Publication of Prospectus

RNS Number : 2413P

The MedicX Fund Limited

20 March 2009

 



THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

For Immediate Release

20 March 2009

MedicX Fund Limited

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

Prospectus Published

MedicX Fund (LSE: MXF), the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom, has today published a prospectus in relation to a Placing and Offer for Subscription of up to 75,000,000 New Ordinary Shares at a price of 69p per Ordinary Share (the 'Prospectus'). The Placing and Offer for Subscription are sponsored by Collins Stewart Europe Limited ('Collins Stewart').

The Company

The Company was incorporated and registered in Guernsey on 25 August 2006 for the purpose of investing in primary healthcare properties. The Company'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 Company receives investment advice and management services from its investment adviser, MedicX Adviser Ltd (the 'Investment Adviser'), a member of the MedicX Group, which is a specialist investor in, developer of and manager of primary healthcare properties.

Property Portfolio

The property portfolio of the Company comprises 43 fully constructed and occupied primary healthcare properties which are leased to medical practices, PCTs and related services. The construction of a further two properties (at Lytham and Ossett) is anticipated to be completed during 2009. Under current Forward Funding Agreements, in respect of Lytham and Ossett, the MedicX Fund Group has committed approximately £18.9 million of investment, of which approximately £6.8 million remains outstanding.

As at 28 February 2009, the average age of the portfolio properties is 3.8 years and the average term remaining on the relevant leases is approximately 20 years. 91 per cent. of the aggregate rents are payable by PCTs and GPs, 6 per cent. by pharmacies and 3 per cent. by others. The total acquisition cost of the portfolio properties when complete is expected to be £166 million, including £5.8 million purchaser or transaction related costs. The anticipated annualised rent roll on the 45 Properties when all are completed will be approximately £9.6 million per annum representing a Cash Yield on the total acquisition cost of those properties of approximately 5.7 per cent.

The portfolio properties, which are geographically spread throughout the UK, have been valued as at 28 February 2009 at approximately £145.8 million (£126.6 million in relation to completed properties and £19.2 million in relation to properties under construction) by King Sturge LLP ('King Sturge') based on an anticipated Net Initial Yield of approximately 6.12 per cent. and on the assumptions set out in the independent Valuation Report prepared by King Sturge.

Net Asset Value

As at 28 February 2009, the Ordinary Shares had an unaudited NAV per Ordinary Share of 65.7p, derived from the Company's unaudited management accounts and which incorporates the valuation of the Company's property portfolio as at 28 February 2009 as carried out by King Sturge.

The Board believes that a more meaningful calculation of NAV per Ordinary Share should exclude goodwill and deferred tax that is not expected to crystallise. On this basis, as at 28 February 2009 the Ordinary Shares had an unaudited Adjusted NAV per Ordinary Share of 63.8p.

Borrowings and mark to market valuation

The Company has a £100 million secured debt facility provided by Norwich Union Commercial Finance (the 'NUCF Loan'), at a fixed rate of 5.008 per cent. on an interest only basis. The debt was fully drawn down on 1 December 2006 and is repayable in its entirety on 1 December 2036.

The £100 million debt facility is subject to the following financial covenants:

long term rental income from the properties charged must cover 140 per cent. of projected finance costs; and

the net loan must not exceed 75 per cent. of the market value of mortgaged property.

The MedicX Fund Group has been in compliance with these financial covenants since the issue of the facility.

As at 28 February 2009, the debt service cover ratio was 205 per cent. (30 September 2008: 194 per cent.) against a covenant of 140 per cent. At the same date, the loan to value ratio was 67.1 per cent. of the property value charged and 64 per cent. of the value on completion of all properties charged. It is estimated that the Net Initial Yield on the whole property portfolio would have had to move from 6.12 per cent. to 6.80 per cent. before the loan to value ratio at 28 February 2009 exceeded 75 per cent. The loan to value covenant of 75 per cent. will be first tested on 30 April 2009.

As at 28 February 2009, the Company had cash reserves of £14.6 million (30 September 2008: £24.1 million) of which £9.1 million (30 September 2008: £12.4 million) was on deposit to be released in accordance with the terms of the NUCF Loan.

As at 28 February 2009, the mark to market fair value of the fixed rate debt was £84.5 million, a mark to market benefit of £15.5 million, equivalent to 19.4p per Ordinary Share. At the same date, the unaudited Adjusted NAV reflecting the fixed rate debt at its fair value was equivalent to 83.2p per Ordinary Share. Taking account of gilt yields at 18 March 2009 (being the latest practicable date prior to publication of the Prospectus), the mark to market benefit of the fixed rate debt would be £7.8 million, equivalent to 9.7p per Ordinary Share. At the same date, the unaudited Adjusted NAV reflecting the fixed rate debt at its fair value was equivalent to 73.5p per Ordinary Share.

In addition, as at 28 February 2009, the Company had a separate loan secured on one investment property of £1.3 million.

Discounted cash flow valuation of assets and debt

The Board believes that the Company has similar characteristics to infrastructure funds which typically calculate the value of their investments based upon discounted cash flows. The Investment Adviser has independently carried out an unaudited discounted cash flow valuation of the Company's assets and associated debt as at 28 February 2009.

The discount rates used are 7 per cent. for completed and occupied properties and 8 per cent. for properties under construction. The discounted cash flows assume an average 3 per cent. per annum increase in individual property rents at their respective review dates, residual values based upon capital growth at 1 per cent. per annum from current valuation until the expiry of leases, (when the properties are notionally sold), and also assuming the current level of borrowings. The discounted cash flow valuation of the Company's assets and debt, as at 28 February 2009, was equivalent to 104.2p per Ordinary Share.

Investment opportunity

The Company's objective is to be a leading investor in modern, purpose built primary healthcare property.

The Directors believe that this segment of the primary healthcare property market represents an attractive opportunity for the following reasons:

• increasing demand for modern assets with flexible design characteristics;

• average lease terms of 15 to 25 years;

• low default risk due to the nature of PCT funding for GP practices;

• properties are generally let when acquired with low levels of rental voids;

• rental growth potential; and

• potential for significant capital values at lease expiry.

Competitive advantages

The Company believes that, through its long-term relationship with the Investment Adviser, it has a number of competitive advantages through access to:

• established industry contacts and development opportunities;

• coverage through the Investment Adviser's regional offices in Godalming, Nottingham and Edinburgh;

• considerable knowledge of the sector allowing better identification and delivery of asset management opportunities:

• assistance in identifying and securing relevant finance from PCTs or others;

• enhanced product design capability;

• the ability to extend or refurbish existing buildings; and

• relocation services.

Proposed changes to Investment Adviser's fee

The Directors and the Investment Adviser have agreed certain changes, conditional on Admission, to the basis upon which the Investment Adviser's fees are calculated.

Under the current fee structure, the Investment Adviser is paid an investment advisory base fee equal to 1.5 per cent. per annum of the gross assets (excluding cash). The Investment Adviser is also entitled to an annual performance fee equal to 15 per cent. of the amount by which the total return to shareholders in terms of share price growth plus cumulative dividends ('Total Shareholder Return') received exceeds the relevant issue price (for the IPO or the C Share Issue as the case may be) compounded annually by 10 per cent.

Under the new arrangements, there will be no investment advisory base fee payable on gross assets of between £150 million and £300 million (excluding cash). Above this threshold of £300 million, a base fee of 0.75 per cent. of gross assets (excluding cash) per annum will be payable.

The performance fee will be based on a new compound hurdle rate of 8 per cent. per annum calculated from the Issue Price, subject to a high watermark. If in any year the Total Shareholder Return falls short of this hurdle rate then the deficit has to be made up in subsequent years before any performance fee can be earned.

The new investment advisory base fee and performance fee earned in aggregate in any one financial year cannot exceed 1.5 per cent. of gross assets (excluding cash), such limit being equivalent to the current investment advisory base fee. Any fees which would otherwise be earned in excess of 1.5 per cent. of gross assets (excluding cash) for such period, can be carried forward in future years, subject at all times to the annual 1.5 per cent. of gross assets (excluding cash) fee limit.

Background and reasons for the Placing and Offer for Subscription

Following its successful acquisition programme to date, the Company has committed £166 million to investments in 45 primary healthcare properties and has become capital constrained as regards new investments.

The level of potential acquisitions that are brought to the Company's attention by the Investment Adviser has remained significant and the Directors believe that it would be in the interests of the Company to continue to acquire such properties by raising additional funds.

Benefits of the Issue

The Directors believe the benefits of raising additional monies at the current time to be as follows:

1. current market conditions within the primary healthcare property sector are such that the Company should be able to make further investments at attractive prices;

2. additional debt funding is expected to be secured on beneficial commercial terms;

3. the acquisition of properties and securing of debt at attractive prices, together with the proposed changes to the Investment Adviser fee and the spreading of the fixed running costs of the Company over an enlarged asset base should all be earnings enhancing; and

4. the availability of funds raised by the Issue of New Ordinary Shares will provide additional headroom in relation to the Company's banking covenants.

Use of Proceeds

The Company intends to use the proceeds of the Issue to fund ongoing investments and to take advantage of future pipeline opportunities, thereby committing the net proceeds of the Issue to investment in primary healthcare property within six to nine months of Admission and aiming to be fully invested with associated borrowings within twelve to eighteen months of Admission.

Dividend Policy

The Directors intend, subject to the Company's performance and to available cash, provided that the Company satisfies a solvency test under the Companies Law, to maintain the dividend in real terms, such that the total dividend per Ordinary Share is expected to increase in line with RPI throughout the life of the Company, although no assurance can be given that this will be achieved.

The Directors expect, subject to unforeseen circumstances, to pay dividends totalling 5.33p per Ordinary Share (including the New Ordinary Shares) in respect of the year ended 30 September 2009 including an interim dividend of 2.665p per Ordinary Share payable in July 2009, in respect of the period 1 October 2008 to 31 March 2009.

Thereafter, the Company intends to introduce the payment of dividends on a quarterly basis comprising of four equal quarterly dividends payable on the last business day of March, June, September and December of each year.

The Issue

The Issue will comprise an issue of New Ordinary Shares under the Placing and the Offer for Subscription. Neither the Placing nor the Offer for Subscription are underwritten.

New Ordinary Shares are being offered at 69p each under the Placing and the Offer for Subscription, payable in full in cash. The Ordinary Share mid-market price as at the close of 18 March 2009 (being the latest practicable date prior to the publication of the Prospectus) was 68.25p.

The latest time and date for receipt of Application Forms and payment under the Offer for Subscription will be 1.00 p.m. on 1 April 2009.

The Placing will close at noon on 3 April 2009.

Savings Schemes

Investors are recommended to consult their tax and/or investment advisers in relation to the eligibility of the New Ordinary Shares for savings schemes (including PEPs, ISAs, SIPPs and SSASs).

Key Risk Factors

The market value of, and the income derived from, the New Ordinary Shares can fluctuate. There is no guarantee that the market price of the New Ordinary Shares will fully reflect their underlying net asset value or earnings potential. There can be no guarantee that the investment objectives of the Company will be met.

A property market recession could materially adversely affect the value of properties.

Property and property related assets are inherently difficult to value and valuations are subject to uncertainty. There can be no assurance that the estimates resulting from the valuation process will reflect actual realisable sale prices.

Rental income and the market value for properties are generally affected by overall conditions in the local economy, demographic trends, inflation and changes in interest rates, which in turn may impact upon the demand for properties. Movements in interest rates may also affect the cost of financing.

Investments in property are relatively illiquid and usually more difficult to realise than listed equities or bonds.

Any change in the tax status or tax residence of the Company or in tax legislation or practice (in Guernsey or the UK) may have an adverse effect on the returns available on an investment in the Company. Similarly, any changes under Guernsey company law may have an adverse impact on the Company's ability to pay dividends.

In the event that a PCT or other tenant found itself unable to meet its liabilities the Company may not receive rental income when due and/or the total income received may be less than that due under the relevant contract. Budgetary restrictions might restrict or delay the number of opportunities available to the Company.

The rental costs of premises used for the provision of primary healthcare are reimbursed to GPs (subject to the fulfilment of certain standard conditions) by the PCTs. There is no guarantee that this will always be the case which could therefore increase the risk of default on the leases if there is a change to government policy.

Prospective investors should be aware that the Company intends to use borrowings which may have an adverse impact on NAV or dividends.

In the longer term, should a material fall in asset values result in the Company breaching any financial covenants, in circumstances where it would be unable to remedy such breach, the Company may be required to repay such borrowings requiring the Company to sell assets at less than their market value.

EXPECTED TIMETABLE

Event	Time and Date
Latest time and date for receipt of completed Application Forms and payment in full under the Offer for Subscription	1.00 p.m. on 1 April 2009
Last time and date for receipt of Placing commitments	3 April 2009
Results of Placing and Offer for Subscription announced	7 April 2009
Dealings in New Ordinary Shares to commence	8.00 a.m. on 8 April 2009
CREST Stock Accounts to be credited	8 April 2009
Certificates in respect of New Ordinary Shares to be dispatched	Week commencing 14 April 2009

Each of the times and dates in the above timetable is subject to change, in which event details of the new times and/or dates will be notified to the UK Listing Authority and the London Stock Exchange and, where appropriate, Shareholders. References to times in the Prospectus are to GMT/BST.

Defined terms in this announcement (except where the context otherwise requires) bear the same meaning as those terms when used in the Prospectus.

For further information please contact:

MedicX Fund	[phone]
David Staples, Chairman
MedicX Group	[phone]
Keith Maddin, Chairman
Mike Adams, Managing Director
Buchanan Communications	[phone]
Charles Ryland/Mary-Jane Johnson/Miranda Higham
Collins Stewart Europe Limited	[phone]
Robbie Robertson/Andrew Zychowski/Helen Goldsmith

Important Information

This announcement and the information contained herein is restricted and is not for publication, release or distribution in whole or in part in the United States, Canada, Australia or Japan.

This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any securities of the Company and any purchase of securities of the Company pursuant to any equity issue undertaken by the Company should only be made on the basis of the information contained in the final prospectus published by the Company and any supplement or amendment thereto (the 'Prospectus'). Copies of the Prospectus may, subject to any applicable law, be obtained at no cost at the registered office of the Company, Collins Stewart or from the Document Viewing Facility, UK Listing Authority, The Financial Services Authority, 25 North Colonnade, Canary Wharf, London E14 5HS. The Prospectus will supersede all information provided before the date of the Prospectus and any investment decision must be made only on the basis of the information contained therein.

Certain statements contained in this announcement may be forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein.

None of Collins Stewart nor the Company undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A prospective investor should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

The contents of this announcement have been prepared by and are the sole responsibility of the Company. Collins Stewart is acting exclusively for the Company and no one else in connection with the equity issue. Collins Stewart does not regard any other person (whether or not a recipient of this announcement) as its client in relation to the equity issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for giving advice in relation to the content of this announcement or any transaction or other matter referred to herein.

 

END

 

 

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