The 360 Capital Total Return Fund (ASX: TOT) ("Fund") released its 2016 full-year results on Wednesday sending its security price surging.
Here are four reasons why I believe it is a buy at current prices.
Reason 1
Despite Wednesday's jump in security price, the stapled securities of the Fund continue to trade at a 10.5% discount to its net tangible assets (NTA) of $1.33 (at the time of writing), leaving plenty of upside potential on the table for long-term security holders. This is just the first reason why I think the Fund is a buy.
Reason 2
The Fund is managed by listed investment manager 360 Capital Group Ltd (ASX: TGP) ("Manager"), whose mandate is to generate a total return of 12% per annum though selective investment in real estate assets and undervalued listed-REITs.
Since listing in April 2015 at an issue price of $1.25, the Manager has exceeded this performance benchmark, delivering a 15.8% total return at the fund level. That's my reason number two.
Reason 3
The Fund's asset performance and balance sheet strength is my third reason for selecting it as an investment candidate.
In the 2016 year, the Fund generated an operating profit of 8.9 cents per security and bought back 9 million securities (or 22.7% of issued capital) to organically increase earnings per share.
Additionally, the Fund recycled one of its largest assets (Frenchs Forest) at a profit and delivered an unrealised gain on its strategic investment in listed peer Industria REIT (ASX: IDR) of $2.2 million.
These initiatives and investments demonstrate the Manager's sound management capabilities, which is reflected in its higher than market price NTA backing, providing proof enough for reason number three.
Reason 4
Pleasingly, the spoils of these solid results and initiatives are being shared with security holders.
The Manger announced the Fund will distribute a forecast 7.6 cents per security based on cash flow from normal operations in the 2017 financial year.
At the current price of $1.19, this places the Fund on a robust trailing yield of 6.4%, with potential upside through a special dividend as a result of ongoing capital management activities.
With interest rates so low, the reliable income stream provided by the Fund is my reason number four.
Foolish takeaway
For every reason to buy shares in the Fund, naysayers will be able to provide 10 reasons for not buying. However, investing is not about following the masses, but instead, taking calculated risks.
Although the Fund's security price under performed both the S&P/ASX 200 Index (ASX: XJO) and S&P/ASX 200 A-REIT Index (ASX: XPJ) since listing, the Manager's track record, future management strategy and distribution guidance should provide enough compensation for investors to take the plunge and buy a security which trades at a discount to its NTA.
