MedicX will report its results for the year ended 30 September 2018 in December. H218 included a significant portfolio acquisition and an important restructuring of some long-term debt facilities, increasing the company’s borrowing flexibility and extending its facilities at a lower marginal cost. NAV total return during Q3 was a strong 3.4%, following 8.0% in H118, while the pipeline of identified investment opportunities in the UK and the Republic of Ireland remained strong. The shares offer an attractive prospective yield of 4.8%, with full dividend cover, and currently trade at a small discount to NAV.
MedicX has a high quality portfolio in the UK and Republic of Ireland (RoI, c 7% of the total) and the Q3 report showed this continues to perform well, generating income and capital growth. The Q3 pipeline of investment opportunities, in both the UK and RoI, was a strong £110m, and the recent debt restructuring provides increased resources and flexibility with which to fund further acquisitions. While a discount to NAV exists, reducing the desirability of equity funding, we would expect MedicX to continue its selective approach, targeting the most attractive opportunities, including further growth in the RoI where yields are higher and debt funding costs lower. We have conservatively trimmed our assumed investment rate to maintain LTV at an acceptable 55% level, with only a small impact on forecasts.
In 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, sustainable, and better-equipped premises will provide significant investment opportunities for MedicX and others in coming years. In the UK there are signs that NHS new-build commissioning is finally beginning to accelerate as new structures and strategies bed down. This is positive for investment prospects and for market rental growth.
Our forecast for a fully covered re-based DPS of 3.8p for FY19 represents an attractive yield of 4.8%, but at a discount to NAV, unlike its peers. We expect DPS growth driven off asset acquisitions, development completions, rental growth and asset management projects. Revenues are supported by secure, long-term income, mostly government backed, and substantially subject to upward-only review, with little exposure to the economic cycle, or fluctuations in occupancy.