Positioning for continuing growth

MedicX Fund 30 May 2018 Update
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MedicX Fund

Positioning for continuing growth

Interim results

Real estate

30 May 2018

Price

78.8p

Market cap

£338m

Net debt (£m) at 31 March 2018

361.0

Net LTV as at 31 March 2018

49.5%

Shares in issue

429.0m

Free float

100%

Code

MXF

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.5

(3.6)

(11.3)

Rel (local)

(5.3)

(8.7)

(14.6)

52-week high/low

92.2p

76.4p

Business description

MedicX Fund is a specialist REIT, listed on the premium segment of the London Stock Exchange, investing in primary care infrastructure in the UK and Republic of Ireland. The investment objective is to achieve rising rental income and capital growth from the ownership of high-quality, modern, purpose-built primary healthcare properties.

Next events

Q3 ex-dividend

16 August 2018

FY18 results

11 December 2018

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

MedicX Fund is a research client of Edison Investment Research Limited

H118 results from MedicX Fund saw continued portfolio and rental growth, with costs well controlled. The positive results were accompanied by a new dividend policy, which will rebalance total returns partly away from dividends paid and more towards capital growth. From FY19 it targets a lower, fully covered DPS, conserving cash flow and providing greater flexibility to sustainably fund further accretive asset growth. The FY19 prospective dividend yield of c 5% remains attractive and the shares are priced at a c 10% P/NAV discount to peers.

Year end

Net rental income (£m)

EPRA earnings*
(£m)

EPRA EPS*
(p)

DPS
(p)

EPRA NAV/
share (p)

P/NAV
(x)

Yield
(%)

09/16

34.3

12.6

3.4

5.95

73.2

1.08

7.6

09/17

35.9

14.7

3.5

6.00

76.5

1.03

7.6

09/18e

40.5

17.8

4.0

6.04

79.5

0.99

7.7

09/19e

47.2

19.3

4.1

3.90

81.8

0.96

4.9

Note: *EPRA earnings and EPS exclude deferred taxation, revaluation gains and exceptional items.

Continued progress

The dividend rebalancing has no impact on NAV total return and is a sensible adjustment reflecting sustained tightening in property yields, better positioning the fund for further accretive asset growth. MedicX has near-term acquisition opportunities of £174m, including a £64m portfolio of income-producing properties on which it hopes to complete by 8 June. It is considering the issue of 42.88m new shares at close to NAV as part consideration, conserving existing debt headroom. Anticipating faster portfolio growth through H218 and FY19, our forecasts for rental income and EPRA earnings are increased, although share issuance slightly reduces FY19 EPS. FY18 EPRA NAV per share benefits from valuation gains in H118, and reduced dividend distribution in FY19. The implied NAV total return lifts to 11.9% in FY18 (from 8.4%) and slightly reduces to 8.5% in FY19 (9.3%).

Strong growth prospects in UK and RoI

In both the UK and RoI, there is broad political will to reform healthcare provision, placing more emphasis on primary care to meet the increasing healthcare needs of growing and ageing populations. The requirement for larger, more flexible, higher-quality premises will provide significant investment opportunities for MedicX and others in coming years. Signs in the UK that NHS new build commissioning is finally beginning to accelerate as new structures and strategies bed down is both positive for investment prospects and market rental growth, which is set to reverse, having lagged land and building cost inflation over a number of years.

Valuation: Rebalancing creates opportunity

We forecast a rebalanced, prospective fully covered dividend of 3.90p for FY19, a c 5% yield on the current share price. Share price uncertainty in reaction to the dividend rebalancing has opened up a c 10% P/NAV discount to peers and an underlying yield premium, which may represent an attractive entry point for investors.

Continued growth in H118

H118 saw continued growth, with rental income benefiting from portfolio acquisitions, completions of properties under development and rent increases. Costs were well controlled, substantially reflecting the freeze on management fees until the property portfolio reaches £782m (end-H118: £719.7m). The positive developments in the results, briefly reviewed below, are somewhat overshadowed by news of the new dividend policy, under which MedicX will transition to a lower, fully covered dividend from FY19 (FY18 dividend per share target of 6.04p unchanged). NAV total return is unaffected by the move, which rebalances prospective shareholder returns more towards NAV growth and enhancing internal resources to fund further accretive asset growth. MedicX has a near-term acquisition pipeline of c £174m.

Exhibit 1: Results summary

£000s

H118

H117

H118/H117

2017

Net rental income

18,988

17,851

6.4%

35,947

Expenses

(2,967)

(2,955)

0.4%

(6,085)

Operating profit

16,021

14,896

7.6%

29,862

Share of profit of JV

30

0

10

Net finance expense

(8,128)

(7,859)

(15,149)

Loss on disposal of investment property

0

(25)

(65)

EPRA earnings

7,923

7,012

13.0%

14,658

Net revaluation gain/(loss) on investment property

18,290

6,583

18,654

Profit on disposal of investment property

143

Profit before tax

26,356

13,595

93.9%

33,312

Deferred tax

(712)

(1,072)

5,312

IFRS net profit

25,644

12,523

104.8%

38,624

EPRA EPS (p)

1.85

1.75

5.5%

3.55

DPS declared - (p)

3.02

3.00

6.00

Dividend cover (declared basis)

61%

58%

59%

EPRA NAV per share (p)

79.6

74.4

7.0%

76.5

Net LTV

49.5%

50.8%

49.5%

Source: MedicX Fund

The highlights of the H118 results were:

Net rental income grew 6.4% compared with H117 and 4.9% compared with H217. The rent roll reached £40.7m compared with £40.0m at end-FY17.

Costs were well controlled, up 0.4% compared with H117 and c 5% lower than in H217 as a result of lower professional fees in the period.

Finance expenses grew with higher debt (used to fund portfolio growth), but the average cost continued to decline (4.27% at end-H118 compared with 4.29% at end-FY17) as a result of lower rates agreed on the marginal debt drawn. Net loan to value (LTV) was unchanged on end-FY17, slightly lower y-o-y.

EPRA earnings grew 13.0% compared with H117 and 3.6% compared with H217. Taking into account share issuance, EPRA EPS increased 5.5% to 1.85p (H117: 1.75p).

MedicX declared 3.02p of dividends per share in H118 and continues to target a 6.04p distribution for the year, before the new dividend policy is applied in respect of the FY19 year. EPRA EPS covered dividends declared by c 61% in H118, a small increase in cover on both H117 and H217.

The secure long-term yields that primary healthcare properties can provide, and the improving prospects for rental growth, continue to attract a wide range of investors to the asset class, pushing up valuations and causing yields to tighten further. Net revaluation gains added £18.3m in H118, with the external portfolio valuation reflecting a net initial yield of 4.99% for UK assets (end-FY17: 5.08%). Yields in the Republic of Ireland remain higher than in the UK but have also tightened, with the valuation reflecting a true equivalent yield of just over 6.6% (end-FY17: 6.8%).

Good-quality portfolio, developing well

The value of the investment portfolio increased by 5.8% to £719.7m as at 31 March 2018, with net capital investment of £21.2m in addition to the £18.3m revaluation gain. The lot size profile of the portfolio (57% of properties valued at £5m or more) and the age profile (26% of properties less than five years and 59% less than 10 years) are positive indicators for the quality of the assets, dominated by modern purpose-built facilities with the potential to adapt to changing healthcare needs over many years. The weighted average lease term of 14.0 years provides strong visibility of income, and in the UK leases are effectively subject to upwards-only rent reviews at the option of the landlord. Income security is also high, with minimal vacancy, and c 90% of rents effectively government backed, while most of the rest (c 9%) is attributable to co-located secure pharmacy operations. Settled rent reviews generated an average uplift of 1.5% in H118, an acceleration from c 1.0% in FY17. RPI-linked/fixed rental uplifts (32% of rents) are still the driving force, while open-market rent reviews continue to lag the rise in land and building cost inflation but, positively, there is a general expectation across the industry that this will soon change. For the new buildings needed by health authorities to attract the required investment, rental levels will need to increase, providing evidence for a knock-on impact for existing assets.

Rebalancing the dividend

Since MedicX Fund was launched in August 2006 it has progressively grown dividends (Exhibit 2), distributing c £156m over the period. Dividend payments have regularly exceeded recurring income earnings per share, but have broadly tracked NAV total returns in recent years, with steadily increasing property valuations supporting NAV per share growth. In the nine years since the financial crisis, from end-FY08 to end-FY17, the cumulative annual total return (change in EPRA NAV per share plus dividends paid, not adjusted for scrip) was 83.1% or a compound 7.0% pa. 90% of this total return represented dividends paid, with NAV per share growth (after dividends paid) making up the balance.

Exhibit 2: Dividend per share history

Exhibit 3: Dividends have tracked NAV total return

Source: MedicX Fund data

Source: MedicX Fund data. Edison Investment Research

Exhibit 2: Dividend per share history

Source: MedicX Fund data

Exhibit 3: Dividends have tracked NAV total return

Source: MedicX Fund data. Edison Investment Research

The rise in property valuations has outstripped rental growth in recent years such that yields have tightened significantly, particularly since 2014 (Exhibit 4). The flip side of improving valuations is that the cash returns to be earned on new investments (existing investments are unaffected) has fallen. Helpfully, the average cost of debt funding has also reduced, maintaining a positive spread on new investment, such that portfolio growth remains attractive, especially with management fees frozen until the portfolio reaches £782m and rental growth showing signs of acceleration.

Exhibit 4: Property yields versus borrowing costs

Exhibit 5: DPS cover has steadily grown

Source: MedicX Fund data as at 31 March 2018

Source: MedicX Fund data, Edison Investment Research

Exhibit 4: Property yields versus borrowing costs

Source: MedicX Fund data as at 31 March 2018

Exhibit 5: DPS cover has steadily grown

Source: MedicX Fund data, Edison Investment Research

However, although dividend cover has been on an increasing trend (Exhibit 5), the step change in property yields means that closing the gap has become increasingly difficult, despite dividend growth having been moderated. Additionally, the share price de-rating relative to NAV increases the number of shares that need to be issued to maintain a prudent level of gearing while growing the portfolio, which unchanged would put further pressure on dividend distributions relative to EPS and cash flow.

Targeting a fully covered dividend, not lower returns

MedicX has maintained its DPS guidance for the current (FY18) financial year at 6.04p per share, but intends to pay a fully covered DPS from FY19, targeting a payout ratio of c 95% of EPRA earnings.

Exhibit 6: Illustration of future potential dividends

Period

Status

Payment

Amount

Q218 (Mar 18)

Declared

29-Jun-18

1.51p

Q318 (Jun 18)

Intended

28-Sep-18

1.51p*

Q418 (Sep 18)

Intended

31-Dec-18

1.51p*

Q119 (Dec 19)

Illustrative

29-Mar-19

0.875p**

Q219 (Mar 19)

Illustrative

28-Jun-19

0.875p**

Q319 (Jun 19)

Illustrative

30-Sep-19

0.875p**

Q419 (Sep 19)

Illustrative

31-Dec-19

0.875p**

Source: MedicX Fund. Note: *Estimated dividend. **Illustration provided by MedicX Fund (not a forecast), shown on the basis described below.

The illustrated potential quarterly dividend per share payments for FY19, shown in Exhibit 6, represent the distributions that would be supported by the results for the six months to 31 March 2018, allowing for a 95% payout ratio (105% dividend cover). It is important to note:

Edison earnings estimates for the year to 30 September 2019 are higher than the annualised run rate reported in H118, and as a result we are forecasting higher quarterly dividends than shown in Exhibit 6. We estimate FY19 EPRA EPS of 4.1p and total DPS (declared) for the year of 3.9p, representing dividend cover of 105%.

The lower distribution policy does not reduce the NAV total return and should enhance it. Lower dividend payments mean faster than otherwise NAV growth as more earnings are retained for accretive reinvestment.

While some existing investors will be understandably disappointed at the dividend rebalancing and reduction in immediate income, the MedicX board believes that moving towards a fully covered dividend will attract a wider range of investors over time. To the extent that this is then reflected in an improved rating of the shares, it will provide support to portfolio growth and further scale economies.

Significant portfolio growth opportunities

The investment manager has identified short-term investment opportunities of more than £174m in the UK and Republic of Ireland, including a £64m off-market corporate acquisition opportunity, One Medical, which MedicX hopes to complete by 8 June, and a further £60m in solicitors’ hands. The latter comprises £41m in the UK and £19m in the Republic of Ireland, a mixture of standing and forward funding opportunities (mainly with the eight “framework” developers with which MedicX works). A further £50m of the short-term pipeline represents active opportunities, across the UK and Republic of Ireland, at the stage of legal due diligence.

The One Medical portfolio of 12 operational and fully let primary care centres is significant in size, representing c 9% of the existing portfolio value. MedicX believes it to be a good strategic fit, comprising larger and locally important premises, four of which are less than four years old, with a portfolio weighted average unexpired lease term (WAULT) of 14.3 years. The portfolio rent roll is c £3.0m pa, which represents 7.4% of the existing total.

Including costs of £1.6m, the planned acquisition includes a cash consideration of c £29m and the assumption of existing debt with a fair value of c £37m, plus a small amount of working capital. To part-fund the acquisition, and subject to market conditions, MedicX intends to issue 42.88m shares at close to EPRA NAV, and it is possible that the vendor of One Medical may participate, becoming a MedicX shareholder. Our forecasts now assume completion of this acquisition, and the intended share issue at 80p (around H118 EPRA NAV). Should it not be possible to issue shares within the targeted price range, we would expect MedicX to proceed with the acquisition, funding the cash consideration from debt.

Modest changes to earnings estimates

We have adjusted our financial forecasts to take account of the updated acquisition pipeline, equity funding guidance and revised dividend policy. We continue to look for continued accretive asset growth and scale economies, while the equity funding reduces our forecast LTV but slightly dilutes EPRA EPS. Our forecast total returns are rebalanced between dividend distributions and NAV growth.

The main drivers of our revised estimates are:

Property acquisitions. H118 portfolio commitments of £11.6m were modest compared with our previous full-year expectation and the acquisition pipeline in place at the start of the year, and were, in our estimate, held back both by acquisition discipline and a focus on the plans for future funding and distribution policy. Our revised estimates for FY18 include the £64m corporate portfolio, One Medical, acquisition opportunity and completion of an additional £50m of commitments, a mix of standing assets and forward funding assets in the UK and Republic of Ireland, from the remaining near-term pipeline. The FY18 total commitment of £114m compares with a previous estimate of £100m, bringing forward some of the commitment previously assumed for FY19 (reduced from £114m to £100m).

Rent roll. Assuming completion of forward funding assets, our forecast for annualised rent roll is £46.6m by end FY18, including the £3m guided for One Medical, and £52.6m by end FY19 (a blended 5.25% blended yield on commitments). Assumed cash yields on acquisition are slightly lower than previously forecast, in line with market conditions, but the One Medical acquisition increases the share of near-term standing assets within the committed investment, with an immediate impact on rent income. Rent growth of 2% pa on existing assets is also assumed, as previously.

Portfolio growth and management fees. Allowing for the gradual drawdown of development funding commitments and including revaluation movements that broadly track rent growth (no yield changes assumed), the forecast portfolio value is £812.4m at end FY18 (H118: £719.7m) and £932.6m at end FY19. Much of the H218 growth will generate zero marginal management fees as these are fixed until the portfolio reaches £782m. Thereafter, portfolio growth up to £1bn attracts marginal fees at the rate of 0.4%.

Funding. We have assumed the issue of 42.88m new shares at 80p (just above the H118 EPRA NAV per share) as part funding for One Medical. For modelling purposes we had previously made the working assumption that asset growth would be debt funded. The increased share count assumption generates a lower EPRA EPS than we had previously estimated, although forecast LTV is lower. The lower forecast LTV may provide room for earnings upside from faster asset growth than we have assumed or provide flexibility for a debt refinancing, lowering average debt cost but crystallising mark to market liabilities on long-term, fixed-rate debt (see below).

Dividends/NAV. In line with guidance, our FY19 DPS assumption falls. We assume a 95% payout of our forecast EPRA earnings, or 3.9p per share. Our EPRA NAV forecast increases in FY18 as a result of the H118 revaluation gains, and increases further in FY19 as a result of the lower dividend distribution. The FY18 EPRA NAV total return (change in NAV plus dividends paid) implied by our forecasts increases from 8.4% to 11.9% and for FY19 there is a slight reduction from 9.3% to 8.5%.

Exhibit 7: Estimate revisions

Net rental income (£m)

EPRA net earnings (£m)

EPRA EPS (p)

DPS (p)

EPRA NAV/share (p)

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

09/18e

40.4

40.5

0.3

17.2

17.8

3.6

4.0

4.0

(0.9)

6.04

6.04

0.0

76.9

79.5

3.4

09/19e

45.9

47.2

2.9

18.8

19.3

2.5

4.4

4.1

(6.8)

6.08

3.90

(35.9)

77.9

81.8

5.0

Source: Edison Investment Research

Potential for debt refinancing

Drawn debt amounted to c £380m at 31 March 2018, almost all long term and fixed rate, and diversified across a range of lenders. The weighted average unexpired term was 12.1 years at the same date, closely matching the 14.0 years remaining unexpired lease term of the portfolio, with an average cost of 4.27%. Adjusting for cash, net debt was £361m with a loan to value ratio (LTV) of 49.5%, unchanged from end-FY17.

A number of UK REITs have taken the opportunity provided by favourable funding conditions to refinance relatively high-cost, long-term debt and MedicX is similarly in discussions with its lenders. The main opportunity relates to the four debt facilities with Aviva, as highlighted in Exhibit 8 below, and discussions are underway about a restructuring.

Exhibit 8: Debt portfolio as at 31 March 2018

Aviva £100m facility

Aviva £50m facility

Acquired Aviva PMPI

Acquired Aviva GPG

Private placement

Private placement

Bank of Ireland

Private placement

Facility size

£100.0m

£50.0m

£62.5m

£34.6m

£50.0m

£50.0m

€34.0m

£27.5m

Committed

Dec 2006

Feb 2012

July 2012

May 2013

Aug 2014

Apr 2015

Mar 2017

July 2017

Drawn

£100.0m

£50.0m

£57.8m

£27.1m

£50.0m

£50.0m

€23.4m

£27.5m

Expiry

Dec 2016

Feb 2032

Feb 2027*

Nov 2032*

Dec 2028

Sep 2028

Sep 2024

Sep 2028

Interest rate (inc margin)

5.01%

4.37%

4.45%

4.47%

3.99%

3.84%

3%**

3.00%

LTV draw-down

55.4%

50.4%

58.0%

61.3%

59.2%

65.2%

49.4%

65.2%

Repayment terms

Interest only

Amortising***

Amortising

Amortising

Interest only

Interest only

Amortising****

Interest only

Interest cover covenant

140%

110%

104%*

103%

115%

115%

165%

115%

LTV covenant

75%

75%

N/A

N/A

74%

74%

65%

74%

Opportunity to release surplus charged property

£70.1m

Source: MedicX Fund. Note: *Based on the major facility acquired. **4% over Euribor until secured property achieves practical completion, when margin steps down to 3% for remaining term. ***Amortises from year 11 to £30m. ****Amortises €1m pa for final five years.

The main objective for MedicX from refinancing the Aviva facility would be to release from charge properties that are surplus to the LTV covenant and enhance cash flow by reducing debt amortisation. MedicX estimates that it may be possible to release £70.1m, providing it with greater flexibility in its overall debt portfolio. In current market conditions, additional borrowing to support portfolio growth would likely attract interest at closer to 3%, reducing the blended cost of borrowing.

As some other companies have done, MedicX could decide to further reduce the average cost of borrowing by repaying relatively expensive long-term debt, triggering a break cost. The interest saving would lift recurring earnings and dividend-paying capacity, but EPRA NAV would reduce as a result of the break payment. We would consider any restructuring as broadly neutral to valuation, with the positive impact on recurring earnings offsetting the impact on EPRA NAV per share.

The impact of marking to market the long-term, fixed-rate debt was £42.4m at 31 March 2018 (a similar figure to end-FY17), and is reflected in the alternative published NAV format, EPRA NNNAV, which includes debt at its fair value rather than its nominal value. EPRA NNNAV per share was 69.4p at end-H118 compared with EPRA NAV of 79.6p, and EPRA NNNAV would be unaffected by triggering break payments as it already reflects the likely cost of these. We focus on EPRA NAV as debt will either be held to maturity and repaid at nominal value, or refinanced at advantageous terms. A substantial part of the total debt mark-to-market adjustment will relate to the Aviva debt, which accounts for c 60% of drawn debt, with a longer than average blended duration (c 15 years) and at an above average blended cost (c 4.7%). On this basis, the Aviva debt may account for some 75% of the total mark to market adjustment.

In addition to the Aviva discussions, MedicX is also negotiating with Bank of Ireland to amend the euro-denominated facility that funds and hedges its assets in the Republic of Ireland, putting in place a development facility while seeking to lower the overall cost. An extension of the £20m revolving credit facility with RBS, not currently drawn, is also being documented, doubling the commitment by bringing in a club lender to provide a flexible source of attractively priced tactical funding to facilitate the timely closure of acquisitions.

Dividend rebalancing creates valuation potential

High dividend distributions and a progressive dividend policy has been a key attraction of MedicX shares in recent years, with cash flow supported by a secure, long-term income and a growing asset base. Although dividend distributions have regularly exceeded income earnings (ie earnings adjusted primarily for property valuation movements) over the period, this has been more than made up for by capital earnings. As noted above, in the nine years since the financial crisis, from end-FY08 to end-FY17, the cumulative annual total return (change in EPRA NAV per share plus dividends paid, not adjusted for scrip) was 83.1% or a compound 7.0% pa. 90% of this total return represented dividends paid, with NAV per share growth (after dividends paid) making up the balance.

Exhibit 9: NAV total return since end FY18

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY08-17 cumulative

Opening EPRA NAV per share (p)

70.3

62.0

65.7

66.0

63.7

62.5

65.4

70.8

73.2

70.3

Closing EPRA NAV per share (p)

62.0

65.7

66.0

63.7

62.5

65.4

70.8

73.2

76.5

76.5

DPS paid (p)

6.60

5.38

5.48

5.58

5.68

5.78

5.88

5.94

5.99

52

EPRA NAV total return

(2.4%)

14.6%

8.7%

5.0%

7.0%

13.9%

17.2%

11.8%

12.7%

83.1%

Cumulative annual NAV TR

7.0%

Source: MedicX Fund data, Edison Investment Research

As discussed above, the decision to rebalance the dividend policy does not negatively affect NAV total return (and should even enhance it), but will reduce the returns earned through dividend distributions while enhancing NAV growth. Our forecasts imply a total return on EPRA NAV of 11.9% in FY18 and 8.5% in FY19. Within this, we assume some continuing revaluation gains in H218 and FY19, driven by our estimate of the impact of rent growth, but we do not seek to anticipate valuation changes resulting from further movements (up or down) in market yields. As noted above, the external valuation of the UK assets in the MedicX portfolio reflects a net initial yield (NIY) of 4.99%. This compares with a 4.91% NIY reflected in the Primary Health Properties (PHP) valuation at 31 December 2017, and 4.80% reflected in the Assura valuation as at 31 March 2018. We estimate that a 0.25% reduction in NIY, from 4.99% to 4.74%, reflected in the MedicX portfolio, would add c 8.9p per share to EPRA NAV (79.6p at end-H118). Although it seems unlikely in current market conditions, a 0.25% increase in NIY would reduce EPRA NAV per share by c 8.0p.

The listed investors in primary care properties have experienced a de-rating relative to EPRA NAV in recent months (Exhibit 10), at least in part reflecting a shift in broader property sector valuations in response to rising longer-term interest rates. Unlike the broader property sector, they are not exposed (certainly not directly) to uncertainties about economic cyclicality, while the prospects for further growth through investment and an acceleration in rent growth are positive.

The reaction to its decision to rebase the dividend has taken MedicX to a slight discount to EPRA NAV, some 10 percentage points or so below its close peers. This puts it on a current year dividend yield of 7.7%. Looking through to the revised dividend policy, the prospective FY18 DPS of 6.04p would be 3.81p at a 95% payout ratio, a level that would give a dividend yield of 4.9%, slightly ahead of peers.

For the primary healthcare subsector as a whole, the strength of tenant covenants (mainly growing, government-funded rent income, from long-term leases) invites a comparison of recurring income yields of 4.5-5.0% with 10-year UK government gilt yields at c 1.4%.

Exhibit 10: Peer comparison

Share price (p)

Market cap (£m)

Current year DPS (p)

Prospective yield (x)

P/EPRA NAV, last published (x)

Share price performance

One month

Three months

12 months

From 12-month high

Assura

57

1,348

2.62

4.6%

1.08

-6%

-3%

-6%

-16%

PHP

113

825

5.40

4.8%

1.12

1%

-3%

1%

-9%

MedicX

78

334

6.04

7.7%

0.98

-3%

-5%

-14%

-16%

MedicX (105% cover)

78

334

3.81

4.9%

0.98

Source: Company data, Edison Investment Research, Bloomberg data as at 25 May 2018

Exhibit 11: Financial summary

Year ending 30 September

2015

2016

2017

2018e

2019e

£000s

Net rental income

32,767

34,322

35,947

40,535

47,227

Investment advisory fee

(3,725)

(3,852)

(3,867)

(3,877)

(4,744)

Investment advisory performance fee

0

(1,553)

0

0

0

Property management fee

(849)

(889)

(925)

(970)

(1,077)

Other administrative expenses

(938)

(1,015)

(1,293)

(1,164)

(1,210)

Total recurring administrative expenses

(5,512)

(7,309)

(6,085)

(6,011)

(7,031)

Operating profit before valuation movements

27,255

27,013

29,862

34,524

40,197

Net revaluation gain/(loss) on investment property

25,603

15,523

18,654

22,088

12,663

Profit/(loss) on disposal of investment property

0

31

(65)

143

0

Operating profit

52,858

42,567

48,451

56,755

52,860

Share of profit of JV

0

0

10

60

60

Net finance expense

(13,736)

(14,380)

(15,149)

(16,951)

(20,984)

Profit before tax

39,122

28,187

33,312

39,863

31,935

Tax

(3,293)

(1,556)

5,312

(712)

0

Net profit

35,829

26,631

38,624

39,151

31,935

Adjust for:

Net revaluation gain/(loss) on investment property

(25,603)

(15,523)

(18,654)

(22,088)

(12,663)

Deferred tax

3,293

1,556

(5,312)

712

0

Other

(88)

(56)

0

0

0

EPRA earnings

13,431

12,608

14,658

17,775

19,272

Average fully diluted number of shares outstanding (m)

361.3

374.5

413.1

448.6

472.8

Basic IFRS EPS (p)

9.9

7.1

9.4

8.7

6.8

Fully diluted EPRA EPS (p)

3.7

3.4

3.5

4.0

4.1

DPS declared (p)

5.90

5.95

6.00

6.04

3.90

Dividend cover (EPRA EPS/DPS)

0.63

0.57

0.59

0.66

1.05

Expense ratio*

2.23%

2.11%

1.94%

1.73%

1.85%

BALANCE SHEET

 

 

 

 

 

Investment properties

553,479

612,264

680,355

812,404

932,567

Investment in equity accounted JV

0

0

1,035

1,053

1,053

Total non-current assets

553,479

612,264

681,390

813,457

933,620

Cash & equivalents

56,910

20,968

32,145

13,551

6,729

Trade & other receivables

6,778

8,519

7,176

8,619

9,778

Total current assets

63,688

29,487

39,321

22,170

16,507

Loans due after one year

(336,412)

(334,307)

(370,583)

(434,602)

(534,602)

Deferred tax liability

(4,331)

(5,887)

(575)

(1,287)

(1,287)

Other non-current liabilities

(1,465)

(1,490)

(1,456)

(1,428)

(1,428)

Total non-current liabilities

(342,208)

(341,684)

(372,614)

(437,317)

(537,317)

Loans due within one year

(1,896)

(1,983)

(2,213)

(2,462)

(2,462)

Trade & other payables

(18,966)

(19,923)

(18,682)

(21,547)

(24,446)

Total current liabilities

(20,862)

(21,906)

(20,895)

(24,009)

(26,908)

Net assets

254,097

278,161

327,202

374,301

385,902

Adjust for:

Deferred tax

4,331

5,887

575

1,287

1,287

EPRA net assets

258,428

284,048

327,777

375,588

387,189

Adjustment to debt at fair value

(25,212)

(59,134)

(42,574)

(42,416)

(42,416)

EPRA NNAV

233,216

224,914

285,203

333,172

344,773

Period end fully diluted number of shares outstanding (m)

365.1

388.1

428.6

472.3

473.2

Basic IFRS NAV per share (p)

69.6

71.7

76.3

79.2

81.5

Fully diluted EPRA NAV per share (p)

70.8

73.2

76.5

79.5

81.8

Fully diluted EPRA NNAV per share (p)

62.7

56.4

66.4

70.3

72.6

CASH FLOW

 

 

 

 

 

Cash flow from operating activity

10,152

11,408

15,104

19,188

21,012

Cash flow from investing activity

(23,316)

(36,281)

(50,668)

(73,296)

(107,500)

Issue of equity (net of costs)

6,816

18,962

34,526

33,775

0

New loan facilities drawn/debt repaid

52,077

(1,895)

37,070

27,198

100,000

Dividends paid (net of scrip)

(19,247)

(21,582)

(24,013)

(25,343)

(20,334)

Other financing activity

(697)

(6,554)

(859)

(92)

0

Net cash flow from financing activity

38,949

(11,069)

46,724

35,538

79,666

Change in cash

25,785

(35,942)

11,160

(18,570)

(6,822)

FX

0

0

17

(24)

0

Opening cash

31,125

56,910

20,968

32,145

13,551

Closing cash

56,910

20,968

32,145

13,551

6,729

Debt

(338,308)

(336,290)

(372,796)

(437,064)

(537,064)

Net debt

(281,398)

(315,322)

(340,651)

(423,513)

(530,335)

Net LTV

50.2%

50.8%

49.5%

51.5%

54.1%

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by MedicX Fund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by MedicX Fund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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