Company Update Presentation

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 £46.7m 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 £46.7m 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 £46.7m

·     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.