10th Dec 2007 07:01
The MedicX Fund Limited10 December 2007 For Immediate Release 10 December 2007 MedicX Fund Limited ("MedicX Fund", "the Fund" or "the Company") Results for period to 30 September 2007 MedicX Fund Limited (LSE: MXF, LSE: MXFC), the specialist investor in modernpurpose-built primary healthcare properties in the United Kingdom, todayannounces its results for the first full period of operation ended 30 September2007. Highlights • £147.8m of committed investment in 44 primary healthcare properties at a cash yield of 5.5%1,2 • Ahead of schedule and on track to invest £200m by mid-2008 • Annualised rent roll of £8.3m2 • £125m pipeline of new opportunities2 • £21.5m new equity raised in June 2007 in the form of C Shares, total equity raised £77.7m • Conversion of C shares to ordinary shares on 12 December 2007 at the ratio of one ordinary share for each C share • Adjusted earnings of £1.1m equivalent to 1.7p per share3,5 • Dividend of 2.5p per share4 (equivalent to 2.5p per C share), total dividend for the period 5.0p per share in line with target • Net debt £52.4m (39% adjusted gearing3) • £100m debt facility secured at a fixed rate of 5.0% for a 30 year term • Adjusted net asset value of £77.2m equivalent to 96.9p per share3,5 • Mark to market benefit of debt estimated at £8.5m or 10.7p per share and excluded from adjusted net asset value5 • Discounted cash flow net asset value of £87.5m equivalent to 109.9p per share5 1 Net rent divided by total acquisition price and costs; cash yield on grossrents 5.7% 2 As at 10 December 2007 3 Adjusted to exclude goodwill and the impact of deferred tax not expected tocrystallise 4 Ex dividend date 19 December 2007, Record date 21 December 2007, Payment date11 January 2008 5 After conversion of C shares to ordinary shares Commenting on the results Jorge Tavares, chairman, said "the MedicX Fund hascontinued to build on the successful foundations reported in the interimresults. Our committed investment now stands at £147.8 million and we are ontrack to invest £200 million by mid-2008. More importantly, the MedicX Fund hasinvested in a portfolio of modern purpose-built primary healthcare propertiesleased to Primary Care Trusts and GPs that are expected to serve the long termprimary care needs of communities. The quality of these premises and thisincome stream has been demonstrated through the long term debt funding that hasbeen secured on very attractive terms. The individual property valuations carried out by DTZ Debenham Tie Leung andadopted in the adjusted net asset value reflect a softening of asset prices inline with the general commercial property market. The Board continues tomonitor the investment market carefully and only makes selective acquisitionsthat are in line with the MedicX Fund's investment strategy. The MedicX Fund's market capitalisation has been impacted by association withthe general property market which contrasts with the widespread level ofinterest in infrastructure assets. The Board believes that the MedicX Fund hasmany of the same attributes as the quoted infrastructure funds with long termcash flows from credit-worthy counterparties. For this reason we have alsoincluded within the annual results a calculation of the net asset value basedupon discounted cash flows, the methodology adopted by such funds. Given theMedicX Fund's investment strategy of delivering to shareholders a secure longterm income we believe this is also a useful measure for shareholders." Contacts for the Investment Adviser on behalf of the Board: Keith Maddin +44 (0)1483 869 500 Mike Adams +44 (0)1483 869 500 Contacts for Buchanan Communications: Charles Ryland / Lisa Baderoon / Mary-Jane Johnson +44 (0) 20 7466 5000 Information on MedicX Fund Limited MedicX Fund Limited ("MXF" or the "Company", or together with its subsidiaries,the "Group") the specialist investor in modern purpose-built primary healthcareproperties in the United Kingdom, listed on the London Stock Exchange inNovember 2006. It has committed investment of £147.8 million and a portfolio of44 properties. The Company paid an interim dividend of 2.5p per ordinary share and will pay afurther dividend of 2.5p per ordinary share to give a total dividend forordinary shareholders of 5.0p per share in line with its target. The Company istargeting a progressive long term return. The Investment Adviser to the Company is MedicX Adviser Ltd, which is authorisedand regulated by the Financial Services Authority, and is a subsidiary of theMedicX Group. The MedicX Group is a specialist investor, developer and managerof primary healthcare properties with a team of 30 operating across 4 offices. The Company's website address is www.medicxfund.com Chairman's statement Having recently re-joined the Board, I am pleased to report, on behalf of theBoard, that the MedicX Fund has continued to build on the successful foundationsreported in the interim results. Financial results For the period to 30 September 2007, the Group reports adjusted earnings of £1.1million, equivalent to 1.7p per share3,5. The Group's adjusted net asset valueat 30 September was £77.2 million, equivalent to 96.9p per share3,5. The adjusted net asset value of 96.9p per share represents underlyingperformance enhancement of 8.3p per share, based upon a 100p per share issueprice, 2.5p per share equity fund raising costs, 1.8p per share interim dividendpayment (pro-rata across ordinary and C shares) and 7.1p per share acquisitioncosts5. The mark to market benefit of the Group's fixed rate debt as at 30 September2007 is estimated at £8.5 million or 10.7p per share which has not been includedin the adjusted net asset value5. The net asset value calculated based upon a discounted cash flow analysis of theGroup's investments as at 30 September 2007 is 109.9p per share5. C share conversion The Directors announced on 1 October that more than 75% of the assetsattributable to the C shares had been committed in accordance with the Company'sinvestment policy and that, pursuant to the Company's Articles of Association,the Calculation Time for the conversion of C Shares into Ordinary Shares was 30September 2007. Today I can confirm that the Conversion Time will be 12December 2007 and the Conversion Ratio will be 1.0000 ordinary shares for each Cshare held. Distributions The Directors have approved a further dividend of 2.5p per ordinary share(equivalent to 2.5p per C share) bringing the total dividend for the year forordinary shareholders to 5p per share. This is in line with the target announcedat the time of the Initial Public Offering. The dividend will be paid on 11January 2008 to ordinary shareholders on the register as at 21 December 2007. Valuation The individual property valuations carried out by DTZ Debenham Tie Leung Limitedand adopted in the adjusted net asset value reflect a softening of asset pricesof around a quarter of one per cent in yield terms. The Investment Adviser has produced a fair market valuation of the Group'sinvestments as at 30 September 2007 based upon a discounted cash flow analysis.The Directors have satisfied themselves on the valuation methodology and thediscount rates used. The net asset value at 30 September 2007 calculated onthis basis is 109.9p per share5. Gearing As at 30 September 2007, the Group had net debt of £52.4million (31 March 07:£60.3 million) equating to 39% of the adjusted gross asset value3 excluding cashreported on a consolidated basis and under International Financial ReportingStandards. The group has capacity within existing facilities of £33.8 millionand the Investment Adviser is in the process of securing additional loanfacilities up to the Group's gearing target of 65% loan to gross asset value.It is expected that these will be concluded and announced early in 2008. Portfolio development The Group has committed investment of £147.8 million across 44 properties and ison track to invest £200 million by mid-2008. The portfolio of propertiescontinues to perform in line with our long term objectives and there are nomaterial operational or financial issues to report. Outlook Whilst the global credit crisis has affected many sectors, it has not had asignificant impact on the primary healthcare property market. The demand formodern purpose-built primary healthcare properties remains high. Moving forward we remain positive in our ability to acquire new properties whichmeet our investment criteria. The Board is concerned that the Company's share price has traded at a discountto net asset value since July in line with other quoted property funds. TheBoard is working with the Investment Adviser and its newly appointed broker toimprove this position. The MedicX Fund's market capitalisation has beenimpacted by association with the general property market which contrasts withthe widespread level of interest in infrastructure assets. The Board believesthat the MedicX Fund has many of the same attributes as the quotedinfrastructure funds with long term cash flows with credit-worthycounterparties. For this reason we have also included within the annual resultsa calculation of the net asset value based upon discounted cash flows, themethod adopted by such funds. Given the MedicX Fund's investment strategy ofdelivering to shareholders a secure long term income we believe this is also auseful measure for shareholders. In the current economic climate, the Group's portfolio of primary healthcareproperties, with public sector backed revenue streams, continues to deliver anattractive, low risk yield. The dividend is consistent with our stated policypresented at the time of the Initial Public Offering. Jorge Tavares Chairman 10 December 2007 Report of the Investment Adviser Market The NHS continues to drive for a modernisation of primary care properties, witha particular focus on new larger multi-service medical centres or polyclinics, astrategy reinforced in Lord Darzi's NHS Next Stage Review Interim Report issuedin October. As anticipated in our interim report signs of easing of funding blockages havebeen seen in certain areas of the United Kingdom following the recentreorganisation of the Primary Care Trusts, as the enlarged Primary Care Trustsconclude their assessment of their estate priorities. We expect to see animprovement in the flow of new opportunities as this easing takes effectnationally. Inflationary concerns and the rise in the interest base rate earlier in the yearput pressure on the wider commercial property market, and led to a downgradingof property valuations and property share prices generally. The market is nowplacing greater value on the larger modern healthcare properties; this is verymuch consistent with the investment policy for MedicX Fund. With public sector backed income and long term security of tenant, we continueto see primary healthcare properties as an asset class distinct from generalcommercial property, with characteristics closer to a gilt-based investment orinfrastructure asset. Both the ordinary and C share prices have suffered byassociation with general commercial property stocks and the ordinary sharestrade at a significant discount to net asset value at the date of this reportwhereas infrastructure funds are trading broadly in line with their net assetvalues. Portfolio update The MedicX Fund has committed investment at today's date of £147.8 million at acash yield of 5.5%1. This is ahead of schedule and on target to meet thecurrent objective of £200 million invested by mid-2008. The annualised rentroll of the portfolio properties is £8.3 million2. As at 30 September 2007, the portfolio properties had an average age of 3.2years, remaining lease length of 19.8 years and value of £3.4 million. Of therents payable 93% are from doctors and Primary Care Trusts/Local Health Boards,5% from pharmacies and 2% from other parties. Two properties under development, at Withymoor and Bridport, were completedduring the period and the construction of two further properties, at Wollatonand Evesham have completed since 30 September 2007. Since the year end, forwardfunding arrangements have been entered into for construction of two propertiesat Gosberton and Castlecroft for a total investment of £4.9m. For the period to 30 September fifteen rent reviews were completed, adding£144,000 to the rent roll, representing average increases in rent (as apercentage of passing rent) of 14.8% equating to 4.8% per annum. Reviewsoutstanding at 30 September relate to £990,000 of passing rent. Assetmanagement opportunities have also been identified in respect of a number of theproperties in the portfolio. MedicX Adviser has recently agreed a facilities management contract with Gleedsto offer support for both landlord and tenant repairs and maintenanceobligations. The additional services offered to GPs and Primary Care Trusts hasbeen well received by tenants and should help ensure that the quality of theassets is maintained. MedicX Adviser has also, where possible, pooled insurancearrangements across properties and realised insurance savings. Pipeline and investment opportunity MedicX Fund has forward funding agreements in place with Primary Asset Ltd, thedevelopment arm of the MedicX Group, and with primary care developers Oakappleand Medcentres providing the MedicX Fund with a continuing pipeline ofopportunities. In addition, the Investment Adviser has establishedrelationships with a number of other developers in the sector that are providinga pipeline of opportunities for the MedicX Fund. The Investment Adviser has access to a pipeline, subject to contract, which isestimated to be worth approximately £125 million in value when fully developed,including MedicX Group's own pipeline of projects with a value of approximately£85 million2. Valuation The individual property valuations carried out by DTZ Debenham Tie Leung Limitedand adopted in the adjusted net asset value reflect a softening of asset pricesof around a quarter of one per cent in yield terms to a net initial yield of5.22%. The net valuation gain reported on the profit and loss account is £2.1million compared with the gain of £4.1 million reported in the interim report. This yield is attractive when compared to sub 4.6% Retail/Office6 yields,particularly given the long term secure income, typical 3 yearly effectiveupward only rent reviews and lack of voids in the MedicX Fund portfolio. The Investment Adviser, on the Company's behalf, has separately carried out afair market valuation of the Group's investments as at 30 September 2007. Thevaluation has been prepared in a similar way to other quoted infrastructurefunds using a discounted cash flow analysis. The discount rates used for valuing the projects in the portfolio are 7% forcompleted and occupied properties and 8% for properties under construction.These represent 2.5% - 3.5% risk premiums to an assumed 4.5% long term giltrate. The weighted average is 7.22%. The discounted cash flows assume an average 3% per annum increase in individualproperty rents at their respective review dates, residual values based uponcapital growth at 1% per annum until the expiry of leases and 65% gearing. The Group's portfolio was valued on this discounted cash flow basis as at 30September 2007 at £87.5 million or 109.9p per ordinary share5. Investment Adviser developments In November 2007, MedicX Adviser obtained authorisation from the FinancialServices Authority to expand upon the property advisory services provided to theMedicX Fund to include the following regulated activities: promotion, provisionof fund management and corporate investment advice. As a result of thesechanges MedicX Adviser is now referred to as the Investment Adviser. MedicX Group as a whole has continued its expansion and has further increasedits staff numbers to 30 employees, and has recently opened an office inEdinburgh to supplement those in Godalming, Nottingham and Warrington. In order to reduce any cash drag the Investment Adviser has agreed to excludecash from the calculation of gross assets for fee purposes. We remain optimistic about the attractions of the sector and the prospects forthe MedicX Fund. The intention of the MedicX Group is to acquire £0.5 millionof MedicX Fund shares post the announcement of the MedicX Fund's annual results. Keith Maddin Chairman Mike Adams Managing Director MedicX Adviser Ltd 1 Net rent divided by the total acquisition price and costs; cash yield on grossrents 5.7% 2 As at 10 December 2007 3 Adjusted to exclude goodwill and the impact of deferred tax not expected tocrystallise 4 Ex dividend date 19 December 2007, Record date 21 December 2007, Payment date11 January 2008 5 After conversion of C shares to ordinary shares 6 October 2007 IPD Consolidated Income StatementFor the period from 25 August 2006 to 30 September 2007 Notes £'000 Income Rent receivable 2 4,747Finance income 2 2,280Net valuation gains on investment properties 9 2,061Other income 236Total income 9,324 ExpensesProperty advisory fee 20 1,996Property management fee 20 137Direct property expenses 82Administrative fees 20 231Audit fees 4 98Professional fees 146Directors' fees 3 147Other expenses 602Finance costs 5 4,246Provision for impairment of properties under construction 9 540Total expenses 8,225 Profit before tax 1,099 Taxation 6 585 Profit after taxation 514 Earnings per ordinary share 7 Normal and diluted 1.1p Earnings per C shareNormal and diluted 7 (0.1)p 1. All items in the above statement are derived from continuing operations. Theaccompanying notes form an integral part of the preliminary announcement, andthe preliminary announcement does not constitute the statutory accounts. 2. Included in Note 7 is an adjusted earnings per share calculation that adjustsfor the impact of deferred tax which, based on the expected manner ofrealisation of the carrying amount of investment properties, is unlikely tocrystallise. 3. There were no material transactions between the date of incorporation, 25August 2006, and 2 November 2006, the date on which the Company's ordinaryshares were listed on the London Stock Exchange. Consolidated Balance Sheetas at 30 September 2007 Notes £'000Non-current assetsGoodwill 8 5,953Investment properties 9 112,325Properties under construction 9 19,569Total non-current assets 137,847 Current assetsTrade and other receivables 10 2,983Cash and cash equivalents 17 48,825Total current assets 51,808 Total assets 189,655 Current liabilitiesTrade and other payables 11 6,704 Non-current liabilitiesLong-term loan 12 99,816Deferred tax provision 6 6,352Total non-current liabilities 106,168 Total liabilities 112,872 Net assets 76,783 EquityShare capital 13 -Share premium 14 1,585Distributable reserves 15 74,684Retained earnings 514 Total equity 76,783 Net asset value per share Ordinary - Normal and diluted 7 96.3p C - Normal and diluted 7 96.8p The preliminary announcement was approved by the board of directors on 7December 2007 The accompanying notes form an integral part of the financial statements. Consolidated Statement of Changes in Equityfor the period from 25 August 2006 to 30 September 2007 Share Distributable Retained Total Premium Reserve Earnings £'000 £'000 £'000 £'000 Proceeds on issue of shares 79,710 - - 79,710 Share issue costs (2,005) - - (2,005) Transfer from share premium (76,120) 76,120 - - Profit attributable to equity holders for theperiod - - 514 514 Dividend paid - (1,436) - (1,436)Balance at 30 September 2007 1,585 74,684 514 76,783 The accompanying notes form an integral part of the financial statements. Consolidated Cash Flow Statementfor the period from 25 August 2006 to 30 September 2007 Notes £'000Operating activitiesProfit before taxation 1,099Adjustments for:Net valuation gains on investment property (1,521)Financial income received (2,280)Finance costs paid and similar charges 4,246 1,544 Increase in trade and other receivables (1,214)Increase in trade and other payables 2,809Interest paid (3,189)Interest received 2,268Net cash inflow from operating activities 2,218 Investing activitiesAcquisitions net of cash acquired 17 (11,981)Purchase of investment properties (38,082)Net cash outflow from investing activities (50,063) Financing activitiesNet proceeds from issue of share capital 76,116 (37,849)Bank loans repaid on acquisition (41,363) Other loan repaid on acquisitionNet proceeds of long term borrowings 101,202Dividends paid (1,436)Net cash inflow from financing activities 96,670 Increase in cash and cash equivalents 48,825 Cash and cash equivalents at 30 September 2007 17 48,825 The accompanying notes form an integral part of the financial statements. 1. Business and objective MedicX Fund Limited was incorporated in Guernsey on 25 August 2006 and commencedtrading on 2 November 2006 on listing on the London Stock Exchange. Notransactions took place between the date of incorporation and the date oflisting. MedicX Fund Limited ("the Company") and its subsidiaries (together "the Group")have been established for the purpose of investing in primary healthcareproperties in the United Kingdom. The Group's investment objective is toachieve rising rental income and capital growth from the ownership of aportfolio of mainly modern, purpose-built, primary healthcare properties. TheGroup is self-managed and receives investment and property advice, andmanagement services from MedicX Adviser Ltd, a member of the MedicX Group, anindependent group of companies which is a specialist developer of, investor in,and manager of primary healthcare properties. The Company's investment policy is to acquire primary healthcare properties inthe United Kingdom, some of which may have potential for enhancement, which willbe sourced in the market by MedicX Adviser Ltd, including properties formingpart of the MedicX Group's own pipeline of development and investmentopportunities. 2. Principal accounting policies Basis of preparation and statement of compliance The financial statements of the Group have been prepared in conformity withInternational Financial Reporting Standards ("IFRS") issued by the InternationalAccounting Standards Board ("IASB"), interpretations issued by the InternationalFinancial Reporting Interpretations Committee ("IFRIC") and applicable legal andregulatory requirements of Guernsey Law. The financial statements have beenprepared on a going concern basis. The principal accounting policies are set outbelow. Impact of revision to International Financial Reporting Standards In preparing these financial statements, the Board have chosen not to earlyadopt any revisions to International Financial Reporting Standards. Those standards which have been revised or introduced and that are relevant tothe activities of the Group are IAS 1 Presentation of financial statements andIFRS 7 Financial Instrument: Disclosures, which replaces IAS 30 and IAS 32.Both of these revisions deal with disclosures and presentation of financialstatements and will not have an impact on the Group's equity. The IASB and IFRIC have issued the following standards and interpretations withan effective date after the date of these financial statements: International Accounting Standards (IAS/IFRS) Effective dateIFRS 7 Financial Instruments: Disclosures 1 January 2007IFRS 8 Operating Segments 1 January 2009IAS 1 Amendment - Presentation of Financial Statements: Capital Disclosure 1 January 2007 International Financial Reporting Interpretations CommitteeIFRIC 10 Interim Financial Reporting and Impairment 1 November 2006IFRIC 11 IFRS 2 - Group and Treasury Share Transactions 1 March 2007IFRIC 12 Service Concession Arrangements 1 January 2008 The directors do not anticipate that the adoption of these standards andinterpretations will have a material impact on the Company's financialstatements in the period of initial application. Basis of consolidation The Group financial statements consolidate the financial statements of MedicXFund Limited and entities controlled by the Company (its subsidiaryundertakings) made up to 30 September 2007. Control is achieved where theCompany has the power to govern the financial and operating policies of aninvestee entity so as to benefit from its activities. The results ofsubsidiaries acquired during the period are included in the consolidated incomestatement from the effective date of acquisition. All intra-group transactions,balances, income and expenses are eliminated on consolidation. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values at thedate of exchange of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquired company,plus any costs directly attributable to the business combination. The acquiredcompanies' assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 are recognised at their fair value atthe acquisition date. The details of the companies acquired and how they havebeen treated are dealt with in Note 16. Segmental reporting The Directors are of the opinion that the Group is engaged in a single segmentof business, being investment in primary healthcare properties in the UnitedKingdom. Revenue recognition Rental income exclusive of any value added taxes is included in the financialstatements on an accruals basis and is shown gross of any UK income tax.Finance income and fees receivable are included in the financial statements onan accruals basis. Expenses All expenses are accounted for on an accruals basis. Employees The Company has no employees. Taxation The tax liability represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the period. Deferred tax is the tax which may become payable or recoverable on differencesbetween the carrying amount of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent it is probable that taxableprofits will be available against which deductible temporary differences can beutilised. Goodwill Goodwill arising on acquisition is accounted for as the difference between thefair value of the consideration given and the fair value of the Group share ofidentifiable net assets of the subsidiary acquired. Goodwill is initiallyrecognised as an asset at cost and is subsequently measured at cost less anyaccumulated impairment losses. Goodwill arising on acquisition has anindefinite useful life and is subject to annual review for any impairment.Goodwill is allocated to the appropriate cash generating unit. The recoverableamount is the higher of the fair value less the costs to sell and the value inuse. Investment properties The Group's completed properties are held for long-term investment. Freeholdproperties are initially recognised at cost, being fair value of considerationgiven including transaction costs associated with the property. After initialrecognition, freehold properties are measured at fair value, with unrealisedgains and losses recognised in the consolidated income statement. Both the basecosts and valuations take account of integral core fixtures and fittings. Fairvalue is based upon the open market valuations of the properties as provided byDTZ Debenham Tie Leung, a firm of independent chartered surveyors, as at thebalance sheet date. Long leasehold properties are accounted for as freehold properties and, afterinitial recognition at cost, are measured at fair value (on the same basis asfreehold properties above). Properties under construction Freehold properties under construction are valued at cost until such time as acertificate of practical completion has been issued from which date they aretreated as Investment Properties as set out above. At each balance sheet datean assessment is made of whether provision is required to reflect any impairmentin the value of development work in progress. Any impairment is taken to theconsolidated income statement. This assessment is based on whether the costs todate plus estimated future costs to completion exceed an independent valuer'sestimate of the value of the property following completion. Costs of financingdevelopment are capitalised and included in the cost of development. During theperiod there were no material borrowing costs on development work in progressand none were capitalised. Derivative financial instruments and hedging activities The Group has no derivative financial instruments. Cash and cash equivalents Cash on hand and deposits in banks are carried at cost. Cash and cashequivalents are defined as cash in hand, demand deposits, and highly liquidinvestments readily convertible to known amounts of cash and subject toinsignificant risk of changes in value. For the purposes of the ConsolidatedCash Flow Statement, cash and cash equivalents consist of cash in hand anddeposits in banks. Trade and other receivables Trade and other receivables are measured at initial recognition at theirinvoiced value inclusive of any value added taxes that may be applicable.Provision is made for any doubtful debts which are not deemed recoverable. Trade and other payables Trade and other payables are recognised and carried at their invoiced valueinclusive of any value added taxes that may be applicable. Bank loans and borrowings All bank loans and borrowings are initially recognised at cost, being fair valueof the consideration received, less issue costs where applicable. After initialrecognition, all interest-bearing loans and borrowings are subsequently measuredat amortised cost. Amortised cost is calculated by taking into account anydiscount or premium on settlement. Finance costs Borrowing costs are taken to the consolidated income statement in the period towhich they relate on an accruals basis. Use of estimates In the process of applying the Company's accounting policies described above,management is required to make certain judgements and estimates to arrive atfair carrying value for its assets and liabilities. Significant areas requiringmanagement's judgement include the fair value of the assets and liabilities ofsubsidiaries acquired and the assessment of the fair value of development workin progress described above. The valuations are performed by a firm ofindependent chartered surveyors applying current Appraisal and ValuationStandards of The Royal Institution of Chartered Surveyors. 3. Directors' fees £'000During the period each of the Directors received the following fees: J M S Tavares 25S Mason 32C Bennett 30A Simpson 30J Hearle 30 147 4. Audit fees The amount disclosed in the consolidated income statement relates to an accrualfor audit fees for the period ending on 30 September 2007, payable to PKF(Guernsey) Limited. Non-audit fees paid to PKF (UK) LLP, a fellow member of PKF International,include the following amounts: £'000 Completing financial due diligence on the acquisition of subsidiaries and included in the cost of purchase 92 For acting as reporting accountants in respect of the initial listing and set off against share premium 50 For acting as reporting accountants in respect of the C Share issue and included in other debtors and 55prepayments For acting as auditors for the non-statutory audit in respect of the C Share issue and included in other 47debtors and prepayments Other professional services including tax advice 26 270 5. Finance costs £'000 Interest payable on long- term loan 4,246 6. Taxation £'000Current TaxCorporate tax charge for the period - Deferred TaxOn fair value movement for the period 585Total income tax charged in the income statement 585 The Board have estimated that for the period under review the Group does nothave any profits chargeable to tax in jurisdictions outside Guernsey. The Company and its Guernsey registered subsidiaries, MedicX Properties ILimited and MedicX Properties V Limited, have obtained exempt company status inGuernsey under the terms of Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989so that they are exempt from Guernsey taxation on income arising outsideGuernsey and on bank interest receivable. Each Guernsey company is, therefore,only liable to a fixed fee of £600 per annum. The Directors intend to conductthe Group's affairs such that it continues to remain eligible for exemption.Guernsey companies are taxable on UK net rental income. During the period notax arose in respect of the income of any of the Guernsey companies. TheCompany's UK subsidiaries, MedicX Properties II Ltd, MedicX Properties III Ltd,MedicX Properties IV Ltd, MedicX (Verwood) Ltd and MedicX (Istead Rise) Ltd aresubject to United Kingdom corporation tax on their profits less losses. A reconciliation of the income tax charge applicable to the results fromordinary activities at the statutory income tax rate to income tax expense atthe Group's effective income tax rate is set out below. The Group's mainrevenue stream is rental income and therefore the rate of 22% for schedule Aincome tax has been used. £'000Profit before tax 1,099 UK income tax at 22% 242Net revaluation gains not taxable (221)Income not taxable (200)Losses arising not relievable against current tax 179Current taxation - The calculation of the Group's tax charge necessarily involves a degree ofestimation in respect of certain items whose tax treatment cannot be finallydetermined until a formal resolution has been reached with the relevant taxauthorities. Deferred taxation provision £'000Deferred tax is provided as follows: Balance on acquisition 193 On fair value gain arising on acquisition 5,574 On movement in period 585Total deferred tax provision per the balance sheet 6,352 All deferred tax relates to the fair value gains on the Group's investmentproperty portfolio. As required by IAS 12, full provision has been made for the temporary timingdifferences arising on the fair value gain of investment properties held by UKresident companies that have passed through the Group's consolidated incomestatement. In the opinion of the Directors, this provision is only required toensure compliance with IAS 12. It is the Directors' view that the liabilityrepresented by the deferred tax provision is unlikely to crystallise as, incommon with practice in the sector, the Group would sell the company that holdsthe property portfolio rather than sell an individual property. Had theprovision not been made, the Group's earnings for the period would be £585,000higher. 7. Earnings and net asset value per ordinary share The basic and diluted earnings per ordinary share are based on the profit forthe period attributable to ordinary shares of £539,000 and on 47,431,316ordinary shares being the weighted average aggregate of ordinary shares in issuecalculated over the period from incorporation on 25 August 2006 to the balancesheet date. This gives rise to a basic and diluted earnings per share of 1.1pence per share. The basic and diluted earnings per C share are based on the loss for the periodattributable to C shareholders of £24,000 and on 22,160,500 shares being theweighted average aggregate of C shares in issue calculated over the period fromissue on 4 June to the balance sheet date. This gives rise to a basic anddiluted loss per share of (0.1) pence per share. The basic and diluted net asset value per ordinary share are based on the netasset position at the balance sheet date attributable to ordinary shares of£55,338,000 and on 57,460,715 ordinary shares being the aggregate of ordinaryshares in issue at the balance sheet date. This gives rise to a basic anddiluted net asset value per share of 96.3 pence per share. The basic and diluted net asset value per C share are based on the net assetposition at the balance sheet date attributable to the C shares of £21,445,000and on 22,160,500 shares being the aggregate of C shares in issue at the balancesheet date. This gives a basic and diluted net asset value per share of 96.8pence per share. Adjusted earnings per share and net asset value per share The Directors believe that the following adjusted earnings per share and netasset value per share are more meaningful key performance indicators for theGroup. Adjusted basic and diluted earnings per ordinary share 1.9pAdjusted net asset value per ordinary share - basic and diluted 97.0pAdjusted basic and diluted earnings per C share (0.0)pAdjusted net asset value per C share - basic and diluted 96.9p The adjusted earnings per ordinary share is based on the profit for the periodattributable to ordinary shares of £539,000, adjusted for the impact of thedeferred tax charge attributable to ordinary shares for the period of £563,000,giving an adjusted earnings figure of £1,102,000 and on 57,289,028 ordinaryshares being the weighted average number of ordinary shares in issue in theperiod from commencement of operations on 2 November 2006 to the balance sheetdate. The adjusted net asset value per ordinary share is based on the net assetposition attributable to ordinary shares at the balance sheet date of£55,338,000 as adjusted for deferred tax of £6,109,000 and goodwill of£5,732,000, giving an adjusted net assets figure of £55,715,000 and on57,460,715 ordinary shares, being the aggregate of ordinary shares in issue atthe balance sheet date. The adjusted earnings per C share is based on the loss for the periodattributable to C shares of £24,000 adjusted for the impact of deferred taxcharge for the period attributable to the C shares of £22,000 giving an adjustedloss figure of £2,000 and on 22,160,500 C shares, being the weighted averagenumber of C shares in issue in the period from issue to the balance sheet date. The adjusted net asset value per C share is based on the net asset position atthe balance sheet date attributable to the C shares of £21,445,000 as adjustedfor deferred tax of £243,000 and goodwill of £221,000, giving an adjusted netassets figure of £21,467,000 and on 22,160,500 shares being the aggregate of Cshares in issue at the balance sheet date. In common with practice in the sector, the Group would sell the UK company orcompanies that hold the properties rather than sell an individual property.Consequently, it is the Directors' view that the liability represented by thedeferred tax provision is unlikely to crystallise. 8. Goodwill £'000Arising on acquisitions 5,953 Carrying amount at 30 September 2007 5,953 The goodwill arose on the acquisition of MedicX Properties III Ltd, MedicXProperties IV Ltd and MedicX (Istead Rise) Ltd. The Board have reviewed thecarrying value of goodwill and they do not consider that there has been animpairment in its carrying value. 9. Investment properties Investment properties are initially recognised at cost, being fair value ofconsideration given including transaction costs associated with the property.After initial recognition, freehold properties are measured at fair value, whichhas been determined based on valuations performed by DTZ Debenham Tie Leung asat 30 September 2007, on the basis of open market value, supported by marketevidence, in accordance with International Valuation Standards. In accordancewith industry standards, the valuation is net of purchaser costs which areapproximately 5.75% of purchase price. Included in properties under construction is a property at cost of £2,101,000which is subject to an agreement whereby the Group have the right to require thevendor or third party to re-purchase the property at cost in the event that aproject development contract is not entered into within eighteen months of theacquisition date. Under the same agreement the other parties to the agreementhave the right to require the Group to sell the property to them at cost if,after one year and before eighteen months of the agreement date, no projectdevelopment agreement has been entered into. Completed Properties Total investment under £'000 properties construction £'000 £'000 Acquisitions at cost/fair value 94,414 35,959 130,373Transfer to completed properties 15,850 (15,850) -Fair value revaluation 2,061 - 2,061Impairment - (540) (540) 112,325 19,569 131,894 The investment properties are security for the long-term loan as disclosed innote 12. 10. Trade and other receivables £'000Rent receivable 535Other debtors and prepayments 1,403VAT recoverable 1,045 2,983 Included in other debtors and prepayments is £50,000 due from MedicX AdviserLimited. 11. Trade and other payables £'000Bank loans 1,387Trade creditors 978Deferred rental income 1,402Interest payable and similar charges 1,057Accruals 1,166Other creditors 714 6,704 The bank loan is secured on one investment property and has a remaining term of11 years. It is expected that the loan will be repaid within one year from thebalance sheet date. 12. Long-term loan £'000Amount drawn down in period 100,000Loan issue costs (185)Amortisation of loan issue costs 1 99,816 The Company's subsidiary, MedicX Properties I Limited, took out a loan facilityagreement for £100,000,000 with The General Practice Finance Corporation Limited("GPFC") at a fixed rate of 5.008% on an interest only basis which was fullydrawn down on 1 December 2006, with the cash held on deposit to meet futureinvestment requirements. This loan was due for repayment in its entirety on 1December 2036. GPFC is now trading as Norwich Union Commercial Finance. On 20 September 2007 the loan was refinanced and replaced by loans to MedicXProperties I Limited; £30,000,000, MedicX Properties II Ltd; £33,000,000, MedicXProperties III Ltd; £9,000,000 and MedicX Properties IV Ltd; £28,000,000 withthe same terms and conditions. Under the terms of the loans, further charges will be incurred when amounts aretaken off deposit and utilised for investment purposes. The charges for thesewithdrawals depend on the quantum of the withdrawal and will be recognised asand when withdrawals are made, and are added to the loan issue costs. The value of the loan on an amortised cost basis at 30 September 2007 was£99,816,000. The Company does not mark to market its £100 million fixed interest debt in itsfinancial statements. A mark to market calculation gives an indication of thebenefit or cost to the Company of the fixed rate debt given the prevailing costof debt over the remaining life of the debt. An approximate mark to marketcalculation has been undertaken following advice, by taking the increase in theunderlying 2032 gilt rate from the last business day of the financial period (28September 2007) and calculating the present value of the difference in the tworates over the term of the loan and discounting the cash flows at the prevailingLIBOR rate. The approximate mark to market benefit to the Company is£8,546,000. During the year, the Group's bank borrowings were subject to the followingfinancial covenants: (i) monies released from deposit must not exceed 65% of the property valuecharged; (ii) the net loan amount must not exceed 75% of the market value of mortgagedproperty; and (iii) long term rental income from the properties charged must cover 140% ofprojected finance costs. The Group has been in compliance with the financial covenants throughout theperiod since issue. The loan is secured on the Group's investment properties. As at 30 September 2007 the Group had £33.8 million on deposit secured againstthe loan. 13. Share capital Number of shares Share Capital £'000 AuthorisedOrdinary shares of no par value Unlimited - Issued and fully paidOrdinary shares of no par value 57,460,715 -C shares of no par value 22,160,500 - The Company issued 2 ordinary shares for £1 each on incorporation on 25 August2006 and a further 55,960,713 ordinary shares for £1 each on 2 November 2006pursuant to an offering and listing on the London Stock Exchange. A further1,500,000 shares were issued on 26 February 2007 for a fair value of £1,588,750in connection with the purchase of subsidiaries. On 4 June 2007 22,160,500 C shares were issued for £1 each. The C shares are convertible into Ordinary Shares in accordance with the termsset out in the Placing and Offer Document of May 2007. They do not carry theright to attend or vote at any general meeting of the company except in respectof certain specific circumstances as set out in the C share Placing and Offerdocument. 14. Share premium £'000At 25 August 2006 -Proceeds arising on issue of Ordinary Shares on 2 November 2006 55,961Proceeds arising on issue of Ordinary Shares on 26 February 2007 1,589Proceeds arising on issue of C shares on 4 June 2007 22,160Allocation of issue costs (2,005)Transfer to distributable reserve (note 15) (76,120)Share premium at 30 September 2007 1,585 15. Distributable reserve The Company applied to the Royal Court in Guernsey on 8 November 2006 totransfer its entire share premium account on that date (£54,651,000) to adistributable reserve and this was approved on 10 November 2006. On 20 July2007 the company applied to the Royal Court of Guernsey to transfer the amountstanding to the credit of the share premium account attributable to the C shares(£21,469,000) to a distributable reserve. Approval was granted on 3 August2007. The distributable reserve is freely distributable with no restrictionshaving been applied by the Court. 16. Acquisition of subsidiaries MedicX Properties II MedicX Properties MedicX Properties IV MedicX (Istead Total Ltd III Ltd Ltd Rise) Ltd Book Fair Book Fair Book Fair Book Fair Book Fair value value value value value value value value value value £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Net assets acquired Investment properties 32,936 32,936 9,412 12,405 16,760 26,937 1,385 2,100 60,493 74,378 Properties underconstruction 7,653 7,653 - - 4,989 10,790 - - 12,642 18,443Trade and otherreceivables 20 20 245 245 867 754 55 55 1,187 1,074Cash and cash equivalents 1,196 1,196 87 87 1,797 1,797 - - 3,080 3,080Trade and other payables (814) (814) (209) (209) (398) (398) (43) (43) (1,464)(1,464) Current tax liabilities 368 368 (59) (59) 203 203 - - 512 512 Bank loans and otherloans (41,359) (41,359) (7,559) (7,559) (28,880) (28,880) (1,410) (1,410) (79,208)(79,208) Deferred tax liabilities - - (32) (863) (160) (4,682) - (221) (192) (5,766) - - 1,885 4,047 (4,822) 6,521 (13) 481 (2,950) 11,049Goodwill - 876 4,856 221 5,953Total consideration - 4,923 11,377 702 17,002 Satisfied by:Cash - 3,515 9,833 702 14,050Directly attributable costs - 363 1,000 - 1,363Issue of shares - 1,045 544 - 1,589 - 4,923 11,377 702 17,002 Number of shares issued - 1,000 500 - 1,500Net cash outflow arising onacquisitionCash consideration - (3,515) (9,833) (702) (14,050)Cash and cash equivalents acquired 1,196 87 1,797 - 3,080 1,196 (3,428) (8,036) (702) (10,970) Date of acquisition 2/11/06 4/12/06 22/12/06 24/07/07Rental income for period 883 220 418 23Profit before tax attributable toacquired company excluding intragroup charges 805 171 398 2 MedicX Properties II Ltd was acquired for £2. The above acquisitions areproperty investment companies and are wholly owned. MedicX (Istead Rise) Ltd isa wholly owned subsidiary of MedicX Properties V Limited. It is not practicable to determine the revenue and profit or loss which wouldhave arisen from MedicX Properties III Ltd and MedicX Properties IV Ltd if theyhad been purchased on the commencement of operations on 2 November 2006. In addition to the above, the Company has two further wholly owned subsidiaries,MedicX Properties I Limited and MedicX Properties V Limited which are alsoproperty investment companies and have been owned since incorporation on 11September 2006 and 21 December 2006 respectively. MedicX (Verwood) Ltd is asubsidiary of MedicX Properties IV Ltd and was acquired at the same time. 17. Cash flow notes Acquisition of subsidiaries MedicX MedicX MedicX MedicX (Istead Properties II Properties III Properties IV Rise) Ltd Ltd Ltd Ltd Total £'000 £'000 £'000 £'000 £'000Cash 1,196 87 1,797 - 3,080Trade and other receivables 20 245 754 55 1,074Goodwill - 876 4,856 221 5,953Investment properties 32,936 12,405 26,937 2,100 74,378Properties in the course of construction 7,653 - 10,790 - 18,443Trade and other payables (446) (1,131) (4,877) (264) (6,718)Bank and other loans (41,359) (7,559) (28,880) (1,410) (79,208)Total purchase price - 4,923 11,377 702 17,002 LessShares issued as part of consideration - 1,045 544 - (1,589)Cash acquired 1,196 87 1,797 - (3,080)Acquisition costs accrued not yet paid - - 352 - (352) Net cost of acquisition (1,196) 3,791 8,684 702 11,981 Cash and cash equivalents Cash in hand and balances with banks 48,825 Cash and cash equivalents comprise cash held by the group and short term bankdeposits with an original maturity of three months or less. The carrying amountof these assets approximates their fair value. Major non cash transactions Shares were issued as part of the consideration for the acquisition of MedicXProperties III Ltd and MedicX Properties IV Ltd, details of which are includedin note 13. 18 Dividends An interim dividend of £1,436,000 representing 2.5 pence per share was declaredon 24 May 2007 and paid during the period. The Directors have approved a dividend of 2.5 pence per ordinary share. 19. Financial instruments and properties The Group holds cash and liquid resources as well as having debtors andcreditors that arise directly from its operations. The main risks arising from the Group's financial instruments and properties aremarket price risk, credit risk, liquidity risk and interest risk. The Boardregularly reviews and agrees policies for managing each of these risks and theseare summarised below. Market price risk The Group's exposure to market price risk is comprised mainly of movements inthe value of the Group's investment in property. Property and property relatedassets are inherently difficult to value due to the individual nature of eachproperty. As a result, valuations are subject to uncertainty. There is noassurance that the estimates resulting from the valuation process would reflectthe actual sales price even where sale occurs shortly after the valuation datehowever there is no intention to sell any of the properties at the date of thereport. Rental income and the market value for properties are generally affected byoverall conditions in the local economy, such as growth in gross domesticproduct, employment trends, inflation and changes in interest rates. Changes ingross domestic product may also impact employment levels, which in turn mayimpact the demand for premises. Furthermore, movements in interest rates mayalso affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factorsspecific to the real estate market, such as competition from other propertyowners, the perceptions of prospective tenants of the attractiveness,convenience and safety of properties, the inability to collect rents because ofthe bankruptcy or the insolvency of tenants or otherwise, the periodic need torenovate, repair and release space and the cost thereof, the costs ofmaintenance and insurance, and increased operating costs. The Directors monitor market value by having independent valuations carried outsix monthly by DTZ Debenham Tie Leung. Credit risk Credit risk is the risk that an issuer or counterparty will be unable orunwilling to meet a commitment that it has entered into with the Group. In theevent of a default by an occupational tenant, the Group will suffer a rentalincome shortfall and incur additional costs, including legal expenses, inmaintaining, insuring and re-letting the property. The default risk isconsidered low due to the nature of Primary Care Trust funding for GP practices. Liquidity risk Liquidity risk is the risk that the Group will encounter in realising assets orotherwise raising funds to meet financial commitments. Investments in propertyare relatively illiquid however the Group has tried to mitigate this risk byinvesting in desirable properties which are well let to General Practitionersand Primary Care Trusts. Interest rate risk The interest rate profile of the Group at 30 September 2007 was as follows: Assets on which Weighted average Fixed Variable no interest is interest rate per Total rate rate received annum £'000 £'000 £'000 £'000 % Financial assetsGoodwill 5,953 - - 5,953 - 112,325 - - 112,325 -PropertiesProperties under 19,569 - - 19,569 -constructionDebtors 2,983 - - 2,983 -Cash and cash equivalents 48,825 - 48,825 - 5.7%Total assets as perbalance sheet 189,655 - 48,825 140,830 - Total Fixed rate Variable Liabilities on Weighted average rate which no interest rate per interest is annum paid £'000 £'000 £'000 £'000 %Financial liabilitiesBank loans 101,203 101,203 - - 5.0%Creditors 5,317 - - 5,317 -Deferred tax provision 6,352 - - 6,352 -Total liabilities as per balancesheet 112,872 101,203 - 11,669 - 19. Commitments At 30 September 2007 the Group had commitments of £9.4 million to completeproperties under construction. 20. Material contracts and related party transactions Investment Adviser MedicX Adviser Ltd is appointed to provide property advice under the terms of anagreement dated 17 October 2006 and amended on 2 May 2007. Fees payable underthis agreement are (i) 1.5% per annum on gross assets by way of propertyadvisory fee; (ii) a property management fee of 3% of gross rental income; (iii)a corporate transaction fee of 1% of the gross asset value of any propertyowning subsidiary company acquired; and (iv) a performance fee of 15% of theamount by which the return to shareholders in terms of share price growth pluscumulative dividends paid exceeds the initial offer price compounded annually by10% in each accounting period. During the period MedicX Adviser Ltd also received £24,000 for providingadministrative services to MedicX Properties II Ltd, MedicX Properties III Ltdand MedicX Properties IV Ltd. During the period, the agreements with MedicX Adviser gave rise to £2,693,000 offees, of which £600,000 remained outstanding at the end of the period, asfollows: £'000Expensed to the consolidated income statement:Property advisory fee 1,996Property management fees 137Administrative fees 24 Added to cost of acquisition of properties:Corporate fees for purchase of subsidiaries 536 Total Fees 2,693 Administration agreements International Administration (Guernsey) Limited, the Company's administrator andcompany secretary, was entitled during the period to receive a fee of £55,000per annum for carrying out administrative services for the Company under theterms of an agreement dated 17 October 2006; a further £25,000 per annum underan agreement of the same date for the provision of administrative services toMedicX Properties I Limited, and £15,000 per annum under an agreement dated 12March 2007 with MedicX Properties V Limited. Alison Simpson is a director ofthe administrator. During the period, the agreements with International Administration (Guernsey)Limited gave rise to the following fees: £'000 Administrative fees 207 From 1 April 2007, each Group company entered into a separate administrationagreement with International Administration (Guernsey) Limited for the provisionof administrative services for fees totalling £58,000 for the provision ofcorporate secretarial services to all Group companies plus fees at time spentrates for other administrative services. A further fee of £10,000 arose in respect of work performed by the administratorin connection with the C share issue. This has been deducted from share premium. Other transactions During the period fees of £2,000 were paid to Aitchison Raffety Limited. JohnHearle is Group Chairman of Aitchison Raffety Limited. 21. Post balance sheets events Since 30 September 2007, the Group has entered into forward funding agreementsin respect of three new properties at an aggregate amount of £4.9 million. On 12 December 2007 the C shares will be converted to Ordinary shares at aconversion ratio of 1.0000 based on a calculation date of 30 September 2007. 22. Subsidiary companies The following were the companies in the group at 30 September 2007: Name Country of incorporation Principal activity Ownership Type of share percentage heldMedicX Properties I Ltd Guernsey Acquisition of 100% Ordinary propertiesMedicX Properties II Ltd England & Wales Acquisition of 100% Ordinary propertiesMedicX Properties III Ltd England & Wales Acquisition of 100% Ordinary propertiesMedicX Properties IV Ltd England & Wales Acquisition of 100% Ordinary propertiesMedicX Properties V Ltd Guernsey Acquisition of 100% Ordinary propertiesMedicX (Verwood) Ltd* England & Wales Acquisition of 100% Ordinary propertiesMedicX (Istead Rise) Ltd* England & Wales Acquisition of 100% Ordinary properties *Held indirectly 23. Operating leases At 30 September 2007 the Group had entered into leases in respect of investmentproperties for the following annual rental income: Expiry £'000Within one year 10Between one and five years -After more than five years 6,351 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Medicx Fund