(MXF) Medicx Fund

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, REPUBLIC OF IRELAND, REPUBLIC OF SOUTH AFRICA, NEW ZEALAND OR JAPAN

MedicX Fund Limited

("MedicX Fund", the "Fund" or the "Company")

Prospectus Published

The board of directors of MedicX Fund (LSE: MXF), the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom, has today published a prospectus (the "Prospectus") in relation to a Placing, Open Offer and Offer for Subscription (together the "Issue") of up to 70 million New Ordinary Shares at a price of 72p per New Ordinary Share. Collins Stewart Europe Limited ("Collins Stewart") is sponsoring and acting as Lead Bookrunner in respect of the Issue.

A copy of the Prospectus has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.

Expected timetable

Each of the times and dates in the above timetable is subject to change, in which event details of the new times and/or dates will be notified to the UK Listing Authority and the London Stock Exchange and, where appropriate, Shareholders. References to times in the Prospectus are to GMT/BST.

The Issue

The Issue will comprise an issue of up to 70 million New Ordinary Shares under the Placing, Open Offer and Offer for Subscription.  The Issue will not be underwritten.

The Open Offer Shares are being offered to Qualifying Shareholders on the basis of 1 Open Offer Share for every 4 Existing Ordinary Shares held and registered in their names on the Record Date.  Excess applications can be made under the Open Offer.  To the extent that Qualifying Shareholders do not take up their Open Offer Entitlements and apply for further Open Offer Shares under the Excess Application Facility, the Shares will be available under the Offer for Subscription and thereafter under the Placing.

Background to and reasons for the Issue

Following its successful acquisition programme to date, the Company has committed £254.7 million to investments in 65 primary healthcare properties.

Acquisition opportunities brought to the Company's attention by the Investment Adviser have remained significant, and the Directors believe that it would be in the interests of the Company to maintain the ability to acquire such properties, and to deploy additional funds raised through the Issue.

Current market conditions within the primary healthcare property sector are such that the Company can still make further investments at attractive prices.

Benefits of the Issue

The Directors expect that the raising of additional monies through the Issue, combined with the use of the existing loan facilities, should enhance the Company's earnings significantly over the medium term due, principally, to the following:

-          the Company being able to take advantage of opportunities to acquire further properties at attractive running yields;

-          the current significant differential between the cost of debt funding available under the existing Aviva Loan and the Deutsche Postbank Facility and the running rental yield on properties;

-          the reduction in fees under the Investment Advisory Agreement for gross assets over £300 million; and

-          the fixed running costs of the Company being spread over an enlarged asset base.

Use of Proceeds

The Company intends to use the proceeds of the Issue to fund ongoing investment and to take advantage of future pipeline opportunities (as described below) in accordance with the Company's Investment Policy.  Accordingly, the Board expects to commit the net proceeds of the Issue to investment in primary healthcare property within six months of Admission and aims to be fully committed with associated borrowings within twelve months of Admission.

The Company

The Company was incorporated and registered in Guernsey on 25 August 2006 for the purpose of investing in primary healthcare properties.  The Company's investment objective is to achieve rising rental income and capital growth from the ownership of a portfolio of mainly modern, purpose-built, primary healthcare properties.

Investment Adviser and Investment Adviser's subscription

The Company receives investment advice and management services from the Investment Adviser, a member of the MedicX Group, which is a specialist investor in, developer of and manager of healthcare properties.  The Investment Adviser has indicated its intention to apply for 700,000 New Ordinary Shares under the Open Offer.

Property Portfolio

As at 31 December 2011, the property portfolio of the Company, which is geographically spread throughout the UK, comprised 65 primary healthcare properties of which 55 are leased to medical practices, PCTs and related services, 8 are under construction and 2 were yet to start construction. 

During the financial year ended 30 September 2011, construction completed on properties at Bilborough, Halifax, Apsley and Bermondsey, representing a total commitment from the MedicX Fund Group of approximately £11.5 million of investment.  Construction started during the financial year on new properties at Hounslow, Raynes Park, Woolwich Royal Arsenal, Rochdale, Hirwaun, East Cowes, Corby Glen and Grangetown. Between 30 September 2011 and 31 December 2011, Forward Funding Agreements were entered into for properties at Methil and Monkseaton, the total acquisition cost of which was £4.8 million.

During the financial year ended 30 September 2011, one property at Gorseinon, the smallest and one of the older properties in the portfolio, was sold for £0.6 million. The Company will continue to target selective disposals where appropriate.

As at 31 December 2011, the average age of the 65 properties was 4.2 years, the average value of the properties was £3.8 million and the average term remaining on the relevant leases was approximately 17.8 years. 91 per cent. of the aggregate rents were payable by PCTs and GPs, 8 per cent. by pharmacies and 1 per cent. by others.  The total acquisition cost of the 65 properties was approximately £254.7 million, including £8.4 million of purchaser or transaction related costs.  The anticipated annualised rent roll on the 65 properties was approximately £15.7 million per annum.

The 65 properties which were held by the Company on 31 December 2011 have been valued as at that date at approximately £246.7 million (£206.2 million in relation to completed properties and £40.5 million in relation to properties under construction) by Jones Lang LaSalle.  This valuation of these properties is equivalent to an anticipated Net Initial Yield of approximately 5.87 per cent. The assumptions on which the valuation is based are set out in the Valuation Report.

Net Asset Value

As at 31 December 2011, the Ordinary Shares had an unaudited NAV per Ordinary Share of 66.0p, derived from the Company's unaudited management accounts, which incorporates the valuation of the Company's property portfolio at 31 December 2011 as carried out by Jones Lang LaSalle.

The Board believes that a more meaningful calculation of NAV per Ordinary Share should exclude goodwill and deferred tax that is not expected to crystallise.  On this basis, as at 31 December 2011 the Ordinary Shares had an unaudited Adjusted NAV per Ordinary Share of 65.8p.

The unaudited Adjusted NAV as at 31 December 2011 reflects a property valuation with a 5.87 per cent. Net Initial Yield (based on the Valuation Report) compared to 5.84 per cent. as at 30 September 2011.

Borrowings

The Directors intend to continue to secure and utilise long term borrowing facilities of, in aggregate, approximately 50 per cent., but not exceeding 65 per cent., of the Company's total assets attributable to the Ordinary Shares and the New Ordinary Shares.

The MedicX Fund Group has two principal loan facilities.  These are provided by members of the Aviva Group and Deutsche Postbank and are:

(i)    a £100 million debt facility (the "Aviva Loan") provided by Aviva Commercial Finance Limited, at a fixed annual interest rate of 5.008 per cent. on an interest only basis and is repayable in its entirety on 1 December 2036.

(ii)    a £37.1 million facility (of which £7.5 million has been drawn) provided by Deutsche Postbank repayable on 30 April 2015 (the "DP Facility") at a variable rate of interest of 2 per cent. over LIBOR.

As at 26 January 2012 (being the latest practicable date prior to the publication of the Prospectus), the Company had debt facilities of £138.3 million, of which £108.3 million had been drawn.  At 31 December 2011, the Company had cash reserves of £15.0 million, of which it is estimated that £3.5 million had been drawn down against Forward Funding Agreements by 26 January 2012 (being the latest practicable date prior to the publication of the Prospectus).

As at 31 December 2011, the Company has committed £25.2 under Forward Funding Agreements where the commitment has not yet been funded by the Company.

The Company has complied with and remains in compliance with all covenants under the Aviva Loan and the DP Facility.

Discounted cash flow valuation of assets and debt

The Board believes that the Company has similar characteristics to infrastructure funds which typically calculate the value of their investments based upon discounted cash flows.  The Investment Adviser has carried out an unaudited discounted cash flow valuation of the Company's assets and associated debt as at 31 December 2011.

The discount rates used are 7 per cent. for completed and occupied properties and 8 per cent. for properties under construction.  The discounted cash flows assume an average 2.5 per cent. per annum increase in individual property rents at their respective review dates, residual values based upon capital growth at 1 per cent. per annum from current valuation until the expiry of leases, (when the properties are notionally sold), and also assuming the current level of borrowings.  The discounted cash flow valuation of the Company's assets and debt, as at 31 December 2011, was equivalent to 89.0p per Ordinary Share.

Investment opportunity

The Company intends to enhance its position as a leading investor in modern, purpose built primary healthcare property.

The Directors believe that this segment of the primary healthcare property market represents an attractive opportunity for the following reasons:

·              continued demand for modern assets with flexible design characteristics;

·              average lease terms of 15 to 25 years;

·              low default risk due to the nature of primary care funding;

·              properties are generally let when acquired with low levels of rental voids;

·              rental growth potential; and

·              potential for significant capital values at lease expiry.

Competitive advantages

The Company believes that, through its long-term relationship with the Investment Adviser, it has a number of competitive advantages through access to:

·         established industry contacts and development opportunities;

·         coverage through the Investment Adviser's regional offices in Godalming and Nottingham;

·         considerable knowledge of the sector allowing better identification and delivery of asset management opportunities:

-       assistance in identifying and securing relevant finance;

-       enhanced product design capability;

-        the ability to extend or refurbish existing buildings; and

-     relocation services; and

·         long term debt at attractive rates.

Dividend Policy

The Directors intend, subject to the Company's performance and to available cash, provided that the Company satisfies the applicable solvency tests under the Companies Law, to have a progressive dividend policy by growing dividends throughout the life of the Company, although no assurance can be given that this will be achieved.

The Directors expect, subject to unforeseen circumstances, to pay dividends totalling 5.6p per Ordinary Share in respect of the financial year ending 30 September 2012.  The first interim dividend in respect of that financial year of 1.4p per Ordinary Share will be payable on 31 March 2012 to those holders of Ordinary Shares recorded on the register of members of the Company on 17 February 2012.

The Company pays dividends on a quarterly basis on the last business day of March, June, September and December of each year.  Subscribers for New Ordinary Shares will not be entitled to receive the dividend payable to shareholders on the register as at 17 February 2012, but will be eligible for the dividend the Directors intend to pay in June 2012.

Shareholders can elect for scrip dividends in lieu of cash dividends in respect of the Company's quarterly dividend payments.

ISINs

The ISINs for the Open Offer Entitlements and Excess Open Offer Entitlements are as follows:

Open Offer Entitlements - GG00B6RSHH44

Excess Open Offer Entitlements - GG00B77B4P76

Key Risk Factors

·        The market value of and the income derived from, the New Ordinary Shares can fluctuate.  There is no guarantee that the market price of the New Ordinary Shares will fully reflect their underlying net asset value or earnings potential.  There can be no guarantee that the investment objectives of the Company will be met.

·        A property market recession could materially adversely affect the value of properties.

·        Property and property related assets are inherently difficult to value and valuations are subject to uncertainty.  There can be no assurance that the estimates resulting from the valuation process will reflect actual realisable sale prices.

·        Rental income and the market value for properties are generally affected by overall conditions in the local economy, demographic trends, inflation and changes in interest rates, which in turn may impact upon the demand for properties.  Movements in interest rates may also affect the cost of financing.

·        Investments in property are relatively illiquid and usually more difficult to realise than listed equities or bonds.

·        Any change in the tax status or tax residence of the Company or in tax legislation or practice (in Guernsey or the UK) may have an adverse effect on the returns available on an investment in the Company.  Similarly, any changes under Guernsey company law may have an adverse impact on the Company's ability to pay dividends.

·        The rental costs of premises used for the provision of primary healthcare are usually reimbursed to GPs (subject to the fulfilment of certain standard conditions) by the PCTs.  In light of the Health and Social Care Bill and the possibility that PCTs will be abolished by 2013 if the Health and Social Care Bill is enacted, there is no guarantee that rental costs will continue to be reimbursed to GPs or what will replace the PCTs.

·        Initiatives introduced by the previous government pledged increased funding to provide modernisation of GP premises.  Whilst the Company is confident that the modernisation program is not sensitive to the change of government which occurred in May 2010, the Company has no influence over the future direction of primary care initiatives in the public sector.  In particular, a reduction in the funding of PCTs or their successors (if they are abolished) may reduce the funds available for the development of, or investment in, NHS properties and adversely affect the Company's ability to grow its assets and source appropriate opportunities in accordance with its investment policy.

·        In the event that a PCT or other tenant found itself unable to meet its liabilities, the Company may not receive rental income when due and/or the total income received may be less than that due under the relevant contract.  NHS budgetary restrictions might restrict or delay the number of opportunities available to the Company.

·        Prospective investors should be aware that the Company intends to use borrowings which may have an adverse impact on NAV or dividends and those borrowings may not be available at the appropriate time or on appropriate terms.

·        The Company is in compliance with financial covenants in its borrowing facilities.  The Directors consider a breach of the Company's financial covenants under its borrowing facilities to be very unlikely.  However, should circumstances arise in the future, where the Company would be unable to remedy any breach, it may be required to repay such borrowings requiring the Company to sell assets at less than their market value.

Defined terms in this announcement (except where the context otherwise requires) bear the same meaning as those terms when used in the Prospectus.

For further information please contact:

MedicX Group:                                                                           +44 (0) 1483 869 500

Keith Maddin, Chairman

Mike Adams, Chief Executive Officer

Mark Osmond, Chief Financial Officer

MedicX Fund:                                                                             +44 (0) 1481 723 450

David Staples, Chairman

Collins Stewart Europe:                                                              +44 (0) 20 7523 8000

Andrew Zychowski (Corporate)

Stephen Newby (Corporate)

Dominic Waters (Sales)

Neil Brierley (Sales)

Will Barnett (Sales)       

Buchanan:                                                                                +44 (0) 20 7466 5000

Charles Ryland

Suzanne Brocks

Information on MedicX Fund Limited

MedicX Fund Limited ("MXF", the "Fund" or the "Company", or together with its subsidiaries, the "Group") is the specialist primary care infrastructure investor in modern, purpose-built primary healthcare properties in the United Kingdom, listed on the London Stock Exchange, with a portfolio comprising 65 properties.

The Investment Adviser to the Company is MedicX Adviser Ltd, which is authorised and regulated by the Financial Services Authority and is a subsidiary of the MedicX Group. The MedicX Group is a specialist investor, developer and manager of healthcare properties with 26 people operating across the UK.

The Company's website address is www.medicxfund.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website), nor the contents of any website accessible from hyperlinks within this announcement, are incorporated into, or forms part of, this announcement.

Important information

This announcement and the information contained herein is restricted and is not for publication, release or distribution in whole or in part in the United States, Japan, Canada, Australia, Republic of South Africa, New Zealand or the Republic of Ireland.

This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any securities of the Company and any purchase of securities of the Company pursuant to any equity issue undertaken by the Company should only be made on the basis of the information contained in the final prospectus published by the Company and any supplement or amendment thereto (the "Prospectus").  Copies of the Prospectus may, subject to any applicable law, be obtained at no cost at the registered office of the Company or Collins Stewart. The Prospectus will supersede all information provided before the date of the Prospectus and any investment decision must be made only on the basis of the information contained therein.

Certain statements contained in this announcement may be forward-looking statements.  By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements.  These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Neither Collins Stewart or the Company undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  A prospective investor should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

The shares of the Company have not and will not be registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act") or any U.S. state's securities laws, and may not be offered or sold within the United States, unless an exemption from the registration requirements of the U.S. Securities Act is available.  There will be no public offering of the Company's shares in the United States.  Accordingly, any offer or sale of the Company's shares will only be offered or sold (i) within the United States, only to "qualified institutional buyers" as defined in Rule 144A under the U.S. Securities Act in private placement transactions not involving a public offering, and (ii) outside the United States in offshore transactions in accordance with Regulation S promulgated under the U.S. Securities Act.  Any purchaser of shares in the United States will be required to make certain representations and acknowledgments, including without limitation that the purchaser is a "qualified institutional buyer."  Prospective purchasers are hereby notified that a seller of the Company's shares may be relying on the exemption from the registration requirements of the U.S. Securities Act provided by Rule 144A thereunder.

The contents of this announcement have been prepared by and are the sole responsibility of the Company. The Company's website address is www.medicxfund.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

Collins Stewart Europe Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as sponsor to MedicX Fund Limited and is acting for no-one else in connection with the Issue and the contents of this announcement, and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Collins Stewart Europe Limited nor for providing advice in connection with the Issue and the contents of this announcement or any other matter referred to herein. Collins Stewart Europe Limited is not responsible for the contents of this announcement. This does not exclude or limit any responsibilities which Collins Stewart Europe Limited may have under the Financial Services and Markets Act 2000 or the regulatory regime established thereunder.