Bellevue Healthcare Trust (BBH) has announced the adoption of a new zero discount policy, aiming to ensure that its shares trade consistently at or around net asset value (NAV) under normal market conditions.
Under the new framework, the company will buy back shares if they trade at a discount to NAV and may issue new shares (or sell shares held in treasury) if the shares move to a premium. The move marks a shift from reliance on BBH’s annual redemption facility and is designed to offer shareholders more consistent and immediate liquidity throughout the year.
Rationale and benefits
The board believes the change is in shareholders’ best interests, providing a year-round exit route close to NAV, rather than the limited window offered by the annual redemption facility. Among the benefits cited:
- Improved liquidity: shareholders will be able to exit at or near NAV at any point in the year, rather than being restricted to a single annual redemption date.
- Faster settlements: trades can now settle within days, in contrast to the multi-month wait for redemption proceeds.
- Better discount control: the new policy aims to manage the discount on a continuous basis, rather than relying on the less predictable effects of a once-a-year mechanism.
- More flexibility for investors: shareholders can now more easily manage their positions, with greater visibility on price and no uncertainty about the size of annual redemptions.
The trust’s existing authority to repurchase up to 14.99% of its issued share capital (excluding treasury shares) – equivalent to 36,246,425 shares – was renewed at today’s AGM. The board says it will seek further buyback authority as needed to maintain the policy.
[QD comment MR: The introduction of a zero-discount policy looks like a sensible approach to avoiding a repeat of the problems the trust faced last year when it was hit by significant redemption requests under its annual facility. Those redemptions not only put pressure on the trust’s liquidity and portfolio management but also highlighted the limitations of relying on a single, once-a-year mechanism to control the discount and provide shareholder exits – we have repeatedly said that uncapped facilities leave funds a hostage to fortune if a 100% redemption or tender falls due at a time when, for example, markets are depressed or a strategy is out of favour. This shift should hopefully be more appealing to the sorts of longer-term investors BBH wants to attract. For a trust that trades in a sector where sentiment can swing quickly, a more nimble approach to discount control could prove valuable.]
