Trust news round-up: PRS Reit, Schroder Real Estate, Utilico, Fidelity China, Worldwide Healthcare
PRS Reit (PRSR )
Takeover approach
The portfolio of new-build private-rented homes has received a £632m bid from UK property investor Long Harbour after the real estate investment trust (Reit) put itself up for sale last year. PRS’s market cap currently stands at £631m.
Under the terms of the non-binding offer, which was made public last Wednesday, PRS shareholders would receive 115p per share in cash, an offer that pushed the shares 3.5% lower on the day since it was announced given it was at a 17.6% discount to the December net asset value (NAV).
Analyst comment
Deutsche Numis analyst Andrew Rees noted the cash deals have typically been at discounts to NAV in the recent wave of M&A activity in the property investment trust sector.
However, he said the current crop of discounted takeovers ‘did not benefit from the same structural tailwinds as currently seen in the private rental sector and therefore this indicative offer for PRS will likely have been a disappointment’.
‘However, given the board’s previous indications that several parties were engaged in the process, we do not rule out the prospect that a better bid will emerge,’ Rees added.
Background
The PRS board started a strategic review and formal sales process in October 2024 following a revolt from shareholders over the extension of fund manager Sigma Capital’s contract to four years and the board’s failure to address shareholder concerns.
Disgruntled shareholders ousted PRS chair Stephen Smith. They then appointed Robert Naylor and Chris Mills, the duo who negotiated an exit for Hipgnosis Songs’ shareholders, to the board.
Schroder Real Estate (SREI )
Performance
The UK commercial property portfolio, run by Nick Montgomery, reported an NAV total return of 11% over the year to the end of March, with an underlying portfolio return of 9.1%. This compares to a 6.2% rise by the MSCI UK Balanced Property Quarterly benchmark.
EPRA dividend cover remained at 100% and dividends increased 4% year-on-year to 3.48p per share, according to annual results published last week.
Rent collection remained at 98% over the 12-month period and estimated rental values increased 4.2% year-on-year. The trust expecting £4.1m of rent increases to come through over the next year, thanks to fixed contract uplifts.
Portfolio activity
The manager completed 76 new lettings, rent reviews and renewals that achieved rent reviews 26% ahead of their previous levels and renewals 14% ahead of previous levels. There is further to go on rents, given the annual passing rent at the end of the period was £28.9m, while estimated rental values stood at £40.3m.
The portfolio of 38 properties and 312 tenants comprises of just over half industrial assets, including the three largest assets, with offices and retail assets making up 23% and 20%, respectively. The fund also owns two hotels, a carpark and a leisure asset. Schroder Real Estate has a market cap of £262m.
Montgomery has sought to improve the sustainability credentials of the buildings to generate higher income and capital growth.
Corporate action
The board has negotiated a lower fee with Schroders that will be 50% linked to the market cap and 50% to NAV, in line with a growing number of peers. The manager fee will be 0.9% on assets up to £500m, 0.8% between £500m and £1bn, and 0.7% above £1bn.
Manager comment
As the UK real estate market continues to recover, Montgomery said the fund’s ‘increasing alignment to higher growth sectors and active strategy’ has enabled them to deliver an increase in the fully covered dividend and the highest total return recorded since 2022.
‘Our focus over the remainder of 2025 is to maintain the positive momentum of recent months.
‘Continuing to deliver sustainable earnings growth by executing on our sizeable asset management programme and crystalising the portfolio’s attractive and peer-leading reversionary potential should support a further rerating of the shares,’ he said.
Utilico Emerging Markets (UEM )
Performance
The portfolio of emerging market utility stocks – which also became a Saba Capital target in May – saw its NAV decline by 2.9% over the year to the end of March. This compares to a 5.7% rise by the MSCI Emerging Markets index.
Its shares fared better over the period, up 1.8%, which helped the fund’s discount to narrow from 19% to 16%. This has since narrowed even further to 12.4%.
Dividends per share totalled 9.125p for the year, an increase of 6.1%, which was fully covered by earnings, results reported last Friday.
Managers Jacqueline Broers and Charles Jillings blamed performance on the effects of currency, particularly the depreciation in the Brazilian real and Mexican peso, as well as a number of small-cap Brazilian stocks that disappointed.
Portfolio activity
The managers invested £11.6m in Brazilian water sanitation company Sabesp over the period, more than doubling its position in light of its prospects as a ‘turnaround story’ after the Sao Paulo state government reduced its holding and what they view as a well-known respected operator Equatorial became a significant shareholder.
They also topped up their holdings in Manila Water, Athens International Airport, IndiGrid Infrastructure Trust, and Brazilian renewable energy company Serena Energia.
Jillings and Broers exited logistics group Santos Brazil and Power Grid Operations of India, as well as power generator China Datang.
Manager outlook
‘There remain a number of uncertainties in the current market, both economic as well as geopolitical,’ said Broers and Jillings.
‘Emerging markets are widely expected to benefit from a rotation in investor sentiment away from the US market that is gaining momentum. Whilst there is macro volatility, this volatility often provides investment opportunities to secure attractive long term holdings at compelling valuations.
‘We therefore continue to remain highly confident that the investment strategy is well placed to continue its 20-year track record of long-term outperformance.’
Fidelity China Special Situations (FCSS )
Performance
Fidelity China Special Situations reported strong NAV total returns of 31.5% over the year to the end of March, albeit slightly lagging 37.5% by the MSCI China index.
In the annual report published last week, manager Dale Nicholls said the first five months of the year ‘proved challenging’ due to a combination of ‘lacklustre economic stimulus, a weak property sector, and subdued consumption in China weighing on investor sentiment’.
However, sentiment improved and equities rallied in September after the Chinese government announced a comprehensive stimulus package, aimed at tackling deflation risks and reinvigorating consumption and real estate markets.
A second major catalyst in January was the announcement of DeepSeek’s low-cost AI model, reigniting enthusiasm for Chinese innovation and tech stocks.
Post the end of the reporting period, president Donald Trump’s tariff announcements and broader US-China trade tensions have rocked markets.
‘Based on MSCI data, China’s revenue exposure to the US is around 3%, so while market volatility is unsettling, the fundamental long-term opportunity for most Chinese companies remains intact,’ Nicholls said.
Portfolio activity
Performance during the year was driven largely by domestically focused small and mid-cap stocks, financials and ‘innovative’ areas, like AI and the EV supply chain. At the end of May, Tencent, Alibaba, PDD and Bytedance were the trust’s top positions.
Gearing for the trust averaged 20% over the year and the ‘increased willingness of Chinese companies to pay dividends’ resulted in a 25% increase on the dividend to 6.4p per share paid in 2024. The board also announced a special dividend of 1p per share.
Buybacks
FCSS’s discount narrowed from 10.2% to 7.3%, following active buybacks by the board. Over the year, 30.8m shares were repurchased, representing 5.9% of share capital at the start of the year.
Managers’ outlook
In Nicholls’ opinion, Chinese equity valuations remain at ‘compelling levels’, both in absolute terms and relative to other global markets.
He noted that on a forward price-to-earnings basis, the MSCI China Index is trading at around 10 to 11 times, which is well below historical averages and more than a 40% discount to the S&P 500.
‘The company’s forward price-to-earnings ratio is slightly below that level, despite a stronger growth profile, reinforcing the value on offer,’ he added.
What analysts say
Deutsche Numis analyst Gavin Trodd acknowledged that some ‘investor uncertainty towards the region’ remains. Nevertheless, he views FCSS as an attractive way to access the market, as long as investors are comfortable with its small and mid-cap focus.
‘It is now more than 15 years since inception in April 2010, since when the fund has delivered NAV total returns of 8.5% per annum versus 4.3% per annum for the MSCI China in sterling terms,’ Trodd explained.
Worldwide Healthcare (WWH )
Performance
Worldwide Healthcare saw its NAV decline by 10.3% over the year to the end of March, which compares to 3.2% fall by the MSCI World Health Care index, in what proved to be a difficult year for the life sciences sector.
In the annual report published a week ago, Sven Borho and Trevor Polischuk, who manage the £1.4bn global healthcare trust, explained that healthcare stocks ‘followed a slightly different path’ to broader equity markets over the year.
‘Whilst advancing mostly in-line in the first half of the reporting period, healthcare stocks began to decline in the autumn of 2024 as investors showed a strong preference for high-growth sectors, particularly information technology and generative artificial intelligence, eschewing the traditional defensive healthcare sector,’ they explained.
They put the fund’s disappointing performance down to its exposure to the biotechnology sector. This offset positive performance within medical tech, which the managers have significantly increased exposure to.
Numis analyst Gavin Trodd said the disappointing long-term record ‘largely [stems] from overweight biotech exposure, and China exposure in 2021 to 2022 in particular.’
Although WWH is ‘more volatile than the index’, the analyst noted that it remains ‘a less volatile option than some other investment companies that are explicitly focused on biotech.’
These incluse Biotech Growth Trust (BIOG ), International Biotechnology (IBT ) and RTW Biotech Opportunities (RTW ).
WWH’s private holdings stood at 6.5% at the end of March. It can invest up to 10% in unlisted assets.
Manager outlook
Borho and Polischuk have become even more bullish on companies operating in healthcare equipment and supplies, as well as the med tech sector. Exposure to both increased from 30% to 40% over the 12-month period.
‘The most recent macro conditions that presided over the final quarter of the reported financial year were an unfortunate continuation of an incessant, multi-year macro headwind that continues to obfuscate and undervalue an industry that continues to benefit from significant technological advancements and accelerating innovation in drug discovery and development,’ the managers noted.
What analysts say
Back in May, US activist Saba Capital disclosed a new stake in Worldwide Healthcare.
Numis’s Trodd commented that ‘recent discount narrowing is likely attributable to Saba Capital disclosing a 5% stake’.
Commenting on Saba’s activity, Investec’s Alan Brierley said it had been frustrating to watch the discount drift further from the long-established 6% level, with the rate of buybacks falling over the past 18 months. In his opinion, this allowed Saba to build a 5.4% position.
According to Morningstar data, the discount reached 18% in April.
Brierly added: ‘Disappointingly, this appears to have been a catalyst for a volte-face in approach towards buybacks with subsequent shares acquired on a much narrower level and greater size than in the past three years.
‘We find this confusing and infuriating in equal measures and are particularly uncomfortable with the notion that Saba’s appearance may have been the catalyst for this sudden change while longer-term shareholders have had to endure poor NAV returns and a widening discount in recent years.’
