MedicX Fund Interim Results: Strong Revenue, EBITDA Growth

MedicX (MXF.L) accelerated its portfolio growth in FY12 and a £134m investment pipeline puts it in a position to maintain momentum this year. Dividend cover will improve, as EPS-enhancing investment flows to the bottom line, particularly as £66m of year-end cash is absorbed by acquisitions. Portfolio growth adds to profits as the 5.8-6.0% initial yield available on acquisitions exceeds the group’s all-in cost of borrowing (4.45%), incremental investment/property management fees and other costs.

FY12 results: Strong revenue and EBITDA growth
A 33% increase in rental income and c 40% in EBITDA reflected portfolio growth. MedicX committed £146.5m to new assets in FY12 at a 6.03% cash yield, grew its portfolio to £394.8m and annualised rent roll to £24.8m (FY11: £15.2m). There was a £134m FY12 year-end pipeline of investment opportunities. Aggregate group loan-to-value was 70% at the year end (FY11: 47%); total debt £244m at a weighted average 4.45% (FY11: 4.82%) funding cost and 16.8 year (FY11: 22.4 years) unexpired term.

Financials: Funds in place for further acquisitions
MedicX raised £48.7m (net) in new equity in FY12; 67.8m shares at 73.3p/share, above NAV/share. It also drew down £81.2m of debt facilities £31.2m (Deutsche Postbank at 2.75% pa fixed until expiry in April 2015), £50m (Aviva at a 4.37% fixed for 20 years to February 2032) and assumed £80.2m of debt via two corporate acquisitions. Of the latter, £16.4m has been repaid and the interest rate on the £63.8m balance reset post the year end to an average 4.45% pa fixed for a 12.4-year unexpired term. Debt drawn down in anticipation of further investment is included in £66m of year-end cash.

Valuation: Backed by 7.7% prospective yield
Yield is the key to the valuation; our forecasts put the shares on prospective 7.7% and 7.8% yields. These are not covered by cash earnings and although MedicX has never committed to this being the case, continued portfolio growth will narrow the gap. We assume £120m of portfolio additions this year, £100m in FY14, funded by £50m of new equity in each year at the current price, and debt at c 4.5% pa. That level of acquisitions should broadly improve underlying dividend cover by c 2-3% in a full year; we expect c 59% and 63% in FY13 and FY14 respectively, c 65% and 69% adjusted for a 9% scrip take-up (11.6% and 8% for last two quarters). MedicX’s own calculation shows that if all assets acquired were complete and held for a full year, the FY12 dividend would have been 68% covered, or 108% including revaluation gains.

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