TIDMMXF
RNS Number : 6191R
The MedicX Fund Limited
13 December 2016
For immediate release
13 December 2016
MedicX Fund Limited
("MedicX Fund", "the Fund" or "the Company")
Results for the year ended 30 September 2016
MedicX Fund Limited (LSE: MXF) is a specialist primary care
infrastructure investor in modern, purpose built primary healthcare
properties in the United Kingdom & Republic of Ireland.
Financial Highlights
Unadjusted performance measures
2016 2015
------------------------------ ------ ------ -------
Earnings per Ordinary Share
(pence) (1) 7.1 9.9 -28.3%
Net Asset Value per Ordinary
Share (pence) (1) 71.7 69.6 +3.0%
Dividend cover(2) 64.0% 63.3% +1.1%
Total Shareholder Return(3) 22.5% -0.4% N/a
Property valuation (GBPm)(4) 612.3 553.5 +10.6%
Weighted average debt term
(years) 14.0 15.0 -6.7%
Rent receivable (GBPm) 35.1 32.8 +7.0%
------------------------------ ------ ------ -------
Adjusted performance measures
2016 2015
-------------------------------- ------ ------ -------
Adjusted earnings per Ordinary
Share (pence) (1) 3.8 3.7 +2.7%
EPRA Net Asset Value per share
(pence) (1) 73.2 70.8 +3.4%
Underlying dividend cover(2) 68.5% 68.0% +0.7%
EPRA Net Asset Value total
return(5) 11.8% 17.2% -31.4%
-------------------------------- ------ ------ -------
The Directors believe that presenting the above adjusted
performance measures assists readers of the accounts in
understanding and analysing the performance and position of the
Group, as well as providing industry standard measures for
benchmarking against other companies. In particular, the Directors
believe EPRA measures provide more meaningful key performance
indicators.
Adjusted earnings per Ordinary Share are EPRA earnings for the
current year, excluding the performance fee, if any, which is
uncertain and cannot be accurately forecast.
Underlying dividend cover shows the expected outcome once all
properties under construction are completed from existing resources
and generating rental income.
Key Achievements of 2016
Financial results
-- A 2.7% increase in EPRA earnings per Ordinary Share adjusted
to exclude the performance fee, from 3.7p per share to 3.8p per
share
-- Quarterly dividend of 1.4875p per share announced in October
2016(6) ; total dividends of 5.95p per Ordinary Share for the year
or 6.7% dividend yield (2015: total dividends of 5.9p per Ordinary
Share; 7.6% dividend yield)(6,7)
-- Rent receivable for the financial year to 30 September 2016
has increased by 7.0% to GBP35.1m. This is due to the annualised
rent roll increasing by GBP2.4m to GBP37.2 million of which 89.2%
is directly from or reimbursed by the NHS, Irish GPs or HSE.
-- EPRA NAV total return for the financial year was 11.8% (2015:
17.2%) and Total Shareholder Return was 22.5% (2015: -0.4%)
Investments
-- New committed investments in UK and Republic of Ireland,
since 1 October 2015, of GBP35.0 million with an average cash yield
of 6.02%(8)
-- The value of the portfolio has increased by 10.6% in the
financial year to GBP612.3 million. This is as a result of a
GBP15.5 million valuation gain and GBP43.3 million of capital
investment to acquire standing let properties and fund developments
through forward funding schemes(4)
-- Strong pipeline of approximately GBP108 million of acquisition opportunities(9)
Funding
-- Market capitalisation GBP344.4 million following share price
appreciation and GBP19.0 million net proceeds raised from 22.3
million shares issued since 1 October 2015 at an average issue
price of 85.3 pence per share(8)
-- Total drawn debt facilities of GBP336.3 million with an
average all-in fixed rate cost of debt of 4.45% and an average
unexpired term of 14.0 years, close to the average unexpired lease
term of the investment properties of 15.5 years and compared with
4.45% and 15.8 years for the prior year
-- Net debt of GBP315.3 million equating to 50.8% adjusted
gearing at 30 September 2016 (30 September 2015: GBP281.4 million;
50.2%)(8,10)
1 As calculated in note 8 to the financial statements
2 Dividend cover excludes revaluation gains, performance fee and
fair value on reset of loans. Underlying dividend cover includes
impact of properties under construction treated as completed
properties
3 Based on share price movement between 30 September 2015 and 30
September 2016 and dividends paid and reinvested during the
year
4 As shown in note 9 to the financial statements
5 Movement on EPRA NAV per share between 30 September 2015 and
30 September 2016 and dividends paid during the year, divided by
opening EPRA NAV per share
6 Ex-dividend date 17 November 2016, record date 18 November
2016, payment date 30 December 2016
7 Total dividends declared divided by share price at 30 September
8 As at the financial year end of 30 September 2016
9 As at 7 December 2016
10 As shown in note 24 to the financial statements
For further information please contact:
MedicX Fund +44 (0) 1481 723 450
David Staples, Chairman
Octopus Healthcare Group +44 (0) 20 3142 4820
Mike Adams, Chief Executive Officer
Canaccord Genuity +44 (0) 20 7523 8000
Andrew Zychowski/Helen Goldsmith
Buchanan +44 (0) 20 7466 5000
Charles Ryland/Victoria Hayns
A meeting for analysts will be held at Buchanan, 107 Cheapside,
London, EC2V 6DN today, Tuesday 13 December 2016 commencing at 9am.
MedicX Fund Full Year Results 2016 are available at
www.medicxfund.com
An audio webcast of the analysts' meeting will be available from
12 noon today:
http://vm.buchanan.uk.com/2016/medicx131216/registration.htm
Information on MedicX Fund Limited
MedicX Fund Limited (the "Fund" or the "Company", or together
with its subsidiaries, the "Group") is the specialist primary care
infrastructure investor in modern, purpose-built primary healthcare
properties in the United Kingdom and Ireland, listed on the London
Stock Exchange, with a portfolio comprising 153 properties.
The Investment Adviser to the Company is Octopus Healthcare
Adviser Ltd, which is part of the Octopus Healthcare group. Octopus
Healthcare invests in and develops properties as well as creating
partnerships to deliver innovative healthcare buildings to improve
the health, wealth and wellbeing of the UK. It currently manages
over GBP1 billion of healthcare investments across a number of
platforms, with a focus on four core areas: GP surgeries, care
homes, retirement housing and private hospitals. Octopus Healthcare
is part of the Octopus group, a fast-growing UK fund management
business with leading positions in several specialist sectors
including healthcare property, energy, property finance and smaller
company investing. Octopus manages GBP6 billion of funds for more
than 50,000 retail and institutional investors.
Octopus Healthcare Adviser Ltd is authorised and regulated by
the Financial Conduct Authority.
The Company's website address is www.medicxfund.com. Neither the
contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other
website), nor the contents of any website accessible from
hyperlinks within this announcement, are incorporated into, or
forms part of, this announcement.
Chairman's Statement
I am pleased to present the tenth annual report for the Company,
on behalf of the Board.
The demand for new modern primary care infrastructure continues
to be strong in both the UK and Republic of Ireland as the
population ages and a wider range of clinical services is sought to
be delivered over longer hours by GPs in their local communities.
Transforming the NHS through improved access to services, better
working efficiency and implementing new ways of working remain high
priorities. Reform is being led by clinical commissioning groups
("CCGs") and GPs, with provider groups emerging to meet increasing
patient and regulatory demands. This modernisation creates
opportunities for the Fund to partner with providers and invest in
new modern purpose built infrastructure capable of delivering care
with improved efficiency.
The Fund has continued to work with its strategic development
partners, engaging with provider groups and working with its
tenants to deliver new schemes and premises improvements. We
continue to seek opportunities to invest in properties that will
generate returns for shareholders well beyond their current lease
terms. We do this by acquiring assets that are both tailored to the
current needs of our tenants and also their evolving needs as they
respond to increasing pressure and demand for extensive primary
care services. As a result of this focus on value-adding property
acquisitions carried out over the past few years, the Fund has
created a market leading modern primary care portfolio.
The UK market has remained highly competitive with relatively
high values being paid for assets of variable quality. Despite
these market conditions the Fund has maintained its price
discipline and continued to only acquire UK assets of the highest
quality which meet the Fund's investment criteria. The Republic of
Ireland demonstrates similar demographic pressures and political
will which has enabled the Health Service Executive to drive
forward its programme of putting in place a world class modern
purpose built estate to deliver healthcare. The Fund is now
supporting three new schemes underway in Mullingar, Crumlin and
Rialto. We continue to believe there are good opportunities to
invest in the Republic of Ireland at attractive yields in high
quality properties.
Results overview
Since my statement last year, I am pleased to report that total
shareholder return has recovered following the dip in the share
price that occurred over the Company's previous year end. The share
price recovered from 77.5 pence at 30 September 2015 and was 88.75
pence at 30 September 2016 underlying the total shareholder return
for the year of 22.5%, putting the Fund back on track with its long
term returns.
Fund progress and performance has been good with unadjusted NAV
at 30 September 2016, having increased 3.0% to 71.7 pence per share
(30 September 2015: 69.6 pence per share). EPRA NAV at 30 September
2016 has also increased by 3.4% to 73.2 pence per share (30
September 2015: 70.8 pence per share), after paying dividends for
the year. Together with dividends paid in the year of 5.9375 pence
per share this led to an EPRA NAV total return (being growth in
EPRA NAV plus dividends paid) of 8.3375 pence per share or
11.8%.
As explained in my introduction, we maintained our investment
discipline in a tough market and consequently the pace of property
acquisitions slowed somewhat compare to recent years. At 30
September 2016, the Group had committed investment of GBP580.6
million across 152 properties of which six are under construction.
The portfolio value was GBP612.2 million which is an increase of
10.6% above last year's value. In addition, since the year end, the
Fund has committed to a further asset in the UK which will add
GBP0.3 million to the rent roll.
The rent roll grew by GBP2.4 million or 6.9% during the year.
The costs incurred by the Fund, including the finance costs, were
in line with expectations given the level of activity and the
acquisitions in the year. The Company's earnings for the year to 30
September 2016 were 7.1 pence per share, which is a reduction of
2.8 pence per share or 28.3%. The EPRA earnings for the current
year excluding the performance fee earned by the Investment Adviser
were GBP14.2 million (30 September 2015: GBP13.4 million) or
3.8pence per share, an increase of 2.7% (30 September 2015:
3.7pence per share).
Funding
The weighted average unexpired term of all drawn debt at 30
September 2016 is 14 years, closely matching the average remaining
unexpired lease term of the Fund's portfolio of 15.5 years. The
debt strategy remains to try to pick the optimal time to put in
place the best available debt facilities with the most favourable
terms whilst ensuring adherence to the Company's gearing
target.
The adjusted gearing as at 30 September 2016, as detailed in
note 24, was 50.8% which is in line with target and marginally
increased from 50.2% as at 30 September 2015. The Directors will
continue to target borrowings of approximately 50% on average over
time but not exceeding 65% of the Company's total assets.
During September 2016, the Group renewed its unsecured RBS
revolving credit facility for a further three years. The renewal
provides for an option, with lender consent, that the immediately
committed GBP20 million facility be extended by a further GBP10
million to GBP30 million or additional lenders be added with a view
to increasing the facility on existing terms. Interest is payable
on amounts drawn under the facility at a margin of 2% over LIBOR.
The facility enables the Group to move quickly if needed when
attractive opportunities come to market.
Demand for the Company's shares continued to be high during the
year and the Company was able to raise GBP19.0 million from the
sale of its shares held in treasury including GBP1.7 million raised
through the issue of new shares under a block listing established
in September 2016. Both treasury shares and new shares have been
and will continue to be utilised to satisfy further demand for
shares in the Company, including any demand for shares under the
scrip dividend scheme. These shares will only be sold or issued at
a premium to EPRA NAV and so will be accretive to NAV per share for
existing shareholders.
Dividends
The Company declared dividends totalling 5.95 pence per Ordinary
Share in respect of the financial year ended 30 September 2016, an
increase of 0.8% compared to 5.9 pence per Ordinary Share in the
prior year. This resulted in a dividend yield of 6.7% as measured
using the year end share price. The Board is maintaining the
Company's progressive dividend policy for the forthcoming year. In
response to the current very low interest rate environment and
continued low rental growth, the dividend increase will be 0.05
pence per Ordinary Share. Therefore, subject to unforeseen
circumstances, the Directors expect that the Company will pay
dividends totalling 6.0p for the financial year ending 30 September
2017.
Dividend cover measured against adjusted earnings was 64.0% for
the year to 30 September 2016 (2015: 63.3%). Underlying dividend
cover, which is dividend cover adjusted to reflect completion of
the properties under construction (assuming full annual rent on all
properties and a full year of associated interest costs and other
expenses) was 68.5% (2015: 68.0%).
As the Fund continues to grow its rental income, deploy capital
and complete properties under construction, and when taken with the
cap on the Investment Adviser base fee, it is expected that
dividend cover and underlying dividend cover will improve further
and will align themselves over the medium term.
Potential Conversion to a REIT
We have for some while mentioned that the Company has been
considering whether it would be in its best interests to convert to
a REIT. Our five year plans and forecasts now strongly indicate
that it will be advantageous to effect a conversion possibly on 1
October 2017, the start of the Company's next financial year.
However, I would stress that there has been no final decision by
the Board to put this proposal to shareholders yet but we expect to
make an announcement in the first quarter of 2017.
Board succession
Succession planning is regularly discussed at board meetings.
Mr. Hearle and Mrs. Mason, having been with the Company since
launch, have served on the Board for ten years and are standing for
re-appointment as directors at the forthcoming Annual General
Meeting along with the rest of the Board. Mr. Hearle and Mrs. Mason
both hold relevant professional qualifications and have
considerable expertise which is of great value to the Board, its
diversity and effectiveness. Mrs Mason is a highly experienced
commercial property lawyer as well as having many years of
experience of being on the boards of property/infrastructure listed
investment companies. She is of great assistance to the Board in
relation to commercial property issues and governance. Mr. Hearle
is widely recognised within the primary healthcare property
industry as a leading figure and his experience of the asset class
is an enormous benefit to the Board and its ability to
constructively challenge the Investment Adviser. The Board
recognises the benefit of refreshing its membership from time to
time and it is proposed that Mrs. Mason will retire from the Board
within the next financial year and once a suitable replacement for
her has been found. There are likely to be further changes to the
composition of the Board within the next two years, the nature and
timing of which will depend upon when and whether the Company
converts to REIT status.
Outlook
There is no doubt that markets have shown and will continue for
some time to show considerable volatility given such things as the
Brexit issue, how policies in the US will change, worries over
upcoming elections in certain Eurozone countries and the slowdown
of the Chinese economy. The fact that the Company's share price has
continued to remain strong despite this environment is testament to
the relative safety many investors see in primary healthcare
property and the yields it can provide.
We believe our strong discipline on investment and funding, our
focus on the quality of our portfolio and strong pipeline of
investment opportunities provide the foundation for continued
sustainable growth of the Fund and the delivery of solid returns
for shareholders.
David Staples
Chairman
12 December 2016
Investment Adviser's Report
Market
It is widely accepted primary care has to play a bigger role in
health provision due to rising life expectancy and increasingly
complex long term health conditions. The policy announcement from
the NHS in April, entitled "General Practice Forward View", states
that there has been under investment in the sector. The Forward
View promises a greater share of the NHS England recurrent budget
being directed towards primary care in future, to help GPs respond
to the increasing pressure on primary care services. The market
remains attractive to investors due to the government backed
covenant and demand has remained high whilst supply has been
limited due to the well-publicised delays in commissioning of new
schemes. To accelerate reform, the NHS has announced high profile
initiatives such as the GBP1 billion Estates and Technology
Transformation Fund and the establishment of the network of 44
Sustainability and Transformation Plans ("STPs"). STPs are intended
to bring all significant stakeholders together within health and
social care systems to give structure to local integration which
will lead to efficiency savings within the national
health budget.
Achieving the objectives of the NHS Five year Forward View is a
significant challenge to the wider health service and the plan was
only introduced twelve months ago so it is too early to tell if it
will succeed.
The Fund is working with a number of GP tenants and provider
groups to support the upgrading of their premises to meet their
estate needs.
There is a push to develop new models of care including Multi
Speciality Community Providers and Accountable Care Organisations
which is encouraging innovation. GPs are beginning to lead
transformation and the pace of change is accelerating with
practices merging, federating or forming larger provider groups
which want to deliver the new models of care from modern purpose
built primary care centres such as those owned by the Fund. The
limited supply of new property schemes, continues to drive yield
compression leading to higher prices. The Fund has maintained a
disciplined buying approach, resisting the downward pressure on
yields and has continued to acquire best in class assets through
its relationship with its framework partners. The increased
competition for limited stock has reflected positively on the
property valuations of the Fund's portfolio.
As mentioned in last year's report, the Fund has diversified its
approach and has invested in the Republic of Ireland where there
are opportunities to acquire and/or forward fund large purpose
built modern dominant assets at more attractive yields than those
seen in the UK. The Fund has now made three investments in the
Republic of Ireland and on each has entered into framework
agreements with experienced developers for future schemes.
Mullingar, the first of the Fund's Irish forward funding deals, is
expected to reach practical completion before the end of
December.
Portfolio update
As at the year end the Fund has committed investment of GBP580.6
million in 152 primary healthcare properties, an increase of GBP35
million or 6.4% since 1 October 2015. The annualised rent roll of
the property portfolio was GBP37.2 million, an increase of GBP2.4
million, or 6.9%, since 1 October 2015. Subsequent to the year end
the Fund invested into one further property.
The valuation of the portfolio undertaken by Jones Lang LaSalle
Limited, independent valuers to the Group, stood at GBP621.7
million as at 30 September 2016 on the basis that all properties
were complete, reflecting a UK net initial yield of 5.25% (5.46% as
at 30 September 2015). The results for the year include a net
valuation gain of GBP15.5 million.
At 30 September 2016, the portfolio of properties had an average
age of 8.0 years, remaining lease length of 15.5 years and an
average value of GBP4.1 million. Of the rents receivable, 89.2% are
from government-funded doctors and the NHS or HSE, 8.6% from
pharmacies and 2.2% from other tenants.
The Group added a total of nine properties representing a total
commitment of GBP35.0 million at a cash yield of 6.02% between 1
October 2015 and 30 September 2016. Two of the new developments
acquired by the Fund were in the Republic of Ireland. This
demonstrates the proactive approach of MedicX Fund; diversifying
into the Irish market whilst the UK market is experiencing
aggressive pricing conditions and a scarcity of available
stock.
During the year, successful completion was achieved on
properties previously under construction at Stevenage, Briton
Ferry, Kingsbury and Maidstone. All of the completed projects were
delivered within budget.
Construction continued on the existing projects at Streatham,
Benllech and Mullingar, while the construction of the newly
acquired projects at Brynhyfryd, Crumlin and Rialto commenced
during the year. The outstanding commitment to complete these
properties at 30 September 2016 was GBP11.7 million excluding the
Rialto project where construction is yet to start and the site is
carried at cost.
The Fund had a pipeline of identified investment opportunities
of approximately GBP108 million, with GBP58 million in the UK and
GBP50 million in the Republic of Ireland.
Despite only one small disposal during the year, the Fund will
continue to look to sell properties which no longer meet its long
term investment criteria or have been identified within the CCG's
estates strategy as less likely to be used for delivery of primary
care beyond their existing lease term.
As described above, the initial valuation yield on investments
in the UK is 5.25% compared with the Group's weighted average cost
of fixed rate debt of 4.45% and a benchmark 20-year gilt rate of
1.52% at 30 September 2016. This positive spread has enabled growth
through committing investment during the year of GBP35 million. The
Group remains well placed to continue to grow and deliver value to
its shareholders as it locks into the differential available
between long term returns and the cost of long term funding.
Rent review performance
For the year ended 30 September 2016, the Fund averaged an
uplift of 1.2% on its rent reviews, with reviews of 68 leases and
rents of GBP6.1million having been concluded. Of these reviews,
0.8% per annum was achieved on open market reviews, 1.8% per annum
was achieved on RPI based reviews and 1.8% per annum on fixed
uplift reviews. Reviews of GBP16.1 million of passing rent were
under negotiation as at 30 September 2016.
Of the GBP37.2 million annualised rent roll at the year end,
there was GBP26.6 million (71.5%) subject to open market review,
GBP9.1 million (24.5%) subject to RPI reviews and GBP1.5 million
(4.0%) subject to fixed uplift reviews. The proportion of rent
subject to RPI uplifts has increased over the last year from 22.6%
to 24.5%.
Asset management
The Fund continually reviews its portfolio for asset management
opportunities and has identified a number of opportunities to
enhance the portfolio mainly through extensions, refurbishments,
re-configurations, new pharmacy opportunities and lease re-gearing
to increase valuations. The Fund is engaging with CCGs to identify
further asset management opportunities and is monitoring closely
how GP federations, new provider groups and 'Super Practices' are
forming in each locality.
Discounted cash flow valuation of assets and debt
On the Fund's behalf the Investment Adviser has carried out a
discounted cash flow ("DCF") valuation of the Group's assets and
associated debt at each year end. The basis of preparation is
similar to that calculated by infrastructure funds. The values of
each investment are derived from the present value of the
property's expected future cash flows, after allowing for debt and
taxation, using reasonable assumptions and forecasts based on the
predominant lease at each property. The total of the present values
of each property and associated debt cash flows is calculated and
then aggregated with the surplus cash position of the Group.
At 30 September 2016, the DCF valuation was 96.6 pence per share
compared with 94.9 pence per share at 30 September 2015.
In order to provide a consistent approach the assumptions
applied in previous years have remained unchanged. The discount
rates used are 7% for completed and occupied properties and 8% for
properties under construction. These represent 2.5% and 3.5% risk
premiums to an assumed 4.5% long term gilt rate. The weighted
average discount rate is 7.06% and this represented a 5.54% risk
premium to the 20 year gilt rate at 30 September 2016 of 1.52%.
The discounted cash flows assume an average 2.5% per annum
increase in individual property rents at their respective review
dates. Residual values continue to be based upon capital growth at
1% per annum from the current valuation until the expiry of leases,
(when the properties are notionally sold), and also assuming the
current level of borrowing facilities.
For the discounted cash flow net asset value to equate to the
share price as at 30 September 2016 of 88.75 pence per share, the
discounted cash flow calculation would have to assume a 1.1%
increase in rents per annum, or a 0.1% capital appreciation per
annum, or a weighted average discount rate of 7.9%. These movements
in rents and capital values would need to take place every year
until the expiry of individual property leases.
For the discounted cash flow net asset value to equate to the
share price as at 7 December 2016 of 90.25 pence per share, the
discounted cash flow calculation would have to assume a 1.4%
increase in rents per annum, or a 0.3% capital reduction per annum,
or a weighted average discount rate of 7.7%.
Taking the EPRA NAV of 73.2 pence per share and assumed
purchaser costs of 10.6 pence per share, an implied net initial
yield of 4.84% would be required to match the discounted cash flow
net asset value of 96.6 pence.
A review of sensitivities has been carried out in relation to
the valuation of properties. If valuation yields firmed by 0.5% to
a net initial yield of 4.75%, the EPRA net asset value would
increase by approximately 16.0 pence per share to 89.2 pence per
share and the EPRA NNNAV would increase to 69.8 pence per
share.
Pipeline and investment opportunity
The spread between the yields at which the Fund can acquire
properties and the cost of long term debt and Government gilts
remains significant. The Investment Adviser has continued to
successfully source properties both through Octopus Healthcare's
development arm, Octopus Healthcare Property Ltd, and through its
established relationships with investors, developers and agents in
the sector. The Fund currently has access to a property pipeline,
subject to contract, which is estimated to be worth approximately
GBP108 million in value when fully developed.
Interest in voting rights of the Company
The Investment Adviser has a beneficial interest in the
following number of shares in the Company:
2016 2015
-------------------- ---------- ----------
Octopus Healthcare
Adviser Ltd 2,149,537 2,009,360
-------------------- ---------- ----------
During the year the Investment Adviser received dividends on the
holding in the Company in addition to fees received for services.
With the Scrip Dividend Scheme in place, the Investment Adviser
elected to receive its dividends in the form of new Ordinary
Shares. The cash equivalent of the dividends received by the
Investment Adviser for the year was GBP122,437, compared with
GBP116,543 in the prior year.
Mike Adams
Chief Executive Officer
Octopus Healthcare Adviser Ltd
Risk Management
The principal risks and uncertainties relating to the Group are
regularly reviewed by the Board along with the internal controls
and risk management processes that are used to mitigate these
risks. The principal risks and the management of those risks are
described below:
Risks & impacts Key mitigation
factors
----------------- -------------------------------- -----------------------------------
Government Changes to the NHS The Investment Adviser
policy funding model for provides an update
the primary healthcare on any expected changes
sector could lead in NHS provision at
to a reduction in each Board meeting
development opportunities for consideration by
available to the the Board. The current
Company. government has stated
that one of its policy
The NHS currently objectives is to increase
reimburses GP's the provision of primary
rental costs for healthcare services
premises used for in the community so
providing primary a reduction in funding
healthcare. In the or support in this
event of a change sector is considered
to this mechanism, unlikely.
the Company may
not receive rental The GPs have contracts
income when due with the NHS to cover
and/or the total the length of their
income received lease (on average 15.5
may be lower than years on properties
due under the current held by the Company)
contract. and so a change to
this reimbursement
A change in the policy would be expected
tax status or residency to have little impact
of the Company or in the immediate future.
a change in tax
legislation could The Company maintains
adversely affect a tax forecast and
returns. receives regular reports
from its tax advisers
A change in political and the Investment
policies as a result Adviser. This includes
of the referendum keeping potential REIT
vote for the UK conversion under review.
to exit the EU is
likely to cause The Board monitors
uncertainty in the the economic environment
economic environment on a regular basis
and create volatility with input from its
in prices, interest advisors. There is
rates, investment no exposure to primary
yields and inflation. care outside the UK
and Republic of Ireland.
--------------- -------------------------------- -----------------------------------
Property A significant reduction For existing properties
yields in property yields contractual cash flows
could result in are fixed over the
them falling below long-term so have little
the cost of capital, impact on EPRA returns.
or not being available
with an acceptable The Board regularly
rate of return. review the Company's
budget and five year
A property recession forecast and completes
could materially a risk assessment and
adversely affect a long-term viability
the value of properties assessment which incorporates
which could put the Company WACC, dividend
financial covenants policy and sets the
under pressure (see minimum property yield
below). boundaries for future
acquisitions.
--------------- -------------------------------- -----------------------------------
Financing A significant reduction The Company mainly
and debt in the availability holds long-term facilities
management of financing could which greatly reduce
affect the Company's the refinancing risk.
ability to source The Company maintains
new funding for relationships with
both refinancing a number of potential
purposes and to financing sources ensuring
use for future acquisitions. a range of financing
options.
The Investment Adviser
also regularly monitors
and manages the debt
facilities and reports
on a regular basis
to the Board.
--------------- -------------------------------- -----------------------------------
Covenants A significant reduction Covenants are measured
in property valuations and monitored on a
or income could monthly basis by the
result in a breach Investment Adviser,
of loan covenants. with results reported
to the Board for consideration.
The impact of potential
property de-valuations
on the covenants are
considered by the Investment
Adviser and discussed
by the Board at quarterly
Board meetings.
--------------- -------------------------------- -----------------------------------
Cyber Security There are a number The security of the
of risks related systems are internally
to cyber security monitored and regularly
which include the reviewed. Training
risk of having the is provided to employees
internal systems of the Investment Adviser
infiltrated, information on Cyber Security matters
corrupted or information to increase awareness
stolen. and vigilance. Incident
management is used
to establish an incident
response and disaster
recovery response.
The review of suppliers
to the Company includes
an assessment of the
quality of their cyber
security systems and
processes.
--------------- -------------------------------- -----------------------------------
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2016
2016 2015
Notes GBP'000 GBP'000
------------------------------------------ ------ --------- ---------
Income
Rent receivable 1 35,145 32,811
Other income 372 858
------------------------------------------ ------ --------- ---------
Total income 35,517 33,669
Direct property expenses (1,195) (902)
Net rental income 34,322 32,767
Realised and unrealised valuation
movements
Net valuation gain on investment
properties 9 15,523 25,603
Profit on disposal of investment
properties 9 31 -
------------------------------------------ ------ --------- ---------
15,554 25,603
------------------------------------------ ------ --------- ---------
Expenses
Investment advisory fee 20 3,852 3,725
Investment advisory performance
fee 20 1,553 -
Property management fee 20 889 849
Administrative fees 20 116 83
Audit fees 3 171 178
Professional fees and other expenses 584 530
Directors' fees 2 144 147
Total expenses (7,309) (5,512)
------------------------------------------ ------ --------- ---------
Profit before interest and tax 42,567 52,858
Finance costs 4 (15,529) (13,802)
Finance income 5 1,149 66
------------------------------------------ ------ --------- ---------
Net finance costs (14,380) (13,736)
Profit before tax 28,187 39,122
Taxation 6 (1,556) (3,293)
------------------------------------------ ------ --------- ---------
Profit attributable to equity holders
of the parent 26,631 35,829
------------------------------------------ ------ --------- ---------
Other comprehensive income
Items that are or may be reclassified
subsequently to profit or loss:
Foreign currency translation differences 53 -
- foreign operations
------------------------------------------ ------ --------- ---------
Total comprehensive income attributable
to equity holders of the parent 26,684 35,829
------------------------------------------ ------ --------- ---------
Earnings per Ordinary Share
Basic and diluted 8 7.1p 9.9p
------------------------------------------ ------ --------- ---------
The presentation of the comparative period has been updated to
show direct property expenses as a deduction in arriving at net
rental income.
Consolidated Statement of Financial Position
As at 30 September 2016
2016 2015
Notes GBP'000 GBP'000
------------------------------- ------ --------- ---------
Non-current assets
Investment properties 9 612,264 553,479
------------------------------- ------ --------- ---------
Total non-current assets 612,264 553,479
------------------------------- ------ --------- ---------
Current assets
Trade and other receivables 10 8,519 6,778
Cash and cash equivalents 16 20,968 56,910
------------------------------- ------ --------- ---------
Total current assets 29,487 63,688
------------------------------- ------ --------- ---------
Total assets 641,751 617,167
------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 11 19,923 18,966
Loans due within one year 12 1,983 1,896
Total current liabilities 21,906 20,862
------------------------------- ------ --------- ---------
Non-current liabilities
Loans due after one year 12 334,307 336,412
Head lease liabilities 13 1,430 1,405
Rental deposits 60 60
Deferred tax liability 6 5,887 4,331
Provisions 7 - -
------------------------------- ------ --------- ---------
Total non-current liabilities 341,684 342,208
------------------------------- ------ --------- ---------
Total liabilities 363,590 363,070
------------------------------- ------ --------- ---------
Net assets 278,161 254,097
------------------------------- ------ --------- ---------
Equity
Share capital 14 - -
Share premium 14 234,846 232,770
Treasury shares 14 (6,835) (24,321)
Other reserve 15 50,150 45,648
------------------------------- ------ --------- ---------
Total attributable to equity
holders of the parent 278,161 254,097
------------------------------- ------ --------- ---------
Net asset value per share
Basic and diluted 8 71.7p 69.6p
------------------------------- ------ --------- ---------
The financial statements were approved and authorised for issue
by the Board of Directors on 12 December 2016 and were signed on
its behalf by
Shelagh Mason
David Staples
Consolidated Statement of Changes in Equity
For the year ended 30 September 2016
Share Treasury Other Total
Premium Shares Reserve Equity
Notes GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ------ --------- --------- --------- ---------
Balance at 1 October
2014 204,946 (5,293) 31,047 230,700
Share repurchased
and held in treasury 27,393 (27,393) - -
Shares sold from
treasury 491 6,424 - 6,915
Scrip issue of
shares from treasury
(net of costs) 53 1,941 - 1,994
Share issue costs (113) - - (113)
Dividends paid 17 - - (21,228) (21,228)
----------------------- ------ --------- --------- --------- ---------
Transactions with
owners 27,824 (19,028) (21,228) (12,432)
Profit attributable
to equity holders
of the parent - - 35,829 35,829
----------------------- ------ --------- --------- --------- ---------
Total comprehensive
income for the
year - - 35,829 35,829
Balance at 30
September 2015 232,770 (24,321) 45,648 254,097
Shares issued
from block listing 1,763 - - 1,763
Shares sold from
treasury 503 16,909 - 17,412
Scrip issue of
shares from treasury
(net of costs) 26 577 - 603
Share issue costs (216) - - (216)
Dividends paid 17 - - (22,182) (22,182)
----------------------- ------ --------- --------- --------- ---------
Transactions with
owners 2,076 17,486 (22,182) (2,620)
Profit attributable
to equity holders
of the parent - - 26,631 26,631
Other comprehensive
income Foreign
currency translation
differences - - 53 53
----------------------- ------ --------- --------- --------- ---------
Total comprehensive
income for the
year 26,684 26,684
Balance at 30
September 2016 234,846 (6,835) 50,150 278,161
----------------------- ------ --------- --------- --------- ---------
Consolidated Statement of Cash Flows
For the year ended 30 September 2016
2016 2015
Notes GBP'000 GBP'000
-------------------------------------- ------ --------- ---------
Operating activities
Profit before taxation 28,187 39,122
Adjustments for:
Net valuation gain on investment
properties 9 (15,523) (25,603)
Profit on disposal of investment (31) -
properties
Finance income 5 (1,149) (66)
Finance costs 4 15,529 13,802
-------------------------------------- ------ --------- ---------
27,013 27,255
(Increase)/decrease in trade and
other receivables (1,736) 1,392
Increase/(decrease) in trade and
other payables 672 (5,285)
Interest paid (14,616) (13,287)
Interest received 75 77
Net cash inflow from operating
activities 11,408 10,152
-------------------------------------- ------ --------- ---------
Investing activities
Acquisition of investment properties (15,732) (2,308)
Cash acquired with subsidiaries (631) -
Proceeds from sale of investment
properties 9 121 -
Additions to investment properties
and properties under construction (20,039) (21,008)
-------------------------------------- ------ --------- ---------
Net cash outflow from investing
activities (36,281) (23,316)
-------------------------------------- ------ --------- ---------
Financing activities
Net proceeds from issue of share
capital 18,962 6,816
New loan facilities drawn 12 - 85,000
Repayment of borrowings 12 (1,895) (32,923)
Loan issue costs 12 (554) (697)
Repayment of acquired loans (6,000) -
Dividends paid 17 (21,582) (19,247)
-------------------------------------- ------ --------- ---------
Net cash (outflow)/inflow from
financing activities (11,069) 38,949
-------------------------------------- ------ --------- ---------
(Decrease)/increase in cash and
cash equivalents (35,942) 25,785
Opening cash and cash equivalents 56,910 31,125
-------------------------------------- ------ --------- ---------
Closing cash and cash equivalents 16 20,968 56,910
-------------------------------------- ------ --------- ---------
Notes to the Financial Statements
For the year ended 30 September 2016
1. Principal accounting policies
Basis of preparation and statement of compliance
The financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards
("IFRS") issued by the International Accounting Standards Board
("IASB") and as adopted by the European Union, interpretations
issued by the International Financial Reporting Interpretations
Committee ("IFRIC") and applicable legal and regulatory
requirements of Guernsey Law. The principal accounting policies are
set out below.
The Group has cash reserves and assets available to secure
further funding if required, together with long term leases across
different geographic areas within the United Kingdom and the
Republic of Ireland. The Directors have reviewed the Group's
forecast commitments, including commitments to development projects
and proposed acquisitions, against the future funding availability,
with particular reference to the utilisation of, and continued
access to, existing debt facilities and also access to restricted
cash balances. The Directors have also reviewed the Group's
compliance with covenants on lending facilities.
The Group's financial forecasts show that it can remain within
its lending facilities and meet its financial obligations as they
fall due for at least the next twelve months. The Directors also
believe that the Group is well placed to manage its business risks
successfully in the current economic environment. Accordingly, they
continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
These consolidated financial statements are presented in pounds
sterling, which is the company's functional currency and the
Group's presentational currency. All amounts have been rounded to
the nearest thousand, unless otherwise indicated.
Impact of revision to International Financial Reporting
Standards
The accounting policies applied are consistent with those of the
annual financial statements for the year ended 30 September 2015.
As disclosed at the foot of the Consolidated Statement of
Comprehensive Income, the presentation of the comparative figure
for direct property expenses has been relocated to make it clearer
that those expenses are not administrative in nature.
The following standards and interpretations have been issued by
the IASB and IFRIC with effective dates falling after the date of
these financial statements. The Board has chosen not to adopt early
any of the revisions contained within these standards in the
preparation of these financial statements:
International Accounting Effective date - periods
Standards (IAS/IFRS) beginning on or after
--------------------------- ----------------------------------------
Amendments Deferred tax assets 1 January 2017
to IAS 12
Amendments Disclosure of changes 1 January 2017
to IAS 7 in liabilities
IFRS 9 Financial Instruments 1 January 2018
IFRS 15 Revenue from contracts 1 January 2018
with customers
IFRS 16 Leases 1 January 2019
------------------------- ------------------------- ---------------
The Directors have assessed the impact of the new standards and
do not believe the above will have a material impact on the
financial statements. As a lessor, the treatment of the Group's
property leases is expected to be broadly the same and changes to
the treatment of the Group's revenue will also remain broadly the
same when IFRS 16 becomes effective.
Basis of consolidation
The Group financial statements consolidate the financial
statements of MedicX Fund Limited and entities controlled by the
Company (its subsidiary undertakings) made up to 30 September 2016.
Control requires exposure or rights to variable returns and the
ability to affect those returns through power over an investee. All
intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Accounting for acquisitions of investment properties
Where the Group acquires subsidiaries that own real estate, at
the time of acquisition, the Group considers whether each
acquisition represents the acquisition of an asset or a business.
The Group accounts for an acquisition as a business combination
where an integrated set of activities, including processes, is
acquired in addition to the property.
When the acquisition of subsidiaries does not represent a
business combination, it is accounted for as an acquisition of a
group of assets and liabilities. The cost of the acquisition is
allocated to the assets and liabilities acquired based upon their
relative fair values, and no goodwill or deferred tax is
recognised.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being investment in primary healthcare
properties in the United Kingdom and the Republic of Ireland.
Expenses
All expenses are accounted for on an accruals basis.
Cash and cash equivalents
Cash and deposits in banks are carried at cost. Cash and cash
equivalents are defined as cash, demand deposits, and highly liquid
investments readily convertible to known amounts of cash and
subject to insignificant risk of changes in value. For the purposes
of the Consolidated Statement of Cash Flows, cash and cash
equivalents consist of cash and deposits in banks.
Revenue recognition
Rent receivable comprises rent for the year in relation to the
Group's investment properties exclusive of Value Added Tax. Rent is
recognised on a straight line basis over the period of the lease.
Rent is accrued for any outstanding rent reviews from the date that
the review was due based on a best estimate of the new expected
rent. Any lease incentives taken by tenants to enter into lease
agreements, any premium paid by tenants to the Group or any fixed
rent uplifts during the lease term are recognised on a straight
line basis over the full lease term.
Foreign exchange
Transactions in foreign currencies are recorded at the rate of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the reporting date
are translated to the functional currency at the foreign exchange
rate ruling at the reporting date. Differences are recognised in
profit and loss.
Non-monetary assets and liabilities that are measured at
historical cost in a foreign currency are translated to the
functional currency using the exchange rate at the date of the
transaction.
Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to the
functional currency at foreign exchange rates ruling at the dates
the fair values were determined. Differences are recognised in
profit and loss.
The results and financial position of all the Group entities
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
-- Assets and liabilities for each statement of financial
position presented are translated at the closing rate at the date
of the statement of financial position;
-- Income and expenses for each statement of comprehensive
income are translated at average rates (unless the average rate is
not a reasonable approximation of the cumulative effect of the
rates prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions); and
-- All resulting exchange differences are recognised directly
within equity in the Group's other reserve.
Trade and other receivables
Trade and other receivables are measured at initial recognition
at their invoiced value inclusive of any Value Added Taxes that may
be applicable. Provision is made for any doubtful debts which are
not deemed recoverable.
Trade and other payables
Trade and other payables are recognised and carried at their
invoiced value inclusive of any Value Added Taxes that may be
applicable.
Finance costs
Borrowing costs are charged to profit and loss in the year to
which they relate on an accruals basis except where they relate to
properties under construction when borrowing costs are
capitalised.
Bank loans and borrowings
All bank loans and borrowings are initially recognised at fair
value of the consideration received, less issue costs where
applicable. After initial recognition, all interest-bearing loans
and borrowings are subsequently measured at amortised cost.
Amortised cost is calculated by taking into account any discount or
premium on settlement.
Bank loans that are acquired by means of asset acquisitions are
recognised at fair value as at the date of acquisition with any
resulting fair value adjustment being amortised against finance
costs over the life of the loans, on an effective interest
basis.
Investment properties
The Group's completed investment properties are held for
long-term investment. Freehold and long-leasehold properties
acquired are initially recognised at cost, being fair value of the
consideration given including transaction costs associated with the
property. After initial recognition, freehold and long-leasehold
properties are measured at fair value, with unrealised gains and
losses recognised in profit and loss. Both the base costs and
valuations take account of core fixtures and fittings.
Investment properties under construction are initially
recognised at cost and are revalued at the period end as determined
by professionally qualified external valuers. Gains or losses
arising from the changes in fair value of investment properties
under construction are recognised in profit and loss in the period
in which they arise.
The fair values of completed investment properties and
investment properties under construction are based upon the
valuations of the properties as provided by Jones Lang LaSalle
Limited, an independent firm of chartered surveyors, as at each
period end, adjusted as appropriate for costs to complete, head
lease liabilities (the net present value of which are recognised as
separate liabilities) and lease incentives.
In rare situation where the Group has purchased a site intended
to be developed, but where construction has not started, the site
is held at cost unless there are indications of a significant
change in value. Sites with a value of GBP2.3 million were not
formally revalued at 30 September 2016.
Costs of financing specific developments are capitalised and
included in the cost of each development. During the year the loan
facilities, as disclosed in note 12, were utilised to fund
development work on investment properties under construction.
Interest costs of GBP228,000 (2015: GBP250,000) attributable to
development work in progress were capitalised.
Current and deferred taxation
The tax liability represents the sum of the current tax and
deferred tax payable. The current tax payable is based on taxable
profit for the year.
Deferred tax is the tax that may become payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit and is accounted
for using the liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised.
Full provision is made for deferred tax assets and liabilities
arising from all temporary differences between the recognition of
gains and losses in the financial statements and recognition in the
tax computation, other than in respect of asset acquisitions in
corporate vehicles where deferred tax is recognised in relation to
temporary differences arising after acquisition.
Deferred tax assets and liabilities are calculated at the tax
rates expected to be effective at the time the temporary
differences are expected to reverse by reference to the tax rates
substantively enacted at the balance sheet date. Deferred tax
assets and liabilities are not discounted.
Impairment of assets
The Group assesses annually whether there are any changes in
circumstances indicating that any of its assets have been impaired.
If such indication exists, the asset's recoverable amount is
estimated and compared to its carrying value. Where it is
impossible to estimate the recoverable amount of an individual
asset, the Group estimates the recoverable amount of the smallest
cash-generating unit to which the asset is allocated.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, an impairment
loss is recognised immediately in profit and loss.
Fair value measurements
The Group measures certain financial instruments and
non-financial assets such as investment property, at fair value at
the end of each reporting period. Fair value is the price that
would be received from the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
best economic interest. A fair value measurement of a non-financial
asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or
by selling it to another market participant that would use the
asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs significant to
the fair value measurement as a whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
Use of judgements and estimates
In the process of applying the Group's accounting policies, the
Directors are required to make certain judgements and estimates to
arrive at the carrying value for its assets and liabilities. The
most significant areas requiring judgement in the preparation of
these financial statements were:
Valuation of investment property
The Fund obtains valuations performed by external valuers in
order to determine the fair value of its investment properties.
These valuations are based upon assumptions including future rental
income, anticipated maintenance costs, future development costs and
the appropriate discount rate. The valuers also have regard for
observable market evidence of transaction prices for similar
properties. Further information in relation to the valuation of
investment property is disclosed in note 9.
Asset acquisitions
The Fund's approach to recognising investment properties
acquired in a corporate entity is to treat the acquisition as an
asset purchase, as described in IAS 40, if the corporate entity is
not considered to contain any material processes. Each corporate
entity acquired is considered to determine if it meets the criteria
to be recognised as a business combination in accordance with IFRS
3 or if it is more appropriate to treat it as an asset
acquisition.
Rent reviews
The Fund estimates and accrues the expected uplift in rent for
rent reviews from the effective review date to the period end. This
estimation of future rent takes into account the terms of the
underlying occupational leases and the available observable market
rental evidence.
Deferred tax assets
The Fund only recognises deferred tax assets if it is considered
probable that there will be suitable taxable profits from which the
future reversal of the underlying temporary differences can be
deducted.
2. Directors' fees
2016 2015
GBP'000 GBP'000
---------------------------------------- --------- ---------
During the year the directors received
the following fees:
D Staples (Chairman) 46 46
S Mason 31 31
S Le Page (Audit Committee Chairman) 36 32
J Hearle 31 31
C Bennett - 7
---------------------------------------- --------- ---------
Total charged in the Consolidated
Statement of Comprehensive Income 144 147
---------------------------------------- --------- ---------
3. Auditor's remuneration
The amount disclosed in the Consolidated Statement of
Comprehensive Income relates to an accrual for audit fees for the
year ended 30 September 2016, payable to KPMG LLP (2015: KPMG
LLP).
2016 2015
GBP'000 GBP'000
--------------------------------------- --------- ---------
Group audit fees for the current year 106 104
Audit fees for the subsidiaries 45 54
--------------------------------------- --------- ---------
Total group audit fees 151 158
Review of the interim report 20 20
--------------------------------------- --------- ---------
Total audit and other fees 171 178
--------------------------------------- --------- ---------
4. Finance costs
2016 2015
GBP'000 GBP'000
------------------------------------- --------- ---------
Interest payable on long-term loans 15,326 13,709
Refinancing costs 431 343
------------------------------------- --------- ---------
15,757 14,052
Interest capitalised on properties
under construction (228) (250)
------------------------------------- --------- ---------
15,529 13,802
------------------------------------- --------- ---------
During the year interest costs on funding attributable to
investment properties under construction were capitalised at an
effective interest rate of 4.45% (2015: 4.63%). The funding was
sourced from all of the loan facilities outlined within note 12.
Where properties under construction were secured against a specific
loan, the interest for that facility was capitalised.
5. Finance income
2016 2015
GBP'000 GBP'000
-------------------------- --------- ---------
Bank interest receivable 75 66
Foreign exchange gain 1,074 -
-------------------------- --------- ---------
1,149 66
-------------------------- --------- ---------
The foreign exchange gain is derived from the retranslation of
monetary assets and liabilities denominated in Sterling (which is a
foreign currency for the Group's Irish property owning subsidiary,
MedicX Properties Ireland Limited, which has a functional currency
of the Euro). The Company has provided Sterling loans to MedicX
Properties Ireland Limited to enable it to invest in properties. To
settle these loans, which are eliminated on consolidation, MedicX
Properties Ireland Limited will be required to repay fewer Euros
than were received by virtue of the Euro having strengthened
against Sterling over the year.
6. Taxation
2016 2015
GBP'000 GBP'000
--------------------- --------- ---------
Deferred tax
Charge for the year 1,556 3,293
--------------------- --------- ---------
Total tax charge 1,556 3,293
--------------------- --------- ---------
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 GBP1,200 per annum. The
Directors intend to conduct the Group's affairs such that the
Company continues to remain eligible for the exemption. Guernsey
companies are subject to UK taxation on UK sourced net rental
income. During the year no tax arose in respect of the income of
any of the Guernsey companies. The Company's UK subsidiaries are
subject to United Kingdom corporation tax on their taxable
profits.
A reconciliation of the actual tax charge to the notional tax
charge applying the average standard rate of UK corporation tax of
20.0% (2015: 20.5%) is set out below:
2016 2015
GBP'000 GBP'000
----------------------------------------- --------- ---------
Profit before tax 28,187 39,122
----------------------------------------- --------- ---------
Profit before tax multiplied by the
average standard rate of corporation
tax in the UK of
20.0% (2015: 20.5%) 5,637 8,020
Income/expenses not taxable/deductible
for tax purposes (1,860) (4,071)
Profits not subject to UK taxation (1,858) (1,711)
Reassessment of brought forward losses - 1,094
Adjustments in respect of prior periods 614 -
Change in closing deferred tax rate (977) -
Other tax adjustments - (39)
Total tax charge 1,556 3,293
----------------------------------------- --------- ---------
Deferred Taxation
Accelerated Unrelieved
Fair value capital management
gains allowances expenses Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----------- ------------ ------------ ---------
At 1 October 2014 187 2,303 (1,452) 1,038
Provided/(released) in
year 583 3,782 (1,072) 3,293
------------------------ ----------- ------------ ------------ ---------
At 30 September 2015 770 6,085 (2,524) 4,331
Provided in year 178 531 847 1,556
------------------------ ----------- ------------ ------------ ---------
At 30 September 2016 948 6,616 (1,677) 5,887
------------------------ ----------- ------------ ------------ ---------
As required by IAS 12 "Income taxes", full provision has been
made for the temporary differences arising on the fair value gains
of investment properties held by UK resident companies that have
passed through the Group's Consolidated Statement of Comprehensive
Income. In the opinion of the Directors, this provision is required
to ensure compliance with IAS 12. It is the Directors' view that
the deferred tax attributable to the fair value gain on the Group's
investment property portfolio is unlikely to significantly
crystallise as, in common with practice in the sector, the Group
would most likely sell the companies holding the property portfolio
rather than sell all properties individually.
The Group's subsidiary undertakings have gross unrelieved
management expenses of GBP12.5 million (2015: GBP16.1 million)
which after the IAS 12 recognition exemption leaves the Group with
unrelieved management expenses of GBP8.9 million (2015: GBP12.6
million) which gave rise to a recognised deferred tax asset of
GBP1.7 million (2015: GBP2.5 million) at an average rate of 19.2%
(2015: 20%) which reflects the future UK corporation tax rate of
17% and the UK income tax rate of 20%. The deferred tax assets are
netted off the deferred tax liabilities where they may be offset in
future against the same components of tax.
There are no accumulated Group tax losses within the Group
(2015: none), which are currently not recognised as a deferred tax
asset within the financial statements of the Group. All of the
existing tax losses of the Group are now recognised as part of the
net deferred tax liability.
As a result of the deferred tax recognition exemption for asset
acquisitions,, deferred tax liabilities of GBP9.2 million (2015:
GBP9.9 million) in respect of fair value gains and GBP2.3 million
(2015: GBP2.3 million) in respect of capital allowances, and
deferred tax assets of GBP0.7 million (2015: GBP0.7 million) in
respect of unrelieved management expenses, have not been
recognised.
7. Provisions
Other provisions
2016 2015
GBP'000 GBP'000
-------------------------- ---------- ---------
Brought forward - 215
Released during the year - (215)
-------------------------- ---------- ---------
At 30 September - -
-------------------------- ---------- ---------
The Company had previously made provision for potential
liabilities relating to compliance and employee related matters
arising from transactions which occurred in MPVII Investments Ltd.
This provision was reversed during the previous year as MPVII
Investments Ltd was sold on 8 July 2015.
8. Earnings and net asset value per Ordinary Share
Basic and diluted earnings and net asset value per share
The basic and diluted earnings per Ordinary Share are based on
the profit for the year attributable to Ordinary Shares of
GBP26,631,000 (2015: GBP35,829,000) and on 374,517,179 (2015:
361,323,024) Ordinary Shares, being the weighted average aggregate
of Ordinary Shares in issue calculated over the year, excluding
amounts held in treasury. This gives rise to a basic and diluted
earnings per Ordinary Share of 7.1 pence (2015: 9.9 pence) per
Ordinary Share.
The basic and diluted net asset value per Ordinary Share are
based on the net asset position at the period end attributable to
Ordinary Shares of GBP278,161,000 (2015: GBP254,097,000) and on
388,066,844 (2015: 365,125,306) Ordinary Shares being the aggregate
of Ordinary Shares in issue at the year end, excluding amounts held
in treasury. This gives rise to a basic and diluted net asset value
per Ordinary Share of 71.7 pence per Ordinary Share (2015: 69.6
pence per Ordinary Share).
EPRA earnings per share and net asset value per share
The Directors believe that the following EPRA and adjusted
earnings per Ordinary Share and net asset value per Ordinary Share
are more meaningful key performance indicators for the Group:
2016 2015
GBP'000 GBP'000
--------------------------------------- ------------ ------------
Profit attributable to equity holders
of the parent 26,631 35,829
Adjusted for:
Deferred tax charge 1,556 3,293
Revaluation gain (15,523) (25,603)
Fair value gain on acquired loans (30) (88)
--------------------------------------- ------------ ------------
EPRA earnings 12,634 13,431
EPRA EPS 3.4p 3.7p
Company specific adjustments:
Performance fee 1,553 -
Adjusted earnings on basis reported
in prior years 14,187 13,431
Adjusted earnings per Ordinary Share
- basic and diluted 3.8p 3.7p
Weighted average number of Ordinary
Shares 374,517,179 361,323,024
--------------------------------------- ------------ ------------
2016 2015
GBP'000 GBP'000
--------------------------------------- ------------ ------------
Net assets 278,161 254,097
Adjusted for:
Deferred tax liability 5,887 4,331
EPRA net assets 284,048 258,428
EPRA net asset value per Ordinary
Share - basic and diluted 73.2p 70.8p
--------------------------------------- ------------ ------------
2016 2015
GBP'000 GBP'000
--------------------------------------- ------------ ------------
Net assets 278,161 254,097
Adjusted for:
Fair value of debt (59,134) (25,212)
--------------------------------------- ------------ ------------
EPRA NNNAV 219,027 228,885
EPRA NNNAV per Ordinary Share - basic
and diluted 56.4p 62.7p
Ordinary Shares in issue at the year
end 388,066,844 365,125,306
--------------------------------------- ------------ ------------
9. Investment properties
Completed Properties Total
investment under investment
properties construction properties
GBP'000 GBP'000 GBP'000
---------------------------------- ------------ -------------- ------------
Fair value 1 October 2014 492,252 10,654 502,906
Additions 3,712 21,258 24,970
Transfer to completed properties 23,145 (23,145) -
Revaluation 25,381 222 25,603
---------------------------------- ------------ -------------- ------------
Fair value 30 September 2015 544,490 8,989 553,479
Additions 22,527 20,825 43,352
Disposals at valuation (90) - (90)
Transfer to completed properties 14,928 (14,928) -
Revaluation 15,555 (32) 15,523
---------------------------------- ------------ -------------- ------------
Fair value 30 September 2016 597,410 14,854 612,264
---------------------------------- ------------ -------------- ------------
Total
investment
properties
GBP'000
------------------------------------------------ ------------
Fair value per JLL valuation report 561,704
Ground rents recognised as finance leases 1,405
Rent incentives (1,424)
Cost to complete properties under construction (8,206)
------------------------------------------------ ------------
Fair value 30 September 2015 553,479
------------------------------------------------ ------------
Fair value per JLL UK valuation report 603,380
Fair value per JLL Ireland 18,366
Sites purchased for forward funding schemes 2,339
Ground rents recognised as finance leases 1,430
Rent incentives (1,513)
Cost to complete properties under construction (11,738)
------------------------------------------------ ------------
Fair value 30 September 2016 612,264
------------------------------------------------ ------------
Investment properties are initially recognised at cost and then
subsequently measured at fair value, which has been determined
based on the market valuations performed by Jones Lang LaSalle
Limited for the properties held within the United Kingdom as at 30
September 2016. The valuation takes account of the fact that a
purchaser's offer price to the Group would be net of purchaser's
costs (which are estimated at 6.1% (2015: 5.8%) of what would
otherwise be the purchase price).
Investment properties under construction located in the Republic
of Ireland have been valued by Jones Lang LaSalle Limited, Dublin
office subsequent to the year end at 2 December 2016 for a
potential third party lender. Jones Lang LaSalle have confirmed
that they do not consider there to be a material difference to the
value at 30 September 2016. The properties have been valued in line
with the approach taken within the UK outlined below although
purchasers' costs are lower since Irish stamp duty is generally
charged at a rate of 2% (4.46% adopted).
The sites purchased for forward funding schemes were acquired
before the year end, and as part of the acquisition process were
valued by Jones Lang LaSalle Limited, and are valued at cost which
approximates to fair value at 30 September 2016.
The freehold and long leasehold interests in the property
investments of the Group were valued at an aggregate of
GBP621,746,000 as at 30 September 2016 (2015: UK only;
GBP561,704,000) by Jones Lang LaSalle Limited. This valuation
assumes that all properties, including those under construction,
are complete. The difference between the total valuation and the
carrying value is the cost to complete those properties under
construction, adjustments for the fair value of ground rents and
lease incentive adjustments as at 30 September 2016.
The valuer's opinion of market value was derived using valuation
techniques and comparable recent market transactions on arm's
length terms. Jones Lang LaSalle Limited has valued these
properties for reporting purposes since 31 March 2008.
The market valuation was carried out in accordance with the
requirements of the Valuation Standards published by the Royal
Institution of Chartered Surveyors, and accounting standards. The
properties were valued to market value assuming that they would be
sold in prudent lots (i.e. not as portfolios) subject to the
existing leases, or agreements for lease where the leases had not
yet been completed at the date of valuation.
The valuer's fee is a set fee applied to the number of
properties in the portfolio, the valuer's fees for the year were
GBP77,000 (2015: GBP72,000).
During the year a garage, which was acquired as part of a
portfolio acquisition, was disposed of because it did not fit the
criteria of the Group acquisition policy. This was disposed of for
cash of GBP121,000 which resulted in a profit on disposal of
GBP31,000.
The average net initial yield for assets located within the UK
at 30 September 2016 was 5.25% (2015: 5.46%).
Fair value hierarchy
The valuation of all investment properties is classified in
accordance with the fair value hierarchy described in note 1. As at
30 September 2016 (and as at 30 September 2015), the group
determined that all investment properties be included at fair value
as Level 3, reflecting significant unobservable inputs.
There were no transfers between Levels 1, 2 or 3 during the
year.
Valuation techniques
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. As
is common for investment property, valuation appraisals are
performed using a combination of market and income approaches.
Under the market comparable method (or market comparable
approach), a property's fair value is estimated based on comparable
observable transactions.
Under income approaches, unobservable inputs are applied to
model a property's fair value. The following unobservable inputs
are applied:
-- The Estimated Rental Value is the amount that an area could
be let for, based on prevailing market conditions at the valuation
date;
-- The Equivalent Yield is the internal rate of return from the
cash flows generated from renting a property;
-- Rental Growth is an estimate of rental increases expected for
contractual or prevailing market conditions; and
-- The physical condition of a property, which would normally be
visited by a valuer on a rotational basis.
Properties under construction have been measured at their fair
value by taking the fair value at completion and subtracting the
contractual costs to complete the assets under the development
contracts. The technique inherently assumes that construction will
be completed to an acceptable standard and leases will be entered
into under the terms and time line agreed.
The fair value of investment properties is considered to be
based on a number of significant assumptions. If the valuation
yield were to shift by 0.25% on each property, this would result in
an impact on the valuation of the properties of approximately GBP32
million. If rent reviews of 2% were achieved on the full portfolio
with no yield movement the valuation of properties would increase
by approximately GBP13 million.
The property yields of the Fund excluding three outlying
properties range from 7.25% to 4.31%.
The property ERVs of the Fund range from GBP104 to GBP387 per
square metre.
The majority of investment properties are charged as security
for the long-term loans as disclosed in note 12.
Of the completed investment properties GBP141,823,000 (2015:
GBP129,837,000) are leasehold properties.
During the year the loan facilities, as disclosed in note 12,
were utilised to fund development work on investment properties
under construction. Interest costs of GBP228,000 (2015: GBP250,000)
attributable to development work in progress were capitalised
during the year.
10. Trade and other receivables
2016 2015
GBP'000 GBP'000
------------------------------- --------- ---------
Rent receivable 4, 376 2,916
VAT recoverable - 731
Other debtors and prepayments 4, 143 3,131
------------------------------- --------- ---------
8,519 6,778
------------------------------- --------- ---------
11. Trade and other payables
2016 2015
GBP'000 GBP'000
-------------------------------------- --------- ---------
Trade payables 1,470 1,464
VAT payable 233 -
Other payables 771 1,268
Deferred rental income 9,150 8,496
Interest payable and similar charges 3,092 2,898
Accruals 5,207 4,840
19,923 18,966
-------------------------------------- --------- ---------
12. Loans
2016 2015
GBP'000 GBP'000
--------------------------------------- --------- ---------
Total facilities drawn down 336,705 338,687
Loan issue costs (14,662) (14,108)
Amortisation of loan issue costs 4,683 3,316
Fair value arising on acquisition
of subsidiaries 11,645 11,645
Amortisation of fair value adjustment
on acquisition (4,064) (3,128)
--------------------------------------- --------- ---------
334,307 336,412
Loans due within one year 1,983 1,896
--------------------------------------- --------- ---------
336,290 338,308
--------------------------------------- --------- ---------
The current portion of long term loans relates to the amount due
in the next twelve months on the Aviva PMPI, GPG and Fakenham loan
facilities; the terms of these loans are disclosed in note 12.
The Group has six primary debt facilities drawn and a smaller
loan facility for a single property. In addition the Group has a
revolving loan facility with RBS. The RBS facility was undrawn at
30 September 2016. Details of each facility are disclosed below.
Repayments of the loans listed above fall due as follows:
2016 2015
GBP'000 GBP'000
--------------------- -------------- -------------- --------- ---------
Due within one
year 1,983 1,896
Between one and
two years 2,288 1,983
Between two and
five years 8,403 7,602
Over five years 323,616 326,827
--------------------- -------------- -------------- --------- ---------
Due after one
year 334,307 336,412
--------------------- -------------- -------------- --------- ---------
336,290 338,308
--------------------- -------------- -------------- --------- ---------
Interest 2016 2015
Rate Expiry Date GBP'000 GBP'000
--------------------- -------------- -------------- --------- ---------
Aviva GBP100m
loan facility 5.008% December 2036 99,679 99,665
Aviva GBP50m loan
facility 4.370% February 2032 48,984 48,932
Aviva PMPI loan 4.450% February 2027
facility
November 2032
October 2031 59,445 60,887
Aviva GPG loan December 2031
facility 4.130%-5.000% onwards 22,649 27,380
Aviva Fakenham 4.130%-5.000% December 2031 4,098 -
loan facility(1) onwards
Aviva Verwood
loan facility 6.250% July 2026 827 899
Standard Life
loan note facility 3.838% October 2028 49,483 49,597
September
RBS loan facility 2.000% 2019 (332) (230)
Loan note facility 3.990% December 2028 49,474 49,282
Current portion
of long term loans 1,983 1,896
--------------------- -------------- -------------- --------- ---------
336,290 338,308
--------------------- -------------- -------------- --------- ---------
(1) During the year, GBP4,336,000 of the Aviva GPG loan facility
was novated to another group company, MedicX (Fakenham) Ltd.
Covenants
All of the covenants on the loan facilities were complied with
during the year and subsequently.
Mark to market of fixed rate debt
The Group does not mark to market its fixed interest debt in its
financial statements, other than the recognition of a fair value
adjustment on the acquisition of debt facilities. The unamortised
fair value adjustment of acquired loans was GBP7,581,000 as at 30
September 2016 (30 September 2015: GBP8,517,000).
A mark to market calculation gives an indication of the benefit
or liability to the Group of the fixed rate debt given the
prevailing cost of debt over the remaining life of the debt. An
approximate mark to market calculation has been undertaken
following advice from the Group's lenders, with reference to the
fixed interest rate on the individual debt facilities, and the
fixed interest rate, including margin, achievable on the last
business day of the financial year for a loan with similar terms to
match the existing facilities. The debt benefit or liability is
calculated as the difference between the present values of the debt
cash flows at the two rates over the remaining term of the loan,
discounting the cash flows at the prevailing LIBOR rate. The
approximate mark to market liability of the total fixed rate debt
to the Group was GBP59.1 million as at 30 September 2016 (30
September 2015: GBP25.2 million).
Fair value hierarchy
The valuation of loans is classified in accordance with the fair
value hierarchy described in note 1. As at 30 September 2016 (and
as at 30 September 2015), the Group determined that loans be
included at fair value as Level 3, reflecting significant
unobservable inputs.
There were no transfers between Levels 1, 2 or 3 during the
year.
Cash flow movements
During the year, the principal cash flow movements on the Fund's
loan facilities were as follows:
2016 2015
GBP'000 GBP'000
------------------------------------------- --------- ---------
Draw down of Loan note - 35,000
Draw down of Standard Life loan note
facility - 50,000
------------------------------------------- --------- ---------
New loan facilities drawn - 85,000
------------------------------------------- --------- ---------
Repayment of mortgage principal (66) (63)
Repayment of Aviva PMPI loan facility (1,267) (1,032)
Repayment of Aviva GPG loan facility (466) (531)
Repayment of Aviva Fakenham loan facility (96) -
Repayment of GE Capital loan facility - (31,297)
Repayment of long-term borrowings (1,895) (32,923)
------------------------------------------- --------- ---------
Aviva GBP100m loan facility costs - (20)
Aviva GPG loan facility costs (11) (7)
Aviva Fakenham loan facility costs (67) -
RBS loan facility costs (320) (21)
Loan note costs - (235)
Standard Life facility costs (156) (414)
------------------------------------------- --------- ---------
Loan issue costs (554) (697)
------------------------------------------- --------- ---------
Any directly attributable costs incurred relating to the loans
are added to the loan issue costs and amortised over the remaining
life of the specific loan facility.
13. Head lease liabilities
30 September 30 September
2016 2015
Minimum Minimum
Present lease Present lease
value payments value payments
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------- ---------- --------- ----------
Due within one year 93 102 94 103
Between one and five
years 299 407 300 411
Over five years 1,038 7,806 1,011 8,197
---------------------- --------- ---------- --------- ----------
1,430 8,315 1,405 8,711
Less future interest
costs - (6,885) - (7,306)
---------------------- --------- ---------- --------- ----------
1,430 1,430 1,405 1,405
---------------------- --------- ---------- --------- ----------
The Group holds certain long leasehold properties which are
classified as investment properties. The head leases are accounted
for as finance leases. These leases typically have lease terms
between 32 and 999 years and fixed rentals.
14. Share capital
Ordinary Shares of no par value were issued during the year as
detailed below:
Issue
Number price
of shares per share
---------------------------------------- ------------ -----------
Total shares issued as at 30 September
2015 394,252,182
Shares issued under Company's Block
listing facility:
23 September 2016 1,000,000 88.25p
28 September 2016 1,000,000 88.00p
---------------------------------------- ------------ -----------
Total shares issued as at 30 September
2016 396,252,182
---------------------------------------- ------------ -----------
Shares held in treasury (see below) (8,185,338)
---------------------------------------- ------------ -----------
Total voting rights in issue as at
30 September 2016 388,066,844
---------------------------------------- ------------ -----------
Demand for shares remained strong throughout the year and in
order to satisfy this demand the Group made an application to the
UK Listing Authority for a block listing of 23,981,109 Ordinary
Shares of no par value on 15 September 2016. At 30 September 2016,
21,981,109 shares remain within the block listing.
During the year, treasury shares were utilised to satisfy market
demand for shares and in lieu of cash payment for the dividends
payable. The transactions and relevant price per share are noted
below:
Number Price
of shares per share
----------------------------------------- ------------- -----------
Total shares held in treasury as at 29,126,876 83.50
30 September 2015 pence
Shares sold for cash:
09 December 2015 (3,000,000) 84.00
pence
16 December 2015 (2,000,000) 86.25
pence
08 January 2016 (1,000,000) 82.75
pence
28 January 2016 (1,000,000) 85.00
pence
18 February 2016 (2,000,000) 84.00
pence
10 March 2016 (1,000,000) 87.25
pence
01 June 2016 (2,500,000) 86.00
pence
08 July 2016 (2,000,000) 84.25
pence
08 August 2016 (1,250,000) 87.75
pence
23 August 2016 (2,000,000) 88.50
pence
24 August 2016 (1,000,000) 88.75
pence
12 September 2016 (1,500,000) 88.50
pence
----------------------------------------- ------------- -----------
(20,250,000)
----------------------------------------- ------------- -----------
Shares utilised in lieu of cash payment
of dividends:
31 December 2015 (185,789) 84.65
pence
31 March 2016 (163,239) 86.70
pence
30 June 2016 (173,426) 87.50
pence
30 September 2016 (169,084) 90.55
pence
----------------------------------------- ------------- -----------
(691,538)
----------------------------------------- ------------- -----------
Total shares held in treasury as at 8,185,
30 September 2016 338
----------------------------------------- ------------- -----------
The closing value of shares held in treasury issued at 83.50
pence per share each is GBP6,834,924.
Any cash consideration received in excess of the price the
treasury shares were purchased at has been included as part of
share premium.
15. Other reserve
The movement in other reserve is set out in the Consolidated
Statement of Changes in Equity.
The Companies (Guernsey) Law 2008, as amended ("2008 Law") made
new provisions as to how the consideration received or due for an
issue of shares is accounted for and how these sums may be
distributed to members.
The other reserve is freely distributable with no restrictions.
In addition, distributions from the share premium account do not
require the sanction of the court. The Directors may authorise a
distribution at any time from share premium or accumulated gains
provided that they are satisfied on reasonable grounds that the
Company will immediately after the distribution satisfy the
solvency test prescribed in the 2008 Law and that it satisfies any
other requirements in its Articles of Incorporation.
The Company's other reserve is used to accumulate annual profits
or losses for each year, other comprehensive income comprising of
foreign exchange differences created on consolidation of foreign
operations less dividends declared and paid.
16. Cash and cash equivalents
2016 2015
GBP'000 GBP'000
------------------------------ --------- ---------
Cash and balances with banks 20,968 56,910
------------------------------ --------- ---------
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 GBP100,000 (2015: GBP11,030,000).
At 30 September 2015, cash and cash equivalents, included GBP25
million of cash in transit related to the second close of the
Standard life loan note facility which completed on 30 September
2015.
17. Dividends
Year ended 30
Year ended 30 September
September 2016 2015
----------------------------- --------------------- ---------------------
Dividend Dividend
GBP'000 per share GBP'000 per share
----------------------------- -------- ----------- -------- -----------
Quarterly dividend declared
and paid
31 December 5,385 1.475p 5,139 1.450p
Quarterly dividend declared
and paid
31 March 5,538 1.4875p 5,331 1.475p
Quarterly dividend declared
and paid
30 June 5,585 1.4875p 5,374 1.475p
Quarterly dividend declared
and paid
30 September 5,674 1.4875p 5,384 1.475p
----------------------------- -------- ----------- -------- -----------
Total dividends declared
and paid during the
year 22,182 21,228
----------------------------- -------- ----------- -------- -----------
Cash flow impact of
scrip dividends paid
on:
31 December 2015 164 598
31 March 2016 142 762
30 Jun 2016 153 543
30 Sept 2016 141 78
----------------------------- -------- ----------- -------- -----------
Total cash equivalent
value of scrip shares
issued 600 1,981
----------------------------- -------- ----------- -------- -----------
Cash payments made for
dividends declared and
paid 21,582 19,247
----------------------------- -------- ----------- -------- -----------
Quarterly dividend declared
after year end 5,858 1.4875p 5,386 1.475p
Dividends are scheduled for the end of March, June, September
and December of each year, subject to Board approval and
shareholder approval at the AGM of the dividend policy. On 1
November 2016, the Board approved a dividend of 1.4875 pence per
share, bringing the total dividend declared in respect of the year
to 30 September 2016 to 5.95 pence per share. The record date for
the dividend was 18 November 2016 and the payment date is 30
December 2016. The amount disclosed above is the cash equivalent of
the declared dividend. The option to issue scrip dividends in lieu
of cash dividends, with effect from the quarterly dividend paid in
June 2010, was approved by a resolution of shareholders at the
Company's Annual General Meeting on 10 February 2010. On 1 November
2016 the Board announced an opportunity for qualifying shareholders
to receive the December 2016 dividend in new Ordinary Shares
instead of cash.
18. Financial instruments risk management
The Group's operations expose it to a number of financial
instrument risks. A risk management programme has been established
to protect the Group against the potential adverse effects of these
financial instrument risks. There has been no significant change in
these financial instrument risks since the prior year.
The financial instruments of the Group at both 30 September 2016
and 30 September 2015 comprised trade receivables and payables,
other debtors, cash and cash equivalents, non-current borrowings
and current borrowings. It is the Directors' opinion that, with the
exception of the non-current borrowings for which the mark to
market liability or benefit is set out in note 12, the carrying
value of all financial instruments in the statement of financial
position was equal to their fair value.
Credit risk
From time to time the Group invests surplus funds in high
quality liquid market instruments with a maturity of no greater
than six months. To reduce the risk of counterparty default, the
Group deposits its surplus funds subject to immediate cash flow
requirements in A- rated (or better) institutions.
Concentrations of credit risk with respect to customers are
limited due to the Group's revenue being largely receivable from UK
government backed sources. As at the year end 89% (2015: 90%) of
rental income receivable was derived from government backed tenants
who are spread across a large number of Clinical Commissioning
Groups which further reduces credit risk in this area. The default
risk is considered low due to the nature of government backed
funding for GP practices.
The Group's maximum exposure to credit risk on financial assets
was as follows:
2016 2015
GBP'000 GBP'000
--------------------------- --------- ---------
Financial assets
Rent receivable 4,376 2,916
Other current assets 4,143 3,862
Cash and cash equivalents 20,968 56,910
--------------------------- --------- ---------
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 GBP3,862,000
(2015: GBP2,317,000) is neither impaired nor past due. GBP514,000
(2015: GBP599,000) is past due and of this GBP216,000 (2015:
GBP525,000) is more than 120 days past due. The Board takes active
steps to recover all amounts and has assessed that a provision of
GBP51,000 (2015: GBP71,000) against trade receivables is
appropriate at the year end.
Market risk
Market risk is the risk that the fair value or future cash flows
of the Group's financial instruments will fluctuate because of
changes in market prices. The Group is exposed to interest rate
risk. The Group operates primarily within Guernsey and the United
Kingdom and the majority of the Group's assets, liabilities and
cash flows are in pounds sterling which is the reporting currency.
The Directors have approved terms to enter into a Euro denominated
loan facility and this is in the process of being documented. The
facility will provide a natural hedge against current and future
Euro denominated investments outside of Guernsey and the United
Kingdom but will in itself expose the Group to foreign currency
risk related to the monetary financial loan instrument.
Interest rate risk
Interest rate risk is the risk that the value of a financial
instrument or cash flows associated with the instrument will
fluctuate due to changes in market interest rates. Interest rate
risk arises on interest bearing financial assets and liabilities
the Group uses.
The Group's Aviva borrowing facilities of GBP100,000,000 (2015:
GBP100,000,000), GBP50,000,000 (2015: GBP50,000,000) and
GBP59,777,000 (2015: GBP61,045,000) were negotiated at a fixed rate
of interest of 5.008%, 4.37% and 4.45% respectively. 12 of the
Aviva GPG and Fakenham loan facilities are also fixed, with a
weighted average interest rate of 4.45%, as disclosed in note 12.
The remaining two Aviva GPG loan facilities are charged at variable
interest rates with a 2.5% margin.
On 15 September 2016, the Group extended the term of the RBS
loan facility. The amendment also provides for an option, with
lender consent, that the immediately committed GBP20 million
revolving credit facility may be extended by a further GBP10
million to GBP30 million or additional lenders be added with a view
to increasing the facility on existing terms (2015: maximum
facility of GBP25 million). Interest is payable on amounts drawn
under the amended facility at a rate equal to LIBOR plus a lending
margin of 2.00% per annum. A non-utilisation fee of between 1.10%
and 0.75% will be payable on the undrawn, GBP20 million immediately
available commitment.
The Group's private loan note facility of GBP50,000,000 (2015:
GBP50,000,000) has a fixed rate of 3.99% and the loan facility with
Standard Life of GBP50,000,000 has a fixed rate of 3.838%.
These facilities represented 99% of the drawn borrowing
facilities at the year end and if the RBS loan facility was fully
drawn at the year end, the exposure to variable rate borrowings
would be approximately 6%. Therefore the Directors consider
interest rate risk on borrowings to be immaterial and do not
consider it appropriate to perform sensitivity analysis on these
items. Of the restricted cash balances held at the year end,
GBP100,000 (2015: GBP627,000) was held in an Aviva deposit account
which is A+ rated with an average interest rate of 0.2%.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in realising assets or otherwise raising funds to meet
financial commitments. The Directors regularly review the Company's
forecast commitments against the future funding availability, with
particular reference to the utilisation of and continued access to
existing debt facilities and access to restricted cash balances and
the ongoing commitments to development projects and proposed
acquisitions. The Directors also review the Company's compliance
with covenants on lending facilities.
Contractual maturity analysis for financial liabilities
including interest payments at 30 September:
Due
or
due Due Due
less Due between between Due
than between 3 months 1 and after
one 1 and and 5 5
month 3 months 1 year years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- ---------- ---------- --------- --------- ---------
Trade and other
payables 1,470 - - - - 1,470
Accruals 2,009 217 2,981 - - 5,207
Non-current borrowings
Principal - - - 10,691 326,014 336,705
Interest payments 1,798 - 9,309 59,100 144,901 215,108
------------------------- --------- ---------- ---------- --------- --------- ---------
1,798 - 9,309 69,791 470,915 551,813
Current portion
of non-current
borrowings
Principal 164 324 1,495 - - 1,983
Interest payments 369 623 2,942 - - 3,934
------------------------- --------- ---------- ---------- --------- --------- ---------
533 947 4,437 - - 5,917
Liabilities at
30 September 2016 3,643 541 4,476 10,691 326,014 345,365
Future costs of
non-current borrowings 2,167 623 12,251 59,100 144,901 219,042
------------------------- --------- ---------- ---------- --------- --------- ---------
Balances at 30
September 2016 5,810 1,164 16,727 69,791 470,915 564,407
------------------------- --------- ---------- ---------- --------- --------- ---------
Due
or
due Due Due Due
less between between between Due
than 1 and 3 months 1 and after
one 3 and 5 5
month months 1 year years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- ---------- ---------- --------- --------- ---------
Trade and other
payables 1,464 - - - - 1,464
Accruals 4,047 793 - - - 4,840
Non-current borrowings
Principal - - - 9,585 329,102 338,687
Interest payments 1,798 - 9,309 62,059 162,235 235,401
------------------------- --------- ---------- ---------- --------- --------- ---------
1,798 - 9,309 71,644 491,337 574,088
Current portion
of non-current
borrowings
Principal 157 309 1,430 - - 1,896
Interest payments 496 656 3,431 - - 4,583
------------------------- --------- ---------- ---------- --------- --------- ---------
653 965 4,861 - - 6,479
Liabilities at
30 September 2015 5,668 1,102 1,430 9,585 329,102 346,887
Future costs of
non-current borrowings 2,294 656 12,740 62,059 162,235 239,984
------------------------- --------- ---------- ---------- --------- --------- ---------
Balances at 30
September 2015 7,962 1,758 14,170 71,644 491,337 586,871
------------------------- --------- ---------- ---------- --------- --------- ---------
19. Commitments
At 30 September 2016, the Group had commitments of GBP21.2
million (2015: GBP16.0 million) to complete properties under
construction including sites purchased for forward funding
schemes.
20. Material contracts
Investment Adviser
Octopus Healthcare Adviser Ltd is appointed to provide
investment advice under the terms of an agreement dated 17 October
2006 as subsequently amended 20 March 2009, 17 February 2013, 24
September 2013 and 20 November 2015 (the "Investment Advisory
Agreement" or "Agreement"). Fees payable under this agreement
are:
(i) a tiered investment advisory fee set at 0.50% per annum on
healthcare property assets up to GBP750 million, 0.40% per annum
payable on assets between GBP750 million and GBP1 billion, and
0.30% per annum payable on assets over GBP1 billion subject to a
total minimum annual fee of GBP3.878 million or, if lower, the fee
that would have been payable under the old fee structure until the
consolidated property asset value reaches GBP782 million after
which no minimum fee shall apply;
(ii) a property management fee of 3% of gross rental income up
to GBP25 million, and 1.5% property management fee on gross rental
income over GBP25 million;
(iii) a corporate transaction fee of 1% of the gross asset value
of any property owning subsidiary company acquired;
(iv) a performance fee based upon total shareholder return.
The annual performance fee is 15% of the amount by which the
total shareholder return (using an average share price for the
month of September) exceeds a compound hurdle rate calculated from
the 69.0 pence issue price at 8 April 2009, subject to a high
watermark. If in any year the total shareholder return falls short
of this hurdle, the deficit in the total shareholder return has to
be made up in subsequent years before any performance fee can be
earned. The compounding of the hurdle rate is adjusted upwards to
compound from the high watermark level at which the performance fee
was last earned.
The hurdle rate applied in the year ended 30 September 2016 was
10% per annum (2015: 10%). The high watermark used for the
calculation of the performance fee for the year to 30 September
2016 was the theoretical price which would have given a compounded
10% total shareholder return over the high watermark at 30
September 2015 (85.50 pence per share) with dividends reinvested.
The current high watermark as at 30 September 2016 is set with
reference to the average share price during September 2016 of 89.6
pence per share which will form a base for measuring shareholder
return over the next year for the purpose of assessing whether a
performance fee is payable.
The investment advisory base fee and performance fee earned in
aggregate in any one financial year cannot be paid in excess of
1.5% of gross assets (excluding cash), such limit being equivalent
to the investment advisory base fee that was in existence prior to
the change. The excess, if any, of the aggregate of the investment
advisory base fee and performance fee earned in any one financial
year over 1.5% of gross assets (excluding cash) is not payable but
is carried forward to future years or termination of the Investment
Advisory Agreement, subject at all times to the annual 1.5% of
gross assets (excluding cash) fee limit. On 20 November 2015 the
Fund agreed to the renewal of the Investment Advisory Agreement,
with revised renewal and notice terms to provide a rolling contract
subject to the Company's ability to serve two years' notice at any
time.
The Investment Adviser provides accounting administration
services for no additional fee.
During the year, the agreements with Octopus Healthcare Adviser
Ltd gave rise to GBP6,362,000 (2015: GBP4,574,000) of fees as
follows:
2016 2015
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Expensed to the consolidated statement
of comprehensive income:
Investment advisory fee 3,852 3,725
Investment advisory performance fee 1,553 -
Property management fees 889 849
Capitalised as part of property acquisition
costs:
Corporate acquisition fees 68 -
--------------------------------------------- --------- ---------
Total Fees 6,362 4,574
--------------------------------------------- --------- ---------
Of these fees, GBPnil (2015: GBPnil) remained unbilled and
GBP1,034,000 (2015: GBPnil) outstanding at the end of the year with
the exception of the performance fee which was billed after the
year end and is included within accruals due within one year in the
statement of financial position.
During the year property development costs of GBPnil (2015:
GBP552,000) were paid to Octopus Healthcare Property Ltd, a member
of the same group of companies as Octopus Healthcare Adviser Ltd.
At the year end there was a total of GBPnil that remained unbilled
or outstanding (2015: GBPnil). In addition, licence fee income of
GBPnil (2015: GBP7,000) was recognised on properties under
construction by Octopus Healthcare Property Ltd during the year. At
30 September 2016 there were no licence fees (2015: GBPnil)
unbilled or outstanding.
Administrator
Each Group company has entered into a separate administration
agreement with International Administration Group (Guernsey)
Limited for the provision of administrative services which was
renewed with effect from 1 May 2015. Under these agreements fees
were incurred totalling GBP116,000 (2015: GBP83,000) for the
provision of corporate secretarial services to all Group companies
and other administrative services.
Of these fees GBP1,000 (2015: GBP37,000) remained unbilled or
outstanding at the year end.
21. Related party transactions
During the year fees of GBP29,000 (2015: GBP56,000) were paid to
Aitchison Raffety Limited to negotiate rent reviews, and to act as
agent for the disposal of properties, of which GBPnil (2015:
GBPnil) remained unbilled or outstanding at the year end. John
Hearle was Group Chairman of Aitchison Raffety Limited until
October 2015.
During the year Aitchison Raffety Limited managed the service
charges for a number of properties held by the Group. No fees have
been paid to date for this service, nor are any payable as at 30
September 2016.
The management agreement with Aitchison Raffety was terminated
with effect from 31 December 2015.
22. Operating leases
At 30 September 2016 the Group had entered into leases in
respect of investment properties for the following rental income,
excluding any future rent reviews:
2016 2015
GBP'000 GBP'000
--------------------------------- --------- ---------
Amounts receivable under leases
Within one year 37,177 33,905
Between one and five years 148,707 135,410
After more than five years 389,210 365,470
--------------------------------- --------- ---------
Total 575,094 534,785
--------------------------------- --------- ---------
The length of a typical lease is between 18 and 25 years, with
provision for rent reviews mostly every three years. Rent reviews
are usually agreed by reference to open market value or the Retail
Price Index.
23. Subsidiary companies
The following were the subsidiary companies in the Group at 30
September 2016:
Nominal
value Type of
Country Principal Ownership of shares share
Name of incorporation activity percentage in issue held
----------------------- ------------------- ------------- ------------ ----------- ---------
Held Directly:
MedicX Properties Property
I Limited Guernsey Investment 100% 2 Ordinary
MedicX Properties England Property
II Ltd & Wales Investment 100% 2 Ordinary
MedicX Properties England Property
III Ltd & Wales Investment 100% 1,000 Ordinary
MedicX Properties England Property
IV Ltd & Wales Investment 100% 25,000 Ordinary
MedicX Properties Property
V Limited Guernsey Investment 100% 2 Ordinary
MedicX Properties Guernsey Property 100% Nil Ordinary
VI Limited Investment
MedicX Properties Guernsey Property 100% Nil Ordinary
VII Limited Investment
MedicX GPG Holdings Guernsey Property 100% Nil Ordinary
Limited Investment
MedicX Properties Guernsey Property 100% Nil Ordinary
VIII Limited Investment
MedicX Properties Guernsey Property 100% Nil Ordinary
Ireland Limited Investment
MedicX Properties Guernsey Non Trading 100% Nil Ordinary
Northern Ireland
Limited
Held indirectly:
MedicX (Verwood) England Property
Ltd & Wales Investment 100% 1,000 Ordinary
England Holding
CSPC (3PD) Limited & Wales company 100% 550 Ordinary
Primary Medical England Holding
Properties Limited & Wales company 100% 8,420 Ordinary
Primary Medical
Property Investments England Property
Limited & Wales Investment 100% 966,950 Ordinary
DK Properties England Property
(Woolston) Ltd* & Wales Investment 100% 2 Ordinary
England Property
GPG No5 Limited & Wales Investment 100% 48,500 Ordinary
England Property
MedicX LHP Limited* & Wales Investment 100% 100,000 Ordinary
England Property
MedicX LHF Limited* & Wales Investment 100% 1 Ordinary
MedicX (Fakenham) England Property
Ltd & Wales Investment 100% 100 Ordinary
----------------------- ------------------- ------------- ------------ ----------- ---------
* Dormant companies
24. Capital management
The Group's objectives when managing capital are:
-- To safeguard the Group's ability to continue as a going
concern and provide returns for shareholders and benefits for other
stakeholders; and
-- To provide an adequate return to shareholders by sourcing
appropriate investment properties and securing long term debt at
attractive rates commensurate with the level of risk.
The Group sets the amount of capital in proportion to risk. The
Group manages the capital structure and makes adjustments to it in
the light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders,
purchase shares in the Company, issue new shares or sell assets to
reduce debt.
The Group monitors capital on the basis of the adjusted gearing
ratio. This is calculated as net debt divided by adjusted capital.
Net debt is calculated as total debt, per the statement of
financial position, less cash and cash equivalents. Adjusted
capital comprises total assets less cash and cash equivalents and
goodwill. The Group is not subject to any externally imposed
capital requirements. However the Directors intend to secure and
utilise long term borrowings of approximately 50% on average over
time and not exceeding 65% of the Company's total assets.
The adjusted gearing ratios at 30 September 2016 and 30
September 2015 were as follows:
2016 2015
GBP'000 GBP'000
--------------------------------- --------- ---------
Total debt 336,290 338,308
Less: cash and cash equivalents (20,968) (56,910)
--------------------------------- --------- ---------
Net debt 315,322 281,398
--------------------------------- --------- ---------
Total assets 641,751 617,167
Less: cash and cash equivalents (20,968) (56,910)
--------------------------------- --------- ---------
Adjusted capital 620,783 560,257
--------------------------------- --------- ---------
Adjusted gearing ratio 0.51:1 0.50:1
--------------------------------- --------- ---------
25. Post year end events
On 14 October the Fund contracted to acquire, by way of forward
funding, a new primary healthcare medical centre in Brynmawr, South
Wales. The property is due to be completed in November 2017.
The acquisition is being made under the framework agreement with
General Practice Investment Corporation ("GPI") which was agreed in
May 2013.
The completed development will be let to the Local Health Board
and Bestway Pharmacy. All leases will be for a term of 20 years
from practical completion. The completed property will consist of
1,587 m2 with an initial passing rent of approximately GBP300,000
per annum, subject to three-yearly effectively upwards only market
rent reviews.
After the year end, 8.9 million shares have been issued under
the Company's Block listing facility raising a net GBP7.7
million.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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