TIDMMXF
RNS Number : 0333K
The MedicX Fund Limited
11 December 2018
11 December 2018
MedicX Fund Limited
("MedicX", "the Fund" or "the Company")
Results for the year ended 30 September 2018
BUILDING A BRIGHTER FUTURE FOR PRIMARY HEALTHCARE INVESTMENT
MedicX Fund is a leading investor in modern purpose-built
primary healthcare properties. Our investment supports the
transformation of the primary healthcare estate in the United
Kingdom and Republic of Ireland.
FINANCIAL HIGHLIGHTS AND KEY ACHIEVEMENTS
Another year of strong performance, reflecting progress and
achieving notable milestones.
FINANCIAL RESULTS
-- 11.4% increase in EPRA(13) earnings per Ordinary Share, from
3.5p per share to 3.9p per share;
-- 14.8% total return on EPRA NAV(2) for the financial year (2017: 12.7%);
-- 6.9% increase in EPRA NAV per share, from 76.5p per share to 81.8 pence per share;
-- Continued increase in rent receivable, up 8.6% to GBP40.3
million (2017: GBP37.1 million);
-- Profit before tax was GBP49.1 million for the year; 47.4%
higher than 2017 (GBP33.3 million);
-- 10.0% increase in annualised rent roll(1,14) from GBP40.0 million to GBP44.0 million;
-- 89.4% (2017: 89.7%) of rent roll was directly from or
reimbursed by the NHS(11) , Irish GPs or HSE(12) ;
-- EPRA cost ratios reduced year on year to 18.4% from 19.8%
with the investment adviser fee reduction due to reduce this
further; and
-- Independent expert determination of March 2015 rent review at
Clapham increase of 35% (equating to a compounded 10.54% per annum
increase over the applicable 3 year rent review period).
INVESTMENTS
-- 18.6% increase in the value of the property portfolio to
GBP806.7 million(1,4) . This is as a result of GBP99.2 million of
capital investment to acquire standing let properties and fund
developments through forward funding schemes, less GBP5.3 million
of disposals and a GBP32.3 million net valuation gain;
-- Net Initial Yield of UK assets 4.85% at 30 September 2018 (2017: 5.08%);
-- GBP80.3 million of new committed investments in UK and
Republic of Ireland, since 1 October 2017, with a weighted average
cash yield of 4.63% together with the acquisition of three sites
for GBP5.3 million in anticipation of new schemes;
-- Competed GBP63.8 million corporate portfolio acquisition of
12 fully let primary care centres with 10 of the properties having
an average age of 5.5 years, WAULT of 14.2 years and an average lot
size of GBP5.3m; and
-- Strong pipeline of approximately GBP144 million (2017: GBP175
million) of further acquisition opportunities including projects
with a value of GBP69 million in solicitors' hands(1) (2017: GBP100
million).
INVESTMENT ADVISER FEE REDUCTION
-- The Investment Adviser has agreed a reduction in its fees to
reflect the change in the Company's dividend policy and to reduce
its costs. Effective from 1 October 2018, the performance fee was
abolished, and the investment adviser fee will be GBP0.5 million
per annum lower until the portfolio reaches GBP1 billion with
tapering savings between GBP1 billion and GBP1.25 billion. This
immediately increases next year's earnings by 0.113 pence per
share.
CAPITAL MANAGEMENT
-- Quarterly dividend of 1.51p per share announced on 1 November
2018(5) ; total dividends of 6.04p per Ordinary Share for the year
or 7.4% dividend yield on a share price of 82.0 pence per share at
30 September 2018(6) (2017: total dividends of 6.0p per Ordinary
Share; 6.6% dividend yield);
-- Total drawn debt facilities of GBP446.1 million(1) with a
weighted average fixed rate cost of debt of 4.26% and an average
unexpired term of 12.3 years, compared with 4.29% and 12.7 years
for the prior year; and
-- Net debt of GBP430.0 million equating to 52.6% adjusted
gearing at 30 September 2018 (30 September 2017: GBP340.7 million;
49.5%)(1,7) .
UPDATE ON DIVID POLICY
As announced in May 2018, the Company intends to declare a fully
covered dividend for the 2019 financial year onwards.
This new policy of paying a fully covered dividend is intended
to free up additional funds for the Group to invest in attractive
opportunities, and enable it to deliver superior capital growth
over time from a sector which continues to demonstrate attractive
growth prospects.
Going forward, the Company intends to continue to pay
shareholders the dividend on a quarterly basis, in March, June,
September and December of each financial year and on a growing
covered basis.
Subject to unforeseen circumstances and based on the current
performance, the Directors are targeting dividends of 3.80p per
share for the financial year ended 30 September 2019.
Unadjusted performance measures
2018 2017
----------------------------------------------- ------ ------ ----------
Rent receivable (GBPm) 40.3 37.1 +8.6%
Profit before tax (GBPm) 49.1 33.3 +47.4%
Earnings per Ordinary Share (pence)(1) 10.7 9.4 +13.8%
Dividend cover(8) 64.0% 59.2% +4.8(10)
Property valuation (GBPm)(4) 806.7 680.4 +18.6%
Weighted average debt term (years) 12.3 12.7 -0.4
Net Asset Value per Ordinary Share (pence)(1) 81.0 76.3 +6.2%
Share Price Total Return(3) -3.1% 9.6% -12.7(10)
----------------------------------------------- ------ ------ ----------
Adjusted performance measures
2018 2017
--------------------------------------------- ------ ------ --------
EPRA earnings per Ordinary Share (pence)(9) 3.9 3.5 +11.4%
EPRA Net Asset Value per Ordinary Share
(pence)(9) 81.8 76.5 +6.9%
Total return on EPRA Net Asset Value(2) 14.8% 12.7% 2.1(10)
--------------------------------------------- ------ ------ --------
The Directors believe that presenting the above adjusted
performance measures assists readers of the financial statements in
understanding and analysing the performance and position of the
Group, as well as providing industry standard measures for
benchmarking against other companies. In particular, the Directors
believe EPRA measures provide meaningful industry standard key
performance indicators.
1 As at the financial year end of 30 September 2018
2 Movement on EPRA NAV per share between 30 September 2017 and
30 September 2018 and dividends paid during the year, divided by
opening EPRA NAV per share
3 Based on share price movement between 30 September 2017 and 30
September 2018 and dividends paid and reinvested during the
year
4 As shown in note 8 to the financial statements
5 Ex-dividend date 15 November 2018, record date 16 November
2018, payment date 31 December 2018
6 Total dividends declared for the year divided by share price at 30 September
7 As shown in note 24 to the financial statements
8 Dividend cover is EPRA earning per share divided by dividend
per share paid in the financial year
9 As disclosed in note 7 to the financial statements
10 Percentage point change
11 NHS is the National Health Service (The national healthcare system in the UK)
12 HSE is Health Service Executive (The body responsible for
health and social care in the Republic of Ireland)
13 EPRA is the European Public Real Estate Association
14 Rent roll is the contracted rents reserved under completed
properties and properties under construction
For further information please contact:
Octopus Healthcare Adviser Ltd +44 (0) 345 0404 5555
Octopus Healthcare +44 (0) 20 3142 4820
Mike Adams, Executive Chairman
Maitland/AMO +44 (0) 20 7379 5151
Andy Donald/Freddie Barber
Information on MedicX Fund Limited
MedicX Fund Limited ("MXF", "MedicX", 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 165 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 GBP1.5 billion of healthcare investments across a number of
platforms, with a focus on three core areas: GP surgeries, care
homes and retirement housing. 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 GBP8.6 billion of funds for more than
65,000 retail and institutional investors as well as supplying
energy to more than 385,000 customers.
Octopus Healthcare Adviser Ltd is authorised and regulated by
the Financial Conduct Authority.
The Company's website address is www.medicxfund.com. Neither the
contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other
website), nor the contents of any website accessible from
hyperlinks within this announcement, are incorporated into, or
forms part of, this announcement.
The Company's Legal Entity Identifier is
2138008POF35FTNFCB25
Chairman's statement
Following my appointment as Chairman in February, I am pleased
to present my first, and the Company's twelfth, annual report, on
behalf of the Board.
"MedicX has continued to execute its strategy of selectively
buying and forward funding new, high quality medical centres. We
also agreed a fee reduction with our Investment Adviser and we
continue to believe our focus on larger, strategically important
premises will deliver secure, sustainable long-term growth."
Introduction
The last twelve months have continued a period of important
transformation for MedicX as it entered the UK REIT regime. It has
restructured over GBP235 million of long-term, fixed rate debt, and
announced a move to a fully-covered dividend policy from 2019. The
Company also continued to improve the quality of its portfolio
through GBP99.2 million of new investment, whilst completing the
sale of five smaller non-core assets.
The strong financial results for the year (EPRA NAV up 6.9% and
EPRA earnings per share up 11.4%) reinforce the benefits of
MedicX's disciplined investment approach and commitment to creating
and maintaining a market-leading portfolio of modern, purpose-built
assets, which are aligned to the priorities of the NHS (and the HSE
in Ireland) and demographic needs.
Over the year, MedicX's share price premium to Net Asset Value
reduced in line with the REIT sector generally, as commentators
highlighted domestic and global political uncertainty, market
volatility and an increasing likelihood of rising interest rates in
the near future.
In light of current market conditions, I am pleased to report
that we have agreed with our Investment Adviser that their
investment advisory fee will be reduced, with effect from 1 October
2018, immediately saving the Company GBP0.5 million per annum until
the portfolio reaches GBP1billion, with tapering savings between
GBP1 billion and GBP1.25 billion. In addition, the performance fee
will be abolished. This fee reduction will improve our cost ratios,
increase EPRA earnings by 0.113 pence per share in the next year
and will therefore enable us to set a higher dividend than would
otherwise be the case.
Portfolio growth
During the financial year, MedicX deployed almost GBP100 million
into thirteen completed, income-generating assets and seven
development properties, four of which reached completion. We also
completed the sale of five smaller assets at above their book value
for almost GBP5.6 million earlier this year. Overall, the portfolio
grew by 18.6% to GBP806.7 million, including a GBP32.2 million
revaluation gain.
Earnings growth and dividend policy
The financial results reflect another year of solid performance.
Rent receivable increased 8.6% from GBP37.1 million to GBP40.3
million and profit before tax was GBP49.1 million for the year,
47.4% higher than the profit before tax for 2017 of GBP33.3
million. The rent is set to further increase in 2019 when the full
year's benefit of the portfolio acquisition is seen. The income
growth exceeded the increase in costs and therefore earnings per
share grew 13.8% to 10.7 pence from 9.4 pence. It was also pleasing
that earnings grew significantly on an EPRA basis, which eliminates
the contribution of the unrealised revaluation gain as well as the
small profit on disposal. EPRA earnings per share ("EPRA EPS")
increased 11.4% from 3.5 to 3.9 pence per share.
As announced in my interim report, in response to the macro
environment and the increased market focus on dividend cover for
those companies with real illiquid assets, we conducted a thorough
strategic review. This review considered a wide range of matters
including our expected levels of return, our capital structure,
investment policy, dividend policy and the Company's appeal to a
wider range of investors, all with the overarching aim of enabling
the Company to grow sustainably over the long-term.
Following this strategic review and a consultation with a number
of our major shareholders, the Board made the difficult decision to
rebase the Company's dividend distribution policy for 2019 onwards.
This means that MedicX can better align its dividend distributions
with its cash flows and continue to evolve and take advantage of
acquisition opportunities and strengthen its capital structure.
The dividend rebasing was announced in May, following a good set
of first half results and notice of an exclusive acquisition
opportunity, which would deliver improving economies of scale. I am
therefore pleased that MedicX completed the off-market acquisition
of a portfolio of 12 operational and fully let primary care medical
centres in June 2018 for a price of GBP63.8 million, adding 8.9% to
the Group's portfolio value at that time.
During this period of transition to a fully covered dividend,
the Company maintained its previous dividend guidance and declared
dividends totalling 6.04 pence per share for the 2018 financial
year, with the final quarterly payment of 1.51 pence per share due
to be paid on 31 December 2018.
The Board previously expressed its intention that the Company
would declare and pay a fully covered rising dividend from 2019
based on paying out 95% of EPRA EPS. On the basis of the results
for the year ended 30 September 2018, this would imply setting a
dividend on an annualised basis at 3.70 pence per share. However,
the Board are keen to maintain as high a dividend as possible and
reserve the flexibility to increase the quarterly dividend when
earnings increase. In light of the investment advisory fee
reduction saving GBP500,000 per annum until our portfolio reaches
GBP1 billion, subject to unforeseen circumstances and based on
current performance, the Board are targeting a dividend of 3.80
pence per share for the financial year ending 30 September 2019 but
will increase this where circumstances permit. It remains the
intention that dividends will continue to be paid quarterly and a
scrip alternative will be offered.
Based on the share price at 5 December 2018 of 75.80 pence, the
covered dividend yield would be 5.01% per annum.
Funding
In September, we completed the GBP264.5 million refinancing of
Aviva Investors debt facilities which included an increase of
GBP30.8 million drawn on an interest only basis for 10 years with a
fixed interest rate of 3.05% per annum. MedicX benefited from
resetting the Loan to Value secured thereby releasing GBP25 million
of property collateral, providing flexibility to undertake asset
management projects identified at those locations as well as
increasing unencumbered collateral to negotiate future facilities
at current market rates. The refinancing, which was conducted
without incurring break fees on the refinanced loan facilities,
combined forty-six tranches across twenty legacy loan agreements,
into two tranches under one new loan agreement. Therefore, as well
as providing financing flexibility from the additional collateral,
the new loan arrangements will improve operational efficiency.
Gearing has remained within set parameters but marginally
increased from 49.5% at 30 September 2017 to 52.6% at 30 September
2018. This was a consequence of equity issuance being less
attractive at a low premium, or discount, to NAV. The Company
therefore utilised its Revolving Credit Facility over a short
period, bridging to the 10 year new fixed rate loan put in place in
September 2018.
When announcing the dividend rebase in May, the Board also
expressed the intention, that subject to market conditions, the
Company would issue up to 42.8 million new Ordinary Shares (being
the number of shares which the Company had shareholder authority to
issue non-pre-emptively) at a premium to EPRA NAV after costs.
Although immediately following the announcement, there was
insufficient demand for the whole issuance, the Company did
successfully issue 9.7 million shares from its block listing
facility at 81.25 pence per share. The proceeds of this tap issue
together with extension and utilisation of the Company's Revolving
Credit Facility enabled us to complete the corporate acquisition
outlined above.
In light of the attractive opportunities available to the
Company, we are considering various sources of funding to secure
the pipeline but at this stage of the cycle we remain highly
selective and do not intend the Company's gearing to rise above
55%.
Corporate governance
At the Annual General Meeting ("AGM") held on 8 February 2018,
all proposed ordinary and special resolutions were passed with a
majority of more than 99%, including a resolution to authorise the
non-pre-emptive issue of up to 42.8 million Ordinary Shares at a
price equal to or greater than the prevailing EPRA NAV per share.
David Staples, the Company's former Chairman, who had served since
October 2008, chose not to stand for re-election and I was
appointed to succeed David.
Board composition and diversity
Succession planning is regularly discussed at Board meetings.
Following the changes in Board composition during 2017/18 on REIT
conversation and relocation of control and management to the UK and
the retirement of David Staples, the Board has remained settled
since February 2018 when I assumed the role of Company
Chairman.
At the current time the Board consists of four members, one is
resident in Guernsey, with three resident in the UK. The Board has
members who have professionally qualified in accountancy, law,
property and taxation and is made up of two male and two female
members. The Board assesses its performance and composition
annually and is of the view that it functions effectively and has
an appropriate mix of skills to perform its responsibilities.
John Hearle, having been with the Company since launch, has
served on the Board for twelve years and is standing again for
re-appointment as director at the forthcoming AGM. John, who has
over 40 years of experience in primary healthcare property, is
widely recognised within the industry as a leading figure through
his previous and current roles with Aitchison Raffety, RICS, the
Primary Care Premises Forum and from acting as an expert witness
and arbitrator. His experience of the asset class is an enormous
benefit to the Board, and to me particularly, and its ability to
constructively challenge the Investment Adviser. These are the
reasons that, despite his length of service, the Board is fully
supportive of John's reappointment and believes he remains
independent.
Sustainability
The Board is committed to adopting responsible Environmental,
Social and Governance policies. In support of these policies, the
Company has invited its members to register for electronic
communications which will reduce the number of communications sent
by post resulting in cost savings to the Company, whilst reducing
the impact that the unnecessary printing and distribution of
reports has on the environment. It is the Board's preference to
provide, as far as possible, all documents via the Company's
website to all shareholders who have not specifically elected to
receive the information in hard copy.
Brexit and market outlook
At the time of writing my report, the terms on which the UK is
expected to leave the European Union remain uncertain with the
House of Commons yet to vote on the proposals.
MedicX however invests in a sector with ever increasing demand
driven by growing, ageing populations. Therefore, independently of
the macro-economic factors, and to a certain extent politics, the
assets that the MedicX invests in will remain important and in
demand. It is therefore unlikely that the Brexit permutations will
have a significant direct effect on the Company since it does not
rely on EU trade arrangements or staff from EU overseas countries
but there could be some indirect consequences driven by
macro-economics. The Fund has reviewed its leases and facility
agreements in relation to expected changes in legislation resulting
from Brexit and no significant issues have been identified.
Global political factors are also creating economic volatility
and uncertainty in the bond and equity markets which means MedicX
must remain adaptable. In the UK the NHS is being affected by EU
citizens looking to repatriate although the NHS is looking to
attract GPs from commonwealth countries such as Australia. There
will undoubtedly be some indirect effects on the Fund through
volatility in the Sterling/Euro exchange rate, inflation, interest
rates and new tax and regulatory legislation as Brexit unfolds one
way or another which will be monitored by the Fund.
We believe the Company has an important role to play in
delivering value for money for the taxpayer as an investor in
modern purpose-built primary healthcare properties. The Fund's
focus on its portfolio quality together with healthcare
transformation driven from modern purpose-built healthcare property
places the Company in a strong position for further sustainable
growth.
MedicX has a new sustainable dividend policy and a strong
pipeline of investment opportunities and a track record of
partnering with primary healthcare providers to deliver high
quality services and a better patient experience through investment
in modern purpose-built properties.
In light of the strong pipelines in both the UK and Ireland as
well as the positive experience of large purpose-built high quality
assets in Ireland, the Board are of the view that the Fund is well
positioned for growth.
Helen Mahy CBE
Chairman
10 December 2018
Market overview
The demand for new modern primary care infrastructure continues
to be strong as the population ages and grows, with more complex
health needs. The Government and NHS have a clear strategy for GP
practices to deliver services at greater
scale and offer access to services seven days per week
8am-8pm.
United Kingdom
Primary Care Services
The NHS celebrated its 70th anniversary in 2018. In this
landmark year, the NHS launched a programme to ensure a stronger,
more sustainable future for General Practice that will be
appropriate for a growing and increasingly elderly population. The
new long-term plan identifies potential improvements in primary
care through the reformation of GP contracts, a review of the
Quality Outcomes Framework ("QOF" provides a payment structure
based on quality outcomes) and the revision of payments to support
a fair and increasing roll-out of digital systems across primary
care. NHS England has finished a public consultation seeking the
views of healthcare professionals, General Practitioners and
patients to provide feedback on these topics. National Director of
Strategy and Innovation for NHS England, Ian Dodge, stated: "2019
starts the most substantial discussion of the GP contract since
2004. This calls for more intensive joint working between NHS
England and our partners, particularly the BMA."
Primary Care Estates Strategy
NHS England launched a General Practice Premises Policy review
which called for submissions by September 2018. MedicX and the
Investment Adviser contributed to submissions by the Primary Care
Premises Forum which represents the sector, as well as the Health
Committee of the British Property Federation.
All Sustainability and Transformation Partnerships ("STPs") have
now submitted draft bid documentation for new infrastructure
funding which are being reviewed by NHS England/NHS Improvement
with feedback and agreed priority schemes expected in Q1 or Q2
2019.
Third Party Development ("3PD") continues to be a cost effective
solution for commissioners to use, partnering with investors to
create new modern purpose-built infrastructure.
Republic of Ireland
In the Republic of Ireland there are similar demographic
pressures requiring new primary care infrastructure and the Irish
Government continues to support their Primary Care Centre strategy
delivering modern purpose-built centres serving the local
community.
Pricing and rents
The primary care investment sector has continued to see further
yield compression during the year due to investor demand,
reinforcing the attractiveness of the asset class. Market rental
growth remains below inflation but is improving as a result of a
number of new development schemes setting new rental evidence. In
addition, UK RPI inflation increased to 3.3% over the twelve months
to 30 September 2018 providing another strong indication of upward
pressure on market rents.
Investment Adviser's report
Building a brighter future for primary healthcare investment
"The Government strategy of shifting services from secondary
care to a primary care setting is driving GPs and practices to
operate at scale and continues to underpin the need for new primary
care infrastructure"
The market
The NHS
Improving primary healthcare infrastructure remains a key
priority for the NHS in delivering its Five Year Forward View.
Large parts of the primary care estate remain unfit for purpose,
unsuited to GPs delivering care at scale or providing access to
services twelve hours a day, seven days a week to meet society's
ever-increasing health needs.
In his report on the NHS estate published in March 2017, Sir
Robert Naylor highlighted that private sector funding and expertise
has an important part to play in the transformation of the primary
healthcare estate. 3PD, the model through which MedicX invests, is
recognised as a procurement method which is simple and provides
good value for money in the delivery of new or refurbished premises
which support the NHS's vision. Accordingly, MedicX, which focuses
on modern, best-in-class asset selection, is well positioned to
support the essential primary healthcare estate transformation and
places the Company in a strong position for further sustainable
growth.
Since Sir Robert's report, the Government has accepted his
recommendations and announced various NHS funding increases for
primary care and its premises, including through the 44 STPs.
Further, a number of the projects awarded grants under the Estate
and Technology Transformation Fund (part of the GBP1 billion
Primary Care Infrastructure Fund) are now being accelerated to meet
funding deadlines. Accordingly, MedicX is seeing a rise in the
number of new development projects in its investment pipeline as
the increase in available revenue and capital funding for the NHS
drive the primary care market forward.
Good progress has also been made by the Health Service Executive
("HSE") in the Republic of Ireland as it establishes new, modern,
purpose-built and integrated infrastructure. MedicX has already
invested in five assets and owns part of a sixth site as it
continues to build strong relationships with framework developers,
GPs and the HSE.
Investment
Despite wider market uncertainty following the result of the EU
referendum, the UK primary care investment market has remained
highly competitive with continued downward pressure on yields
recognising the security of the Government backed income in primary
care assets and crucial role in providing sustainable healthcare
infrastructure.
Record low yields have been paid in both the UK and Republic of
Ireland this year and the asset class is now widely seen as mature.
The relative lack of good quality secondary market opportunities is
likely to result in more new forward funding opportunities going
forward.
Fund performance
The financial highlights reflect another solid period of growth
for the Fund, with investment of GBP99.2 million and a revaluation
uplift of GBP32.2 million driving portfolio growth of 18.6% for the
financial year to GBP806.7 million (2017: GBP680.4 million).
Over the year the rent roll increased 10.0% to GBP44.0 million
from GBP40.0 million which drove an 8.4% increase in rent
receivable from GBP37.1 million to GBP40.3 million. This capital
and income growth led to an increase in EPRA Net Asset Value per
share of 6.9% from 76.5 pence per share to 81.8 pence per share and
11.4% growth in EPRA earnings per share from 3.5 pence per share to
3.9 pence per share.
This growth enabled the Company to follow its planned dividend
policy, with total dividends declared of 6.04p per Ordinary Share
in respect of the year ended 30 September 2018.
Overall, the total return on EPRA NAV for the financial year was
14.8% (2017: 12.7%) made up from the payment of dividends of 6.03
pence per share and EPRA NAV growth of 5.3 pence per share.
Portfolio update
At the end of the financial year, the Fund's portfolio stood at
166 properties with a rent roll of GBP44.0 million (2017: GBP40.0
million). It remains a best-in-class portfolio with a weighted
average asset age of 9.3 years, a weighted average unexpired lease
length of 14.2 years and an average property value of GBP4.8
million (30 September 2017: 8.7 years; 14.1 years; and GBP4.4
million), reflecting our focus on asset quality and investment
discipline.
The rent profile offers significant certainty and a strong
covenant with 83.0% of the rent receivable from UK
Government-funded doctors and the NHS, 7.3% from the HSE and Irish
GPs, 8.5% from pharmacies and only 1.2% from other tenants.
Acquisitions
Fifteen properties were acquired over the year to complement the
existing portfolio, representing total new commitments of GBP80.3
million. These acquisitions were made up of an off-market
acquisition of a portfolio of 12 operational and fully let primary
medical centres from the One Medical group with a total cost of
GBP65.3 million, one standing let property located in Kilkenny for
GBP6.8 million and commitments to forward fund two UK schemes
located near Glynneath in Vale of Neath and Peterborough.
In total, investment was GBP99.2 million for the year taking
into account GBP27.0 million deployed into properties under
construction.
Properties under construction
At the beginning of the year properties were under construction
at Cromer and Brynmawr in the UK and Crumlin, Kilnamanagh Tymon and
Rialto, all within Dublin. During the year the properties at
Cromer, Brynmawr, Crumlin, and Kilnamanagh Tymon reached practical
completion and rent commenced. The completed properties contribute
in the region of GBP1.9 million of rent with a combined cost of
GBP29 million representing a blended yield of near 6.5%.
Construction is ongoing at the existing three projects at
Rialto, Vale of Neath and Peterborough. The outstanding commitment
on these three properties at 30 September 2018 was GBP7.1 million,
with the UK projects expected to complete in quarter two of the
2019 financial year and Rialto to complete in quarter three.
At 30 September 2018, MedicX also owned four sites (30 September
2017: two), recorded at GBP6.3 million (30 September 2017: GBP2.7
million), and with the benefit of put options back to the developer
should the schemes not proceed. One of the sites was sold in
October at its net book value since that scheme is no longer
expected to proceed. Work continues on the remaining three schemes
with MedicX's development partners confident that agreements for
lease will be signed, resulting in live schemes.
Disposals
In the first quarter, MedicX completed the sale of five
properties located in Wolverhampton, Southampton, Gravesend,
Leicester and Grimsby. These smaller assets were expected to have a
lower likelihood of providing primary healthcare services over the
long-term. The total gross sale price was GBP5.6 million
representing a gain of approximately GBP250,000 over the 30
September 2017 valuation, which after costs resulted in a profit on
sale of GBP110,000. The Fund will continue to look to sell
properties which no longer meet its long-term investment criteria
or have been identified as less likely to be used for delivery of
primary care beyond their existing lease term. Following the year
end, in October 2018, one property located in Harpenden was sold
for proceeds of GBP595,000 recognising a small profit.
Property valuation
Jones Lang LaSalle Limited (UK) and Cushman & Wakefield
(Republic of Ireland) the Group's independent valuers, valued the
portfolio at GBP806.6 million as at 30 September 2018 on the basis
that all properties were complete. The carrying value of GBP806.7
million reflects the cost to complete the assets currently under
development as well as including four sites and the effect of head
leases and rent incentives.
The weighted average Net Initial Yield for assets located within
the UK at 30 September 2018 was 4.85% (2017: 5.08%) and the true
equivalent yield was 5.13% (2017: 5.33%). The weighted average true
equivalent yield for assets located within the Republic of Ireland
was 6.29% (2017: 7.38%).
The asset yields compare favourably with the Group's weighted
average fixed rate debt of 4.26% and a benchmark 20-year gilt rate
of 1.97% at 30 September 2018. Assuming the Revolving Credit
Facility was again utilised, the Group's average cost of debt would
fall further towards 4.17% which would enhance returns further. The
spreads being achieved for Irish assets remain significantly wider
than those seen in the UK market however there has been significant
downward pressure on yields this year.
In March 2018, MSCI published their primary care benchmark
report. MedicX achieved a consistent Total Property Return of 8.1%,
9.0% and 8.9% over 1, 3 and 5 years which was slightly behind the
primary healthcare benchmark of 11.1%, 10.2% and 9.4% over the same
time periods. MedicX's rental return of 5.9% per annum was very
much in line with the benchmark, however, its capital return was
behind the benchmark in 2017, but strong capital gains in the
current year have been achieved suggesting MedicX's Total Property
Return will increase when published for 2018.
Rent review performance
A total of 95 rent reviews have been concluded during the year,
with a combined rental value of GBP11.5 million.
During the year, the weighted average rental uplift from
completed rent reviews was 4.84%, equating to a blended rate of
1.64% per annum with 0.79% per annum achieved from open market
reviews, 2.35% per annum achieved from RPI based reviews and 3.74%
per annum from fixed uplift reviews. These results show strong
improvement over the comparable figures for 2017 where 92 reviews
of GBP9.0 million of rent gave a blended annualised rental uplift
of 1.02% (0.52% on open market reviews, 1.70% on RPI reviews and
2.38% on fixed uplifts).
EPRA weighted average like-for-like Rental Growth, was 4.67%,
equating to 1.59% per annum, however, open market rental growth
remained the same at 0.79% per annum growth.
Outstanding rent reviews of GBP24.9 million of passing rent are
currently under negotiation as at 30 September 2018 (2017: GBP20.9
million).
A strong driver for rent review performance will be the final
outcome of an independent expert determination of an outstanding
open market rent review for one of MedicX's major assets in
Clapham, London. The determination found that the contractual rent
due from the applicable rent review date of March 2015 should
increase by 35% (equating to a compounded 10.5% per annum uplift
over the applicable 3-year rent review period). This determination
is awaiting formal NHS ratification and as such this has not been
included in the above rent review performance figures but, if it
were included, the average per annum uplift would move from 1.64%
to 1.99%.
Asset management
MedicX's Investment Adviser continually reviews the portfolio
for asset management opportunities such as extensions,
re-configurations of internal space, new pharmacy opportunities and
lease re-gearing.
Two capital expenditure asset management projects have recently
gained full NHS approval. The two asset management projects are for
the refurbishment of GP practices to bring them in line with the
current NHS standards, these projects will result in the unexpired
lease terms of four and five years respectively being extended to
20 and 21 years. The projects have been agreed with either
additional rent or a rent review immediately at completion
following the refurbishment works.
After the year end, MedicX completed a new letting of previously
vacant space to an educational company at its property in
Middlesbrough. Furthermore, there is another open market letting
currently in solicitors' hands to a dentist which is expected to
conclude before the end of quarter one of the 2019 financial
year.
Looking forward, MedicX is looking to progress fifteen current
asset management projects under negotiation (extensions,
refurbishments, lease re-gears/renewals and lettings).
Overheads, investment adviser fees and progress on ongoing
charges
As a result of the asset and income growth for the year, the
Group has made further progress on improving its financial
operational efficiency. Its Ongoing Charges Ratio ("OCR") relative
to average EPRA Net Asset Value for the year, excluding direct
property costs, was 1.73% relative to 1.87% for the prior year.
The Company's EPRA cost ratios (both excluding/including
immaterial vacancy costs) also reduced year on year to 18.4% from
19.8%.
As properties under construction complete and MedicX makes
further accretive acquisitions, OCRs will continue to fall further
providing more earnings to fund growing dividends.
As described above, we, the Company's Investment Adviser, have
agreed to reduce our investment adviser fees by amending the
bandings of the fee ratchet used to calculate our investment
adviser fee. The Company currently incurs an investment adviser fee
of 0.5% and 0.4% per annum on its consolidated property asset value
up to GBP750 million and GBP1 billion respectively, with 0.3% per
annum thereafter. The new investment adviser fee will be charged at
0.5% and 0.4% per annum on the consolidated property asset value up
to GBP250 million and GBP1.25 billion respectively, with 0.3% per
annum thereafter. The performance fee will also be abolished. The
Company's cost saving up to the point when the portfolio reaches a
value GBP1 billion will be GBP500,000 per annum which, all other
things being equal will have the effect of accelerating the
reduction in the OCR above by a further 0.15% to 1.58% and reducing
the EPRA cost ratio by 1.2 percentage points to 17.2%.
Financing
New debt facilities were put in place during the year which have
enabled MedicX to reduce its average cost of debt from 4.29% to
4.26% per annum whilst importantly releasing unencumbered property
collateral, simplifying its facilities by eliminating 44 traches of
Aviva debt and maintaining its weighted average unexpired term at
12.3 years at 30 September 2018, comparing well against the average
remaining unexpired lease term of the Fund's portfolio of 14.2
years.
The debt strategy remains to put in place long-term fixed rate
debt (reflecting the Fund's long-sighted income) as and when new
funding is required whilst ensuring adherence to the Company's
gearing target. Of the Group's drawn debt facilities, GBP421.6
million of GBP446.2 million (94%) has a fixed interest rate.
The adjusted gearing at 30 September 2018, as detailed in note
24, was 52.6% (30 September 2017: 49.5%) which is in line, but at
the higher end of the target range of 45 - 55% that the Directors
are currently targeting.
During the year, progress was made in three areas on managing
the debt strategy.
On 8 March 2018, the Bank of Ireland facility was extended by
EUR4.9 million, increasing the total facility to EUR34.0 million.
At 30 September 2018 an amount of EUR27.5 million has been drawn.
The new tranche was put in place with a margin of 3% over EURIBOR
with a floor of zero. This development loan provides a natural
hedge against Euro denominated assets and is drawn down as needed
in line with development payments. Discussions on refinancing this
facility are ongoing with Bank of Ireland since MedicX now has four
completed assets located in the Republic of Ireland.
On 6 June 2018, the Company's Revolving Credit Facility
commitment with RBS was extended from GBP20 million to GBP30
million to facilitate the portfolio acquisition of 12 properties.
GBP23 million was drawn between 6 June 2018 and 9 August 2018, and
GBP20 million was drawn between 9 August 2018 and 12 September 2018
when the facility was repaid in full. On 5 October the extended
commitment was cancelled and GBP20 million is now currently
immediately available. The Revolving Credit Facility provides an
immediate source of funding at a margin of 2% over LIBOR to
complete attractive opportunities quickly and bridge to more
permanent longer-term financing. The current Revolving Credit
Facility arrangement ends in September 2019 and renewal discussions
have started.
On 11 September 2018, MedicX restructured five of its umbrella
loan facility agreements with Aviva and replaced these with one
agreement for the value of GBP264.5 million, at the same time
increasing the total facility held with Aviva by GBP30.8 million.
The additional loan was on an interest only basis for 10 years with
a fixed interest rate of 3.05% per annum.
MedicX benefited from resetting the Loan to Value ("LTV")
secured to 65% thereby releasing GBP25 million of property
collateral after increasing the loan balance, providing flexibility
to undertake asset management projects identified at those
locations as well as increasing unencumbered collateral to
negotiate future facilities at current market rates. The
refinancing, which was conducted without incurring break fees on
the refinanced loan facilities, combined forty-six tranches across
twenty legacy loan agreements, into two tranches under one new loan
agreement. Therefore, as well as providing financing flexibility
from the additional collateral, the new loan arrangements will
improve operational efficiency.
In addition, to the new GBP30.8 million tranche, legacy loans of
GBP233.7 million were reset to a term of 15 years with amortisation
of GBP40 million payable and a fixed interest rate of 4.69% per
annum (equal to the blended current cost of the former
facilities).
The new facility agreement standardises the covenants that will
apply. These will require the Group to operate with a debt service
cover ratio of at least 140% throughout and with an LTV of no more
than 75% for the first five years, falling to 70% for years six to
ten and then 65% for the remaining term.
The covenants on all debt facilities were complied with, within
the period and since the year end.
Discounted Cash Flow valuation of assets and debt
The Investment Adviser carries out a Discounted Cash Flow
("DCF") valuation of the Group assets and associated debt at each
period end. The values for each asset 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 in place at each property. The sum
of the present values of each property and associated debt cash
flows are calculated and aggregated with the current surplus
working capital of the Group.
At 30 September 2018, the DCF valuation stood at 101.0 pence per
share compared with 98.5 pence per share at 30 September 2017, the
increase resulting primarily from the property acquisitions and
rental uplifts achieved in the year.
In order to provide a consistent approach, the discount rates
applied in previous periods remain unchanged. The discount rates
used were 7% for completed and occupied properties and 8% for
properties under construction. These represented 2.5% and 3.5% risk
premiums to an assumed 4.5% long-term gilt rate. The weighted
average discount rate is 7.02% and this represented a 5.15% risk
premium to the 20 year gilt rate at 30 September 2018 of 1.87%.
The DCF assumes an average 2.0% per annum increase in individual
property rents at their respective review dates and also assumes
the level of gearing and cost of debt are maintained at current
levels. Residual values continue to be based upon capital growth at
1% per annum from the current valuation until the expiry of leases
(when the properties are notionally sold).
For the DCF net asset value to equate to the share price as at
30 September 2018 of 82.0 pence per share, the DCF calculation
would have to assume either a 1.84% decrease in rents per annum, or
a weighted average discount rate of 9.84%, or capital reductions of
1.1% per annum.
Dividends
On 1 November 2018, the Directors announced a quarterly dividend
of 1.51p per Ordinary Share in respect of the period 1 July 2018 to
30 September 2018. The dividend will be paid on 31 December 2018 to
shareholders on the register as at close of business on 16 November
2018 (the "Record Date"). The corresponding ex-dividend date was 15
November 2018.
The Company followed its planned dividend policy for the
financial year ended 30 September 2018, with total dividends
declared of 6.04p (2017: 6.00p) per Ordinary Share representing a
dividend yield of 7.4% compared to the share price of 82 pence per
Ordinary Share at 30 September 2018 (2017: 6.6%). This dividend
policy was however achieved with a dividend cover measured against
EPRA earnings of 64.0% for the full year to 30 September 2018 (30
September 2017: 59.2%) and the dividend policy will change to a
covered model for 2019 onwards.
The Company offered qualifying shareholders the opportunity to
take new Ordinary Shares in the Company, credited as fully paid for
three of the four dividends declared for the year. The scrip
dividend alternative is suspended for the dividend to be paid on 31
December 2018 however the Directors intend to offer the scrip
dividend in future subject to the scrip price being greater than
Net Asset Value.
Net asset value and sensitivity
The Fund's progress and performance has been positive with
unadjusted NAV at 30 September 2018, having increased 6.2% to 81.0
pence per share (30 September 2017: 76.3 pence per share). EPRA Net
Asset Value ("EPRA NAV") as at 30 September 2018 increased by 10.5%
to GBP362.2 million or by 6.9% to 81.8 pence per share (30
September 2017: GBP327.8 million or 76.5 pence per share).
A review of sensitivities has been carried out in relation to
the valuation of properties. If valuation yields sharpened by 0.25%
to a Net Initial Yield of 4.6%, the EPRA NAV would increase by
approximately 10.7 pence per share to 92.5 pence per share and the
EPRA NNNAV would increase to 85.6 pence per share. However, if
valuation yields widened by 0.25% to a Net Initial Yield of 5.1%,
the EPRA NAV would decrease by approximately 9.6 pence per share to
72.2 pence per share and the EPRA NNNAV would decrease to 65.3
pence per share.
At the current time there are no indications that yields in
primary healthcare are widening. There has been recent evidence of
yields falling in the Republic of Ireland as the asset class
matures and asset competition in the UK remains strong, maintaining
yields.
Pipeline and investment opportunity
The opportunities available in the Republic of Ireland provide a
spread which is wider by approximately 200bps. The Investment
Adviser has continued to successfully source properties both
through Octopus Healthcare's development arm, Octopus Healthcare
Property Ltd, and through its established relationships with
investors, developers and agents in the sector. The Fund currently
has access to a growing high quality property pipeline, subject to
contract, which has a value of approximately GBP144 million when
fully developed.
At 30 September, the UK pipeline was approximately GBP60.0
million, and the Irish pipeline was the equivalent of GBP84
million. Of these opportunities, GBP46 million of assets in the UK,
and GBP23 million of assets in Ireland were undergoing legal due
diligence.
These opportunities have been sourced from best in class
developers (include the Investment Adviser's own development
pipeline) and tailored specifically to the needs of the GPs and
other care service providers to produce the highest quality
sustainable assets. All are important healthcare premises within
their locality.
MedicX is well positioned to fund these through debt facilities
or selective disposals as we continue to optimise our portfolio.
Consistent with our previous statements, we will look to raise
capital at the appropriate time to support the further growth of
the portfolio.
Interest in voting rights of the Company
The Investment Adviser has a beneficial interest in the
following number of shares in the Company:
30 Sept 2018 30 Sept 2017
-------------------------------- ------------- -------------
Octopus Healthcare Adviser Ltd 2,466,723 2,297,336
-------------------------------- ------------- -------------
The number of shares held by Octopus Healthcare Adviser Ltd as
at the date of this report is 2,466,723, equivalent to 0.56% of the
issued share capital of the Company.
During the year the Investment Adviser received dividends on its
holding in the Company in addition to fees received for services.
With the Scrip Dividend Scheme in place, the Investment Adviser
received all its dividends in the form of new Ordinary Shares. The
cash equivalent of the dividends received by the Investment Adviser
was GBP138,678 compared with GBP132,147 in the prior year.
Mike Adams
Executive Chairman - Octopus Healthcare Adviser Ltd
10 December 2018
Principal risks and uncertainties
The principal risks and uncertainties relating to the Group are
regularly reviewed by the Board along with the internal controls
and risk management processes that are used to mitigate these
risks.
STRATEGIC RISKS
Description Mitigation Movement
----------------------------------------------------------------------- ---------------------------------------------------------------------------- --------
Government policy:
* Changes to the NHS funding model for the primary
healthcare sector could lead to a reduction in * The Investment Adviser provides an update on any
development opportunities available to the Company. expected changes in NHS provision at each Board
meeting for consideration by the Board. The current
government has demonstrated through its budgetary
pledges, its commitment to increasing the funding for
* The NHS currently reimburses GP's rental costs for primary healthcare services in the community so a
premises used for providing primary healthcare. In reduction in funding or support in this sector is
the event of a change to this mechanism, the Group considered unlikely given the long-term structural
may not receive rental income when due and/or the policies in place.
total income received may be lower than due under the
current leases.
* The GPs have contracts with the NHS to cover the
length and beyond of their lease (on average 14.2
* A change in political policies as a result of the years on properties held by the Company) and so a
referendum vote for the UK to exit the EU ("Brexit") change to this reimbursement policy would be expected
is causing uncertainty in the macro-economic to have little impact in the immediate future.
environment and creating volatility in the equity
markets.
* The Board monitors the political and economic
environment on a regular basis with input from its
* Brexit is causing pricing and valuation uncertainty advisers. There is no exposure to primary care
in the UK Real Estate sector. Investment yields, outside the UK and Republic of Ireland.
Interest rates, currency valuation and inflation have
elevated uncertainty whilst the UK withdrawal terms
from the EU are finalised.
* It has been published that the Labour Party are
cautious about the benefits provided by private
sector infrastructure investment and that the
* A change in government following a snap general Conservative party are sceptical about the benefits
election as a result of withdrawal of support for the of certain types of PFI arrangements. The Investment
current one could lead to significant delays in Adviser attends meetings and industry events where
commissioning primary healthcare and a change in the benefits and value for money of private sector
funding policies and priorities. 3PD are presented.
----------------------------------------------------------------------- ---------------------------------------------------------------------------- --------
OPERATIONAL RISKS
Description Mitigation Movement
----------------------------------------------------------------- ------------------------------------------------------------------ ----------
Property yields:
* A continuing significant reduction in property yields
could result in them falling below the cost of * For existing properties contractual cash flows are
capital, or not being available with an acceptable fixed over the long-term so have little impact on
rate of return. EPRA returns.
* The Board regularly review the Group's budget and
* Tightening yields artificially limit the pressure for five-year forecast and completes a risk assessment
higher rents at new schemes. and a long-term viability assessment which
incorporates the Group Weighted Average Cost of
Capital ("WACC"), dividend policy and sets the
* A property recession could materially adversely minimum property yield boundaries for future
affect the value of properties which could put acquisitions.
financial covenants under pressure.
Description Mitigation Movement
----------------------------------------------------------------- ------------------------------------------------------------------ ----------
Cyber Security:
* There are several risks related to cyber security * The security of the systems is internally monitored
which include the risks of having the internal and regularly reviewed. Training is provided to
systems of the Investment Adviser infiltrated, employees of the Investment Adviser on cyber security
information corrupted or information stolen, or matters to increase awareness and vigilance. Incident
information held by other third party suppliers being management is used to establish an incident response
subject to the same risks. and disaster recovery response.
* The review of suppliers to the Company includes an
assessment of the quality of their cyber security
systems and processes.
----------------------------------------------------------------- ------------------------------------------------------------------ ----------
FINANCIAL RISKS
Description Mitigation Movement
----------------------------------------------------------------- ---------------------------------------------------------------------- ------------
Financing and debt management:
* A significant reduction in the availability of
financing could affect the Company's ability to * The Company mainly holds long-term facilities which
source new funding for both refinancing purposes and greatly reduce refinancing risk and cost of capital.
to use for future acquisitions. The Company maintains relationships with a range of
potential financing sources ensuring competitive
financing options are available.
* The Investment Adviser monitors and manages the debt
facilities and reports on a monthly basis to the
* A significant rise in interest rates could make Board.
returns from alternative investments more attractive
which could put downward pressure on the Company's
share price making equity finance more expensive.
* The Company has maintained its acquisition discipline
ensuring income is long-term and secure whilst
refinancing and enlarging its debt facilities with
Aviva and the Bank of Ireland debt facility during
the year bring down the cost of capital and hedge
funding against future interest rate rises.
Description Mitigation Movement
----------------------------------------------------------------- ---------------------------------------------------------------------- ------------
Covenants:
* A significant reduction in property valuations or * Covenants are measured and monitored on a monthly
income could result in a breach of loan covenants. basis by the Investment Adviser, 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.
* Sufficient headroom exists in covenants currently in
place.
Description Mitigation Movement
----------------------------------------------------------------- ---------------------------------------------------------------------- ------------
REIT status:
* Ongoing REIT status (and exemption from corporation * The Company maintains a tax forecast and receives
tax on the Group's qualifying property income and regular reports from its tax advisers and the
gains) requires compliance with a number of Investment Adviser. This includes keeping the REIT
conditions including the requirement to distribute at conditions under review.
least 90% of property income each year and
maintenance of the Group's balance of business.
------------------------------------------------------------------- -------------------------------------------------------------------- ------------
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2018
2018 2017
Notes GBP'000 GBP'000
---------------------------------------------------- ------ --------- ---------
Income
Rent receivable 1 40,285 37,108
Service charge income 1 616 114
Other income 293 193
---------------------------------------------------- ------ --------- ---------
Total income 41,194 37,415
Direct property expenses (1,471) (1,354)
Service charge expenses (616) (114)
Net rental income 39,107 35,947
Share of net profit of equity accounted joint
venture 20 52 13
---------------------------------------------------- ------ --------- ---------
Realised and unrealised valuation movements
Net valuation gain on investment properties 8 32,250 18,654
Profit/(loss) on disposal of investment properties 8 110 (65)
32,360 18,589
---------------------------------------------------- ------ --------- ---------
Expenses
Investment advisory fee 19 3,903 3,867
Investment advisory performance fee 19 - -
Property management fee 19 969 925
Administrative fees 19 144 115
Audit fees 3 192 175
Professional fees and other expenses 626 603
REIT conversion expenses - 240
Directors' fees 2 192 163
Total expenses 6,026 6,088
---------------------------------------------------- ------ --------- ---------
Profit before interest and tax 65,493 48,461
Finance costs 4 (16,660) (15,581)
Finance income 5 222 432
---------------------------------------------------- ------ --------- ---------
Net finance costs (16,438) (15,149)
Profit before tax 49,055 33,312
Taxation 6 (2,927) 5,312
---------------------------------------------------- ------ --------- ---------
Profit attributable to equity holders of the
parent 46,128 38,624
---------------------------------------------------- ------ --------- ---------
Other comprehensive income
Items that are or may be reclassified subsequently
to profit or loss:
Foreign currency translation differences -
foreign operations 77 (95)
---------------------------------------------------- ------ --------- ---------
Total comprehensive income attributable to
equity holders of the parent 46,205 38,529
---------------------------------------------------- ------ --------- ---------
Earnings per Ordinary Share
Basic and diluted 7 10.7p 9.4p
---------------------------------------------------- ------ --------- ---------
Consolidated Statement of Financial Position
As at 30 September 2018
2018 2017
Notes GBP'000 GBP'000
----------------------------------------- ------ --------- ---------
Non-current assets
Investment properties 8 806,742 680,355
Investments in equity accounted joint
venture 1,055 1,035
----------------------------------------- ------ --------- ---------
Total non-current assets 807,797 681,390
----------------------------------------- ------ --------- ---------
Current assets
Trade and other receivables 9 9,075 7,176
Cash and cash equivalents 10 18,888 32,145
----------------------------------------- ------ --------- ---------
Total current assets 27,963 39,321
----------------------------------------- ------ --------- ---------
Total assets 835,760 720,711
----------------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 11 23,168 18,682
Loans due within one year 12 2,463 2,213
Total current liabilities 25,631 20,895
----------------------------------------- ------ --------- ---------
Non-current liabilities
Loans due after one year 12 446,412 370,583
Head lease liabilities 13 1,498 1,456
Deferred tax liability 6 3,502 575
Total non-current liabilities 451,412 372,614
----------------------------------------- ------ --------- ---------
Total liabilities 477,043 393,509
----------------------------------------- ------ --------- ---------
Net assets 358,717 327,202
----------------------------------------- ------ --------- ---------
Equity
Share capital 14 - -
Share premium 14 276,955 269,419
Treasury shares 14 (2,327) (6,148)
Foreign currency translation reserve 15 35 (42)
Other reserve 15 84,054 63,973
----------------------------------------- ------ --------- ---------
Total attributable to equity holders of
the parent 358,717 327,202
----------------------------------------- ------ --------- ---------
Net asset value per share
Basic and diluted 7 81.0p 76.3p
----------------------------------------- ------ --------- ---------
The financial statements were approved and authorised for issue
by the Board of Directors on 10 December 2018 and were signed on
its behalf by
Helen Mahy CBE
Chairman
10 December 2018
Consolidated Statement of Changes in Equity
For the year ended 30 September 2018
Foreign
currency
Share Treasury translation Other Total
premium shares reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------ --------- --------- ------------- --------- ---------
Balance at 1 October
2016 234,846 (6,835) 53 50,097 278,161
Shares issued from
block listing 34,932 - - - 34,932
Scrip issue of shares
from treasury (net
of costs) 47 687 - - 734
Share issue costs (406) - - - (406)
Dividends paid 16 - - - (24,748) (24,748)
------------------------------ ------ --------- --------- ------------- --------- ---------
Transactions with owners 34,573 687 - (24,748) 10,512
Profit attributable
to equity holders of
the parent - - - 38,624 38,624
Other comprehensive
income:
Foreign currency translation
differences - - (95) - (95)
------------------------------ ------ --------- --------- ------------- --------- ---------
Total comprehensive
income for the year - - (95) 38,624 38,529
Balance at 30 September
2017 269,419 (6,148) (42) 63,973 327,202
------------------------------ ------ --------- --------- ------------- --------- ---------
Shares issued from
block listing 7,881 - - - 7,881
Shares sold from treasury (131) 3,131 - - 3,000
Scrip issue of shares
from treasury (net
of costs) (15) 690 - - 675
Share issue costs (199) - - - (199)
Dividends paid 16 - - (26,047) (26,047)
------------------------------ ------ --------- --------- ------------- --------- ---------
Transactions with owners 7,536 3,821 - (26,047) (14,690)
Profit attributable
to equity holders of
the parent - - - 46,128 46,128
Other comprehensive
income: Foreign currency
translation differences - - 77 - 77
------------------------------ ------ --------- --------- ------------- --------- ---------
Total comprehensive
income for the year - - 77 46,128 46,205
Balance at 30 September
2018 276,955 (2,327) 35 84,054 358,717
------------------------------ ------ --------- --------- ------------- --------- ---------
Consolidated Statement of Cash Flows
For the year ended 30 September 2018
2018 2017
Notes GBP'000 GBP'000
---------------------------------------------------- ------ --------- ---------
Operating activities
Profit before taxation 49,055 33,312
Adjustments for:
Net valuation gain on investment properties 8 (32,250) (18,654)
(Profit)/loss on disposal of investment properties 8 (110) 65
Share of net profit of equity accounted joint
venture (52) (13)
Finance costs 4 16,660 15,581
Finance income 5 (222) (432)
33,081 29,859
(Increase)/decrease in trade and other receivables (1,746) 1,336
Increase/(decrease) in trade and other payables 3,771 (1,616)
Decrease in rental deposits held - (60)
Interest paid (18,608) (14,479)
Interest received 36 61
Net cash inflow from operating activities 16,534 15,101
---------------------------------------------------- ------ --------- ---------
Investing activities
Acquisition of investment properties (7,444) (29,706)
Acquisition of investment properties 8 (24,327) -
Cash acquired with subsidiaries 643 -
Proceeds from sale of investment properties 8 5,575 1,164
Additions to investment properties and properties
under construction (26,411) (21,101)
Payment for the acquisition of joint venture 20 (27) (1,025)
Dividends received from joint venture 20 59 3
---------------------------------------------------- ------ --------- ---------
Net cash outflow from investing activities (51,932) (50,665)
---------------------------------------------------- ------ --------- ---------
Financing activities
Net proceeds from issue of share capital 7,681 34,526
New loan facilities drawn 12 42,866 39,880
Repayment of borrowings 12 (2,503) (2,810)
Loan issue costs 12 (867) (859)
Dividends paid 16 (25,095) (24,013)
---------------------------------------------------- ------ --------- ---------
Net cash inflow from financing activities 22,082 46,724
---------------------------------------------------- ------ --------- ---------
(Decrease)/increase in cash and cash equivalents (13,316) 11,160
Effects of currency translation on cash and
cash equivalents 59 17
Opening cash and cash equivalents 32,145 20,968
---------------------------------------------------- ------ --------- ---------
Closing cash and cash equivalents 10 18,888 32,145
---------------------------------------------------- ------ --------- ---------
Notes to the Financial Statements
For the year ended 30 September 2018
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.
Going concern
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 reference to the utilisation of, and continued access to,
existing debt facilities and 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.
Presentation
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.
The accounting policies applied are consistent with those of the
annual financial statements for the year ended 30 September 2017,
except that the Group has adopted a policy of treating its monetary
investment in foreign operations for which settlement is neither
planned nor likely to occur as net investment in foreign operations
in accordance with IAS21.
Impact of revision to International Financial Reporting
Standards
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 Standards Effective date - periods beginning
(IAS/IFRS) on or after
------------------------------------- ---------------------------------------------
IFRS 9 Financial Instruments 1 January 2018
IFRS 15 Revenue from contracts with 1 January 2018
customers
IFRS 16 Leases 1 January 2019
----------------------------------- ------------------------------ ---------------
The Directors have assessed the impact of the new standards in
issue but not currently effective and do not believe these will
have a material impact on the financial statements.
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement. The new standard includes
requirements for classification, recognition and measurement,
impairment, de-recognition and hedge accounting. The Directors have
completed an assessment of the impact of IFRS 9 and believe its
impact on the Company will be limited because the Group currently
has no complex financial instruments, does not hedge account and
does not have significant trade receivables that may be impaired.
The recognition and classification of the Company's financial
instruments is expected to be unchanged. Furthermore, the
refinancing of the debt facilities on 11 September 2018, and in
prior years, which were treated as loan modifications in accordance
with IAS 39, would also qualify as loan modifications under IFRS 9
and therefore no material restatement is expected. In the future,
the new standard aims to simplify the documentation required for
hedge accounting which may be of benefit and the rules for the
treatment of debt break or modification costs will be slightly
different to those under IAS 39.
IFRS 15 Revenue from Contracts with Customers excludes from its
scope amounts receivable from leases which fall under the scope of
IAS 17 which is due to be replaced by IFRS 16 and amounts
receivable from joint ventures which fall under the scope of IAS
28. IFRS 15 therefore only provides guidance on the Company's other
income which represents less than 1% of the Company's income. On
this basis IFRS 15 is not expected to have a significant effect on
the Company's future position or performance.
IFRS 16 Leases specifies how to recognise, measure, present and
disclose leases. The standard adopts a single model which is
expected to have a high impact on lessees and leases of low value
and of less than twelve months. The Directors have completed an
assessment of the impact of IFRS 16 and believe its impact on the
Company will be limited because the Group is not a lessee with
short leases. As a lessor the Group will continue to classify its
investment property leases as operating in nature. The Group as a
lessee has a small number of long leasehold interests where those
long leases have a head lease rent. These are currently treated as
finance leases because substantially all the risks and rewards
incidental to ownership are with the Group and that will continue
to be the case under IFRS 16 with a head lease liability
recorded.
In addition, IFRS 16 could have an indirect impact on the
Group's business if it leads to a change in tenant behaviour. In
future tenants or potential tenants who will be required to account
for operating leases as a liability and right to use asset may seek
shorter lease terms.
Basis of consolidation
The Group financial statements consolidate the financial
statements of MedicX Fund Limited and entities controlled by the
Company (its subsidiary undertakings) made up to 30 September 2018.
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
underlying assets and liabilities. The cost of the acquisition is
allocated to the assets and liabilities acquired based upon their
relative fair values, and no goodwill or deferred tax is
recognised.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being investment in primary healthcare
properties in the United Kingdom and the Republic of Ireland.
Revenue recognition
Rent receivable comprises rent for the year in relation to the
Group's investment properties exclusive of Value Added Tax. Rent is
recognised on a straight-line basis over the period of the lease.
Rent is accrued for any outstanding rent reviews from the date that
the review was due based on a best estimate of the new expected
rent. Any lease incentives taken by tenants to enter into lease
agreements, any premium paid by tenants to the Group or any fixed
rent uplifts during the lease term are recognised on a
straight-line basis over the full lease term.
Service charge income is recognised on an accrual basis when
services have been provided and the Group has to a right to a
defined amount of consideration.
Expenses
All expenses are accounted for on an accruals basis.
Finance costs
Borrowing costs are charged to profit and loss in the year to
which they relate on an accruals basis except where they relate to
properties under construction when borrowing costs are capitalised
forming part of the cost of the asset produced.
Current and deferred taxation
The tax liability represents the sum of the current tax and
deferred tax payable. The current tax payable is based on taxable
profit for the year.
Deferred tax is the tax that may become payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit and is accounted
for using the liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised.
Full provision is made for deferred tax assets and liabilities
arising from all temporary differences between the recognition of
gains and losses in the financial statements and recognition in the
tax computation, other than in respect of asset acquisitions in
corporate vehicles where deferred tax is recognised in relation to
temporary differences arising after acquisition.
Following the conversion of the Group to a UK REIT, deferred tax
liabilities on unrealised revaluation gains are only recognised
where an asset is located outside the UK or where a developed asset
is expected to be sold within three years of completion.
Deferred tax assets and liabilities are calculated at the tax
rates expected to be effective at the time the temporary
differences are expected to reverse by reference to the tax rates
substantively enacted at the balance sheet date. Deferred tax
assets and liabilities are not discounted.
Investment properties
The Group's completed investment properties are held for
long-term investment. Freehold and long-leasehold properties
acquired are initially recognised at cost, being fair value of the
consideration given including transaction costs associated with the
property. After initial recognition, freehold and long-leasehold
properties are measured at fair value, with unrealised gains and
losses recognised in profit and loss. Both the base costs and
valuations take account of core fixtures and fittings.
Investment properties under construction are initially
recognised at cost and are revalued at the period end as determined
by professionally qualified external valuers. Gains or losses
arising from the changes in fair value of investment properties
under construction are recognised in profit and loss in the period
in which they arise.
The fair values of completed investment properties and
investment properties under construction located in the UK are
based upon the valuations of the properties as provided by Jones
Lang LaSalle Limited, an independent firm of chartered surveyors,
as at each period end, adjusted as appropriate for costs to
complete, head lease liabilities (the net present value of which
are recognised as separate liabilities) and lease incentives. The
fair value of investment properties located in the Republic of
Ireland are based upon valuations provided by Cushman &
Wakefield, an independent firm of chartered surveyors at each
period end.
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 partly utilised to fund
development work on investment properties under construction.
Trade and other receivables
Trade and other receivables are initially recognised at their
fair value inclusive of any Value Added Taxes that may be
applicable and are subsequently held at amortised cost and net of
any provision for any doubtful debts which are not deemed
recoverable.
Cash and cash equivalents
Cash and deposits in banks are carried at cost. Cash and cash
equivalents are defined as cash, demand deposits, and highly liquid
investments readily convertible to known amounts of cash and
subject to insignificant risk of changes in value. For the purposes
of the Consolidated Statement of Cash Flows, cash and cash
equivalents consist of cash and deposits in banks.
Trade and other payables
Trade and other payables are initially recognised at their fair
value inclusive of any Value Added Taxes that may be applicable and
are subsequently held at amortised cost.
Bank loans and borrowings
All bank loans and borrowings are initially recognised at fair
value of the consideration received, less issue costs where
applicable. After initial recognition, all interest-bearing loans
and borrowings are subsequently measured at amortised cost.
Amortised cost is calculated by taking into account any discount or
premium on settlement.
Bank loans that are acquired by means of asset acquisitions are
recognised at fair value as at the date of acquisition with any
resulting fair value adjustment being amortised and recognised as a
part of finance costs over the term of the loans, on an effective
interest basis.
Impairment of assets
The Group assesses annually whether there are any changes in
circumstances indicating that any of its assets have been impaired.
If such indication exists, the asset's recoverable amount is
estimated and compared to its carrying value. Where it is
impossible to estimate the recoverable amount of an individual
asset, the Group estimates the recoverable amount of the smallest
cash-generating unit to which the asset is allocated.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, an impairment
loss is recognised immediately in profit and loss.
Fair value measurements
The Group measures certain financial instruments and
non-financial assets such as investment property, at fair value at
the end of each reporting period. Fair value is the price that
would be received from the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
best economic interest. A fair value measurement of a non-financial
asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or
by selling it to another market participant that would use the
asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs significant to
the fair value measurement as a whole for applying the following
hierarchy:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
Foreign exchange
Transactions in foreign currencies are recorded at the rate of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the reporting date
are translated to the functional currency at the foreign exchange
rate ruling at the reporting date. Differences are recognised in
profit and loss.
The net investment in foreign operations, where settlement is
neither planned nor likely is an exception to this general policy.
Exchange differences arising on such intergroup balances are
recognised in other comprehensive income rather than in profit and
loss.
Non-monetary assets and liabilities that are measured at
historical cost in a foreign currency are translated to the
functional currency using the exchange rate at the date of the
transaction.
Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to the
functional currency at foreign exchange rates ruling at the dates
the fair values were determined. Differences are recognised in
profit and loss.
The results and financial position of all the Group entities
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
-- Assets and liabilities for each statement of financial
position presented are translated at the closing rate at the date
of the statement of financial position;
-- Income and expenses for each statement of comprehensive
income are translated at average monthly rates (unless the average
rate is not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case income
and expenses are translated at the dates of the transactions);
and
-- Exchange differences resulting from the difference in rates
applied to income statement balances and financial position items
are recognised directly within equity in the Group's foreign
currency translation reserve.
Accounting for associates and joint ventures
A joint venture generally involves the establishment of a
corporation, partnership or other entity in which two parties have
an interest in the joint control over strategic, financial and
operating decisions. The results, assets and liabilities of jointly
controlled entities are incorporated in the financial statements
using the equity method of accounting.
Where the Group's share of losses exceeds its equity accounted
investment in joint venture, the carrying amount of the equity
interest is reduced to nil and the recognition of further losses is
discontinued except to the extent that the Group has incurred legal
or constructive obligations. Appropriate adjustment is made to the
results of joint ventures where material differences exist between
a joint venture's accounting policies and those of the Group.
Dividend income from joint ventures is recognised when the
shareholders' right to receive payment have been established. Any
dividends received are deducted from the carrying amount of the
investment.
Use of judgements and estimates
In the process of applying the Group's accounting policies, the
Directors are required to make certain judgements and estimates to
arrive at the carrying value for its assets and liabilities.
The most significant areas requiring judgement in the
preparation of these financial statements were:
Asset acquisitions
The Group's approach to recognising investment properties
acquired in a corporate entity is to treat the acquisition as an
asset purchase, as described in IAS 40, if the corporate entity is
not considered to contain any material processes. Each corporate
entity acquired is considered to determine if it meets the criteria
to be recognised as a business combination in accordance with IFRS
3 or if it is more appropriate to treat it as an asset
acquisition.
Refinancing
During the year, in addition to adding to its facilities, the
Group refinanced GBP235 million of legacy loan facilities borrowed
from Aviva. The Net Present Value of the discounted cash flows
before and after the transaction were seen to be less than 10%
different. The refinancing was therefore treated as a debt
modification in accordance with IAS 39.
Identifying joint ventures and associates
The Group assesses its power over the operations of investees
and its rights to variable returns related to that power. The Group
has determined that it jointly controls GP Property Limited which
it presents as an equity investment because there is no contractual
right to guaranteed cash returns.
The most significant area requiring estimation in the
preparation of these financial statements was:
Valuation of investment property
The Group obtains valuations performed by external valuers in
order to determine the fair value of its investment properties.
These valuations are based upon assumptions including future rental
income, anticipated maintenance costs, future development costs and
the appropriate discount rate. The valuers also have regard for
observable market evidence of transaction prices for similar
properties. Further information in relation to the valuation and
sensitivity analysis of investment property is disclosed in note
8.
2. Directors' fees
2018 2017
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
During the year the directors received the following
fees:
D Staples (Chairman - resigned 8 February 2018) 18 46
H Mahy (Chairman) 46 15
S Mason - 31
S Le Page (Audit Committee Chairman) 41 36
J Hearle 40 35
L Duhot 33 -
Social security 14 -
------------------------------------------------------ --------- ---------
Total charged in the Consolidated Statement of
Comprehensive Income 192 163
------------------------------------------------------ --------- ---------
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 2018, payable to KPMG LLP (2017: KPMG
LLP).
2018 2017
GBP'000 GBP'000
---------------------------------------- --------- ---------
Group audit fees for the current year 120 108
Audit fees for subsidiary undertakings 50 46
---------------------------------------- --------- ---------
Total Group audit fees 170 154
Review of the interim report 22 21
---------------------------------------- --------- ---------
Total audit and other fees 192 175
---------------------------------------- --------- ---------
4. Finance costs
2018 2017
GBP'000 GBP'000
------------------------------------------------------- --------- ---------
Interest payable on long-term loans 17,063 15,762
Amortisation of facility costs 134 336
------------------------------------------------------- --------- ---------
17,197 16,098
Interest capitalised on properties under construction (537) (517)
------------------------------------------------------- --------- ---------
16,660 15,581
------------------------------------------------------- --------- ---------
During the year interest costs on funding attributable to
investment properties under construction were capitalised at an
effective interest rate of 4.26% (2017: 4.29%). The funding was
sourced from all 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
2018 2017
GBP'000 GBP'000
-------------------------- --------- ---------
Bank interest receivable 33 54
Foreign exchange gain 189 378
-------------------------- --------- ---------
222 432
-------------------------- --------- ---------
The foreign exchange gain is derived from the retranslation of
monetary assets and liabilities denominated in Sterling (which is a
foreign currency for the Group's Irish property-owning subsidiary,
MedicX Properties Ireland Limited, which has a functional currency
of the Euro). The Company has provided Sterling loans to MedicX
Properties Ireland Limited which are eliminated on consolidation.
The foreign exchange gain is calculated on the component which is
treated as a loan balance rather than a net investment in foreign
operations.
6. Taxation
2018 2017
GBP'000 GBP'000
------------------------------ --------- ---------
Deferred tax
Charge/(credit) for the year 2,927 (5,312)
------------------------------ --------- ---------
Total tax charge/(credit) 2,927 (5,312)
------------------------------ --------- ---------
The Group elected to be treated as a UK REIT with effect from 1
October 2017. The UK REIT rules exempt the profits of the Group's
property rental business from corporation tax. Gains on properties
are also exempt from tax, provided they are not held for trading or
sold in the three years post completion of development. The Group
will otherwise be subject to corporation tax at 19%
(2017:19.5%).
Acquired companies are converted to UK REIT status from the date
on which it becomes a member of the Group.
As a UK REIT, the Company is required to pay Property Income
Distributions ("PIDs") equal to at least 90% of the Group's rental
profit calculated by reference to the tax rules rather than
accounting standards.
To remain as a UK REIT there are a number of conditions to be
met in respect of the principal company of the Group, the Group's
qualifying activities and the balance of its business. The Company
and Group have complied with these conditions during the year and
subsequently.
A reconciliation of the actual tax charge to the notional tax
charge applying the average standard rate of UK corporation tax of
19.0% (2017: 19.5%) is set out below:
2018 2017
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Profit before tax 49,055 33,312
------------------------------------------------------ --------- ---------
Profit before tax multiplied by the average standard
rate of corporation tax in the UK of 19.0% (2017:
19.5%) 9,320 6,496
Capital allowances (872) -
Expenses not deductible for tax purposes - 833
Revaluation of exempt investment properties (4,923) (4,838)
Profits within the UK REIT regime (1,950) -
Difference between UK corporation and Irish income 1,352 -
and capital tax rates
Release of brought forward deferred tax on entry
into UK REIT regime - (5,887)
Release of current year deferred tax on entry
into UK REIT regime - (1,916)
Total tax charge/(credit) 2,927 (5,312)
------------------------------------------------------ --------- ---------
There is no current tax charge for the year (2017: GBPnil) and
no corporation or income tax payable at 30 September 2018.
Deferred Taxation
Accelerated Unrelieved
Fair value capital management
gains allowances expenses
GBP'000 GBP'000 GBP'000 Total GBP'000
---------------------------- ----------- ------------ ------------ --------------
At 1 October 2016 948 6,616 (1,677) 5,887
Released on entry into the
REIT regime (948) (6,616) 1,677 (5,887)
Provided/(released) in the
year 613 153 (191) 575
---------------------------- ----------- ------------ ------------ --------------
At 30 September 2017 613 153 (191) 575
---------------------------- ----------- ------------ ------------ --------------
Provided in the year 2,762 - 165 2,927
---------------------------- ----------- ------------ ------------ --------------
At 30 September 2018 3,375 153 (26) 3,502
---------------------------- ----------- ------------ ------------ --------------
At 30 September 2018, the Group has recognised deferred tax
liabilities on the fair value gains of its properties located in
the Republic of Ireland at a rate of 33% (2017: 33%). There are
currently no plans to sell the Group's properties located in
Ireland and as such the deferred tax is not expected to
crystallise.
7. Earnings and net asset value per Ordinary Share
Basic and diluted earnings and net asset value per share
The basic and diluted earnings per Ordinary Share are based on
the profit for the year attributable to Ordinary Shares of
GBP46,128,000 (2017: GBP38,624,000) and on 432,752,861 (2017:
413,134,343) Ordinary Shares, being the weighted average number of
Ordinary Shares in issue calculated over the year, excluding those
held in treasury. This gives rise to a basic and diluted earnings
per Ordinary Share of 10.7 pence (2017: 9.4 pence) per Ordinary
Share.
The basic and diluted net asset value per Ordinary Share are
based on the net asset position at the year end attributable to
Ordinary Shares of GBP358,717,000 (2017: GBP327,202,000) and on
442,916,140 (2017: 428,640,144) Ordinary Shares being the number of
Ordinary Shares in issue at the year end, excluding those held in
treasury. This gives rise to a basic and diluted net asset value
per Ordinary Share of 81.0 pence per Ordinary Share (2017: 76.3
pence per Ordinary Share).
EPRA earnings per share and net asset value per share
The Directors consider that the following EPRA and adjusted
earnings per Ordinary Share and net asset value per Ordinary Share
are more meaningful industry standard key performance indicators
for the Group:
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ------------ ------------
Profit attributable to equity holders of the
parent 46,128 38,624
Adjusted for:
Deferred tax charge/(credit) 2,927 (5,312)
Revaluation gain (32,250) (18,654)
(Profit)/loss on disposal of investment properties (110) 65
---------------------------------------------------- ------------ ------------
EPRA earnings 16,695 14,723
EPRA EPS 3.9p 3.5p
Company specific adjustments:
REIT conversion fees and expenses - 240
Adjusted earnings 16,695 14,963
Adjusted earnings per Ordinary Share - basic
and diluted 3.9p 3.6p
Weighted average number of Ordinary Shares 432,752,861 413,134,343
---------------------------------------------------- ------------ ------------
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ------------ ------------
Net assets 358,717 327,202
Adjusted for:
Deferred tax liability 3,502 575
EPRA net assets 362,219 327,777
EPRA net asset value per Ordinary Share - basic
and diluted 81.8p 76.5p
---------------------------------------------------- ------------ ------------
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ------------ ------------
Net assets 358,717 327,202
Adjusted for:
Fair value of debt (26,924) (42,574)
---------------------------------------------------- ------------ ------------
EPRA NNNAV 331,793 284,628
EPRA NNNAV per Ordinary Share - basic and diluted 74.9p 66.4p
Ordinary Shares in issue at the year end 442,916,140 428,640,144
---------------------------------------------------- ------------ ------------
The above measures eliminate deferred taxes not expected to
crystallise, as well as the unrealised revaluation gain and profit
on disposal of assets to give a more realistic view of the
Company's operating results which is a better indication of the
extent to which current dividend payments are supported by
earnings. Adjustments to the Company's net asset value are made to
give the most relevant information of the current fair value of
both the assets and liabilities of the Company and to allow
comparison with other market participants.
8. Investment properties
Completed
investment Properties Total investment
properties under construction properties
GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ -------------------- -----------------
Fair value 1 October 2016 597,410 14,854 612,264
Additions 30,182 20,883 51,065
Disposals at valuation (2,068) - (2,068)
Transfer to completed properties 18,013 (18,013) -
Revaluation 17,590 1,064 18,654
Foreign exchange movements on opening
balance - 440 440
--------------------------------------- ------------ -------------------- -----------------
Fair value 30 September 2017 661,127 19,228 680,355
Additions 72,232 26,951 99,183
Disposals at valuation (5,321) - (5,321)
Transfer to completed properties 31,765 (31,765) -
Revaluation 28,381 3,869 32,250
Foreign exchange movements on opening
balance 123 152 275
--------------------------------------- ------------ -------------------- -----------------
Fair value 30 September 2018 788,307 18,435 806,742
--------------------------------------- ------------ -------------------- -----------------
Total investment
properties
GBP'000
------------------------------------------------- -----------------
Fair value per JLL UK valuation report 656,651
Fair value per C&W Ireland 33,275
Sites purchased for forward funding schemes 2,735
Ground rents recognised as finance leases 1,456
Rent incentives (497)
Cost to complete properties under construction (13,265)
------------------------------------------------- -----------------
Fair value 30 September 2017 680,355
------------------------------------------------- -----------------
Fair value per JLL UK valuation report 750,602
Fair value per C&W Ireland 55,984
Sites purchased for forward funding schemes 6,305
Ground rents recognised as finance leases 1,498
Rent incentives (532)
Cost to complete properties under construction (7,115)
------------------------------------------------- -----------------
Fair value 30 September 2018 806,742
------------------------------------------------- -----------------
In line with the Company's accounting policies, the Group has
treated corporate acquisitions during the year as asset purchases
rather than business combinations because they were judged to be
acquisitions of assets rather than businesses. Included in
additions of GBP72.2 million above, are GBP63.8 million of property
assets acquired through a corporate acquisition which was settled
through cash consideration of GBP24.3 million, issuance to the
vendor of 3.75 million Ordinary Shares in MedicX out of treasury at
a price per share of 80.0 pence per share and assuming loans with a
fair value of GBP36.5 million.
Investment properties are initially recognised at cost and then
subsequently measured at fair value, which has been determined
based on the market valuations performed by Jones Lang LaSalle
Limited ("JLL") for the properties located within the United
Kingdom as at 30 September 2018. 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 6.23% (2017: 6.53%) of
what would otherwise be the purchase price).
Investment properties completed and under construction located
in the Republic of Ireland have been valued by Cushman &
Wakefield ("C&W"). The properties have been valued in line with
the approach taken within the UK outlined above, however the
notional purchaser's costs used as at 30 September 2018 were 8.46%
(30 September 2017: 4.46%). The increase in Irish purchaser's costs
since last year reflects the increase in Irish stamp duty on
commercial property having risen from 2% to 6% in October 2017.
The sites purchased for forward funding schemes were valued by
JLL or C&W as part of the acquisition due diligence. At 30
September a total of 4 sites (30 September 2017: 2) are carried at
cost, which is regarded by the Directors as their fair value. One
of the sites was sold in October at its carrying amount since the
scheme is no longer expected to proceed.
The freehold and long leasehold interests in the property
investments of the Group were valued at an aggregate of
GBP806,586,000 as at 30 September 2018 (2017: GBP689,926,000) by
JLL and C&W. This valuation assumes that all properties,
including those under construction, are complete and includes the
value of assets under construction translated at an exchange rate
of GBP0.89 per EUR1 for those assets located in the Republic of
Ireland.
The average net initial yield for assets located within the UK
at 30 September 2018 was 4.85% (2017: 5.08%) and the true
equivalent yield was 5.13% (2017: 5.33%). The average true
equivalent yield for assets located within the Republic of Ireland
was 6.29% (2017: 7.38%).
The valuers' opinions of market value were derived using
valuation techniques and comparable recent market transactions on
arm's length terms. JLL has valued these properties for reporting
purposes since 31 March 2008 and C&W have valued the properties
for reporting purposes since 1 June 2017.
The market valuation was carried out in accordance with the
requirements of the Valuation Standards published by the Royal
Institution of Chartered Surveyors, and accounting standards. The
properties were valued to market value assuming that they would be
sold in single lots (i.e. not as portfolios) subject to the
existing leases, or agreements for lease where the leases had not
yet been completed at the date of valuation. C&W's valuation
report comments on a greater than usual degree of valuation
uncertainty resulting from a scarcity of comparable transaction
evidence in the Irish market for primary care centres in the
current market.
The valuers' fees are set based on the number of properties in
the portfolio valued each quarter. The valuers' aggregate fees for
the year were GBP112,000 (2017: GBP97,000).
On 16 November 2017 the Group completed the sale of five primary
healthcare properties located in Wolverhampton, Southampton,
Gravesend, Leicester and Grimsby. The total gross sale price was
GBP5.575 million. The sale price was close to the net book value
and after deducting sales costs, a profit on disposal of GBP119,000
was recognised.
In addition, further disposal costs of GBP9,057 (2017:
GBP22,000) have been incurred in the year on fee relation to
properties sold after the year end.
Capital expenditure
For the year under review, the Group incurred capital cost of
GBP99.2 million. GBP65.4 million of these costs relate to an
off-market acquisition of a portfolio of 12 operational and fully
let primary medical centres on 8 June 2018. GBP18.0 million was
invested in the Republic of Ireland, which includes the purchase of
a standing let property at Kilkenny for GBP6.8 million, a new site
at Clondalkin for GBP3.1 million, as well as costs incurred for the
development of properties under construction and costs incurred for
the improvement and maintaining a high quality portfolio.
Capital improvements carried out on the UK portfolio in order to
maintain the high quality nature and value of the assets included
GBP385,000 and GBP152,000 being spent respectively at Pudsey on an
extension and Kendal on further land. A further GBP15.0 million was
invested in the UK in order to forward fund on-going development
opportunities at Vale of Neath, Kew, Eastbourne and Peterborough,
complete properties under construction and improve the current
standing portfolio of properties.
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 2018 (and as at 30 September 2017), 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 based on a number of
significant assumptions. If the valuation yield were to reduce by
0.25% on each property, this would result in an increase in the
valuation of the UK and Republic of Ireland properties of
approximately GBP47 million, however, if the yields were to rise by
0.25%, this would result in a decrease in the valuation of the UK
and Republic of Ireland properties of approximately GBP42 million.
If rent reviews of 2% were achieved on the full portfolio with no
yield movement the valuation of properties would increase by
approximately GBP17 million.
The property yields of the Group excluding five outlying
properties range from 7.5% to 4.00%.
The Company's ERVs on primary medical centres ranges from GBP120
to GBP400 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 GBP168,998,000 (2017:
GBP154,662,000) are long 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 GBP537,000 (2017: GBP517,000)
attributable to development work in progress were capitalised
during the year.
9. Trade and other receivables
2018 2017
GBP'000 GBP'000
------------------------------- --------- ---------
Rent receivable 3,584 4,030
Other debtors and prepayments 5,491 3,146
------------------------------- --------- ---------
9,075 7,176
------------------------------- --------- ---------
10. Cash and cash equivalents
2018 2017
GBP'000 GBP'000
------------------------------ --------- ---------
Cash and balances with banks 18,888 32,145
------------------------------ --------- ---------
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 GBP2,214,000 (2017: GBP5,245,000). These amounts are
ring-fenced for investment in the completion of the properties
under construction which they finance.
11. Trade and other payables
2018 2017
GBP'000 GBP'000
-------------------------------------- --------- ---------
Trade payables 2,371 1,266
Other tax and social security 1,504 908
Other payables 994 508
Interest payable and similar charges 1,748 3,353
Accruals 5,685 3,360
Deferred rental income 10,866 9,287
23,168 18,682
-------------------------------------- --------- ---------
12. Loans
2018 2017
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Total facilities drawn down 446,150 375,757
Loan issue costs (16,744) (15,544)
Amortisation of loan issue costs 7,096 5,917
Fair value arising on acquisition of subsidiaries 18,335 11,645
Amortisation of fair value adjustment on acquisition (5,962) (4,979)
------------------------------------------------------ --------- ---------
448,875 372,796
Loans due within one year (2,463) (2,213)
------------------------------------------------------ --------- ---------
446,412 370,583
------------------------------------------------------ --------- ---------
The current portion of long-term loans relates to the amount due
in the next twelve months on the Aviva and Santander loan
facilities; the terms of these loans are described below.
The Group has eight (2017: nine) primary debt facilities drawn.
On 11 September 2018 the group refinanced five of its umbrella loan
facility agreements with Aviva and replaced it with one agreement
for the value of GBP264.5 million, increasing the facility held
with Aviva by GBP30.8 million. On 8 March 2018 the Bank of Ireland
facility was extended by EUR4.9 million bringing the total facility
held with Bank of Ireland to EUR34.0 million. On 30 September 2018
an amount of EUR27.5 million has been drawn. On 8 June 2018, Aviva
and Santander loan facilities were added to the Group's total
facilities through a portfolio acquisition including twelve
properties. Of these, eight facilities are held with Aviva and four
facilities are held with Santander, however the information shown
aggregates these individual loans and presents them as two new
umbrella facilities described as "Aviva - OM" and "Santander - OM".
In addition, the Group has a Revolving Credit Facility with RBS.
The RBS facility was undrawn at 30 September 2018.
The majority of investment properties disclosed in note 8 are
charged as security for the long-term loans.
Repayments of the loans listed above fall due as follows:
2018 2017
GBP'000 GBP'000
--------------------------- -------------- ----------------- --------- ---------
Due within one year 2,463 2,213
Between one and two years 3,490 2,517
Between two and five
years 7,974 8,802
Over five years 434,948 359,264
--------------------------- -------------- ----------------- --------- ---------
Due after one year 446,412 370,583
--------------------------- -------------- ----------------- --------- ---------
448,875 372,796
--------------------------- -------------- ----------------- --------- ---------
Analysis of facilities
drawn:
2018 2017
Interest Rate Expiry Date GBP'000 GBP'000
--------------------------- -------------- ----------------- --------- ---------
Aviva GBP100m loan
facility 5.008% Dec 2036 - 100,000
Aviva GBP50m loan
facility 4.37% Feb 2032 - 49,951
Aviva PMPI loan facility 4.45% October 2031 - 58,482
Aviva GPG loan facility 4.13% - 5.00% Dec 2031 onwards - 23,263
Aviva Fakenham loan
facility 4.13% - 5.00% Dec 2031 onwards - 4,162
Aviva GBP233.7m loan
facility 4.69% Sept 2033 233,664 -
Aviva GBP30.8m loan
facility 3.05% Sept 2028 30,836 -
Standard Life loan
note facility 3.838% Sept 2028 50,000 50,000
Loan note facility 3.99% Dec 2028 50,000 50,000
Loan note facility
#2 3.00% Sept 2028 27,500 27,500
Bank of Ireland facility 3.03% Sept 2024 24,532 12,399
Aviva - OM facility 5.03% - 6.45% Dec 2027 - June 26,150 -
2040
Santander - OM facility 2.68% - 3.12% Dec 2019 - June 3,468 -
2022
RBS loan facility 2.0% over Sept 2019 - -
LIBOR
446,150 375,757
--------------------------- -------------- ----------------- --------- ---------
Covenants
All financial covenants on the loan facilities were complied
with during the year and subsequently.
Mark to market of fixed rate debt
The Group does not mark to market its fixed interest debt in its
financial statements, other than the recognition of a fair value
adjustment on the acquisition of debt facilities. The unamortised
fair value adjustment on acquired loans was GBP12,373,000 as at 30
September 2018 (30 September 2017: GBP6,666,000).
A mark to market calculation gives an indication of the benefit
or liability to the Group of the fixed rate debt given the
estimated prevailing cost of debt over the remaining life of the
debt. An approximate mark to market calculation has been undertaken
following advice from the Group's lenders, with reference to the
fixed interest rate on the individual debt facilities, and the
fixed interest rate, including margin, achievable on the last
business day of the financial year for a loan with similar terms to
match the existing facilities. The debt benefit or liability is
calculated as the difference between the present values of the debt
cash flows at the two rates over the remaining term of the loan,
discounting the cash flows at the prevailing Gilt rate. The
approximate mark to market liability of the total fixed rate debt
to the Group was GBP26,924,000 as at 30 September 2018 (30
September 2017: GBP42,574,000). The fair value of the debt as at 30
September 2018 is therefore approximately GBP473,336,000 (2017:
GBP413,157,000).
Fair value hierarchy
The valuation of loans is classified in accordance with the fair
value hierarchy described in note 1. As at 30 September 2018 (and
as at 30 September 2017), 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.
Reconciliation of borrowings to cash flows from financing
activities
2018 2017
GBP'000 GBP'000
Balance as at 1 October 372,796 336,290
Changes from financing cash flows
Draw down of Bank of Ireland facility 12,030 12,380
Draw down of Loan note #2 facility - 27,500
Aviva GBP30.8m loan facility 30,836 -
New loan facilities drawn 42,866 39,880
Repayment of mortgage principal - (897)
Repayment of Aviva PMPI loan facility (1,600) (1,326)
Repayment of Aviva GPG loan facility (507) (486)
Repayment of Aviva Fakenham loan facility (104) (101)
Repayment of Santander OM facilities (17) -
Repayment of Aviva OM facilities (275) -
Repayment of long-term borrowings (2,503) (2,810)
Aviva GBP100m loan facility costs - (12)
Aviva GBP264.5m loan facility costs (779) -
RBS loan facility costs - (22)
Loan note facility #2 costs - (226)
Standard Life facility costs (7) (12)
Bank of Ireland facility costs (81) (587)
------------------------------------------------------ --------- ---------
Loan issue costs (867) (859)
Total changes from financing cash flows 39,496 36,211
Other changes
Fair value of loans assumed with subsidiaries 36,583 -
Amortisation of fair value adjustment on acquisition (983) (915)
Loan issue cost (159) (30)
Amortisation of loan issue cost 1,142 1,240
------------------------------------------------------ --------- ---------
Total other changes 36,583 295
Balance at 30 September 448,875 372,796
------------------------------------------------------ --------- ---------
Any directly attributable costs incurred relating to the loans
are added to the loan issue costs and will be amortised over the
remaining life of the specific loan facility.
13. Head lease liabilities
30 September 2018 30 September 2017
Minimum Minimum
Present lease payments Present lease payments
value GBP'000 GBP'000 value GBP'000 GBP'000
---------------------------- --------------- ---------------- --------------- ----------------
Due within one year 90 99 93 102
Between one and five years 289 395 297 407
Over five years 1,119 7,832 1,066 7,745
---------------------------- --------------- ---------------- --------------- ----------------
1,498 8,326 1,456 8,254
Less future interest costs - (6,828) - (6,798)
---------------------------- --------------- ---------------- --------------- ----------------
1,498 1,498 1,456 1,456
-------------------------------------------- ---------------- --------------- ----------------
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:
Number of Issue price
shares per share
------------------------------------------------------- ------------ ------------
Total shares issued as at 1 October 2017 436,002,399
Shares issued under Company's Block listing facility:
22 June 2018 8,700,000 81.25p
29 June 2018 1,000,000 81.25p
Total shares issued as at 30 September 2018 445,702,399
------------------------------------------------------- ------------ ------------
Shares held in treasury (see below) (2,786,259)
------------------------------------------------------- ------------ ------------
Total voting rights in issue as at 30 September
2018 442,916,140
------------------------------------------------------- ------------ ------------
At 30 September 2018, the Company had 5,071,668 (2017:
14,771,668) Ordinary Shares remaining under its block listing.
During the year, treasury shares were utilised to satisfy demand
for shares in lieu of cash for dividends elected under the
Company's scrip dividend scheme. Treasury shares were also issued
as partial consideration for a portfolio acquisition of 12
properties. The transactions and relevant price per share are shown
below:
Number of Price
shares per share
------------------------------------------------------- ------------ ------------
Total shares held in treasury as at 1 October 7,362,255 83.50 pence
2017
Shares sold out of treasury:
14 June 2018 (part of consideration for portfolio (3,750,000) 80.00 pence
acquisition)
Shares utilised in lieu of cash payment of dividends:
29 December 2017 (193,187) 84.70 pence
29 March 2018 (147,245) 82.56 pence
29 June 2018 (368,440) 80.24 pence
28 September 2018 (117,124) 80.36 pence
------------------------------------------------------- ------------ ------------
(825,996)
------------------------------------------------------- ------------ ------------
Total shares held in treasury as at 30 September
2018 2,786,259
------------------------------------------------------- ------------ ------------
The closing value of shares held in treasury issued at 83.50
pence per share each is GBP2,327,000 (2017: GBP6,148,000).
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 reserves
The movement in other reserve is set out in the Consolidated
Statement of Changes in Equity.
In accordance with the Companies (Guernsey) Law 2008, as amended
("2008 Law") the other reserve is freely distributable with no
restrictions. In addition, distributions from the share premium
account do not require the sanction of the court. The Directors may
authorise a distribution at any time from share premium or
accumulated gains provided they are satisfied on reasonable grounds
that the Company will immediately after the distribution satisfy
the solvency test prescribed in the 2008 Law and that it satisfies
any other requirements in the Company's Articles of
Incorporation.
The Company's other reserve is used to accumulate annual profits
or losses for each year, less dividends declared and paid. The
foreign currency translation reserve comprises foreign exchange
differences created on consolidation of foreign operations.
16. Dividends
Year ended 30 September Year ended 30 September
2018 2017
-------------------------------------- -------------------------- --------------------------
Dividend Dividend
GBP'000 per share GBP'000 per share
-------------------------------------- ----------- ------------- ----------- -------------
Quarterly dividend declared
and paid
29/30 December 6,430 1.5000p 5,858 1.4875p
Quarterly dividend declared
and paid
29/31 March 6,464 1.5100p 6,071 1.5000p
Quarterly dividend declared
and paid
29/30 June 6,471 1.5100p 6,392 1.5000p
Quarterly dividend declared
and paid
28/28 September 6,682 1.5100p 6,427 1.5000p
-------------------------------------- ----------- ------------- ----------- -------------
Total dividends declared and
paid during the year 26,047 24,748
-------------------------------------- ----------- ------------- ----------- -------------
Quarterly dividend declared
after year end 6,688 1.5100p 6,430 1.5000p
Cash flow impact of scrip
dividends paid on:
29 December 2017 164 359
29 March 2018 122 144
29 Jun 2018 295 133
28 Sept 2018 94 99
-------------------------------------- ----------- ------------- ----------- -------------
Total cash equivalent value
of scrip shares issued 675 735
-------------------------------------- ----------- ------------- ----------- -------------
Cash payments due for dividends
declared and paid 25,372 24,013
Less: Withholding tax payable (277) -
on Property Income Distribution
-------------------------------------- ----------- ------------- ----------- -------------
Cash payments made for distributions
paid in the year 25,095 24,013
-------------------------------------- ----------- ------------- ----------- -------------
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 2018, the Board approved a dividend of 1.51 pence per
share, bringing the total dividend declared in respect of the year
to 30 September 2018 to 6.04 pence per share. The record date for
the dividend was 16 November 2018 and the payment date is 31
December 2018. 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.
17. Financial instruments risk management
The Group's operations expose it to a number of financial
instrument risks. A risk management programme has been established
to protect the Group against the potential adverse effects of these
financial instrument risks. There has been no significant change in
these financial instrument risks since the prior year.
The financial instruments of the Group at both 30 September 2018
and 30 September 2017 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 with A- rated (or better) institutions.
Concentrations of credit risk with respect to customers are
limited due to the Group's revenue being largely receivable from a
high number of UK Government backed tenants. As at the year-end
89.4% (2017: 89.7%) 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:
2018 2017
GBP'000 GBP'000
--------------------------- --------- ---------
Financial assets
Rent receivable 3,584 4,030
Other current assets 5,491 3,146
Cash and cash equivalents 18,888 32,145
--------------------------- --------- ---------
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 GBP2,963,000
(2017: GBP2,697,000) is neither impaired nor past due. GBP620,000
(2017: GBP466,000) is past due and of this GBP66,000 (2017:
GBP198,000) is more than 120 days past due. The Company takes
active steps to recover all amounts and has assessed that a
provision of GBP54,000 (2017: GBP50,000) against trade receivables
is appropriate at the year end.
Market risk
Market risk is the risk that the fair value or future cash flows
of the Group's financial instruments will fluctuate because of
changes in market prices. The Group operates primarily within
Guernsey and the United Kingdom and the majority of the Group's
assets, liabilities and cash flows are in pounds sterling which is
the reporting currency. Third party independent valuations are
received on a quarterly basis and the portfolio is kept under
review for any assets which may no longer meet the criteria of the
Group.
Foreign currency risk
At the year end, the Company holds approximately EUR63 million
of investments in the Republic of Ireland. To mitigate the risk of
valuation movements driven by foreign exchange movements, the
Company has entered into a facility of up to EUR34.0 million. This
creates a natural foreign currency hedge at a group level.
Interest rate risk
Interest rate risk is the risk that the value of a financial
instrument or cash flows associated with the instrument will
fluctuate due to changes in market interest rates. Interest rate
risk arises on interest bearing financial assets and liabilities
the Group uses.
The Group's Aviva borrowing facilities of GBP233,644,000 and
GBP30,836,000 were negotiated at a fixed rate of interest of 4.69%
and 3.05% respectively, these facilities replaced the previous
Aviva borrowing facilities of GBP100,000,000 (2017:
GBP100,000,000), GBP50,000,000 (2017: GBP50,000,000) and
GBP59,777,000 (2017: GBP59,777,000) which were negotiated at a
fixed rate of interest of 5.008%, 4.370% and 4.450% respectively as
well as the 12 Aviva GPG and Fakenham loan facilities which was
also at a fixed rate. The eight Aviva OM facilities acquired on 8
June 2018 are at a fixed rate ranging between 5.03% - 6.45% and the
four Santander facilities also acquired on this date are also at a
fixed rate. The Group's loans have a weighted average interest rate
of 4.26% (2017: 4.29%).
On 15 September 2016, the Group extended the term of the RBS
loan facility for a further three years. The amendment also
provides for an option, with lender consent, that the immediately
committed 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.
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.
During the year the extension was exercised and committed
facilities were increased to GBP30 million. GBP23 million was drawn
between 6 June 2018 and 9 August 2018, and GBP20 million was drawn
between 9 August 2018 and 12 September 2018. On 5 October the
extended commitment was cancelled and GBP20 million is now
currently immediately available.
The Group's private loan note facility of GBP50,000,000 (2017:
GBP50,000,000) and GBP27,500,000 (2017: GBP27,500,000) have fixed
rates of 3.99% and 3.000% respectively and the loan note facility
with Standard Life of GBP50,000,000 has a fixed rate of 3.838%.
On 6 March 2017 the Group entered into a debt facility with Bank
of Ireland for an amount of EUR29,100,000, which initially provides
development finance, followed by a five year, term loan once the
four Irish secured assets reach practical completion. The margin on
the new facility is 4% over EURIBOR during the development phase,
stepping down to 3% once practical completion and rent commences at
each scheme. The average rate as at 30 September 2018 on this
facility is 3.03% (2017: 3.03%). On 8 March 2018 the Facility was
extended by a further EUR4,875,000 at a margin of 3.00% over
EURIBOR to refinance the purchase of a completed property.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in realising assets or otherwise raising funds to meet
financial commitments. The Directors regularly review the Group's
forecast commitments against the future funding availability, with
particular reference to the utilisation of and continued access to
existing debt facilities and access to restricted cash balances and
the ongoing commitments to development projects and proposed
acquisitions. The Directors also review the Group's compliance with
covenants on lending facilities.
Contractual maturity analysis for financial liabilities
including interest payments at 30 September:
Due Due
Due or Due between between Due
due less between 3 months 1 and after
than 1 and and 1 5 5
one month 3 months year years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ---------- ---------- --------- --------- ---------
Trade and other payables 2,371 - - - - 2,371
Accruals 624 2,535 2,526 - - 5,685
Non-current borrowings
Principal - - - 11,464 434,948 446,412
Interest payments 376 2,438 15,262 61,478 150,520 230,074
----------------------------- ----------- ---------- ---------- --------- --------- ---------
376 2,438 15,262 72,942 585,468 676,486
Current portion of
non-current borrowings
Principal 91 428 1,944 - - 2,463
Interest payments 5 21 96 - - 122
----------------------------- ----------- ---------- ---------- --------- --------- ---------
96 449 2,040 - - 2,585
Liabilities at 30 September
2018 3,086 2,963 4,470 11,464 434,948 456,931
Future costs of non-current
borrowings 381 2,459 15,358 61,478 150,520 230,196
----------------------------- ----------- ---------- ---------- --------- --------- ---------
Balances at 30 September
2018 3,467 5,422 19,828 72,942 585,468 687,127
----------------------------- ----------- ---------- ---------- --------- --------- ---------
Due or Due Due Due
due less between between between Due
than 1 and 3 months 1 and after
one 3 and 1 5 5
month months year years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ---------- ---------- --------- --------- ---------
Trade and other payables 1,266 - - - - 1,266
Accruals 127 901 2,332 - - 3,360
Non-current borrowings
Principal - - - 11,319 359,264 370,583
Interest payments 2,731 977 12,522 64,173 140,224 220,627
----------------------------- ----------- ---------- ---------- --------- --------- ---------
2,731 977 12,522 75,492 499,488 591,210
Current portion of
non-current borrowings
Principal 153 501 1,559 - - 2,213
Interest payments 7 22 69 - - 98
----------------------------- ----------- ---------- ---------- --------- --------- ---------
160 523 1,628 - - 2,311
Liabilities at 30 September
2017 1,546 1,402 3,891 11,319 359,264 377,422
Future costs of non-current
borrowings 2,738 999 12,591 64,173 140,224 220,725
----------------------------- ----------- ---------- ---------- --------- --------- ---------
Balances at 30 September
2017 4,284 2,401 16,482 75,492 499,488 598,147
----------------------------- ----------- ---------- ---------- --------- --------- ---------
18. Commitments
At 30 September 2018, the Group had commitments of GBP11.4
million (2017: GBP21.3 million) to complete properties under
construction and to settle final accounts and retentions.
19. Material contracts
Investment Adviser
Octopus Healthcare Adviser Ltd is appointed to provide
investment advice under the terms of an agreement originally dated
17 October 2006 as subsequently amended 20 March 2009, 17 February
2013, 24 September 2013, 20 November 2015 and 29 September 2017
(the "Investment Advisory Agreement" or "Agreement").
The Agreement has since been further amended by way of a deed of
amendment dated 10 December 2018. Prior to this amendment (the
"December 2018 amendment") the fees payable under the Agreement
were:
(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; and
(iv) a performance fee based upon total shareholder return.
As at 30 September 2018 the healthcare property asset value
exceeded GBP782 million and no minimum fee applied for the final
quarter ended 30 September 2018.
Following the December 2018 amendment, the tiered investment
advisory fee was changed with effect from 1 October 2018 and the
minimum fee was removed. The notice terms remained unchanged,
providing a rolling contract subject to the Company's ability to
serve two years' notice at any time. The new and former fee tiers
are as follows:
Pre 30 Sep
Post 1 Oct 2018
2018 Property
Property asset asset value
value (GBP'million) (GBP'million)
---------------------------------------------- --------------------- ---------------
Investment advisory fee: investment property
valuation tier applied to annual percentage
0.5% per annum 0 - 250 0-750
0.4% per annum 250 - 1,250 750 - 1,000
0.3% per annum Above 1,250 Above 1,000
---------------------------------------------- --------------------- ---------------
The December 2018 amendment also removed the performance fee
from the Agreement.
Prior to the December 2018 amendment the annual performance fee
was 15% of the amount by which the total shareholder return
exceeded a compound hurdle rate calculated from the 69.0 pence
issue price at 8 April 2009, subject to a high watermark.
The Investment Adviser provides accounting administration
services for no additional fee. In addition, Octopus AIF Management
Limited acts as the Company's Alternative Investment Fund Manager
for an annual fee of GBP1 per annum.
During the year, the agreements with Octopus Healthcare Adviser
Ltd gave rise to GBP5,510,000 (2017: GBP4,792,000) of fees as
follows:
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- --------- ---------
Expensed to the consolidated statement of comprehensive
income:
Investment advisory fee 3,903 3,867
Investment advisory performance fee - -
Property management fees 969 925
Capitalised as part of property acquisition costs:
Corporate acquisition fees 638 -
--------------------------------------------------------- --------- ---------
Total Fees 5,510 4,792
--------------------------------------------------------- --------- ---------
Of these fees, GBPnil (2017: GBPnil) remained unbilled and
GBP1,824,000 (2016: GBP1,146,000) remained outstanding at the end
of the year.
Administrator
Each Group undertaking 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 29 September 2017. Under these
agreements, fees were incurred totalling GBP144,000 (2017:
GBP115,000) for the provision of corporate secretarial services to
all Group companies and other administrative services.
Of these fees GBP27,000 (2017: GBP25,000) remained unbilled or
outstanding at the year end.
Depository
On 29 September 2017 the company entered into an agreement with
IAG Depository Services Limited for the provision of depository
services from 1 October 2017. Under this agreement the fee incurred
for the year was GBP28,000. Of this fee GBPnil remained unbilled or
outstanding at the year end.
20. Investments in joint ventures
The Group has joint control over GP Property Limited which has
issued two ordinary GBP1 voting shares to each of the parties who
have joint control.
GP Property Limited is a Guernsey company which is a joint
venture with General Practice Investment Corporation Limited and
its principal activity is investment in and enhancement of primary
healthcare properties. Joint control is exercised through the joint
venture's board of directors which includes 3 members appointed by
the holders of each class of ordinary share. As at 30 September
2018 the Group holds all the preference shares of the joint venture
which gives the Group rights to 99.99% of the joint venture's net
assets.
Investments in equity accounted joint venture are as
follows:
GBP'000
--------------------------------------- ---------
1 October 2016 -
Preference share capital 1,025
Equity accounted share of net profits 13
Dividends received (3)
As at 30 September 2017 1,035
---------------------------------------- ---------
Investment 27
Equity accounted share of net profits 52
Dividends received (59)
As at 30 September 2018 1,055
---------------------------------------- ---------
The dividends received in the current year were paid in
cash.
Financial information related the joint venture is set out
below.
2018 2017
GBP'000 GBP'000
------------------------------------------- --------- ---------
Non-current assets - -
Current assets (100%) 1,017 967
Current liabilities (100%) (74) (17)
Net assets reported 943 950
------------------------------------------- --------- ---------
Proportion of the Group's rights (99.99%) 943 950
------------------------------------------- --------- ---------
Revenue (100%) 68 24
Expenses (100%) (16) (11)
------------------------------------------- --------- ---------
Net profit (100%) 52 13
------------------------------------------- --------- ---------
21. Related party transactions
During 2017, the Group entered into a joint venture agreement
with General Practice Investment Corporation Limited through a
company called GP Property Limited. The agreement states the Group
will have joint control over the joint venture Company. During the
year, the Company has invested GBP27,000 into the joint venture. In
the year, dividends of GBP59,000 were received and capitalised.
During the year, the Group continued its procurement of assets
from General Practice Investment Corporation under existing arm's
length agreements.
22. Operating leases
At 30 September 2018 the Group had entered into leases in
respect of investment properties for the following rental income,
excluding any future rent reviews:
2018 2017
GBP'000 GBP'000
--------------------------------- --------- ---------
Amounts receivable under leases
Within one year 44,107 40,003
Between one and five years 175,226 160,014
After more than five years 415,283 372,609
--------------------------------- --------- ---------
Total 634,616 572,626
--------------------------------- --------- ---------
The length of a typical new 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 2018:
Nominal
value Type
Country Principal Ownership of shares of share
Name of incorporation activity percentage in issue held
--------------------- ------------------------ --------------------- ------------- ----------- ------------
Held Directly:
MedicX Properties IX England
Limited & Wales Holding company 100% 9 Ordinary
MedicX Properties VI Guernsey Property Investment 100% Nil Ordinary
Limited
MedicX Properties Guernsey Property Investment 100% Nil Ordinary
VIII
Limited
MedicX GPG Holdings Guernsey Property Investment 100% Nil Ordinary
Limited
MedicX Properties Guernsey Property Investment 100% Nil Ordinary
Ireland
Limited
MedicX Properties Guernsey Non-Trading 100% Nil Ordinary
Northern
Ireland Limited
MedicX Properties Guernsey Non-Trading 100% Nil Ordinary
Ireland
2 Limited
Held indirectly:
MedicX Properties I
Limited Guernsey Property Investment 100% 2 Ordinary
MedicX Properties II England
Ltd & Wales Property Investment 100% 2 Ordinary
MedicX Properties
III England
Ltd & Wales Property Investment 100% 1,000 Ordinary
MedicX Properties IV England
Ltd & Wales Property Investment 100% 50,000 Ordinary
MedicX Properties V
Limited Guernsey Property Investment 100% 2 Ordinary
MedicX Properties Guernsey Property Investment 100% Nil Ordinary
VII
Limited
England Non
MedicX (Verwood) Ltd & Wales Trading 100% 1 Ordinary
England
CSPC (3PD) Limited & Wales Holding company 100% 1 Ordinary
Primary Medical
Property England
Limited & Wales Holding company 100% 1 Ordinary
Primary Medical
Property England
Investments Limited & Wales Property Investment 100% 966,950 Ordinary
England
GPG No5 Limited & Wales Property Investment 100% 48,500 Ordinary
England
MedicX LHP Ltd & Wales Dormant 100% 1 Ordinary
England
MedicX LHF Ltd & Wales Dormant 100% 1 Ordinary
MedicX (Fakenham) England
Ltd & Wales Property Investment 100% 100 Ordinary
MedicX Properties OM England
Holdings Ltd & Wales Holding company 100% 20,899 Ordinary
MedicX Properties OM England
Group Ltd & Wales Holding company 100% 19,899 Ordinary
MedicX Properties OM England
Ltd & Wales Property Investment 100% 33,300 Ordinary
MedicX Properties
Windermere England
Ltd & Wales Property Investment 100% 100 Ordinary
MedicX Properties
Otley England
Ltd & Wales Property Investment 100% 100 Ordinary
MedicX Properties
Bridlington England
Ltd & Wales Property Investment 100% 100 Ordinary
--------------------- ------------------------ ---------------------- ------------ ----------- ----------
As at 30 September 2018, MedicX LHP Ltd, MedicX LHF Ltd and
MedicX (Verwood) Ltd are in the process of being liquidated,
whilst, CSPC (3PD) Limited and Primary Medical Property Limited are
in the process of being dissolved.
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 based on 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. 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 2018 and 30
September 2017 were as follows:
2018 2017
GBP'000 GBP'000
--------------------------------- --------- ---------
Total debt 448,875 372,796
Less: cash and cash equivalents (18,888) (32,145)
--------------------------------- --------- ---------
Net debt 429,987 340,651
--------------------------------- --------- ---------
Total assets 835,760 720,711
Less: cash and cash equivalents (18,888) (32,145)
--------------------------------- --------- ---------
Adjusted capital 816,872 688,565
--------------------------------- --------- ---------
Adjusted gearing ratio 52.6% 49.5%
--------------------------------- --------- ---------
25. Post year end events
On 5 October 2018, one undeveloped site held by the Group with
the benefit of a put option to the developer was sold to a third
party because the development project was no longer proceeding.
Total proceeds from the sale together with compensation from the
developer amounted to GBP590,663 which covered all costs plus an
annualised return of 5% for the holding period.
On 11 October 2018, the Group sold its leasehold property
located in Harpenden. The sale price was GBP595,000, exceeding the
net book value of GBP553,000 as at 30 September 2018. Following the
sale, MedicX owned 165 investment properties.
On 10 December it was agreed with the Company's Investment
Adviser that the investment adviser fee would be reduced with
effect from 1 October 2018. The new arrangements will result in a
GBP500,000 per annum saving until the Company's portfolio reaches a
value of GBP1 billion, with tapering savings thereafter.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFSDFDLILIT
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