Real Estate Credit Inves... Share Discussion Threads

[davebowler] 10/4/2014 10:04

Investec Insights

¢ Today's announcement is excellent news and takes LBOW to substantially fully-invested, and more-or-less within the time-frame set out at launch (12 months). This is in contrast with SWEF which has struggled to deploy the capital it raised at launch. We understand the property-lending space remains competitive – and we prefer the regional UK exposure the LBOW team offer, rather than a London-centric approach.

¢ The underlying loan metrics mean the company's target return of a 6% pa dividend should be more than fully met going forwards. Net of fees and expenses, we believe a run-to-maturity IRR of 7.2% pa looks achievable. We think ICG Longbow have now demonstrated they are amongst the market leaders in UK Commercial Property Senior Secured Lending.

¢ We continue to like the property debt space and think LBOW highlights the very attractive risk / reward profile experienced managers can offer to investors right at the top of the capital structure with low LTVs. (In all cases, LBOW's loans are given the senior secured position and the average portfolio LTV is 61%, with 160% interest coverage ratio.)

¢ We note the potential tenth investment opportunity and look forward to an announcement on it (in the near future. We also expect the company's maiden set of final results soon.

¢ Looking at the other funds within the property debt space – which, to reiterate, we main bullish on – LBOW offers the purest senior-loan exposure but we also believe RECI's more diverse strategy of bond and loan exposure offers investors excellent returns; a 12 month dividend yield of 6.1% with the shares trading around par. This is a much more attractive proposition, in our view, than SWEF which is currently 71% committed and trades at a premium of 3.4% and yields 3% (although this should increase when the fund becomes fully invested).

[skinny] 08/4/2014 13:59

Thanks for the update - it reads well!

[davebowler] 08/4/2014 13:36

Liberum;
March NAV rises 1%

Event

NAV per share grew 0.4% in the second half of March to 154.6p at the end of the month. The NAV rise over the month was +1.0% (28 February 2014: 153.1p).

There was a significant level of portfolio activity in the period with £12.1m of bond sales in the second half of the month. The average price achieved on sale was 0.98 compared to an average acquisition price of 0.92. £0.7m of bond purchases were completed in the period with an expected yield of 8.7%. As previously announced, RECI bought back over two million preference shares.

The company has also announced that it will no longer produce mid-monthly fact sheets going forward. Month-end fact sheets will continue to be published as normal.

Liberum view

RECI's steady NAV performance in 2014 has continued in March with a 1.0% return bringing the total return for Q1 2014 to +3.5%. This follows a strong year in 2013 when total returns were +18%.

We estimate the majority of bonds sold in the period were Class A bonds. The sales are further evidence of the company's focus on crystallising profits on bonds that have experienced significant price appreciation before rotating the capital into higher yielding assets which offer greater return potential and better relative value. The average discount on the bond portfolio has moved out to 21% from 19% at 15 March 2014.

RECI is our top pick in the real estate debt space due to the manager's excellent track record, strong NAV growth prospects, capital deployment abilities and valuation (-3.6% discount to NAV & 7.2% dividend yield vs. 1.4% average premium and 5.4% dividend yield for peers).

[envirovision] 04/4/2014 08:35

Excellent, looks like a safe fwd yield with further scope to increase again at some point.

[gary1966] 04/4/2014 07:17

NAV now 155p. Factsheets only being produced at the end of each month from now on. Cash position increased in last two weeks and so there have obviously been sales.

[holts] 01/4/2014 08:58

Were we not due a pref payment yesterday ?

[skyship] 28/3/2014 17:49

Transaction in own shares

Real Estate Credit Investments PCC Limited announces that on Friday 28(th) March 2014 it purchased 1,450,000 preference shares at a price of 107.00p per share. The purchased shares are expected to be held in treasury. The number of Preference Shares purchased represented approximately 3.34% of the total Preference Shares in issue prior to such purchases.

[cerrito] 28/3/2014 17:46

surprised that RECI has not got a better for its cash than to spend £2m on buying RECP-or indeed that they delayed so long after their last equity raise to buy these.
Good question to ask the next time we have a conference call

[davebowler] 24/3/2014 09:46

|Liberum;
Event

NAV per share rose by 0.5% in the first half of March to 153.9p (28 February 153.1p). The uplift was attributable to m-t-m gains in the bond portfolio and recurring interest from loans and bonds.

Further loan investments are expected in the near term as the investment manager is currently working on 4 deals which are in legal documentation.

Liberum view

NAV performance is broadly in line with our expectations for the portfolio and has been helped by consistent returns from the bond portfolio (+2.8% in 2014 to date). The new loan investments will have a positive impact on returns as they will be funded by capital recycled out of lower yielding bonds. We understand the pipeline currently includes loans secured against a commercial property in London, UK regional hotels and a Dutch commercial loan.

RECI is trading on a 2.2% discount to NAV and we believe the high dividend yield (7.1% prospective dividend yield), NAV growth prospects and attractive pipeline warrants a premium rating relative to peers (1.6% weighted average premium).

[skyship] 18/3/2014 16:40

2% TER x 4yrs x 2 for gearing = 16%. Not sure that the last bit is entirely right though. Should it not just be 2 x 4 = 8%? What do we think?

His bald stats pass no comment upon the basic investment case for upside from high yielding and and redeeming loans.

Personally I agree with his: "As a flat rule I would never buy anything trading at or near NAV". So I sold my RECI quite some time ago; and added to my RECP.

[kenny] 18/3/2014 15:07

erstwhile2- I did not understand your last post, please explain in greater detail. For example, what does "16% of Ords NAV eaten" mean and how is that figure arrived at?

[davebowler] 18/3/2014 14:13

erstwhile2 -care to elaborate, as you are usually more eloquent than that and give argued reasons for your views?

[davebowler] 17/3/2014 10:39

Liberum;
ICG Longbow (NR)

95% invested

Event

LBOW has committed to a £10m loan to Lanos (York) Ltd secured by a first charge on the Best Western York Monkbar Hotel. The facility has a maturity date of 31 December 2018. Part of the facility will be used to fund a refurbishment and 27 bedroom extension to the hotel.

The deal is LBOW's ninth transaction with total commitments to date of £97.3m (94.9% of available capital). The average coupon and IRR on the portfolio is 7.3% and 8.4% pa respectively. The portfolio has a weighted average LTV of 62% and interest cover ratio of 1.6x.

Liberum view

The completion of this loan has taken slightly longer than expected with management guidance previously indicating the fund would be 95% invested by the middle of January 2014. We estimate recurring earnings of 1.5p for the year to January 2014 compared to an original target of 4-5p in year 1 at the time of the IPO.

LBOW has the highest rating amongst the real estate debt funds (4.8% premium vs. weighted average 2.0% premium for peers) which we regard as unwarranted given the fund's track record to date.

[davebowler] 10/3/2014 10:15

Liberum;
Event

Following on from the 0.5% increase in the first half of February, RECI's NAV TR in the second half of the month was +0.8%. A dividend of £1.7m was accrued (2.3p per share) and will be paid on 21 March to shareholders on the register at 28 February. After adjusting for the dividend, NAV stood at 153.1p, aided by a strong performance in the bond portfolio, up 1.27% in the month. Furthermore, the Annington Finance bond was a notable strong performer.

£239k of bonds were purchased during the month at 87% of par with an average effective yield of 4.6%. No disposals were undertaken during February.

Liberum view

The bonds are currently priced at 80% of par, equivalent to c.31p of further NAV upside and February's bond performance of 1.27% was the highest monthly return since September 2013 (+2.61%). Further loan purchases are expected in the near term and we expect these to be both loans secured against London & UK regional commercial property and a Dutch commercial loan.

RECI trades on a 0.7% discount to NAV and provides a 7% prospective dividend yield, following the increase in distributions from 2014. With further upside from the bond portfolio, stable NAV growth expected and near-term investment expect in the loan portfolio, RECI remains our top pick in the real estate debt space. BUY.

[davebowler] 24/2/2014 10:03

Liberum;
Further loan purchases expected this quarter

Event

RECI's NAV rose marginally by c.0.5% from 153.5p at 31 January to 154.2p at 15 February (Net assets rose from £111.8m to £112.3m), with the bond portfolio gaining 0.35% and UK CMBS the main contributor to performance. RECI made no bond purchases or sales during the first half of February, but on the loan portfolio they state that they are working on several opportunities and remain confident of making further loan purchases this quarter.

Liberum view

The bond portfolio has delivered positive m-t-m performance in the past 3 months (December +0.57%, January +1.11%, H1 February +0.35%). The bonds are priced on a weighted average 20.5% discount to par which is equivalent to c.33p of NAV upside. Management have reiterated guidance on expectations of a number of new loan investments this quarter. We understand the pipeline currently includes loans secured against commercial property in London, UK regional loans and a Dutch commercial loan.

RECI is trading at par and the high dividend yield (6.9% prospective dividend yield), strong NAV growth prospects and attractive pipeline warrants a premium rating relative to the peers single-digit average premium.

[davebowler] 14/2/2014 16:48

Cheyne mentioned;
hxxp://www.realestatecapital.co.uk/pdf%20files/REC%2011.12%20ISSUE%20LOW%20RES..pdf