9 Feb 2018 16:26
Quarterly Net Asset Value ("NAV") announcement and business update
MedicX Fund Limited today announces its quarterly NAV as at 31 December 2017.
Overview
MedicX Fund Limited ("MedicX Fund" or "the Fund"), is the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom and Republic of Ireland, traded on the premium segment of the London Stock Exchange. On 1 October 2017 the Fund converted to a UK Real Estate Investment Trust ("REIT"). The Fund's investment objective is to achieve rising rental income and capital growth from the ownership of a portfolio of mainly modern, purpose built, primary healthcare properties. Our business model creates value for shareholders, tenants, patients and society. We invest in high quality sustainable primary healthcare properties. We work with our tenants, development partners and other health providers to drive transformation of the primary healthcare estate, growing the Fund and transforming patient outcomes.
Summary of Net Asset Values
| 31 Dec 20171 | 30 Sep 2017 |
|
NAV (£'000) | 333,814 | 327,202 | +2.0% |
NAV per share (pence) | 77.8 | 76.3 | +2.0% |
EPRA NAV (£'000) | 334,393 | 327,777 | +2.0% |
EPRA NAV per share (pence) | 78.0 | 76.5 | +2.0% |
EPRA NNNAV (£'000) | 286,460 | 284,628 | +0.6% |
EPRA NNNAV per share (pence) | 66.8 | 66.4 | +0.6% |
1 Unaudited
Market update
The need for modern purpose-built primary healthcare premises remains a high priority in enabling the NHS to deliver its five year forward view which seeks to integrate and reposition services from secondary to primary care. Despite wider market uncertainty following some negative sentiment around PFI schemes and the high profile Carillion failure, primary healthcare property investment values remain resilient with modern purpose-built assets key to delivering new models of primary care. The Third Party Development "3PD" procurement method, which the Fund follows, provides commissioners with value for money new modern and efficient purpose-built healthcare infrastructure in locations of high demand.
The Sir Robert Naylor report highlighted the challenge NHS bodies have to modernise the NHS Estate and recommends that the public sector partner with the private sector. The Government's response to the Naylor report reinforces the importance of the NHS rationalising and modernising its estate. We believe we have an important role to play in delivering value for money schemes 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 together with the drive by Sustainability and Transformation Partnerships to spend the health pound more wisely.
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 will need new premises solutions to deliver the cost savings and enable the shift in services from hospitals to primary care. We are seeing a more strategic approach being adopted by Commissioners identifying key hub and spoke integrated primary and community care requirements.
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.
The Republic of Ireland demonstrates similar demographic pressures and political will which has enabled the Health Service Executive to drive forward its programme of putting in place a modern purpose-built estate to deliver world class healthcare. MedicX Fund has invested in 5 schemes to date in Mullingar, Kilkenny and Dublin (Crumlin, Rialto & Tallaght), and in addition, currently has a significant pipeline of Irish properties in solicitors' hands.
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 commissioners transform the provision of primary healthcare.
Quarterly Valuation
The quarterly valuation of the portfolio as at 31 December 2017 undertaken by Jones Lang LaSalle LLP on the UK portfolio and Cushman & Wakefield on the Republic of Ireland portfolio gave a total portfolio value of £698.6 million (30 September 2017: £680.3 million). This reflected a Net Initial Yield of 5.05% in the UK (30 September 2017: 5.08%) and a yield forecast of over 6% in the Republic of Ireland.
During the quarter to 31 December 2017, the net book value of the portfolio increased by 2.6% to £698.6 million (30 September 2017: £680.3 million). This was as a result of a £8.3 million valuation gain and £15.2 million of capital investment, being offset by the sale of 5 assets at a net book value of £5.2 million.
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 31 December 2017, the DCF valuation stood at 97.5 pence per share compared with 98.5 pence per share at 30 September 2017, the decrease resulting primarily from the property disposals in November discussed below.
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.
The discounted cash flows assume an average 2.5% per annum increase in individual property rents at their respective review dates and also assume the level of gearing and cost of debt are maintained at current levels. Residual values continue to be based upon capital growth at 1% per annum from the current valuation until the expiry of leases (when the properties are notionally sold).
Rent Reviews
Since 1 October 2017, 30 leases and rents of £2.9 million have been reviewed and the equivalent of a 1.89% per annum increase was achieved (year to 30 September 2017: 1.02%). Of these reviews, an uplift of 1.14% per annum was achieved through open market reviews and an uplift of 2.11% per annum was agreed for RPI reviews. Reviews of £24.5 million (30 September 2017: £20.9 million) of passing rent currently remain under negotiation.
Investment activity
In the quarter, the Fund completed the purchase of its fifth Irish property, located in Kilkenny, for a total purchase price of €7.5 million. The property has an average unexpired lease term of c.19 years and will add rent of over €500,000 per annum to the rent roll. In addition to this, in November, the Fund committed to forward funding a new primary healthcare medical centre in Vale of Neath with a completed value of £4.8 million.
As at 31 December 2017, the Fund had six properties under construction at Cromer, Vale of Neath and Brynmawr in the UK and in Tallaght, Crumlin and Rialto, all in the suburbs of Dublin, Ireland. Four of these properties are due to complete within the next two months, with the scheme in Vale of Neath due to complete towards the end of the calendar year and the scheme at Rialto due to complete in 2019.
The Company regularly assesses the assets within its portfolio to ensure these meet the current investment criteria and perform in line with the long-term objectives set by the Fund. In light of this, five assets were sold in November above their net book value of £5.3 million.
Funding
During the three months ended 31 December 2017, the Fund drew down a further €4.5 million from its €29.1 million development facility with Bank of Ireland. As at 31 December 2017, a total of €18.5 million had been utilised with one Irish property fully let and two, of the remaining three secured properties, both close to practical completion which has since occurred. The Fund continues to actively seek opportunities to obtain more efficient sources of borrowings and is in negotiations with a number of parties.
Dividends
On 1 February 2018 the Directors have approved a quarterly dividend of 1.51p per Ordinary Share in respect of the period 1 October 2017 to 31 December 2017. The Directors expect, subject to unforeseen circumstances, to pay dividends totalling 6.04p per Ordinary Share in respect of the financial year ending 30 September 2018. The dividend will be paid on 29 March 2018 to ordinary shareholders on the register as at 16 February 2018 (the "Record Date") with a corresponding ex-dividend date of 15 February 2018.
This quarterly dividend will comprise 50% (0.755p) Property Income Distribution ("PID") and 50% ordinary dividend (0.755p). For shareholders who qualify for gross payment of distributions, forms to register for gross PIDs are available on the Company's website at http://www.medicxfund.com/investors/declaration-eligibility-pid-payments.
The Company will offer qualifying shareholders the opportunity to take new ordinary shares in the Company, credited as fully paid, in lieu of the net cash dividend to be paid on 29 March 2018, by participating in the Scrip Dividend Scheme.
Pipeline
The Fund published details of its strong pipeline of £175 million of investment opportunities at 30 September. Two smaller opportunities described above have been committed since then and there are currently UK assets of c.£108 million undergoing legal due diligence and Irish assets with a value of c.€60 million are either under final negotiation or undergoing legal due diligence and structuring analysis. The Fund has agreed terms and is working on two extended sources of borrowing and continues discussions and analysis on additional sources of funding.
Outlook
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.
In light of the strong pipeline the Board is of the view that the Fund is well positioned for growth.
-End-
For further information please contact:
Octopus Healthcare Adviser Ltd +44 (0) 345 0404 5555
Octopus Healthcare +44 (0) 20 3142 4820
Mike Adams, Chief Executive Officer
Canaccord Genuity Limited +44 (0) 20 7523 8000
Andrew Zychowski / Helen Goldsmith
Buchanan +44 (0) 20 7466 5000
Charles Ryland / Vicky Hayns
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 £1.2 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