Preliminary Results
The MedicX Fund Limited
10 December 2007
For Immediate Release 10 December 2007
MedicX Fund Limited
('MedicX Fund', 'the Fund' or 'the Company')
Results for period to 30 September 2007
MedicX Fund Limited (LSE: MXF, LSE: MXFC), the specialist investor in modern
purpose-built primary healthcare properties in the United Kingdom, today
announces its results for the first full period of operation ended 30 September
2007.
Highlights
• £147.8m of committed investment in 44 primary healthcare properties at a
cash yield of 5.5%1,2
• Ahead of schedule and on track to invest £200m by mid-2008
• Annualised rent roll of £8.3m2
• £125m pipeline of new opportunities2
• £21.5m new equity raised in June 2007 in the form of C Shares, total
equity raised £77.7m
• Conversion of C shares to ordinary shares on 12 December 2007 at the ratio
of one ordinary share for each C share
• Adjusted earnings of £1.1m equivalent to 1.7p per share3,5
• Dividend of 2.5p per share4 (equivalent to 2.5p per C share), total
dividend for the period 5.0p per share in line with target
• Net debt £52.4m (39% adjusted gearing3)
• £100m debt facility secured at a fixed rate of 5.0% for a 30 year term
• Adjusted net asset value of £77.2m equivalent to 96.9p per share3,5
• Mark to market benefit of debt estimated at £8.5m or 10.7p per share and
excluded from adjusted net asset value5
• Discounted cash flow net asset value of £87.5m equivalent to 109.9p per
share5
1 Net rent divided by total acquisition price and costs; cash yield on gross
rents 5.7%
2 As at 10 December 2007
3 Adjusted to exclude goodwill and the impact of deferred tax not expected to
crystallise
4 Ex dividend date 19 December 2007, Record date 21 December 2007, Payment date
11 January 2008
5 After conversion of C shares to ordinary shares
Commenting on the results Jorge Tavares, chairman, said 'the MedicX Fund has
continued to build on the successful foundations reported in the interim
results. Our committed investment now stands at £147.8 million and we are on
track to invest £200 million by mid-2008. More importantly, the MedicX Fund has
invested in a portfolio of modern purpose-built primary healthcare properties
leased to Primary Care Trusts and GPs that are expected to serve the long term
primary care needs of communities. The quality of these premises and this
income stream has been demonstrated through the long term debt funding that has
been secured on very attractive terms.
The individual property valuations carried out by DTZ Debenham Tie Leung and
adopted in the adjusted net asset value reflect a softening of asset prices in
line with the general commercial property market. The Board continues to
monitor the investment market carefully and only makes selective acquisitions
that are in line with the MedicX Fund's investment strategy.
The MedicX Fund's market capitalisation has been impacted by association with
the general property market which contrasts with the widespread level of
interest in infrastructure assets. The Board believes that the MedicX Fund has
many of the same attributes as the quoted infrastructure funds with long term
cash flows from credit-worthy counterparties. For this reason we have also
included within the annual results a calculation of the net asset value based
upon discounted cash flows, the methodology adopted by such funds. Given the
MedicX Fund's investment strategy of delivering to shareholders a secure long
term income we believe this is also a useful measure for shareholders.'
Contacts for the Investment Adviser on behalf of the Board:
Keith Maddin +44 (0)1483 869 500
Mike Adams +44 (0)1483 869 500
Contacts for Buchanan Communications:
Charles Ryland / Lisa Baderoon / Mary-Jane Johnson +44 (0) 20 7466 5000
Information on MedicX Fund Limited
MedicX Fund Limited ('MXF' or the 'Company', or together with its subsidiaries,
the 'Group') the specialist investor in modern purpose-built primary healthcare
properties in the United Kingdom, listed on the London Stock Exchange in
November 2006. It has committed investment of £147.8 million and a portfolio of
44 properties.
The Company paid an interim dividend of 2.5p per ordinary share and will pay a
further dividend of 2.5p per ordinary share to give a total dividend for
ordinary shareholders of 5.0p per share in line with its target. The Company is
targeting a progressive long term return.
The Investment Adviser to the Company is MedicX Adviser Ltd, which is authorised
and regulated by the Financial Services Authority, and is a subsidiary of the
MedicX Group. The MedicX Group is a specialist investor, developer and manager
of primary healthcare properties with a team of 30 operating across 4 offices.
The Company's website address is www.medicxfund.com
Chairman's statement
Having recently re-joined the Board, I am pleased to report, on behalf of the
Board, that the MedicX Fund has continued to build on the successful foundations
reported in the interim results.
Financial results
For the period to 30 September 2007, the Group reports adjusted earnings of £1.1
million, equivalent to 1.7p per share3,5. The Group's adjusted net asset value
at 30 September was £77.2 million, equivalent to 96.9p per share3,5.
The adjusted net asset value of 96.9p per share represents underlying
performance enhancement of 8.3p per share, based upon a 100p per share issue
price, 2.5p per share equity fund raising costs, 1.8p per share interim dividend
payment (pro-rata across ordinary and C shares) and 7.1p per share acquisition
costs5.
The mark to market benefit of the Group's fixed rate debt as at 30 September
2007 is estimated at £8.5 million or 10.7p per share which has not been included
in the adjusted net asset value5.
The net asset value calculated based upon a discounted cash flow analysis of the
Group's investments as at 30 September 2007 is 109.9p per share5.
C share conversion
The Directors announced on 1 October that more than 75% of the assets
attributable to the C shares had been committed in accordance with the Company's
investment policy and that, pursuant to the Company's Articles of Association,
the Calculation Time for the conversion of C Shares into Ordinary Shares was 30
September 2007. Today I can confirm that the Conversion Time will be 12
December 2007 and the Conversion Ratio will be 1.0000 ordinary shares for each C
share held.
Distributions
The Directors have approved a further dividend of 2.5p per ordinary share
(equivalent to 2.5p per C share) bringing the total dividend for the year for
ordinary shareholders to 5p per share. This is in line with the target announced
at the time of the Initial Public Offering. The dividend will be paid on 11
January 2008 to ordinary shareholders on the register as at 21 December 2007.
Valuation
The individual property valuations carried out by DTZ Debenham Tie Leung Limited
and adopted in the adjusted net asset value reflect a softening of asset prices
of around a quarter of one per cent in yield terms.
The Investment Adviser has produced a fair market valuation of the Group's
investments as at 30 September 2007 based upon a discounted cash flow analysis.
The Directors have satisfied themselves on the valuation methodology and the
discount rates used. The net asset value at 30 September 2007 calculated on
this basis is 109.9p per share5.
Gearing
As at 30 September 2007, the Group had net debt of £52.4million (31 March 07:
£60.3 million) equating to 39% of the adjusted gross asset value3 excluding cash
reported on a consolidated basis and under International Financial Reporting
Standards. The group has capacity within existing facilities of £33.8 million
and the Investment Adviser is in the process of securing additional loan
facilities up to the Group's gearing target of 65% loan to gross asset value.
It is expected that these will be concluded and announced early in 2008.
Portfolio development
The Group has committed investment of £147.8 million across 44 properties and is
on track to invest £200 million by mid-2008. The portfolio of properties
continues to perform in line with our long term objectives and there are no
material operational or financial issues to report.
Outlook
Whilst the global credit crisis has affected many sectors, it has not had a
significant impact on the primary healthcare property market. The demand for
modern purpose-built primary healthcare properties remains high.
Moving forward we remain positive in our ability to acquire new properties which
meet our investment criteria.
The Board is concerned that the Company's share price has traded at a discount
to net asset value since July in line with other quoted property funds. The
Board is working with the Investment Adviser and its newly appointed broker to
improve this position. The MedicX Fund's market capitalisation has been
impacted by association with the general property market which contrasts with
the widespread level of interest in infrastructure assets. The Board believes
that the MedicX Fund has many of the same attributes as the quoted
infrastructure funds with long term cash flows with credit-worthy
counterparties. For this reason we have also included within the annual results
a calculation of the net asset value based upon discounted cash flows, the
method adopted by such funds. Given the MedicX Fund's investment strategy of
delivering to shareholders a secure long term income we believe this is also a
useful measure for shareholders.
In the current economic climate, the Group's portfolio of primary healthcare
properties, with public sector backed revenue streams, continues to deliver an
attractive, low risk yield. The dividend is consistent with our stated policy
presented at the time of the Initial Public Offering.
Jorge Tavares
Chairman
10 December 2007
Report of the Investment Adviser
Market
The NHS continues to drive for a modernisation of primary care properties, with
a particular focus on new larger multi-service medical centres or polyclinics, a
strategy reinforced in Lord Darzi's NHS Next Stage Review Interim Report issued
in October.
As anticipated in our interim report signs of easing of funding blockages have
been seen in certain areas of the United Kingdom following the recent
reorganisation of the Primary Care Trusts, as the enlarged Primary Care Trusts
conclude their assessment of their estate priorities. We expect to see an
improvement in the flow of new opportunities as this easing takes effect
nationally.
Inflationary concerns and the rise in the interest base rate earlier in the year
put pressure on the wider commercial property market, and led to a downgrading
of property valuations and property share prices generally. The market is now
placing greater value on the larger modern healthcare properties; this is very
much consistent with the investment policy for MedicX Fund.
With public sector backed income and long term security of tenant, we continue
to see primary healthcare properties as an asset class distinct from general
commercial property, with characteristics closer to a gilt-based investment or
infrastructure asset. Both the ordinary and C share prices have suffered by
association with general commercial property stocks and the ordinary shares
trade at a significant discount to net asset value at the date of this report
whereas infrastructure funds are trading broadly in line with their net asset
values.
Portfolio update
The MedicX Fund has committed investment at today's date of £147.8 million at a
cash yield of 5.5%1. This is ahead of schedule and on target to meet the
current objective of £200 million invested by mid-2008. The annualised rent
roll of the portfolio properties is £8.3 million2.
As at 30 September 2007, the portfolio properties had an average age of 3.2
years, remaining lease length of 19.8 years and value of £3.4 million. Of the
rents payable 93% are from doctors and Primary Care Trusts/Local Health Boards,
5% from pharmacies and 2% from other parties.
Two properties under development, at Withymoor and Bridport, were completed
during the period and the construction of two further properties, at Wollaton
and Evesham have completed since 30 September 2007. Since the year end, forward
funding arrangements have been entered into for construction of two properties
at Gosberton and Castlecroft for a total investment of £4.9m.
For the period to 30 September fifteen rent reviews were completed, adding
£144,000 to the rent roll, representing average increases in rent (as a
percentage of passing rent) of 14.8% equating to 4.8% per annum. Reviews
outstanding at 30 September relate to £990,000 of passing rent. Asset
management opportunities have also been identified in respect of a number of the
properties in the portfolio.
MedicX Adviser has recently agreed a facilities management contract with Gleeds
to offer support for both landlord and tenant repairs and maintenance
obligations. The additional services offered to GPs and Primary Care Trusts has
been well received by tenants and should help ensure that the quality of the
assets is maintained. MedicX Adviser has also, where possible, pooled insurance
arrangements across properties and realised insurance savings.
Pipeline and investment opportunity
MedicX Fund has forward funding agreements in place with Primary Asset Ltd, the
development arm of the MedicX Group, and with primary care developers Oakapple
and Medcentres providing the MedicX Fund with a continuing pipeline of
opportunities. In addition, the Investment Adviser has established
relationships with a number of other developers in the sector that are providing
a pipeline of opportunities for the MedicX Fund.
The Investment Adviser has access to a pipeline, subject to contract, which is
estimated to be worth approximately £125 million in value when fully developed,
including MedicX Group's own pipeline of projects with a value of approximately
£85 million2.
Valuation
The individual property valuations carried out by DTZ Debenham Tie Leung Limited
and adopted in the adjusted net asset value reflect a softening of asset prices
of around a quarter of one per cent in yield terms to a net initial yield of
5.22%. The net valuation gain reported on the profit and loss account is £2.1
million compared with the gain of £4.1 million reported in the interim report.
This yield is attractive when compared to sub 4.6% Retail/Office6 yields,
particularly given the long term secure income, typical 3 yearly effective
upward only rent reviews and lack of voids in the MedicX Fund portfolio.
The Investment Adviser, on the Company's behalf, has separately carried out a
fair market valuation of the Group's investments as at 30 September 2007. The
valuation has been prepared in a similar way to other quoted infrastructure
funds using a discounted cash flow analysis.
The discount rates used for valuing the projects in the portfolio are 7% for
completed and occupied properties and 8% for properties under construction.
These represent 2.5% - 3.5% risk premiums to an assumed 4.5% long term gilt
rate. The weighted average is 7.22%.
The discounted cash flows assume an average 3% per annum increase in individual
property rents at their respective review dates, residual values based upon
capital growth at 1% per annum until the expiry of leases and 65% gearing.
The Group's portfolio was valued on this discounted cash flow basis as at 30
September 2007 at £87.5 million or 109.9p per ordinary share5.
Investment Adviser developments
In November 2007, MedicX Adviser obtained authorisation from the Financial
Services Authority to expand upon the property advisory services provided to the
MedicX Fund to include the following regulated activities: promotion, provision
of fund management and corporate investment advice. As a result of these
changes MedicX Adviser is now referred to as the Investment Adviser.
MedicX Group as a whole has continued its expansion and has further increased
its staff numbers to 30 employees, and has recently opened an office in
Edinburgh to supplement those in Godalming, Nottingham and Warrington.
In order to reduce any cash drag the Investment Adviser has agreed to exclude
cash from the calculation of gross assets for fee purposes.
We remain optimistic about the attractions of the sector and the prospects for
the MedicX Fund. The intention of the MedicX Group is to acquire £0.5 million
of MedicX Fund shares post the announcement of the MedicX Fund's annual results.
Keith Maddin Chairman
Mike Adams Managing Director
MedicX Adviser Ltd
1 Net rent divided by the total acquisition price and costs; cash yield on gross
rents 5.7%
2 As at 10 December 2007
3 Adjusted to exclude goodwill and the impact of deferred tax not expected to
crystallise
4 Ex dividend date 19 December 2007, Record date 21 December 2007, Payment date
11 January 2008
5 After conversion of C shares to ordinary shares
6 October 2007 IPD
Consolidated Income Statement
For the period from 25 August 2006 to 30 September 2007
Notes £'000
Income
Rent receivable 2 4,747
Finance income 2 2,280
Net valuation gains on investment properties 9 2,061
Other income 236
Total income 9,324
Expenses
Property advisory fee 20 1,996
Property management fee 20 137
Direct property expenses 82
Administrative fees 20 231
Audit fees 4 98
Professional fees 146
Directors' fees 3 147
Other expenses 602
Finance costs 5 4,246
Provision for impairment of properties under construction 9 540
Total expenses 8,225
Profit before tax 1,099
Taxation 6 585
Profit after taxation 514
Earnings per ordinary share 7
Normal and diluted 1.1p
Earnings per C share
Normal and diluted 7 (0.1)p
1. All items in the above statement are derived from continuing operations. The
accompanying notes form an integral part of the preliminary announcement, and
the preliminary announcement does not constitute the statutory accounts.
2. Included in Note 7 is an adjusted earnings per share calculation that adjusts
for the impact of deferred tax which, based on the expected manner of
realisation of the carrying amount of investment properties, is unlikely to
crystallise.
3. There were no material transactions between the date of incorporation, 25
August 2006, and 2 November 2006, the date on which the Company's ordinary
shares were listed on the London Stock Exchange.
Consolidated Balance Sheet
as at 30 September 2007
Notes £'000
Non-current assets
Goodwill 8 5,953
Investment properties 9 112,325
Properties under construction 9 19,569
Total non-current assets 137,847
Current assets
Trade and other receivables 10 2,983
Cash and cash equivalents 17 48,825
Total current assets 51,808
Total assets 189,655
Current liabilities
Trade and other payables 11 6,704
Non-current liabilities
Long-term loan 12 99,816
Deferred tax provision 6 6,352
Total non-current liabilities 106,168
Total liabilities 112,872
Net assets 76,783
Equity
Share capital 13 -
Share premium 14 1,585
Distributable reserves 15 74,684
Retained earnings 514
Total equity 76,783
Net asset value per share
Ordinary - Normal and diluted 7 96.3p
C - Normal and diluted 7 96.8p
The preliminary announcement was approved by the board of directors on 7
December 2007
The accompanying notes form an integral part of the financial statements.
Consolidated Statement of Changes in Equity
for the period from 25 August 2006 to 30 September 2007
Share Distributable Retained Total
Premium Reserve Earnings £'000
£'000 £'000 £'000
Proceeds on issue of shares 79,710 - - 79,710
Share issue costs (2,005) - - (2,005)
Transfer from share premium (76,120) 76,120 - -
Profit attributable to equity holders for the
period - - 514 514
Dividend paid - (1,436) - (1,436)
Balance at 30 September 2007 1,585 74,684 514 76,783
The accompanying notes form an integral part of the financial statements.
Consolidated Cash Flow Statement
for the period from 25 August 2006 to 30 September 2007
Notes £'000
Operating activities
Profit before taxation 1,099
Adjustments for:
Net valuation gains on investment property (1,521)
Financial income received (2,280)
Finance costs paid and similar charges 4,246
1,544
Increase in trade and other receivables (1,214)
Increase in trade and other payables 2,809
Interest paid (3,189)
Interest received 2,268
Net cash inflow from operating activities 2,218
Investing activities
Acquisitions net of cash acquired 17 (11,981)
Purchase of investment properties (38,082)
Net cash outflow from investing activities (50,063)
Financing activities
Net proceeds from issue of share capital 76,116
(37,849)
Bank loans repaid on acquisition (41,363)
Other loan repaid on acquisition
Net proceeds of long term borrowings 101,202
Dividends paid (1,436)
Net cash inflow from financing activities 96,670
Increase in cash and cash equivalents 48,825
Cash and cash equivalents at 30 September 2007 17 48,825
The accompanying notes form an integral part of the financial statements.
1. Business and objective
MedicX Fund Limited was incorporated in Guernsey on 25 August 2006 and commenced
trading on 2 November 2006 on listing on the London Stock Exchange. No
transactions took place between the date of incorporation and the date of
listing.
MedicX Fund Limited ('the Company') and its subsidiaries (together 'the Group')
have been established for the purpose of investing in primary healthcare
properties in the United Kingdom. The Group'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. The
Group is self-managed and receives investment and property advice, and
management services from MedicX Adviser Ltd, a member of the MedicX Group, an
independent group of companies which is a specialist developer of, investor in,
and manager of primary healthcare properties.
The Company's investment policy is to acquire primary healthcare properties in
the United Kingdom, some of which may have potential for enhancement, which will
be sourced in the market by MedicX Adviser Ltd, including properties forming
part of the MedicX Group's own pipeline of development and investment
opportunities.
2. Principal accounting policies
Basis of preparation and statement of compliance
The financial statements of the Group have been prepared in conformity with
International Financial Reporting Standards ('IFRS') issued by the International
Accounting Standards Board ('IASB'), interpretations issued by the International
Financial Reporting Interpretations Committee ('IFRIC') and applicable legal and
regulatory requirements of Guernsey Law. The financial statements have been
prepared on a going concern basis. The principal accounting policies are set out
below.
Impact of revision to International Financial Reporting Standards
In preparing these financial statements, the Board have chosen not to early
adopt any revisions to International Financial Reporting Standards.
Those standards which have been revised or introduced and that are relevant to
the activities of the Group are IAS 1 Presentation of financial statements and
IFRS 7 Financial Instrument: Disclosures, which replaces IAS 30 and IAS 32.
Both of these revisions deal with disclosures and presentation of financial
statements and will not have an impact on the Group's equity.
The IASB and IFRIC have issued the following standards and interpretations with
an effective date after the date of these financial statements:
International Accounting Standards (IAS/IFRS)
Effective date
IFRS 7 Financial Instruments: Disclosures 1 January 2007
IFRS 8 Operating Segments 1 January 2009
IAS 1 Amendment - Presentation of Financial Statements:
Capital Disclosure 1 January 2007
International Financial Reporting Interpretations Committee
IFRIC 10 Interim Financial Reporting and Impairment 1 November 2006
IFRIC 11 IFRS 2 - Group and Treasury Share Transactions 1 March 2007
IFRIC 12 Service Concession Arrangements 1 January 2008
The directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the Company's financial
statements in the period of initial application.
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 2007. Control is achieved where the
Company has the power to govern the financial and operating policies of an
investee entity so as to benefit from its activities. The results of
subsidiaries acquired during the period are included in the consolidated income
statement from the effective date of acquisition. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values at the
date of exchange of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquired company,
plus any costs directly attributable to the business combination. The acquired
companies' assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 are recognised at their fair value at
the acquisition date. The details of the companies acquired and how they have
been treated are dealt with in Note 16.
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.
Revenue recognition
Rental income exclusive of any value added taxes is included in the financial
statements on an accruals basis and is shown gross of any UK income tax.
Finance income and fees receivable are included in the financial statements on
an accruals basis.
Expenses
All expenses are accounted for on an accruals basis.
Employees
The Company has no employees.
Taxation
The tax liability represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the period.
Deferred tax is the tax which may become payable or recoverable on differences
between the carrying amount 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 balance sheet 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.
Goodwill
Goodwill arising on acquisition is accounted for as the difference between the
fair value of the consideration given and the fair value of the Group share of
identifiable net assets of the subsidiary acquired. Goodwill is initially
recognised as an asset at cost and is subsequently measured at cost less any
accumulated impairment losses. Goodwill arising on acquisition has an
indefinite useful life and is subject to annual review for any impairment.
Goodwill is allocated to the appropriate cash generating unit. The recoverable
amount is the higher of the fair value less the costs to sell and the value in
use.
Investment properties
The Group's completed properties are held for long-term investment. Freehold
properties are initially recognised at cost, being fair value of consideration
given including transaction costs associated with the property. After initial
recognition, freehold properties are measured at fair value, with unrealised
gains and losses recognised in the consolidated income statement. Both the base
costs and valuations take account of integral core fixtures and fittings. Fair
value is based upon the open market valuations of the properties as provided by
DTZ Debenham Tie Leung, a firm of independent chartered surveyors, as at the
balance sheet date.
Long leasehold properties are accounted for as freehold properties and, after
initial recognition at cost, are measured at fair value (on the same basis as
freehold properties above).
Properties under construction
Freehold properties under construction are valued at cost until such time as a
certificate of practical completion has been issued from which date they are
treated as Investment Properties as set out above. At each balance sheet date
an assessment is made of whether provision is required to reflect any impairment
in the value of development work in progress. Any impairment is taken to the
consolidated income statement. This assessment is based on whether the costs to
date plus estimated future costs to completion exceed an independent valuer's
estimate of the value of the property following completion. Costs of financing
development are capitalised and included in the cost of development. During the
period there were no material borrowing costs on development work in progress
and none were capitalised.
Derivative financial instruments and hedging activities
The Group has no derivative financial instruments.
Cash and cash equivalents
Cash on hand and deposits in banks are carried at cost. Cash and cash
equivalents are defined as cash in hand, 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
Cash Flow Statement, cash and cash equivalents consist of cash in hand and
deposits in banks.
Trade and other receivables
Trade and other receivables are measured at initial recognition at their
invoiced value inclusive of any value added taxes that may be applicable.
Provision is made for any doubtful debts which are not deemed recoverable.
Trade and other payables
Trade and other payables are recognised and carried at their invoiced value
inclusive of any value added taxes that may be applicable.
Bank loans and borrowings
All bank loans and borrowings are initially recognised at cost, being fair value
of the consideration received, less issue costs where applicable. After initial
recognition, all interest-bearing loans and borrowings are subsequently measured
at amortised cost. Amortised cost is calculated by taking into account any
discount or premium on settlement.
Finance costs
Borrowing costs are taken to the consolidated income statement in the period to
which they relate on an accruals basis.
Use of estimates
In the process of applying the Company's accounting policies described above,
management is required to make certain judgements and estimates to arrive at
fair carrying value for its assets and liabilities. Significant areas requiring
management's judgement include the fair value of the assets and liabilities of
subsidiaries acquired and the assessment of the fair value of development work
in progress described above. The valuations are performed by a firm of
independent chartered surveyors applying current Appraisal and Valuation
Standards of The Royal Institution of Chartered Surveyors.
3. Directors' fees
£'000
During the period each of the Directors received the following fees:
J M S Tavares 25
S Mason 32
C Bennett 30
A Simpson 30
J Hearle 30
147
4. Audit fees
The amount disclosed in the consolidated income statement relates to an accrual
for audit fees for the period ending on 30 September 2007, payable to PKF
(Guernsey) Limited.
Non-audit fees paid to PKF (UK) LLP, a fellow member of PKF International,
include the following amounts:
£'000
Completing financial due diligence on the acquisition of subsidiaries and included in the cost of purchase 92
For acting as reporting accountants in respect of the initial listing and set off against share premium 50
For acting as reporting accountants in respect of the C Share issue and included in other debtors and 55
prepayments
For acting as auditors for the non-statutory audit in respect of the C Share issue and included in other 47
debtors and prepayments
Other professional services including tax advice 26
270
5. Finance costs
£'000
Interest payable on long- term loan 4,246
6. Taxation
£'000
Current Tax
Corporate tax charge for the period -
Deferred Tax
On fair value movement for the period 585
Total income tax charged in the income statement 585
The Board have estimated that for the period under review the Group does not
have any profits chargeable to tax in jurisdictions outside Guernsey.
The Company and its Guernsey registered subsidiaries, MedicX Properties I
Limited and MedicX Properties V Limited, have obtained exempt company status in
Guernsey under the terms of Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989
so that they are exempt from Guernsey taxation on income arising outside
Guernsey and on bank interest receivable. Each Guernsey company is, therefore,
only liable to a fixed fee of £600 per annum. The Directors intend to conduct
the Group's affairs such that it continues to remain eligible for exemption.
Guernsey companies are taxable on UK net rental income. During the period no
tax arose in respect of the income of any of the Guernsey companies. The
Company's UK subsidiaries, MedicX Properties II Ltd, MedicX Properties III Ltd,
MedicX Properties IV Ltd, MedicX (Verwood) Ltd and MedicX (Istead Rise) Ltd are
subject to United Kingdom corporation tax on their profits less losses.
A reconciliation of the income tax charge applicable to the results from
ordinary activities at the statutory income tax rate to income tax expense at
the Group's effective income tax rate is set out below. The Group's main
revenue stream is rental income and therefore the rate of 22% for schedule A
income tax has been used.
£'000
Profit before tax 1,099
UK income tax at 22% 242
Net revaluation gains not taxable (221)
Income not taxable (200)
Losses arising not relievable against current tax 179
Current taxation -
The calculation of the Group's tax charge necessarily involves a degree of
estimation in respect of certain items whose tax treatment cannot be finally
determined until a formal resolution has been reached with the relevant tax
authorities.
Deferred taxation provision
£'000
Deferred tax is provided as follows:
Balance on acquisition 193
On fair value gain arising on acquisition 5,574
On movement in period 585
Total deferred tax provision per the balance sheet 6,352
All deferred tax relates to the fair value gains on the Group's investment
property portfolio.
As required by IAS 12, full provision has been made for the temporary timing
differences arising on the fair value gain of investment properties held by UK
resident companies that have passed through the Group's consolidated income
statement. In the opinion of the Directors, this provision is only required to
ensure compliance with IAS 12. It is the Directors' view that the liability
represented by the deferred tax provision is unlikely to crystallise as, in
common with practice in the sector, the Group would sell the company that holds
the property portfolio rather than sell an individual property. Had the
provision not been made, the Group's earnings for the period would be £585,000
higher.
7. Earnings and net asset value per ordinary share
The basic and diluted earnings per ordinary share are based on the profit for
the period attributable to ordinary shares of £539,000 and on 47,431,316
ordinary shares being the weighted average aggregate of ordinary shares in issue
calculated over the period from incorporation on 25 August 2006 to the balance
sheet date. This gives rise to a basic and diluted earnings per share of 1.1
pence per share.
The basic and diluted earnings per C share are based on the loss for the period
attributable to C shareholders of £24,000 and on 22,160,500 shares being the
weighted average aggregate of C shares in issue calculated over the period from
issue on 4 June to the balance sheet date. This gives rise to a basic and
diluted loss per share of (0.1) pence per share.
The basic and diluted net asset value per ordinary share are based on the net
asset position at the balance sheet date attributable to ordinary shares of
£55,338,000 and on 57,460,715 ordinary shares being the aggregate of ordinary
shares in issue at the balance sheet date. This gives rise to a basic and
diluted net asset value per share of 96.3 pence per share.
The basic and diluted net asset value per C share are based on the net asset
position at the balance sheet date attributable to the C shares of £21,445,000
and on 22,160,500 shares being the aggregate of C shares in issue at the balance
sheet date. This gives a basic and diluted net asset value per share of 96.8
pence per share.
Adjusted earnings per share and net asset value per share
The Directors believe that the following adjusted earnings per share and net
asset value per share are more meaningful key performance indicators for the
Group.
Adjusted basic and diluted earnings per ordinary share 1.9p
Adjusted net asset value per ordinary share - basic and diluted 97.0p
Adjusted basic and diluted earnings per C share (0.0)p
Adjusted net asset value per C share - basic and diluted 96.9p
The adjusted earnings per ordinary share is based on the profit for the period
attributable to ordinary shares of £539,000, adjusted for the impact of the
deferred tax charge attributable to ordinary shares for the period of £563,000,
giving an adjusted earnings figure of £1,102,000 and on 57,289,028 ordinary
shares being the weighted average number of ordinary shares in issue in the
period from commencement of operations on 2 November 2006 to the balance sheet
date.
The adjusted net asset value per ordinary share is based on the net asset
position attributable to ordinary shares at the balance sheet date of
£55,338,000 as adjusted for deferred tax of £6,109,000 and goodwill of
£5,732,000, giving an adjusted net assets figure of £55,715,000 and on
57,460,715 ordinary shares, being the aggregate of ordinary shares in issue at
the balance sheet date.
The adjusted earnings per C share is based on the loss for the period
attributable to C shares of £24,000 adjusted for the impact of deferred tax
charge for the period attributable to the C shares of £22,000 giving an adjusted
loss figure of £2,000 and on 22,160,500 C shares, being the weighted average
number of C shares in issue in the period from issue to the balance sheet date.
The adjusted net asset value per C share is based on the net asset position at
the balance sheet date attributable to the C shares of £21,445,000 as adjusted
for deferred tax of £243,000 and goodwill of £221,000, giving an adjusted net
assets figure of £21,467,000 and on 22,160,500 shares being the aggregate of C
shares in issue at the balance sheet date.
In common with practice in the sector, the Group would sell the UK company or
companies that hold the properties rather than sell an individual property.
Consequently, it is the Directors' view that the liability represented by the
deferred tax provision is unlikely to crystallise.
8. Goodwill
£'000
Arising on acquisitions 5,953
Carrying amount at 30 September 2007 5,953
The goodwill arose on the acquisition of MedicX Properties III Ltd, MedicX
Properties IV Ltd and MedicX (Istead Rise) Ltd. The Board have reviewed the
carrying value of goodwill and they do not consider that there has been an
impairment in its carrying value.
9. Investment properties
Investment properties are initially recognised at cost, being fair value of
consideration given including transaction costs associated with the property.
After initial recognition, freehold properties are measured at fair value, which
has been determined based on valuations performed by DTZ Debenham Tie Leung as
at 30 September 2007, on the basis of open market value, supported by market
evidence, in accordance with International Valuation Standards. In accordance
with industry standards, the valuation is net of purchaser costs which are
approximately 5.75% of purchase price.
Included in properties under construction is a property at cost of £2,101,000
which is subject to an agreement whereby the Group have the right to require the
vendor or third party to re-purchase the property at cost in the event that a
project development contract is not entered into within eighteen months of the
acquisition date. Under the same agreement the other parties to the agreement
have the right to require the Group to sell the property to them at cost if,
after one year and before eighteen months of the agreement date, no project
development agreement has been entered into.
Completed Properties Total
investment under £'000
properties construction
£'000 £'000
Acquisitions at cost/fair value 94,414 35,959 130,373
Transfer to completed properties 15,850 (15,850) -
Fair value revaluation 2,061 - 2,061
Impairment - (540) (540)
112,325 19,569 131,894
The investment properties are security for the long-term loan as disclosed in
note 12.
10. Trade and other receivables
£'000
Rent receivable 535
Other debtors and prepayments 1,403
VAT recoverable 1,045
2,983
Included in other debtors and prepayments is £50,000 due from MedicX Adviser
Limited.
11. Trade and other payables
£'000
Bank loans 1,387
Trade creditors 978
Deferred rental income 1,402
Interest payable and similar charges 1,057
Accruals 1,166
Other creditors 714
6,704
The bank loan is secured on one investment property and has a remaining term of
11 years. It is expected that the loan will be repaid within one year from the
balance sheet date.
12. Long-term loan
£'000
Amount drawn down in period 100,000
Loan issue costs (185)
Amortisation of loan issue costs 1
99,816
The Company's subsidiary, MedicX Properties I Limited, took out a loan facility
agreement for £100,000,000 with The General Practice Finance Corporation Limited
('GPFC') at a fixed rate of 5.008% on an interest only basis which was fully
drawn down on 1 December 2006, with the cash held on deposit to meet future
investment requirements. This loan was due for repayment in its entirety on 1
December 2036. GPFC is now trading as Norwich Union Commercial Finance.
On 20 September 2007 the loan was refinanced and replaced by loans to MedicX
Properties I Limited; £30,000,000, MedicX Properties II Ltd; £33,000,000, MedicX
Properties III Ltd; £9,000,000 and MedicX Properties IV Ltd; £28,000,000 with
the same terms and conditions.
Under the terms of the loans, further charges will be incurred when amounts are
taken off deposit and utilised for investment purposes. The charges for these
withdrawals depend on the quantum of the withdrawal and will be recognised as
and when withdrawals are made, and are added to the loan issue costs.
The value of the loan on an amortised cost basis at 30 September 2007 was
£99,816,000.
The Company does not mark to market its £100 million fixed interest debt in its
financial statements. A mark to market calculation gives an indication of the
benefit or cost to the Company of the fixed rate debt given the prevailing cost
of debt over the remaining life of the debt. An approximate mark to market
calculation has been undertaken following advice, by taking the increase in the
underlying 2032 gilt rate from the last business day of the financial period (28
September 2007) and calculating the present value of the difference in the two
rates over the term of the loan and discounting the cash flows at the prevailing
LIBOR rate. The approximate mark to market benefit to the Company is
£8,546,000.
During the year, the Group's bank borrowings were subject to the following
financial covenants:
(i) monies released from deposit must not exceed 65% of the property value
charged;
(ii) the net loan amount must not exceed 75% of the market value of mortgaged
property; and
(iii) long term rental income from the properties charged must cover 140% of
projected finance costs.
The Group has been in compliance with the financial covenants throughout the
period since issue.
The loan is secured on the Group's investment properties.
As at 30 September 2007 the Group had £33.8 million on deposit secured against
the loan.
13. Share capital
Number of shares Share Capital
£'000
Authorised
Ordinary shares of no par value Unlimited -
Issued and fully paid
Ordinary shares of no par value 57,460,715 -
C shares of no par value 22,160,500 -
The Company issued 2 ordinary shares for £1 each on incorporation on 25 August
2006 and a further 55,960,713 ordinary shares for £1 each on 2 November 2006
pursuant to an offering and listing on the London Stock Exchange. A further
1,500,000 shares were issued on 26 February 2007 for a fair value of £1,588,750
in connection with the purchase of subsidiaries.
On 4 June 2007 22,160,500 C shares were issued for £1 each.
The C shares are convertible into Ordinary Shares in accordance with the terms
set out in the Placing and Offer Document of May 2007. They do not carry the
right to attend or vote at any general meeting of the company except in respect
of certain specific circumstances as set out in the C share Placing and Offer
document.
14. Share premium
£'000
At 25 August 2006 -
Proceeds arising on issue of Ordinary Shares on 2 November 2006 55,961
Proceeds arising on issue of Ordinary Shares on 26 February 2007 1,589
Proceeds arising on issue of C shares on 4 June 2007 22,160
Allocation of issue costs (2,005)
Transfer to distributable reserve (note 15) (76,120)
Share premium at 30 September 2007 1,585
15. Distributable reserve
The Company applied to the Royal Court in Guernsey on 8 November 2006 to
transfer its entire share premium account on that date (£54,651,000) to a
distributable reserve and this was approved on 10 November 2006. On 20 July
2007 the company applied to the Royal Court of Guernsey to transfer the amount
standing to the credit of the share premium account attributable to the C shares
(£21,469,000) to a distributable reserve. Approval was granted on 3 August
2007. The distributable reserve is freely distributable with no restrictions
having been applied by the Court.
16. Acquisition of subsidiaries
MedicX Properties II MedicX Properties MedicX Properties IV MedicX (Istead Total
Ltd III Ltd Ltd Rise) Ltd
Book Fair Book Fair Book Fair Book Fair Book Fair
value value value value value value value value value value
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Net
assets
acquired
Investment
properties 32,936 32,936 9,412 12,405 16,760 26,937 1,385 2,100 60,493 74,378
Properties under
construction 7,653 7,653 - - 4,989 10,790 - - 12,642 18,443
Trade and other
receivables 20 20 245 245 867 754 55 55 1,187 1,074
Cash and
cash equivalents 1,196 1,196 87 87 1,797 1,797 - - 3,080 3,080
Trade and other
payables (814) (814) (209) (209) (398) (398) (43) (43) (1,464)(1,464)
Current tax
liabilities 368 368 (59) (59) 203 203 - - 512 512
Bank loans
and other
loans (41,359) (41,359) (7,559) (7,559) (28,880) (28,880) (1,410) (1,410) (79,208)(79,208)
Deferred tax
liabilities - - (32) (863) (160) (4,682) - (221) (192) (5,766)
- - 1,885 4,047 (4,822) 6,521 (13) 481 (2,950) 11,049
Goodwill - 876 4,856 221 5,953
Total
consideration - 4,923 11,377 702 17,002
Satisfied by:
Cash - 3,515 9,833 702 14,050
Directly
attributable
costs - 363 1,000 - 1,363
Issue of shares - 1,045 544 - 1,589
- 4,923 11,377 702 17,002
Number of
shares issued - 1,000 500 - 1,500
Net cash outflow
arising on
acquisition
Cash consideration - (3,515) (9,833) (702) (14,050)
Cash and cash
equivalents acquired 1,196 87 1,797 - 3,080
1,196 (3,428) (8,036) (702) (10,970)
Date of acquisition 2/11/06 4/12/06 22/12/06 24/07/07
Rental income for period 883 220 418 23
Profit before tax
attributable to
acquired company
excluding intra
group charges 805 171 398 2
MedicX Properties II Ltd was acquired for £2. The above acquisitions are
property investment companies and are wholly owned. MedicX (Istead Rise) Ltd is
a wholly owned subsidiary of MedicX Properties V Limited.
It is not practicable to determine the revenue and profit or loss which would
have arisen from MedicX Properties III Ltd and MedicX Properties IV Ltd if they
had been purchased on the commencement of operations on 2 November 2006.
In addition to the above, the Company has two further wholly owned subsidiaries,
MedicX Properties I Limited and MedicX Properties V Limited which are also
property investment companies and have been owned since incorporation on 11
September 2006 and 21 December 2006 respectively. MedicX (Verwood) Ltd is a
subsidiary of MedicX Properties IV Ltd and was acquired at the same time.
17. Cash flow notes
Acquisition of subsidiaries MedicX MedicX MedicX MedicX (Istead
Properties II Properties III Properties IV Rise)
Ltd Ltd Ltd Ltd Total
£'000 £'000 £'000 £'000 £'000
Cash 1,196 87 1,797 - 3,080
Trade and other receivables 20 245 754 55 1,074
Goodwill - 876 4,856 221 5,953
Investment properties 32,936 12,405 26,937 2,100 74,378
Properties in the course of construction 7,653 - 10,790 - 18,443
Trade and other payables (446) (1,131) (4,877) (264) (6,718)
Bank and other loans (41,359) (7,559) (28,880) (1,410) (79,208)
Total purchase price - 4,923 11,377 702 17,002
Less
Shares issued as part of consideration - 1,045 544 - (1,589)
Cash acquired 1,196 87 1,797 - (3,080)
Acquisition costs accrued not yet paid - - 352 - (352)
Net cost of acquisition (1,196) 3,791 8,684 702 11,981
Cash and cash equivalents
Cash in hand and balances with banks 48,825
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.
Major non cash transactions
Shares were issued as part of the consideration for the acquisition of MedicX
Properties III Ltd and MedicX Properties IV Ltd, details of which are included
in note 13.
18 Dividends
An interim dividend of £1,436,000 representing 2.5 pence per share was declared
on 24 May 2007 and paid during the period.
The Directors have approved a dividend of 2.5 pence per ordinary share.
19. Financial instruments and properties
The Group holds cash and liquid resources as well as having debtors and
creditors that arise directly from its operations.
The main risks arising from the Group's financial instruments and properties are
market price risk, credit risk, liquidity risk and interest risk. The Board
regularly reviews and agrees policies for managing each of these risks and these
are summarised below.
Market price risk
The Group's exposure to market price risk is comprised mainly of movements in
the value of the Group's investment in property. Property and property related
assets are inherently difficult to value due to the individual nature of each
property. As a result, valuations are subject to uncertainty. There is no
assurance that the estimates resulting from the valuation process would reflect
the actual sales price even where sale occurs shortly after the valuation date
however there is no intention to sell any of the properties at the date of the
report.
Rental income and the market value for properties are generally affected by
overall conditions in the local economy, such as growth in gross domestic
product, employment trends, inflation and changes in interest rates. Changes in
gross domestic product may also impact employment levels, which in turn may
impact the demand for premises. Furthermore, movements in interest rates may
also affect the cost of financing for real estate companies.
Both rental income and property values may also be affected by other factors
specific to the real estate market, such as competition from other property
owners, the perceptions of prospective tenants of the attractiveness,
convenience and safety of properties, the inability to collect rents because of
the bankruptcy or the insolvency of tenants or otherwise, the periodic need to
renovate, repair and release space and the cost thereof, the costs of
maintenance and insurance, and increased operating costs.
The Directors monitor market value by having independent valuations carried out
six monthly by DTZ Debenham Tie Leung.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Group. In the
event of a default by an occupational tenant, the Group will suffer a rental
income shortfall and incur additional costs, including legal expenses, in
maintaining, insuring and re-letting the property. The default risk is
considered low due to the nature of Primary Care Trust funding for GP practices.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets or
otherwise raising funds to meet financial commitments. Investments in property
are relatively illiquid however the Group has tried to mitigate this risk by
investing in desirable properties which are well let to General Practitioners
and Primary Care Trusts.
Interest rate risk
The interest rate profile of the Group at 30 September 2007 was as follows:
Assets on which Weighted average
Fixed Variable no interest is interest rate per
Total rate rate received annum
£'000 £'000 £'000 £'000 %
Financial assets
Goodwill 5,953 - - 5,953 -
112,325 - - 112,325 -
Properties
Properties under 19,569 - - 19,569 -
construction
Debtors 2,983 - - 2,983 -
Cash and cash equivalents 48,825 - 48,825 - 5.7%
Total assets as per
balance sheet 189,655 - 48,825 140,830 -
Total Fixed rate Variable Liabilities on Weighted average
rate which no interest rate per
interest is annum
paid
£'000 £'000 £'000 £'000 %
Financial liabilities
Bank loans 101,203 101,203 - - 5.0%
Creditors 5,317 - - 5,317 -
Deferred tax provision 6,352 - - 6,352 -
Total liabilities as per balance
sheet 112,872 101,203 - 11,669 -
19. Commitments
At 30 September 2007 the Group had commitments of £9.4 million to complete
properties under construction.
20. Material contracts and related party transactions
Investment Adviser
MedicX Adviser Ltd is appointed to provide property advice under the terms of an
agreement dated 17 October 2006 and amended on 2 May 2007. Fees payable under
this agreement are (i) 1.5% per annum on gross assets by way of property
advisory fee; (ii) a property management fee of 3% of gross rental income; (iii)
a corporate transaction fee of 1% of the gross asset value of any property
owning subsidiary company acquired; and (iv) a performance fee of 15% of the
amount by which the return to shareholders in terms of share price growth plus
cumulative dividends paid exceeds the initial offer price compounded annually by
10% in each accounting period.
During the period MedicX Adviser Ltd also received £24,000 for providing
administrative services to MedicX Properties II Ltd, MedicX Properties III Ltd
and MedicX Properties IV Ltd.
During the period, the agreements with MedicX Adviser gave rise to £2,693,000 of
fees, of which £600,000 remained outstanding at the end of the period, as
follows:
£'000
Expensed to the consolidated income statement:
Property advisory fee 1,996
Property management fees 137
Administrative fees 24
Added to cost of acquisition of properties:
Corporate fees for purchase of subsidiaries 536
Total Fees 2,693
Administration agreements
International Administration (Guernsey) Limited, the Company's administrator and
company secretary, was entitled during the period to receive a fee of £55,000
per annum for carrying out administrative services for the Company under the
terms of an agreement dated 17 October 2006; a further £25,000 per annum under
an agreement of the same date for the provision of administrative services to
MedicX Properties I Limited, and £15,000 per annum under an agreement dated 12
March 2007 with MedicX Properties V Limited. Alison Simpson is a director of
the administrator.
During the period, the agreements with International Administration (Guernsey)
Limited gave rise to the following fees:
£'000
Administrative fees 207
From 1 April 2007, each Group company entered into a separate administration
agreement with International Administration (Guernsey) Limited for the provision
of administrative services for fees totalling £58,000 for the provision of
corporate secretarial services to all Group companies plus fees at time spent
rates for other administrative services.
A further fee of £10,000 arose in respect of work performed by the administrator
in connection with the C share issue. This has been deducted from share premium.
Other transactions
During the period fees of £2,000 were paid to Aitchison Raffety Limited. John
Hearle is Group Chairman of Aitchison Raffety Limited.
21. Post balance sheets events
Since 30 September 2007, the Group has entered into forward funding agreements
in respect of three new properties at an aggregate amount of £4.9 million.
On 12 December 2007 the C shares will be converted to Ordinary shares at a
conversion ratio of 1.0000 based on a calculation date of 30 September 2007.
22. Subsidiary companies
The following were the companies in the group at 30 September 2007:
Name Country of incorporation Principal activity Ownership Type of share
percentage held
MedicX Properties I Ltd Guernsey Acquisition of 100% Ordinary
properties
MedicX Properties II Ltd England & Wales Acquisition of 100% Ordinary
properties
MedicX Properties III Ltd England & Wales Acquisition of 100% Ordinary
properties
MedicX Properties IV Ltd England & Wales Acquisition of 100% Ordinary
properties
MedicX Properties V Ltd Guernsey Acquisition of 100% Ordinary
properties
MedicX (Verwood) Ltd* England & Wales Acquisition of 100% Ordinary
properties
MedicX (Istead Rise) Ltd* England & Wales Acquisition of 100% Ordinary
properties
*Held indirectly
23. Operating leases
At 30 September 2007 the Group had entered into leases in respect of investment
properties for the following annual rental income:
Expiry £'000
Within one year 10
Between one and five years -
After more than five years 6,351
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