I thought I would finish the week with a  quick update on my alternative funds trading list. At the bottom you’ll find a table on returns over the last few months – overall I can report some very decent gains although both Stenprop and PRS look a tad becalmed. The buy and then sell on PSSL and then roll over into Honeycomb has been very profitable. PSSL came in at 750p and went out at 832p, a 10% plus gain. Honeycomb came in at 765p and is now at 900p, so overall that’s a 25% plus gain in the matter of a few months.  Doric Nimrod 2 has also advanced from 61p to 71p as has Urban Exposure which is up from 56p to 68.5p.

My biggest disappointment has been SERE which is still virtually where it started but has reported a brilliant deal. The shares shot up but we’ve only just made up recent losses. I still maintain SERE as a strong buy.

I’ve also pasted in some broker research updates for some of the funds in the list. Enjoy reading.

PRS (update from Liberum)

FY 2020: 3.5% NAV total return

Mkt Cap £386m | Prem/(disc) -18.1% | Div yield 5.1%

PRS REIT’s NAV per share at 30 June 2020 was 95.1p (June 2019: 95.8p). NAV total return over the year was 3.5%. NAV performance in the period has been driven almost entirely by revaluation gains on completed units. The total number of completed and contracted units at 30 September 2020 was 5,003 (June 2019: 4,369). 96% of total capital of £900m is now committed to projects. The portfolio is spread across 64 sites. The gross development costs of sites underway is £757m with an ERV of £46.6m on completion (6.2% yield on cost). The number of completed homes rose by 18% to 909 in the year to June 2020 despite the impact of Covid-19 on construction schedules. 2,634 homes have completed to date which represents a 27% increase since 30 June 2020. Completions are expected to rise materially this year given the number of sites under construction. Rent collection has remained robust with 98% of rents received in FY 2020. Rent collection rose to 100% in Q3 2020. EPRA EPS in the year was 0.1p. Dividends declared for the year were 4.0p. The board is also considering moving the listing from the Specialist Fund Segment to a premium listing on the main market.

Liberum view

NAV performance has improved marginally as deployment progresses and revaluation gains come through in the development properties. Completed units now represent 51% of the overall target of 5,200. Portfolio performance has been resilient throughout 2020 as rent collection levels have been relatively unaffected. Rental demand remains high with with rent levels holding at pre-Covid levels. The key focus for the company remains on progressing development schemes and building up the level of dividend cover. The 4p dividend target for FY2021 (previously 5p) is now at a more sensible level as we believe it would have been challenging to achieve full dividend cover even without the prolonged construction schedules. We await further guidance on the stabilised covered dividend target for FY 2022 (previously 5.5p).

RTW Ventures (update from Liberum)

C4 Therapeutics, a portfolio company of RTW Venture Fund, has completed a $182m IPO on Nasdaq. C4 Therapeutics is a biotech company developing small-molecule drugs that selectively destroy disease-causing proteins via degradation, instead of just blocking them, as is common with other therapies. The company is expected to file its first investigational new drug application by the end of 2020, with the aim of bringing four drug candidates into clinical trials by the end of 2022. On the first day of trading, C4 Therapeutics rose by 34.2% from its IPO price of $19.00.

RTW Venture Fund invested in C4 Therapeutics’ Series B financing round in June 2020. The investment was valued at $2.5m at 30 June 2020 (1% of NAV).

Liberum view

Since listing in October 2019, five of RTW’s portfolio companies have floated, generating significant valuation gains for the fund. We estimate the IPO price implies a 2.1x multiple on RTW’s initial $2.5m investment in June. We estimate the NAV uplift from the IPO and subsequent share price increase has added c.1.9% to NAV. The transaction highlights the upside potential from the company’s crossover strategy and the focus on mid-to-late stage private transactions. The IPO price of the portfolio companies that have floated to date is c.2x RTW’s initial investment. These companies have generally traded well post-listing, providing additional NAV upside. These gains have helped to drive RTW’s impressive 35% NAV growth from the October 2019 listing to 31 August 2020.

Honeycomb IT (update from Liberum)

Honeycomb has increased the size of its buyback programme. The original buyback programme was originally announced on 10 August, with a maximum allowable number of shares to be acquired of 5.6m. The buyback is scheduled to end no later than 31 August 2021.

Liberum view

The board and the manager are taking meaningful steps to address the current discount to NAV. Today’s announcement follows the comment in the July factsheet that the board is committed to the buyback programme until the discount has narrowed to 5%. In total this year, the company has bought back 9% of its share capital. NAV performance has been resilient in 2020 (+4.8% to end of July). Cash collection levels are robust and the SME portfolio has been boosted by the government’s funding schemes. The manager retains a confident outlook in the portfolio’s ability to withstand the impact of the crisis given the defensive nature of the portfolio (downside protection) and diversification across different lending segments. This has been reflected in the unchanged quarterly dividend of 20p (8.9% yield).

SERE (update from Numis)
● Schroder European Real Estate (SERE) has signed a new 5 year lease at a floor in its Hamburg office (€17.8m valuation at 30 June, (7.3% of portfolio), generating additional rent of €104,500. The manager has now let five of seven floors following the lease surrender of the previous headline tenant at a combined rent of 19% above plan, and 12% ahead of ERV. This will boost the income return of the asset by 0.6% and is expected to add c.€600,000 (0.3%) to the 30 June valuation.

● Numis view: The latest leasing event illustrates that despite Covid-19 impact on occupational activity in the wider market, SERE continues to see tenant demand for its assets. The leasing activity follows the significant asset management event at Paris Boulogne-Billancourt which will boost NAV by c.7.5% in the coming quarter, with further value uplift to be recognised as refurbishment activity is completed. This will result in an impressive NAV total return for SERE, and on the planned disposal of Paris BB, the net sale proceeds of €28m, half of which will be received by the end of this year, will boost the balance sheet and provide further capital to reinvest and bolster the income statement. In our view, the current 43%discount to NAV (including the 7.5% uplift) is too wide for a stock with visibility on significant NAV growth and paying an annualised yield of c.6.7% with scope to boost the rent roll with deployment of sales proceeds.

● We believe that SERE’s weaker rating in part reflects investor preference for more specialist portfolios, compared with diversified commercial investing in Offices, Industrial and Retail. As at 30 June, SERE’s asset base was valued at 30 June at €244.7m, reflecting a net initial yield of 5.8%, and comprised of 48% Offices, 25% Retail (weighted towards convenience and essential retail), 19% Industrial and 8% Mixed Use (Datacentre). However, the recent flurry of asset management successes, and robust rent collection statistics serve as a reminder that there are quality assets within the business, with more opportunities to drive value, and support a solid income profile.

Trading List and Current prices


Name of fund TIDM Current share price Initial price %chg 1w %chg 1m %chg 3m
RTW Venture Fund Ltd RTW 155.5¢ 152.5c 1.3 4.71 5.07
Doric Nimrod Air Two Ltd DNA2 71p 61p 9.23 15.4 12.7
Schroder European Real Estate Investment Trust Ltd SERE 72.6p 72p 3.71 11.3 0.833
Honeycomb Investment Trust PLC HONY 907.5p 765p 0.833 1.11 20.6
PRS REIT (The) PLC PRSR 77.2p 75p -0.899 -5.16 2.39
Stenprop Ltd STP 119p 121.5p -0.833
Urban Exposure PLC UEX 68.5p 56p 3.79 14.2 21.2
Pollen Street Secured Capital PSSL SOLD bought at 750p sold at 832p in August (21st)