Register now for 16 April -

Event | Do you know the value of your business? It’s time you do!

In our 12 August note, Experience shows resilience of the model (2), we noted the key takeaways from RECI’s July quarterly investor update and end-July 2021 factsheets were i) attractive returns from low LTV (average 65%) credit exposure to UK and European large, well-capitalised and experienced institutional borrowers, ii) stable dividends,, iii) a highly granular book, iv) modest leverage, and v) access to a strong pipeline of enhanced return investment opportunities identified by Cheyne. With the shares now at a premium to NAV, RECI has potential access to capital to fully exploit these opportunities and achieve further economies of scale in the listed vehicle.

  • End-July factsheet: In July, the NAV was down 2.1p (up 0.9p excluding 3p dividend paid), to 152.5p. The underlying increase was driven by recurring interest income. Cash was up slightly (£44.4m), gross debt was stable, at £101.1m, and net debt was 16% of NAV. RECI invested £2.3m in existing loan commitments.
  • Portfolio summary: At end-July 2021, the portfolio had 61 positions, with average LTV of 65%. The 29 loans (£311m fair value) had an unlevered yield of 8.8%, a weighted average life (WAL) of 1.5 years and LTV of 68%. The 32 market bonds’ levered yield was up slightly, at 10.1% (unlevered: 4.2%), with WAL of 3.6 years and LTV of 51.4%.
  • Valuation: RECI continues its steady recovery from COVID-19 lows, and now trades at a 3% premium to NAV in line with the five-year average pre-pandemic average of 2%. RECI has continued to pay its annualised 12p dividend, generating a dividend yield of 7.7%, which is expected to be covered by earnings.
  • Risks: Any lender is exposed to credit risks. We believe RECI has appropriate policies to reduce the probability of default. As noted, its average LTV is 65%, and most loans 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. Management has confirmed no change to dividend policy, showing its confidence in its sustainability. Bond pricing includes a discount, reflecting uncertainty, which should unwind when conditions normalise. Market-wide credit risk is currently above-average, but RECI’s strong liquidity and debt restructuring expertise should allow it time to manage problem accounts. Borrowers, to date, have injected further equity into deals.
Download the full report

Request a meeting

If you'd like to be introduced to the team at Real Estate Credit Investments (RECI), get in touch.

Request a meeting
Download the full report