properties. Our investment supports the transformation of the primary healthcare estate in the United Kingdom and Republic of Ireland.

FINANCIAL HIGHLIGHTS AND KEY ACHIEVEMENTS

A strong year, reflecting progress and achieving notable milestones.

FINANCIAL RESULTS

· Continued increase in rent receivable, up 5.7% to £37.1million (2016: £35.1 million);

· Profit before tax was £33.3 million for the year; 18.1% higher than the profit after before for 2016 of £28.2 million;

· 7.5% increase in annualised rent roll1 from £37.2 million to £40.0 million;

· 89.7% (2016: 89.2%) of rent roll was directly from or reimbursed by the NHS, Irish GPs or HSE;

· 2.9% increase in EPRA11 earnings per Ordinary Share, from 3.4p per share to 3.5p per share;

· Increase in underlying dividend cover to 69.5% (2016: 68.5%);

· 12.7% total return on EPRA NAV2 for the financial year (2016: 11.8%); and

· Total Shareholder Return3 of 9.6% (2016: 22.5%).

GOOD PROGRESS ON INVESTMENTS

· 11.1% increase in the value of the property portfolio to £680.4 million1,4. This is as a result of £51.1 million of capital investment to acquire standing let properties and fund developments through forward funding schemes and a £18.6 million net valuation gain;

· New committed investments in UK and Republic of Ireland, since 1 October 2016, of £49.4 million with an average cash yield of 5.22%1;

· £8 million average value of new committed investments and selective disposals improved portfolio quality; and

· Substantially increased strong pipeline of approximately £175 million of acquisition opportunities1 (2016: £108 million).

CAPITAL MANAGEMENT

· Quarterly dividend of 1.5p per share announced on 1 November 20175; total dividends of 6.0p per Ordinary Share for the year or 6.6% dividend yield on a share price of 91 pence per share at 30 September 20176 (2016: total dividends of 5.95p per Ordinary Share; 6.7% dividend yield);

· Total drawn debt facilities of £372.8 million with an average all-in fixed rate cost of debt of 4.29% and an average unexpired term of 12.7 years, close to the average unexpired lease term of the investment properties of 14.1 years and compared with 4.45% and 14.0 years for the prior year1;

· Net debt of £340.7 million equating to 49.5% adjusted gearing at 30 September 2017 (30 September 2016: £315.3 million; 50.8%)1,7; and

· Market capitalisation £390.0 million1 following share price appreciation and £34.6 million net proceeds raised from 39.8 million shares issued since 1 October 2016 at an average issue price of 87.9 pence per share.

Unadjusted performance measures

Adjusted performance measures

The Directors believe that presenting the above adjusted performance measures assists readers of the financial statements 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 industry standard key performance indicators.

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

1 As at the financial year end of 30 September 2017

2 Movement on EPRA NAV per share between 30 September 2016 and 30 September 2017 and dividends paid during the year, divided by opening EPRA NAV per share

3 Based on share price movement between 30 September 2016 and 30 September 2017 and dividends paid and reinvested during the year

4 As shown in note 8 to the financial statements

5 Ex-dividend date 16 November 2017, record date 17 November 2017, payment date 29 December 2017

6 Total dividends declared for the year divided by share price at 30 September

7 As shown in note 24 to the financial statements

8 Dividend cover is based on EPRA NAV. Underlying dividend cover includes impact of properties under construction treated as completed properties

9 As disclosed in note 7 to the financial statements

10 Percentage point change

11 EPRA is the European Public Real Estate Association

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/Vicky Hayns/Henry Wilson

A meeting for analysts will be held at Buchanan, 107 Cheapside, London, EC2V 6DN today, Tuesday 12 December 2017 commencing at 9:30am. MedicX Fund Full Year Results 2017 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/2017/medicx121217/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 152 properties.

The Investment Adviser to the Company is Octopus Healthcare Adviser Ltd, which is part of the Octopus Healthcare group. Octopus Healthcare invests in and develops properties as well as creating partnerships to deliver innovative healthcare buildings to improve the health, wealth and wellbeing of the UK. It currently manages over £1.2 billion of healthcare investments across a number of platforms, with a focus on five core areas: GP surgeries, care homes, special education schools, 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 £7 billion of funds for more than 50,000 retail and institutional investors as well as supplying energy to more than 100,000 customers

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.

The Company's Legal Entity Identifier is 2138008POF35FTNFCB25

Chairman's statement

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

"This year the Fund has continued to execute its strategy of selectively buying high quality, larger, locally strategic and sustainable properties. The Board believes this focus and its discipline of not overpaying will deliver better long term returns"

The need for modern purpose built primary healthcare premises remains a high priority in order that the NHS can deliver its five year forward view. The Government announced in the 2017 Autumn Budget new additional funding of £6.3 billion for frontline NHS services and upgrades to buildings and facilities in England. Despite wider market uncertainty following the result of the EU referendum, primary healthcare property investment values remain resilient with the assets becoming more important for society in general. Underpinned by a high quality portfolio generating secure, long term income and long term fixed rate funding, the Company continues to offer a compelling investment proposition as it looks to support primary healthcare transformation in both the UK and Republic of Ireland.

During the year, the Fund grew its portfolio by over 11%, diversified its capital base and achieved a number of notable milestones. Year on year, both IFRS reported earnings and Net Asset Value per share grew as did the industry standard adjusted measures of EPRA earnings and EPRA Net Asset Value per share at a time when the number of new primary healthcare schemes being commissioned remains low and rent review uplifts remained challenging.

Highlights and strategic progress

Entry into the UK REIT Regime

Following approval by more than 99% of voting members at the Extraordinary General Meeting on 12 September 2017, the Fund elected to enter the UK REIT regime with effect from 1 October 2017. The Fund is now exempt from corporation tax on its UK qualifying property income and capital gains on disposals of UK investment properties. The Board believes that as the Fund matures and generates increasing amounts of taxable profit, conversion to UK REIT status will have the benefit of protecting shareholder returns by virtue of the tax exemptions, as well as potentially widening the appeal of the Company's shares to new investors.

Joint venture with key developer

In January 2017 the Company announced that it had entered into a joint venture agreement with General Practice Investment Corporation Limited ("GPIC"). A new company, jointly controlled by the two parties, was established to invest in UK primary healthcare properties, let to GPs or directly to the NHS, which either have asset management potential or where it is expected that by partnering with the tenants looking to relocate, new development opportunities will arise. The joint venture has already acquired its first investment property valued at just under £1 million but more importantly, from the relationship with the new GP tenants, significant progress has been made in helping them locate and plan a new site for their enlarged practice which will be formed by a merger with other local practices. This is expected to be an opportunity for the Fund to directly forward fund the new scheme.

At the same time as agreeing the joint venture, the framework agreement with GPIC, which has delivered c.£77 million of assets to the Fund since 2012, has been extended for a further five years. The relationship continues to work for the benefit of both parties and there is a pipeline of forward funding opportunities for the Fund including one in due diligence being proposed by GPIC.

New loan facilities reducing cost of debt

During the year, the Fund established two new loan facilities, diversifying its lender base and reducing its cost of debt and capital.

In March, the Fund entered into a new facility agreement for up to €29.1 million with the Bank of Ireland which initially provides development finance, followed by a five year term loan once the four Irish secured assets reach practical completion. The margin on the new facility is 4% over EURIBOR during the development phase, stepping down to 3% once practical completion and rent commences at each property. The Fund has drawn down funds under this facility from April 2017 and since then has not needed to purchase any Euros from its Sterling capital. This facility provides a natural part hedge against the Fund's Euro denominated properties and now established, is sustaining dividend cover which dipped during the initial period when the Irish investments were funded from the Company's equity capital. Through to the end of September 2017 the Fund drew down approximately €16.2 million against deployment of €30 million.

In July, the Fund raised £27.5 million through a private placement of loan notes bought by a new institutional lender to the Fund. The loan notes at the time had a duration of eleven years and two months maturing on 30 September 2028, with no amortisation and the principal repayable on maturity. The all-in interest rate payable on the notes is fixed for their term at 3.00% the lowest fixed long term rate the Fund has achieved to date.

This new facility, together with the full draw down of the Bank of Ireland development loan facility described above, reduces the average fixed rate of debt for the Fund to 4.29% from 4.45% with an average unexpired term of 12.7 years at 30 September, closely matching the average remaining unexpired lease term of the Fund's portfolio of 14.1 years.

Disciplined acquisition progress

During the first six months of the year the Fund achieved a strong start despite new scheme approvals remaining very scarce in the UK. Over the year, the Fund committed the equivalent of £49.4 million at an average cash yield of 5.22%. Although the committed funds for the financial year 2017 compare favourably to £35.0 million in 2016, we expected more. Asset prices continue to strengthen and we have continued to be very disciplined in our approach to what we buy and careful not to overpay. This, we believe, will pay off in the long run when the quality of the portfolio will realise its advantages.

I am pleased to report that progress in the Republic of Ireland was very encouraging. The Fund's first forward funding scheme in the Ireland, in Mullingar, reached practical completion in February 2017 and is fully let and delivering services to its local community with a rent roll of just over €1 million per annum. Since completion the HSE has commissioned a Child and Adolescent Mental Health Services ("CAMHS") unit from an extension on the site which will increase the rent roll further. The Fund is forward funding three other schemes in Ireland, two of which are expected to reach practical completion within the next three months and we have conditionally exchanged contracts on a fifth asset in Ireland which is fully occupied. Once fully let, the Fund's Irish properties will generate rent equivalent to approximately £3.0 million per annum.

Fund performance

The financial highlights reflect another solid period of growth for the Fund, with new commitments of £49.4 million and a revaluation uplift of £18.6 million driving portfolio growth of 11.1% over the financial year to £680.4 million. Over the year the rent roll increased 7.5% to £40 million which led to a 5.7% increase in rent receivable from £35.1 million to £37.1 million. This portfolio growth has led to an increase in EPRA Net Asset Value per share of 4.5% from 73.2 pence per share to 76.5 pence per share together with a 3% growth in EPRA earnings per share from 3.4 pence per share to 3.5 pence per share.

This growth enabled the Company to follow its planned progressive dividend policy, with total dividends declared of 6.0p per Ordinary Share in respect of the year ended 30 September 2017, an increase of 0.8% compared with 5.95p per Ordinary Share in the prior year. This represented a dividend yield of 6.6% relative to a share price of 91 pence at the end of the year.

During the year, demand for the Fund's shares remained high and in February 2017 and August 2017 the Company put in place additional block listings of 17.8 million and 14.7 million shares respectively. Prior to putting in place the loan facilities described above, the Company raised £34.5 million net proceeds to fund investment through the issue of 39.75 million new shares at an accretive premium of approximately 20% to the Company's EPRA NAV.

Overall, IFRS earnings per Ordinary Share grew 32.4% from 7.1 pps to 9.4 pps and the basic Net Asset Value grew 6.4% from 71.7 pps to 76.3 pps. The total return on EPRA NAV for the financial year was 12.7% (2016: 11.8%) from the payment of dividends of 5.9875 pence per share and EPRA NAV growth of 3.3 pence per share.

The Company's share price has remained resilient and stable throughout the year, trading in a narrow range between 87.0 and 92.25 pence per share since the beginning of 2017 through to 15 November 2017. Since then, the Company's share price has dipped which we believe is a result of a number of factors including, the share price going ex-dividend, general market volatility, a significant volume of primary and secondary fundraising activity in the investment company sector, and an expectation of higher interest rates in the medium term.

Funding

As detailed above, new debt facilities were put in place which have enabled the Fund to reduce its average cost of debt to 4.29% with a weighted average unexpired term of 12.7 years at 30 September 2017, closely matching the average remaining unexpired lease term of the Fund's portfolio of 14.1 years.

The new loan facilities were put in place as and when the Fund needed the cash which, together with judicious use of the RBS revolving credit facility, meant we were able to reduce cash drag. The adjusted gearing as at 30 September 2017, as detailed in note 24, was 50.0% (30 September 2016: 50.8%) which is in line with target and at the bottom of the range of 50 - 55% that the Directors are currently targeting within the policy of borrowings of approximately 50% on average over time but not exceeding 65% of the Company's total assets.

Dividends and dividend cover

As described above, the Company followed its planned progressive dividend policy for the year, with total dividends declared of 6.0p per Ordinary Share in respect of the year ended 30 September 2017 representing a dividend yield of 6.6%.

In keeping with the position at the mid-year, dividend cover measured against EPRA earnings remained at 59.2% for the full year to 30 September 2017 (30 September 2016: 64%), the reduction resulting from share issues in the year causing the Company's dividend commitment to grow more quickly than its earnings whilst funds raised were deployed into assets under construction generating no income. During the year £20.7 million had been invested into four such assets in the Republic of Ireland which at that time, had been solely funded through equity which had the effect of reducing dividend cover by 3.6%. Over the second half of the year the Company has drawn down debt financing to forward fund the Irish assets and once these assets are completed their combined expected rents of €3.5 million per annum will have the effect of significantly increasing dividend cover. Underlying dividend cover, which we calculate off an assumed fully built and let portfolio, was slightly higher however at 69.5% compared with 68.5%.

The Company remains committed to increasing dividend cover over time and is currently focusing on measures to grow EPRA earnings at a faster pace than the dividend. For the forthcoming year in response to the current dividend cover, low interest rate environment and continued low rental growth of the portfolio, the dividend increase will be a minimal 0.04 pence per Ordinary Share. Therefore, subject to unforeseen circumstances, the Directors expect that the Company will pay dividends totaling 6.04p for the financial year ending 30 September 2018.

Corporate governance

Board changes

Succession planning is regularly discussed at board meetings and in line with our plans, Shelagh Mason retired from the Board on 29 September 2017 having served for just over 11 years, the entire life of the Fund. On behalf of the Board, I would like to express my thanks to Shelagh for her fantastic contribution to the Fund and the Board during her term. In anticipation of Shelagh's retirement and to benefit from her wealth of knowledge and experience, on 1 April 2017 the Board appointed Helen Mahy, who has a legal background, as Director.

On 29 September, the Board was delighted to appoint Laure Duhot to the Board. Laure currently acts for a number of property firms and investors across Europe and brings additional skills and experience to the Board in the areas of real estate debt, corporate finance and UK REITs.

John Hearle, having been with the Company since launch, has served on the Board for eleven years and is standing again for re-appointment as director at the forthcoming Annual General Meeting. John, who has over 40 years of experience in primary healthcare property, is widely recognised within the industry as a leading figure through his previous and current roles with Aitchison Raffety, RICS, the Primary Care Premises Forum and from acting as an expert witness and arbitrator. His experience of the asset class is an enormous benefit to the Board and its ability to constructively challenge the Investment Adviser. These are the reasons that, despite his length of service, the Board is fully supportive of John's reappointment and believes he is still independent.

It has been my privilege to serve this Company as Chairman of the Board since October 2008, a period of more than nine years. In line with good corporate governance therefore and the belief that it is a good time for a change, I have decided not to stand for re-election at the next AGM in February 2018. I will continue to Chair the Company until then. The Board has decided that my replacement will be Helen Mahy. Helen is an experienced chairman and investment company director and I fully support her appointment. I would like to thank all those who have contributed over the years to the success of MedicX, my fellow Board members and Mike Adams and his dedicated team at Octopus Healthcare.

Commitment to diversity and other matters

At the current time the Board consists of five members, two of whom are resident in Guernsey, with three resident in the UK. The Board has members who hold professional qualifications in accountancy, law, property and taxation and is made up of three male and two female members.

The Board assesses its performance and composition annually and is of the view that it functions effectively and has an appropriate mix of skills to perform properly.

Sustainability

The Board is committed to adopting responsible environmental, social and governance policies. In support of these policies the Company has invited its members to register for electronic communications which will reduce the number of communications sent by post resulting in cost savings to the Company, whilst reducing the impact that the unnecessary printing and distribution of reports has on the environment. It is the Board's preference to provide, as far as possible, all documents via the Company's website to all shareholders who have not specifically elected to receive the information in hard copy.

Brexit

Following the results of the referendum in June 2016 where the UK voted to leave the European Union, the long-term impact on the UK remains highly uncertain with Brexit negotiations having progressed slowly.

The Fund however invests in a sector with ever increasing demand driven by growing, ageing populations and so independently of the macro economic factors, the assets that the Fund invests in will remain important and in demand and it is unlikely that a hard or soft exit would have a different direct effect on the Company since it does not rely on EU trade arrangements or staff from EU overseas countries. The Fund has reviewed its leases and facility agreements in relation to expected changes in legislation resulting from Brexit and no significant issues have been identified.

Global political factors do appear to be creating economic volatility and uncertainty. In the UK the NHS is being affected by EU citizens looking to repatriate. There will undoubtedly be some indirect effects on the Fund through volatility in the Sterling/Euro exchange rate, inflation, interest rates and new tax and regulatory legislation as Brexit unfolds but these will be monitored by the Fund.

The Market and Outlook

Following the publication of the Sir Robert Naylor report on the NHS Estate in March 2017, which highlighted the important role of primary healthcare premises in delivering the NHS Five Year Forward View policy, the Fund and its Investment Adviser has engaged with key stakeholders and influencers within the NHS and Government to demonstrate the potential benefits of the third party development ("3PD") procurement model.

The review recommended that the public sector partner with the private sector in supporting GPs and transforming the primary healthcare estate. We believe we have an important role to play in delivering value for money for the taxpayer as an investor in modern purpose-built primary healthcare properties. The Fund's focus on its portfolio quality together with healthcare transformation driven from modern purpose-built healthcare property places the Company in a strong position for further sustainable growth. The need for new primary care infrastructure is as compelling as it has ever been with GPs moving to work together at scale and the lack of new developments following the formation of Clinical Commissioning Groups.

The Fund has a strong pipeline of £175 million of investment opportunities and a track record of partnering with primary healthcare providers to deliver high quality services and a better patient experience through investment in modern purpose-built properties. 

In light of the strong emerging pipelines in both the UK and Ireland as well as the positive experience of large purpose-built high quality assets in Ireland, the Board are of the view that the Fund is well positioned for growth.

David Staples

Chairman

11 December 2017

Market overview

The demand for new modern primary care infrastructure continues to be 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. The Fund has a strong pipeline of live investment opportunities and a track record of partnering with primary healthcare providers to deliver high quality services and a better patient experience through investment in modern purpose-built properties.

United Kingdom

The long awaited independent report on NHS Property and Estates by Sir Robert Naylor was published in early 2017. It made a number of recommendations focussed on supporting the vision of the NHS Five Year Forward View and the 44 new Sustainability Transformation Plans ("STPs") across England, creating an affordable and efficient NHS estate, and selling surplus land for new housing development. The report highlights the importance of the private sector and how it can play an instrumental role in driving forward the strategic aims of the Forward View. The Department of Health's response is awaited.

An additional £325 million was given to the NHS in the 2017 Spring Budget to support the 15 strongest STPs. Cross-party support for increased NHS spending remains in place since the UK general election. In the recent Autumn Budget, the UK government has pledged to increase funding on frontline NHS services and upgrades to NHS buildings and facilities by a further £6.3 billion (above the £10 billion more per year pledged for the NHS by 2020-21) including £3.5 billion for capital investment for the NHS in England by 2022-23.

There continues to be a move towards formation of Accountable Care Organisations ("ACOs") to create locally integrated health systems spanning primary, secondary and social care. These are likely to need new premises solutions to deliver cost savings. Final funding allocations will be made upon business cases being successfully approved and will depend on robust wider estates and capital strategies.

As well as rising clinical demand and transformation from the UK government and the NHS, it has been well publicised that pressure on GPs continues to mount from increased regulation, rising numbers of consultations and recruitment challenges. Practices are continuing the move towards more collaborative working either through federations, super practices or the emerging ACOs.

Republic of Ireland ("RoI")

In the RoI there are similar demographic pressures requiring new primary care infrastructure and the Irish government continues to support their Primary Care Centre strategy delivering modern purpose built centres serving the local community.

Pricing and rents

The primary care investment sector has continued to see further yield compression during the year due to investor demand, reinforcing the attractiveness of the asset class. Market rental growth remains challenging for the sector due to a lack of new schemes to set new rental evidence but there is increasing acknowledgement from District Valuers that rising land costs and build costs are supporting higher rents for new schemes. In addition, UK RPI inflation increased to 3.9% over the twelve months to 30 September 2017 providing another strong indication of upward pressure on market rents.

Investment Advisor's Report

Building a brighter future for primary healthcare investment

"Practices are continuing the move towards more collaborative working either through federations, super practices or the emerging Accountable Care Organisations"

The market overview on above sets out the drivers of continuing strong demand in the UK and Irish markets. The Sir Robert Naylor report has made a number of recommendations and highlights the importance of the private sector in supporting the visions of the NHS Five Year Forward View and "STPs" in helping the commissioners create effective estates. The Fund is well positioned to rise to the challenge of supporting primary healthcare transformation through its enhancement and investment in modern purpose-built premises.

In the Republic of Ireland the Fund continues to build strong relationships with framework developers and now has four schemes committed. Mullingar is fully let having reached practical completion in February. The second scheme at Crumlin is expected to reach practical completion in December 2017 and the remaining schemes at Tallaght and Rialto are due to be completed in early 2018 and early 2019 respectively.

The Fund continues to work with its strategic development partners, engaging with provider groups and working with its tenants to deliver new schemes and premises improvements and to invest in "best in class" properties that meet the requirements of the STPs' underlying clinical and estates strategies and which will generate long term returns for shareholders. The Fund is well positioned to deliver new schemes by working closely with its preferred developers and provider groups to help the project commissioners transform the provision of primary healthcare.

Portfolio update

The UK market has remained highly competitive with continued downward pressure on yields, more competition and relatively high values being seen for assets of varied quality. During the year, the Group remained disciplined in committing new investment of £49.4 million and growing the portfolio to a value of £680.4 million across 156 properties, of which five were under construction at 30 September 2017 (2016: £612.3 million across 152 properties; 6 under construction).

In March 2017 MSCI published their primary care benchmark report. The Fund has recorded a consistent total property return of 9.1%, 9.8% and 9.7% over 1, 3 and 5 years comparing well with the primary healthcare benchmark of 9.1%, 9.6% and 8.7% over the same time periods.

The annualised rent roll of the property portfolio was £40.0 million, increased from £37.2 million at 30 September 2016, providing improving economies of scale and a stable platform to its operations.

The valuation of the portfolio undertaken by Jones Lang LaSalle Limited and Cushman & Wakefield, independent valuers to the Group, in aggregate stood at £689.9 million as at 30 September 2017 on the basis that all properties were complete, reflecting a UK net initial yield of 5.08% (2016: 5.17%).

The carrying value of £680.4 million reflects the cost to complete the assets currently under development and includes two sites valued at cost which is a strong proxy for their fair value.

At 30 September 2017, the property portfolio had an average age of 8.7 years, remaining average unexpired lease length of 14.1 years and an average property value of £4.4 million (30 September 2016: 8.5 years; 14.3 years; and £4.3 million). At 30 September 2017 the rents profile was as follows: 84.2% were from UK government-funded doctors and the NHS, 6.4% from the HSE and Irish GPs, 7.9% from pharmacies and 1.5% from other tenants.

During the year ended 30 September 2017, the Fund acquired a total of six properties to complement the existing portfolio, representing a total commitment of £49.4 million. In addition, successful completions were achieved for four properties previously under construction at Benllech, Brynhyfryd, Streatham and Mullingar. All completed projects, with a combined initial value of £22 million, were delivered within budget under fixed price contracts.

Construction continued on the existing projects at Crumlin and Rialto. Projects commenced at Brynmawr, Cromer and Tallaght, on the outskirts of Dublin. The outstanding commitment on these five properties at 30 September 2017 was £19.1 million, with all properties with the exception of Rialto expected to complete within the next six months.

In addition to new acquisitions, two capital expenditure asset management projects were funded during the year to enhance its existing portfolio of completed properties. Capital expenditure of £700,000 was incurred during the year with approximately £541,000 to complete the projects. This investment was focused on the two extensions at Pudsey and Shoreham which will result in new leases with a combined passing rent of £232,000 per annum at completion.

The Fund has a pipeline of identified investment opportunities of approximately £175 million and is described in more detail below.

Despite only two small disposals 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. Following the year end, in November, five such properties located in Wolverhampton, Southampton, Gravesend, Leicester and Grimsby were sold for consideration of £5,575,000, representing a gain of approximately £250,000 over the most recent external valuation.

The net initial valuation yield on UK investments was 5.08% compared with the Group's weighted average fixed rate debt of 4.29% and a benchmark 20-year gilt rate of 2.00% at 30 September 2017. Assuming the revolving credit facility is utilised and the new Bank of Ireland facility is drawn down, the Group's average cost of debt would fall further towards 4.17% which will enhance future returns. The spreads being achieved for Irish assets are significantly wider than those seen in the UK market. 

Rent review performance

During the year, the portfolio averaged an overall uplift of 3.12%, equating to 1.02% per annum on its rent reviews. A total of 92 rent reviews have been concluded during the year, with a combined rental value of £9.0 million. Of these reviews, 0.52% per annum was achieved on open market reviews, 1.7% per annum was achieved on RPI based reviews and 2.38% per annum on fixed uplift reviews.

Outstanding rent reviews of £20.9 million of passing rent are currently under negotiation as at 30 September 2017.

Asset management

The Investment Adviser, on behalf of the Fund frequently reviews its portfolio for asset management opportunities and has identified a number of opportunities to enhance the portfolio mainly through extensions, re-configurations of internal space, new pharmacy opportunities and lease re-gearing. The Investment Adviser is actively 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. Two extensions and lease re-gear were completed in the period and the Investment Adviser is in detailed discussions on a further twelve asset management projects.

Overheads and progress on ongoing charges

During the year the Company incurred exceptional costs of £240,000 (2016: £nil) related to its conversion to a UK REIT. All these conversion costs have been incurred or accrued on entry to the REIT regime with effect from 01 October 2017. The Group has made further progress in reducing its Ongoing Charges Ratio ("OCR") (relative to average EPRA Net Asset Value) to 2.24% from 2.49% for 2016, (both including direct property costs), as the Group continues to scale its operations.

Discounted cash flow valuation of assets and debt

On the Fund's behalf, the Investment Adviser carries 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 utilised 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 2017, the DCF valuation stood at 98.5 pence per share compared with 96.6 pence per share at 30 September 2016, the increase resulting primarily from the property acquisitions made in the year.

We are aware that a number of infrastructure funds have lowered their UK and Ireland discount rates. However, in order to provide a consistent approach the assumptions applied in previous periods remain unchanged. The discount rates used were 7% for completed and occupied properties and 8% for properties under construction. These represented 2.5% and 3.5% risk premiums to an assumed 4.5% long term gilt rate. The weighted average discount rate is 7.07% and this represented a 5.07% risk premium to the 20 year gilt rate at 30 September 2017 of 2.0%.

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

For the discounted cash flow net asset value to equate to the share price as at 30 September 2017 of 91.0 pence per share, the discounted cash flow calculation would have to assume a 1.2% increase in rents per annum, or a weighted average discount rate of 7.9% or capital growth of 0.1%.

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 but had narrowed noticeably over the year. 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 growing high quality property pipeline, subject to contract, which has a value of approximately £175 million when fully developed.

At 30 September the UK pipeline was £85.0 million and the Irish pipeline was the equivalent of £90.0 million. Of these opportunities, £15.8 million of assets in the UK, and £20.3 million of assets in Ireland were undergoing legal due diligence.

Since 30 September a further £38.2 million of UK schemes in the pipeline have moved into legal due diligence and the commitment at Vale of Neath of £4.6 million was completed. These opportunities have been sourced from best in class developers and tailored specifically to the needs of the GPs and other care service providers to produce the highest quality sustainable end product. All are important healthcare premises within their locality.

Financing

The Fund entered into a new facility agreement on 6 March 2017 for up to €29.1 million with the Bank of Ireland, as well as a new loan note facility agreement on 27 July 2017 with a new institutional investor for £27.5 million.

The weighted average unexpired term of all drawn debt at 30 September 2017 was 12.7 years, closely matching the average remaining unexpired lease term of 14.1 years of the Fund's portfolio. 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 2017 was 49.5% which is in line with target and marginally decreased from 50.8% as at 30 September 2016. The Directors will continue to target borrowings of approximately 50% on average over time but not exceeding 65% of the Company's total assets.

The covenants on all debt facilities were complied with, within the period and since the year end.

Net asset value and sensitivity

The Fund's progress and performance has been positive with unadjusted NAV at 30 September 2017, having increased 6.4% to 76.3 pence per share (30 September 2016: 71.7 pence per share). EPRA Net Asset Value ("EPRA NAV") as at 30 September 2017 increased by 15.4% to £327.8 million or by 4.5% to 76.5 pence per share (30 September 2016: £284 million or 73.2 pence per share).

A review of sensitivities has been carried out in relation to the valuation of properties. If valuation yields firmed by 0.25% to a net initial yield of 4.83%, the EPRA NAV would increase by approximately 8.4 pence per share to 84.9 pence per share and the EPRA NNNAV would increase to 74.8 pence per share. However, if valuation yields widened by 0.25% to a net initial yield of 5.33%, the EPRA NAV would decrease by approximately 7.7 pence per share to 68.8 pence per share and the EPRA NNNAV would decrease to 58.7 pence per share.

Interest in voting rights of the Company

The Investment Adviser has a beneficial interest in the following number of shares in the Company:

The number of shares held by Octopus Healthcare Adviser Ltd as at the date of this report is 2,297,336, equivalent to 0.54% of the issued share capital of the Company.

During the year the Investment Adviser received dividends on its holding in the Company in addition to fees received for services. With the Scrip Dividend Scheme in place, the Investment Adviser received all its dividends in the form of new Ordinary Shares. The cash equivalent of the dividends received by the Investment Adviser was £132,147 compared with £116,543 in the prior year.

Mike Adams

Chief Executive Officer - Octopus Healthcare Adviser Ltd

11 December 2017

Principal risks and uncertainties

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.

STRATEGIC RISKS

OPERATIONAL RISKS

FINANCIAL RISKS

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2017

Consolidated Statement of Financial Position

As at 30 September 2017

The presentation of the comparative period has been updated to show the foreign currency translation reserve separately from the other reserve.

The financial statements were approved and authorised for issue by the Board of Directors on 11 December 2017 and were signed on its behalf by

Helen Mahy

Non-Executive Director

11 December 2017

Consolidated Statement of Changes in Equity

For the year ended 30 September 2017

The presentation of the comparative period has been updated to show the foreign currency translation reserve separately.

Consolidated Statement of Cash Flows

For the year ended 30 September 2017

Notes to the Financial Statements

For the year ended 30 September 2017

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 2016, except that the Group has adopted and applied IFRS11 'Joint Arrangements' and IAS28 'Investments in Associates and Joint Ventures' in evaluating and accounting for its new interest in joint venture undertakings. As disclosed at the foot of the Consolidated Statement of Financial Position and the Consolidated Statement of Changes in Equity, the presentation of the comparative figure for the foreign currency translation reserve has been detailed separately to the other reserve to make the component clearer.

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 in issue but not currently effective and do not believe these will have a material impact on the financial statements.

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement. The new standard includes requirements for classification, recognition and measurement, impairment, de-recognition and hedge accounting. The Directors have completed an assessment of the impact of IFRS 9 and believe its impact on the Company will be limited because the Group currently has no complex financial instruments, does not hedge account and does not have significant trade receivables that may be impaired. The recognition and classification of the Company's financial instruments is expected to be unchanged. In the future, the new standard aims to simplify the documentation required for hedge accounting which may be of benefit and the rules for the treatment of debt break or modification costs will be slightly different to those under IAS 39.

IFRS 15 Revenue from Contracts with Customers excludes from its scope amounts receivable from leases which fall under the scope of IAS 17 which is due to be replaced by IFRS 16 and amounts receivable from joint ventures which fall under the scope of IAS 28. IFRS 15 therefore only provides guidance on the Company's other income which represents less than 1% of the Company's income. On this basis IFRS 15 is not expected to have a significant effect on the Company's future position or performance.

IFRS 16 Leases specifies how to recognise, measure, present and disclose leases. The standard adopts a single model which is expected to have a high impact on lessees and leases of low value and of less than twelve months. The Directors have completed an assessment of the impact of IFRS 16 and believe its impact on the Company will be limited because the Group is not a lessee with short leases and does issue finance leases. As a lessor the Group will continue to classify its investment property leases as operating in nature. The group as a lessee has a small number of long leasehold interests where those long leases have a head lease rent. These are currently treated as finance leases because substantially all the risks and rewards incidental to ownership are with the Company and that will continue to be the case under IFRS 16 with a head lease liability recorded.

In addition, IFRS 16 could have an indirect impact on the Group's business if it leads to a change in tenant behaviour. In future tenants or potential tenants who will be required to account for operating leases as a liability and right to use asset may seek shorter lease terms.

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 2017. 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.

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.

Service charge income is recognised on an accrual basis when services have been provided and the Group has to a right to a defined amount of consideration.

Expenses

All expenses are accounted for on an accruals basis.

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 forming part of the cost of the asset produced.

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.

Following the conversion of the Group to a UK REIT, deferred tax liabilities on unrealised revaluation gains are only recognised where an asset is located outside the UK or where a developed asset is expected to be sold within three years of completion.

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.

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 located in the UK 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. The fair value of investment properties located in the Republic of Ireland are based upon valuations provided by Cushman & Wakefield, an independent firm of chartered surveyors at each period end.

In rare situations 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. Two sites with a combined cost and net book value of £2.7 million were not formally revalued at 30 September 2017.

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 11, were utilised to fund development work on investment properties under construction.

Trade and other receivables

Trade and other receivables are initially recognised at their fair value inclusive of any Value Added Taxes that may be applicable and are subsequently held at amortised cost and net of any provision for any doubtful debts which are not deemed recoverable.

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.

Trade and other payables

Trade and other payables are initially recognised at their fair value inclusive of any Value Added Taxes that may be applicable and are subsequently held at amortised cost.

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 and recognised as a part of finance costs over the life of the loans, on an effective interest basis.

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 for applying the following hierarchy:

• 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.

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 monthly 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

· Exchange differences resulting from the difference in rates applied to income statement balances and financial position items are recognised directly within equity in the Group's foreign currency translation reserve.

Accounting for associates and joint ventures

A joint venture generally involves the establishment of a corporation, partnership or other entity in which each party venture has an interest in the joint control over strategic, financial and operating decisions. The results, assets and liabilities of jointly controlled entities are incorporated in the financial statements using the equity method of accounting.

Where the Group's share of losses exceeds its equity accounted investment in joint venture, the carrying amount of the equity interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations. Appropriate adjustment is made to the results of joint ventures where material differences exist between a joint venture's accounting policies and those of the Group.

Dividend income from joint ventures is recognised when the shareholders' right to receive payment have been established. Any dividends received are deducted from the carrying amount of the investment.

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 Group 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 and sensitivity analysis of investment property is disclosed in note 8.

Asset acquisitions

The Group'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 Group 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.

Compliance with the UK REIT regime

As a consequence of the Group's REIT Status, income and capital gains on the qualifying property rental business are exempt from corporation tax. In order that the Group maintains this status it must continue to meet a number of conditions each accounting period. The Group comfortably meets these criteria and therefore deferred taxes are recognised on the basis of ongoing REIT status.

Identifying joint ventures and associates

The Group assesses its power over the operations of investees and its rights to variable returns related to that power. The Group has determined that it jointly controls GP Property Limited into which it has made an equity investment because there is no contractual right to guaranteed cash returns.

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 2017, payable to KPMG LLP (2016: 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 4.29% (2016: 4.45%). The funding was sourced from all of the loan facilities outlined within note 11. 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 which are eliminated on consolidation.

6. Taxation

On 29 September 2017, the Group elected to become a UK REIT with effect from 1 October 2017. The UK REIT rules exempt income and gains of the Group's UK property rental business from corporation tax. On entry to the UK REIT regime, UK deferred tax liabilities related to revaluation gains were released.

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.

A reconciliation of the actual tax charge to the notional tax charge applying the average standard rate of UK corporation tax of 19.5% (2016: 20.0%) is set out below:

Deferred Taxation

At 30 September 2017 the Group has recognised deferred tax liabilities on the revaluation of its properties located in the Republic of Ireland at a rate of 33%.

7. 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 £38,624,000 (2016: £26,631,000) and on 413,134,343 (2016: 374,517,179) 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 9.4 pence (2016: 7.1 pence) per Ordinary Share.

The basic and diluted net asset value per Ordinary Share are based on the net asset position at the year end attributable to Ordinary Shares of £327,202,000 (2016: £278,161,000) and on 428,640,144 (2016: 388,066,844) 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 76.3 pence per Ordinary Share (2016: 71.7 pence per Ordinary Share).

EPRA earnings per share and net asset value per share

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

8. 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 ("JLL") for the properties held within the United Kingdom as at 30 September 2017. 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 6.53% (2016: 6.1%) of what would otherwise be the purchase price).

Investment properties completed and under construction located in the Republic of Ireland have been valued by Cushman & Wakefield ("C&W"). 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 was generally charged at a rate of 2% (Notional purchasers cost of 4.46% were therefore assumed). Subsequent to the year end, the rate of Irish stamp duty on commercial properties was increased from 2% to 6%. This will put pressure on the reported net valuation of the Irish properties by approximately 4% after October 2017 however, the C&W have advised that tightening yields are expected to compensate for this and result in valuations holding ground.

The sites purchased for forward funding schemes were acquired before the year end, and as part of the acquisition process were valued by JLL, and are valued at cost which approximates to fair value at 30 September 2017.

The freehold and long leasehold interests in the property investments of the Group were valued at an aggregate of £689,926,000 as at 30 September 2017 (2016: UK only; £621,746,000) by JLL and C&W. This valuation assumes that all properties, including those under construction, are complete and includes the value of assets under construction translated at an exchange rate of £0.88 per €1 for those assets located in the Republic of Ireland.

The valuers' opinions of market value were derived using valuation techniques and comparable recent market transactions on arm's length terms. JLL has valued these properties for reporting purposes since 31 March 2008 and C&W have valued the properties for reporting purposes since 1 June 2017. During the year, the Group tendered the valuation contract for the UK properties and after a robust competitive process, JLL retained the valuation contact.

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 single 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 valuers' fee is a set fee applied to the number of properties in the portfolio, the JLL fees for the year were £97,000 (2016: £77,000).

On 14 December 2016 one investment property was sold for cash of £837,500. The sale price was close to the net book value and after deducting sales cost a loss on disposal of £25,000 was recorded.

On 11 August 2017, one investment property was sold for cash of £391,000 after the de-recognition of associated loans. After deducting sales cost a loss on disposal of £18,000 as recorded.

In addition, further disposal costs of £22,000 have been incurred in the year on fee relation to properties sold after the year end.

During the prior 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 2017 was 5.08% (2016: 5.25%).

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 2017 (and as at 30 September 2016), 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 £36 million. If rent reviews of 2% were achieved on the full portfolio with no yield movement the valuation of properties would increase by approximately £14 million.

The property yields of the Group excluding two outlying properties range from 7.62% to 3.81%.

The property ERVs of the Group 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 11.

Of the completed investment properties £154,662,000 (2016: £141,823,000) are long leasehold properties.

During the year the loan facilities, as disclosed in note 11, were utilised to fund development work on investment properties under construction. Interest costs of £517,000 (2016: £228,000) attributable to development work in progress were capitalised during the year.

9. Trade and other receivables

10. Trade and other payables

11. 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 described below.

The Group has eight primary debt facilities drawn. On 6 March 2017 the Group completed a seventh debt facility with a new lender, the Bank of Ireland, for up to €29.1 million. At 30 September 2017 an amount of €14.0 million has been drawn down. On 27 July 2017 the Group entered into an eighth debt facility, for which £27.5 million has been drawn. On 11 August 2017, the group sold an investment property which had a small loan facility attached which was repaid from the net proceeds. In addition the Group has a revolving loan facility with RBS. The RBS facility was undrawn at 30 September 2017. Details of each facility are disclosed below. Repayments of the loans listed above fall due as follows:

1 During the year, the £827,000 Aviva Verwood loan facility was repaid in full following the sale of the property.

Covenants

All of the financial 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 on acquired loans was £6,666,000 as at 30 September 2017 (30 September 2016: £7,581,000).

A mark to market calculation gives an indication of the benefit or liability to the Group of the fixed rate debt given the estimated 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 £42,574,000 as at 30 September 2017 (30 September 2016: £59,134,000).

Fair value hierarchy

The valuation of loans is classified in accordance with the fair value hierarchy described in note 1. As at 30 September 2017 (and as at 30 September 2016), 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 Group'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.

12. 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.

13. 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 the Company issued 39,750,217 shares during the first three quarters of the financial year. In order to satisfy the demand the Company made two applications to the UK Listing Authority for a block listing of 17,769,108 Ordinary Shares of no par value on 28 February 2017 and 14,771,668 Ordinary Shares of no par value on 14 August 2017. At 30 September 2017 the Company had 14,771,668 Ordinary Shares remaining under its block listing facility.

During the year, treasury shares were utilised to satisfy demand for shares in lieu of cash for dividends elected under the Company' scrip dividend scheme. The transactions and relevant price per share are shown below:

The closing value of shares held in treasury issued at 83.50 pence per share each is £6,148,000 (2016: £6,834,000).

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

14. Other reserves

The movement in other reserve is set out in the Consolidated Statement of Changes in Equity.

In accordance with the Companies (Guernsey) Law 2008, as amended ("2008 Law") 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 the Company's Articles of Incorporation.

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

15. 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 £5,245,000 (2016: £100,000). These amounts are ring-fenced for investment in the completion of the properties under construction which they finance.

16. 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 2017, the Board approved a dividend of 1.5 pence per share, bringing the total dividend declared in respect of the year to 30 September 2017 to 6.0 pence per share. The record date for the dividend was 17 November 2017 and the payment date is 29 December 2017. 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 2017 the Board announced an opportunity for qualifying shareholders to receive the December 2017 dividend in new Ordinary Shares fully paid up 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 2017 and 30 September 2016 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 11, 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 a high number of UK government backed tenants. As at the year end 89.7% (2016: 89%) 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 £2,697,000 (2016: £3,862,000) is neither impaired nor past due. £466,000 (2016: £514,000) is past due and of this £198,000 (2016: £216,000) is more than 120 days past due. The Company takes active steps to recover all amounts and has assessed that a provision of £50,000 (2016: £51,000) 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 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. Third party independent valuations are received on a quarterly basis and the portfolio is kept under review for any assets which may no longer meet the criteria of the Group.

Foreign currency risk

At the year end, the Company has committed approximately €50 million to investments in the Republic of Ireland. To mitigate the risk of valuation movements driven by foreign exchange movements, the Company has entered into a facility of up to €29.1 million. This creates a natural foreign currency hedge at a group level.

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 (2016: £100,000,000), £50,000,000 (2016: £50,000,000) and £59,777,000 (2016: £59,777,000) 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 4.29%, as disclosed in note 11. 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 for a further three years. 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. 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.

During the year the extension was exercised and committed facilities of £30 million were available between 16 May 2017 and 1 September 2017.

The Group's private loan note facility of £50,000,000 (2016: £50,000,000) has a fixed rate of 3.99% and the loan note facility with Standard Life of £50,000,000 has a fixed rate of 3.838%.The new private loan note entered into on 27 July 2017 of £27,500,000 has a fixed rate of 3.000%.

On 6 March 2017 the Group entered into a debt facility with Bank of Ireland for an amount of €29,100,000, which initially provides development finance, followed by a five year term loan once the four Irish secured assets reach practical completion. The margin on the new facility is 4% over EURIBOR during the development phase, stepping down to 3% once practical completion and rent commences at each scheme. The average rate as at 30 September 2017 on this facility is 3.03%

These facilities represented 99.5% 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 8%. 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.

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 Group'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 Group's compliance with covenants on lending facilities.

Contractual maturity analysis for financial liabilities including interest payments at 30 September: