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RECI hosted two short webinars (see links here). In the first, RECI’s Chairman and manager outlined the fund’s strategy and operational management to deliver superior returns. In the second, they answered investor questions, including why the fund secured overwhelming shareholder support in the recent continuation vote. They discussed how structural shifts are shaping pricing and how risks are managed. The discussion also explored its competitive advantages in recoveries, the rationale behind selective share buybacks (three executed in March), and how RECI’s lending model meets current opportunities/risks.

  • Latest factsheet: RECI had a diversified portfolio of 26 investments (valuation £284.7m), cash equivalents of £15.1m and net effective leverage was 29%. The weighted average levered yield was 10.4% and loan-to-value 69.9%. The portfolio was 54% in UK and 24% in France, and 52% had a duration <1year.
  • Q&A: For us, the most interesting part of the Q&A session was the review of the risks and opportunities from the structural shifts facing RECI as long-term interest rates normalise at higher levels. RECI finances “productive”, growing real estate sectors that earn sustainable income to support higher valuations.
  • Valuation: In the five-year, pre-pandemic era, on average, RECI traded at a premium to NAV. It is now trading at a substantial discount, which appears anomalous. RECI is paying an annualised 12p dividend, generating a yield of 9.8%, which we expect to be covered by recurring net interest income
  • Risks: Any lender is exposed to credit risks. We believe RECI has appropriate policies to reduce the probability of default. Its average LTV is 69.9%, and most loans (inc. all of the top 10) are senior-secured, providing a downside cushion. Some assets are illiquid. In the short term, investor sentiment could be an issue.
  • Investment summary: RECI generates an above-average dividend yield from well-managed credit assets. RECI’s strong liquidity, credit management and debt restructuring expertise should allow it time to manage problem accounts in more challenging conditions. Borrowers have injected further equity into deals. A rolling series of six-monthly buybacks, of up to £10m, has been seen.
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