MedicX Fund produced a 3.9% EPRA NAV total return in the three months ended 31 December 2017, with EPRA NAV per share increasing to 78.0p from 76.5p, and including the 1.50p dividend per share paid in the period. A quarterly dividend of 1.51p per share has been approved for payment in March and the fund still targets an aggregate 6.04p payout for the year to 30 September 2018. Capital commitments continued in the period and the pipeline of acquisition opportunities remains strong. While investment advisor fees remain frozen, asset growth should have a geared impact on earnings, contributing towards increased dividend cover.
MedicX Fund |
Income and capital growth continuing |
Quarterly update |
Real estate |
15 February 2018 |
Share price performance
Business description
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Analysts
MedicX Fund is a research client of Edison Investment Research Limited |
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MedicX Fund produced a 3.9% EPRA NAV total return in the three months ended 31 December 2017, with EPRA NAV per share increasing to 78.0p from 76.5p, and including the 1.50p dividend per share paid in the period. A quarterly dividend of 1.51p per share has been approved for payment in March and the fund still targets an aggregate 6.04p payout for the year to 30 September 2018. Capital commitments continued in the period and the pipeline of acquisition opportunities remains strong. While investment advisor fees remain frozen, asset growth should have a geared impact on earnings, contributing towards increased dividend cover.
Year end |
Net rental income (£m) |
Adj. earnings* |
Adj. EPS* |
DPS |
EPRA NAV/ |
P/NAV |
Yield |
09/16 |
34.3 |
14.2 |
3.8 |
5.95 |
73.2 |
1.13 |
7.2 |
09/17 |
35.9 |
14.9 |
3.6 |
6.00 |
76.5 |
1.09 |
7.2 |
09/18e |
40.4 |
17.2 |
4.0 |
6.04 |
76.9 |
1.08 |
7.3 |
09/19e |
45.9 |
18.8 |
4.4 |
6.08 |
77.9 |
1.07 |
7.3 |
Note: *Adjusted earnings and EPS exclude deferred taxation, revaluation gains, performance fees and exceptional items.
Yield tightening continues to support total return
The externally assessed quarterly valuation of the investment portfolio increased to £698.6m in the three months to 31 December, up 2.6%. The £18.3m increase included a revaluation gain of £8.3m and £15.2m of capital investment offset by £5.2m of disposals, comprising five small, non-core assets. The valuation reflects a further slight tightening in the UK net initial yield, to 5.05% versus 5.08% at 30 September, and a yield forecast of more than 6% in Republic of Ireland. The capital investment includes two previously disclosed acquisitions including a fifth property in the Republic of Ireland, at Kilkenny. Six properties were under construction at the end of December 2017, four of which are due to complete in the next two months.
Continuing investment in line with forecasts
Investment in the period is in line with our unchanged forecasts, which assume c £100m in new investment commitment during the current year and, given the lag between commitment and investment for forward funding agreements, cash investment of c £65m in the current year. The pipeline of investment opportunities remains strong, with c £108m of UK properties undergoing legal due diligence, and Irish assets with a value of c €60m that are either under final negotiation or undergoing legal due diligence and structuring analysis. With investment advisor fees frozen until the portfolio reaches £782m, further portfolio growth should have a geared impact on earnings and dividend potential (see our last Outlook note).
Valuation: Total return supports high distribution
MedicX offers one of the highest yields in the sector, with cash flows supported by growing highly secure, long-term income derived mainly from government sources. Distributions have regularly exceeded income earnings with the difference more than covered by capital earnings. In the five years to end-FY17, EPRA NAV total return growth was a compound 13.5% pa.
Exhibit 1: Financial summary
Year ending 30 September |
2016 |
2017 |
2018e |
2019e |
||
£000's |
||||||
Revenue |
|
|
34,322 |
35,947 |
40,416 |
45,916 |
Investment advisory fee |
(3,852) |
(3,867) |
(3,878) |
(4,229) |
||
Investment advisory performance fee |
(1,553) |
0 |
0 |
0 |
||
Property management fee |
(889) |
(925) |
(977) |
(1,056) |
||
Other administrative expenses |
(1,015) |
(1,293) |
(1,102) |
(1,116) |
||
Total recurring administrative expenses |
(7,309) |
(6,085) |
(5,957) |
(6,400) |
||
Operating profit before valuation movements |
27,013 |
29,862 |
34,459 |
39,516 |
||
Net revaluation gain/(loss) on investment property |
15,523 |
18,654 |
10,407 |
11,733 |
||
Profit/(loss) on disposal of investment property |
31 |
(65) |
0 |
0 |
||
Operating profit |
42,567 |
48,451 |
44,866 |
51,249 |
||
Share of profit of JV |
0 |
10 |
20 |
20 |
||
Net finance expense |
(14,380) |
(15,149) |
(17,319) |
(20,739) |
||
Profit Before Tax (norm) |
|
|
28,187 |
33,312 |
27,567 |
30,530 |
Tax |
(1,556) |
5,312 |
0 |
0 |
||
Net profit |
|
|
26,631 |
38,624 |
27,567 |
30,530 |
Adjust for: |
||||||
Net revaluation gain/(loss) on investment property |
(15,523) |
(18,654) |
(10,407) |
(11,733) |
||
Deferred tax |
1,556 |
(5,312) |
0 |
0 |
||
Other |
(56) |
0 |
0 |
0 |
||
EPRA earnings |
|
|
12,608 |
14,658 |
17,160 |
18,797 |
Investment advisory performance fee |
1,553 |
240 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Adjusted earnings |
|
|
14,161 |
14,898 |
17,160 |
18,797 |
Average fully diluted number of shares outstanding (m) |
374.5 |
413.1 |
429.1 |
430.0 |
||
Basic IFRS EPS (p) |
7.1 |
9.4 |
6.4 |
7.1 |
||
EPS - normalised (p) |
3.8 |
3.6 |
4.0 |
4.4 |
||
DPS declared (p) |
5.95 |
6.00 |
6.04 |
6.08 |
||
Dividend cover |
63.8% |
60.2% |
66.3% |
72.0% |
||
Expense ratio* |
2.11% |
1.94% |
1.81% |
1.92% |
||
BALANCE SHEET |
|
|
|
|
|
|
Investment properties |
612,264 |
680,355 |
756,012 |
866,495 |
||
Investment in equity accounted JV |
0 |
1,035 |
1,035 |
1,035 |
||
Total non-current assets |
|
|
612,264 |
681,390 |
757,047 |
867,530 |
Cash & equivalents |
20,968 |
32,145 |
20,238 |
16,877 |
||
Trade & other receivables |
8,519 |
7,176 |
8,520 |
9,787 |
||
Total current assets |
|
|
29,487 |
39,321 |
28,758 |
26,663 |
Loans due after one year |
(334,307) |
(370,583) |
(430,583) |
(530,583) |
||
Deferred tax liability |
(5,887) |
(575) |
(575) |
(575) |
||
Other non-current liabilities |
(1,490) |
(1,456) |
(1,456) |
(1,456) |
||
Total non-current liabilities |
|
|
(341,684) |
(372,614) |
(432,614) |
(532,614) |
Loans due within one year |
(1,983) |
(2,213) |
(2,213) |
(2,213) |
||
Trade & other payables |
(19,923) |
(18,682) |
(21,299) |
(24,467) |
||
Total current liabilities |
|
|
(21,906) |
(20,895) |
(23,512) |
(26,680) |
Net assets |
|
|
278,161 |
327,202 |
329,679 |
334,899 |
Adjust for: |
||||||
Deferred tax |
5,887 |
575 |
575 |
575 |
||
EPRA net assets |
|
|
284,048 |
327,777 |
330,254 |
335,474 |
Adjustment to debt at fair value |
(59,134) |
(42,574) |
(42,574) |
(42,574) |
||
EPRA NNAV |
|
|
224,914 |
285,203 |
287,680 |
292,900 |
Period end fully diluted number of shares outstanding (m) |
388.1 |
428.6 |
429.5 |
430.4 |
||
Basic IFRS NAV per share (p) |
71.7 |
76.3 |
76.8 |
77.8 |
||
Fully diluted EPRA NAV per share (p) |
73.2 |
76.5 |
76.9 |
77.9 |
||
Fully diluted EPRA NNAV per share (p) |
56.4 |
66.4 |
66.8 |
67.9 |
||
CASH FLOW |
|
|
|
|
|
|
Cash flow from operating activity |
11,408 |
15,104 |
18,434 |
20,698 |
||
Cash flow from investing activity |
(36,281) |
(50,668) |
(65,250) |
(98,750) |
||
Issue of equity (net of costs) |
18,962 |
34,526 |
0 |
0 |
||
New loan facilities drawn/debt repaid |
(1,895) |
37,070 |
60,000 |
100,000 |
||
Dividends paid (net of scrip) |
(21,582) |
(24,013) |
(25,090) |
(25,310) |
||
Other financing activity |
(6,554) |
(859) |
0 |
0 |
||
Net cash flow from financing activity |
(11,069) |
46,724 |
34,910 |
74,690 |
||
Change in cash |
|
|
(35,942) |
11,160 |
(11,907) |
(3,362) |
FX |
0 |
17 |
0 |
0 |
||
Opening cash |
56,910 |
20,968 |
32,145 |
20,238 |
||
Closing cash |
|
|
20,968 |
32,145 |
20,238 |
16,877 |
Debt |
(336,290) |
(372,796) |
(432,796) |
(532,796) |
||
Net debt |
(315,322) |
(340,651) |
(412,558) |
(515,919) |
||
Net LTV |
50.8% |
49.5% |
53.9% |
59.5% |
Source: MedicX Fund, Edison Investment Research. Note: *Recurring admin expense (excluding direct property expense) as % average EPRA NAV.
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Following the nomination of preferred bidder status in November, Avon has announced that an agreement has been reached with the UK Ministry of Defence (MOD) for the General Service Respirator contract. The contract builds order visibility on both sides of the Atlantic while demonstrating the new strategy in action.