Dividend Declaration & Company Update Presentation

15 May 2020

 

Real Estate Credit Investments Limited

 

Dividend Declaration, Company Update Presentation and Financial Reporting Calendar

 

Real Estate Credit Investments Limited ("RECI" or "the Company") is pleased to update investors on: the declaration of its fourth quarter dividend; confirmation of its financial reporting calendar; the release of its Company Update Investor Presentation; and the release of the March Quarterly Report.

 

Declaration of fourth interim dividend for the financial year ended 31 March 2020:

 

The Company's investment objective is to provide Shareholders with attractive and stable returns, primarily in the form of quarterly dividends. To provide certainty for our Shareholders, the Board has brought forward the date of declaration of the fourth interim dividend and is pleased to announce that it has declared a fourth interim dividend of 3.0 pence per ordinary share (a total amount of £6,879,974.34) for the year ended 31 March 2020. The dividend is to be paid, consistent with the Company's normal financial calendar, on 30 July 2020 to Shareholders on the register at the close of business on 3 July 2020. The ex-dividend date is 2 July 2020.

 

Payment of the fourth interim dividend will complete the payment of dividends totalling 12 pence per ordinary share in respect of the financial year ended 31 March 2020.

 

Following a comprehensive review exercise carried out by the Board and the Investment Manager, more details of which are contained in the Company Update Investor Presentation released today, the Board confirms that there will be no change to its dividend policy for the current financial year ending 31 March 2021, and that the Company intends to continue to pay a stable quarterly dividend.

 

Financial Reporting:

The Board notes that the Financial Conduct Authority, responding to the impact of the COVID-19 pandemic, announced that companies would be granted an additional two months to allow publication of their final results, within six months of a company's year end. The Board confirms that it expects the Company to publish its final results for the year ended 31 March 2020 around the end of June, in line with its normal financial calendar.

 

Company Update Investor Presentation:

 

Given the heightened uncertainty evolving from the COVID-19 pandemic, RECI's Investment Manager has carried out a detailed review of the Company's portfolio, to provide investors with:

 

·              an update of the position of the Company as at 30 April 2020;

·              a detailed review of the positions 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 commensurate with the Manager's revised risk assessment.

 

The Company is pleased to announce that its Investment Manager's Company Update Investor Presentation is now available on the Company's website at:

 

http://recreditinvest.com/PDFs/2020/05/RECI-May-2020-Company-Update-Presentation.pdf

 

An extract from the Summary section of the Company Update Investor Presentation is set out for investors in the Appendix to this announcement.

 

March Quarterly Report:

 

The Company is also pleased to announce that its Investment Manager's Quarterly Presentation for the quarter ended 31 March 2020 is now available on the Company's website at:

 

http://recreditinvest.com/PDFs/2020/05/RECI-Mar-2020-Quarterly-Update.pdf

 

This announcement has been prepared by, and is the sole responsibility of, Real Estate Credit Investments Limited. This announcement has been released by Chris Copperwaite of Aztec Financial Services (Guernsey) Limited, Secretary of the Company.

 

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 Investor Presentation Extract

 

Summary: Portfolio Construction and Investment Approach

 

·      RECI's investment focus is on European real estate credit comprising loans (mainly senior loans) and bonds.

·      The investment objective of the Company is to provide Ordinary Shareholders with attractive and stable returns, primarily in the form of quarterly dividends.

·      Since the 2016 Brexit vote, RECI has benefited from pivoting its investment strategy away from mezzanine (and subordinate) loans towards lower risk senior loans and bonds.

-     This repositioning reflected the fact that global volatility and uncertainty were likely to persist and economic cycles were likely to be increasingly short.

·      As the Company has grown, it has also moved its origination away from the small / mid market borrowers and towards the larger, well capitalised and experienced borrower counterparties. 

·      RECI's balance sheet leverage and liquidity have been managed to position it well for periods of stress.

-     Coming into this crisis, RECI had gross leverage of 25.3% (net leverage of 9.5%) as at 29 February. As at 30 April 2020, the Company's leverage was just 15% of NAV or 1.15x (6% of NAV or 1.06x on a net look through basis).

·      Despite achieving a lower risk profile in this period, RECI has continued to generate an attractive income profile.

-     Its senior loans have been originated at a WA yield of 8% - 9% for LTV ranges of 50% - 70% whilst its bond portfolio generated an ungeared income of around 4% from a portfolio LTV of around 55%.

 

Summary: Actions Against COVID-19

 

·      Since the onset of this crisis and the resultant market turbulence, RECI has moved to take the following measures:

-     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 two of its mezzanine positions. These impairments are not realised losses, but provisions for potential losses recognised today.

-     Engaged positively with every one of its borrower counterparts to put in place mitigation and de-risking strategies for the long term.

-     Improved the resilience and flexibility of the Company by increasing its cash balances and reducing its net leverage to just 1.06x as at 30 April 2020. This was achieved by a combination of repayments of loans as well as sales of select liquid bonds, raising £24.3m. The net realised loss from the latter was limited to 2.1 pence per Ordinary Share.

-     Performed a granular analysis of the future liquidity profile of the Company. A detailed cashflow profile of each investment was completed, incorporating the probability of likely delays to repayments (and additional cash needs).

-     Withdrew from progressing on its significant pipeline of senior loans to refocus on new investment targets with more attractive risk and return characteristics.

 

Summary: Positioned to Capitalise on Opportunities

 

·      Since 29 February, RECI's NAV has declined by 16.2 p per share. The majority of this reduction comprises the un-realised mark to market decline on its bond portfolio (8.9 p), the fair value adjustment on its mezzanine loans (6.2p) with just 2.1p being the realised loss on sales made.

·      Despite the NAV decline, RECI is well positioned to address future market uncertainty, with a strong portfolio profile and modest leverage comprising:

-    Senior loans and bonds account for 76% of its NAV

-    The WA LTV of its book is 64.1%

-    The portfolio is concentrated on credits to large institutional borrowers

-    Its balance sheet leverage as at 30 April 2020 is 1.15x gross (1.06x net of cash held)

-    It retains cash on balance sheet of £31.3m

•     The Company has good visibility on its liquidity and income profile for the year and is able to bring forward the declaration of the dividend of 3p per ordinary share announced on 15 May 2020.

•     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:

-    The new pipeline being developed by RECI now comprises 3 senior loans with Loan to Costs (LTC) in the range of 50% - 70%, to institutional borrowers. The rates of return being charged are 2% - 3% higher than achievable just 2 months ago.

-    The opportunities in CMBS bonds are likely to become particularly attractive and abundant as rating downgrades and liquidity needs bring forward further bouts of financial market stress.

-    RECI will selectively, and gradually, seize these opportunities over time to further strengthen its income and NAV growth profile.

•     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.