TIDMRECI
RNS Number : 5003F
Real Estate Credit Investments Ltd
17 November 2020
17 November 2020
Real Estate Credit Investments Limited
Company Update Presentation
Real Estate Credit Investments Limited ("RECI" or "the Company")
is pleased to update investors on the release of its latest Company
Update Presentation.
Given the continuing uncertainty caused by the ongoing COVID-19
pandemic, RECI's Investment Manager has prepared the Company Update
Presentation to provide investors with:
-- an update of the position of the Company as at 31 October 2020;
-- a detailed review of the portfolio investments held by the Company; and
-- detail of the Company's strategy with regards to dividends,
leverage, liquidity and the new emerging opportunities in real
estate credit markets.
The Company is pleased to announce that the Company Update
Presentation is now available on the Company's website at:
http://www.recreditinvest.com/investorpresentations.html
An extract from the Summary section of the Company Update
Presentation is set out for investors in the Appendix to this
announcement.
For further information, please contact:
Broker: Richard Crawley / Richard Bootle (Liberum Capital) +44
(0)20 3100 2222
Investment Manager: Richard Lang (Cheyne) +44 (0)20 7968
7328
Appendix: Company Update Presentation Extract
Summary: Responding to COVID-19, Update to November 2020
At the onset of this crisis, RECI moved quickly to take the
following defensive measures to bring it to a robust position
today:
-- An evaluation of each of its positions in light of the likely
long term impact of the crisis on operating models and valuations
and hence recovery prospects for the individual positions. The
output of this analysis was to write down the value of just 2 of
its mezzanine assets, out of a granular book of 53 positions. These
impairments are not realised losses, but provisions for potential
losses recognised today under conservative scenarios on the long
term trajectory of the crisis.
-- Engaged positively with every one of its borrower
counterparts to put in place mitigation and de-risking strategies
for the long term. This has been completed now with the well
capitalised and capable sponsors that RECI engages with.
-- Improved the resilience and flexibility of the Company by
increasing its cash balances and reducing its net leverage to
GBP46.7m and just 1.07x respectively as at 31 October 2020.
-- Performed a granular analysis of the future liquidity profile
of the Company. A detailed cash flow profile of each investment was
completed, incorporating the probability of likely delays to
repayments (and additional cash needs).
-- Refocus on investments that reflect the pressures of the
ongoing crisis as well as the accelerated long term trends in real
estate. The new investment pipeline emerging is predominantly
senior risk, at lower LTVs, and with more attractive risk and
return characteristics overall.
-- Continued to pay investors 3p per quarter dividend , against
an 'income starved' macro-economic backdrop.
Summary: Cash Management
-- RECI entered 2020 (pre-COVID-19 impact) with a substantially
senior portfolio, strong counterparties and strong governance
control over its investments.
-- Carefully lowered leverage over March and April, while
maintaining sufficient cash resources to ensure that the Company
would be protected against any future negative cashflow impacts
upon the portfolio.
-- Improved the resilience and flexibility of the Company by
increasing its cash balances and reducing its net leverage to
GBP46.7m and just 1.07x respectively as at 31 October 2020.
-- With the benefit of additional cash received from repayments
and interest during the half year, RECI is now is a strong balance
sheet and liquidity position. We remain focussed on how best to
deploy RECI's available cash resources.
Summary: Positioned to Capitalise on Opportunities
-- Having successfully navigated through the challenges posed by
the crisis, RECI is now well positioned to address future market
uncertainty, with a strong portfolio profile and modest leverage
comprising;
o Senior loans and bonds account for 77% of its NAV
o Weighted Average LTV of 63.4%
o The portfolio is concentrated on credits to large, experienced
and well capitalised institutional borrowers
o Leverage of 1.20x gross (1.07x net of cash held) as at 31
October 2020
o Cash on balance sheet of GBP46.7m
-- The Company has good visibility on its liquidity and income
profile for the financial year to March 2021.
-- The portfolio construction and approach since 2016, combined
with recent work to strengthen the Company with the onset of
COVID-19, has positioned the Company to take advantage of a new
pipeline of opportunities.
-- RECI has benefited from prior periods of economic crises by
virtue of its flexible approach to real estate credit. It is
capable of addressing the dislocations in liquid bond markets
(where the distress is becoming especially acute now) to the
provision of loan capital to institutional borrowers and projects
desperately in need of expert financing solutions.
Summary: Portfolio Construction and Investment Approach
-- RECI's investment focus is on UK and European real estate
credit comprising loans (mainly senior loans) and bonds
collateralised by commercial real estate assets.
-- The investment objective of the Company is to provide
Ordinary Shareholders with attractive and stable returns, primarily
in the form of quarterly dividends.
-- With the backdrop of persistent global uncertainty and
volatility, RECI has positioned itself to focus on the lower risk
part of the real estate capital structure (senior loans and
CMBS).
-- The returns it has achieved and can continue to achieve, for
this risk, have improved considerably with the continued
acceleration in the withdrawal of traditional bank sources of
funding and also from the limited inflow of alternative capital
into real estate lending in Europe.
-- RECI invests alongside Cheyne Capital's market leading
established real estate debt platform. Given this scale, RECI is
able to focus on loans to large well capitalised and experienced
borrower counterparties.
-- RECI's balance sheet leverage and liquidity have been managed
to position it well for periods of stress.
-- Despite achieving a lower risk profile in this period, RECI
continues to generate an attractive income profile:
o Its self-originated deals have been originated at a WA yield
of 8% - 10% for LTV ranges of 50% - 70%
o Its market bond portfolio generates an ungeared income of
around 6.7% from a portfolio LTV of approximately 51%
Summary: Update on Real Estate and Debt Markets in Europe
-- Real estate markets in Europe are responding to the immediate
implications of the COVID-19 virus (which has mainly impacted
occupational markets for assets focused on the retail and leisure
sectors) as well as the acceleration of longer term trends that
were already in place before 2020.
-- Markets are also repricing longer-term expectations on
occupation and rents to reflect what is likely to be a prolonged
recessionary period and the implications of the changes in long
term trends of how real estate is used.
-- Capital markets are also beginning to price in the prospect
of a long period of relatively benign interest rates that favour
real assets which are capable of demonstrating consistent income
and structural demand.
-- The Manager has noted the return of investment capital to
most asset classes in Europe, albeit at lower bid prices that
reflect such factors. On the sell-side, we have not yet seen the
return of indiscriminate "forced selling" that was prevalent during
the 2008 crisis. This is driven by the significantly lower levels
of leverage in the European real estate sector and a less granular
lending. We would, however, expect an increase in selling or
restructuring pressure the longer there are "lockdowns" as debt
service capability and ability of lenders to extend is
constrained.
-- In contrast to the growing liquidity in the real estate
equity markets, the European debt markets have been characterised
by a material further retrenchment in the availability of debt by
both the banking sector as well as the alternative lending
sector.
-- The demand for debt remains unmet by supply - further
improving the opportunity for RECI's lending programme to improve
returns and capture market share.
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