Real Estate Credit Inves... Share Discussion Threads

[holts] 05/7/2018 10:27

it was when I looked at about 08:00

[skyship] 05/7/2018 10:16

This morning's RNS perhaps rather premature - monthly Fact Sheet still not yet up on the website!

[davebowler] 29/6/2018 08:47

Liberum;
New note: Increasing returns and lowering risk
Event
RECI’s 7.8% NAV return in FY2018 represented an increase of 0.6% on the prior year. We expect a further improvement to 8.3% in FY2019, mainly due to cost savings following the preference share repayment. Reduced competition in the lending market post-Brexit has allowed the manager to reduce portfolio risk by increasing the weighting to senior loans to 63%. We regard the 7.3% dividend yield and 3% discount to the peer group as highly attractive.

[skyship] 28/6/2018 10:08

Sold a few as they went XD the 3p dividend this morning...

[skyship] 15/6/2018 11:34

Thnx for that DB ---- reads very well; and of course another 3p divi confirmed today as well.

[davebowler] 15/6/2018 09:37

Liberum;
Real Estate Credit Investments (Mkt Cap £231m)

FY2018: 7.6% NAV total return

Event

RECI's NAV per share at 31 March 2018 was 163.6p per share (March 2017: 163.2p per share). We calculate a NAV total return of 7.6% for the year after adjusting for dividends paid of 12p. NAV has risen a further 1.3% in the two months to May 2018.

The £245m portfolio comprised 44 positions in loans and bonds at 31 March 2018. The weighted average levered yield is 10.0% and the average LTV is 66.4%. The portfolio remains focused on the UK, France and Germany.


The manager continues to see reduced competition in the lending market due to ongoing bank de-levering and rising capital requirements. Cheyne's real estate debt origination was higher in 2017 than in any previous year. This was evidenced by RECI's total investment of £231m (£136m of loans and £95m of bonds) in the year to March 2018.

The manager is aiming to lower the risk profile of the loan book, but maintaining its total returns. The current investment focus is on senior loans secured on value-add and development assets (mainly UK) and bonds secured on core/core+ income assets across Europe.

Liberum view

The 12 months to March 2018 has been a transformational period for the fund with the repayment of the preference shares and a significant enlargement in the company size (over £100m of equity raised in 2017). This has resulted in reduced gearing a lower expense ratio. NAV total return improved from 7.2% in FY2017 to 7.6% and we expect a further increase in returns in the coming years. Our forecasts imply NAV returns of 8.5% and 8.7% in the next two years.

We believe the real estate debt market offers some of the most attractive risk-adjusted returns in the credit space and RECI is well-placed to capitalise on this through the manager's differentiated pipeline. The stock trades on a -1.0% discount to NAV and offers a 7.3% dividend yield (5.2% average premium and 5.9% dividend yield for the peer group), which we regard as attractive given the fund's strong long-term track record and the improved investment opportunity set in recent years.

[davebowler] 11/6/2018 10:16

Liberum;
Continued NAV gains

Event

NAV per share at 31 May 2018 was 165.7p, an increase of 0.6% in the month. The NAV total return to date in 2018 is 3.4%.

£2.9m of existing loan commitments funded in the month with a further €2m invested in two new bonds in a CMBS issue. Following these investments, cash on the balance sheet was £9.2m (4.0% of NAV). This is expected to be used to fund a pipeline deal in the coming weeks. Gearing has remained stable at 22.3% over the month.

Liberum view

RECI remains on track for an 8%+ NAV total return in 2018. The stock trades in line with NAV compared to a 4.9% average premium for its closest peers. The company’s 7.2% dividend yield is also 1.4% higher than the peer group average.

[skyship] 08/6/2018 14:10

Kerching! - another good month...

MONTHLY UPDATE:

• NAV as at 31 May 2018 was £1.657, an increase of 1.0p per share over the month, due to strong interest income from the portfolio.
• RECI funded £2.9m of its existing loans commitments during the month, and also invested €2m across two bonds in a new CMBS issue.
• Cash balance of £9.2m at month end, representing 4.0% of NAV, which is lined up to fund one of the Investment Manager’s pipeline deals in the coming weeks.
• The pipeline of opportunities developed by Cheyne across both the loan and structured credit markets remains strong.

[my retirement fund] 07/6/2018 19:18

Yeild its no different at all however if these loans go pop Cheyne just tell the truth which is they are high risk loans hence securitized in a special purpose seperatly managed fund. IE RECI. I cannot see how they could suffer much reputational damage fir the life of me if and when they blow up. Its hardly like they would be compared to what the likes of Halifax were doing in 2008.Kenny I'm not sure what your problem is. Cheyne are not doing anything illegal or underhanded. This is now to high risk for me and the business plan looks set to cost shareholders over the long term. You obvously think otherwise. Fine.

[kenny] 07/6/2018 13:32

MRF - you stated that Cheyne were doing something underhand by taking fees on loans that Cheyne originated and RECI invested in and that is the point I addressed. See note 7 to the factsheets, which states that RECI are entitled to fees and, where applicable, equity upside participation.

You have ignored my response but instead advanced a new argument - that Cheyne staff are incentivised to write dodgy loans. Is this from inside knowledge? If so, please explain how they are overcoming vetting and other procedures.

I am fast becoming convinced that your stance is purely to create an argument - without regard to facts or doing any research. What is your purpose, because it is clearly not to enlighten holders and seems to be to maintain a dispute with all comers?

I look forward to your reply but do not expect me to respond. Such continual un-researched supposition has, in my view, had sufficient air.

[yieldsearch] 07/6/2018 12:34

MRF how is that different that any other asset managers? say you invested in a fund managed by pimco, m&g, legal and general, invesco or any others, they invest in equity/bonds/land/esoteric stuff and it goes pop, they will not feel any pain?


ie asymmetry of output between the shareholder and the investment/asset manager?

[my retirement fund] 07/6/2018 11:47

Kenny they are not putting their reputation on the line at all not sure why you imagine that. All thats going on here is that amongst their staff involved in comercial property loans they have some who work on high risk stuff and those staff use some of the facilities within the organisation to make such loans. The reason these staff members do this is because they are enterprising and want to do well. They will have remuneration linked to the fees and they will have profit linked remuneration. If and when some of this stuff becomes smelly it wont effect Cheyne one jot.

[kenny] 03/6/2018 23:02

Last I heard, Cheyne had about $6bn under management. Therefore, it seems anomalous to suggest that the only reason to raise up to £15m for RECI is fees for Cheyne.

Indeed, the whole £230m managed in RECI seems quite insignificant in that context. Cheyne continued to win awards in 2017, so I wonder if they would be willing to put their reputation on the line for a few extra pounds in fees.

Understand, Cheyne hope to jointly float a REIT which specialises in 'build and rent' UK residential property on the London market once the fund builds to about £700m. Not much chance of that happening if they ruin their reputation by ripping off holders in RECI.

[kenny] 03/6/2018 18:17

I do not think that is correct. I believe RECI share pro-rata on fees and equity profit share.

[my retirement fund] 03/6/2018 13:02

Skyship. I think it's clear the money to be made here for Cheyne is not single fold as you suggest but two fold. Namely writing or under writing said loans as well as secondly increasing the size of RECI assets and hence the fees.I would also wager that the former of those activities are an awful lot more lucrative than the later.It is also for this reason why those who believe this has signalled a change in sentient for RECIs activities are mistaken. I believe you will be seeing many many more issues of shares as and when they can get away with it. It's just a matter of time, you'll see ! imo dyo etc.

[skyship] 03/6/2018 12:51

"...when your company is struggling to execute its business model?"


As I posted 3weeks ago in P.No.1386 - herewith the Company's objective. As you have previously stated Cheyne may have a different objective - namely to increase their fee income; but for shareholders it is perfectly reasonable to like the stock, yet disapprove of Cheyne's abortive attempt to issue more.
================================================================


Objective:

The investment objective of the Company is to provide Ordinary Shareholders with exposure to a diversified portfolio of Real Estate Credit Investments. The Company invests in real estate credit secured by commercial or residential properties in Western Europe. The Real Estate Credit Investments may take different forms but are likely to be: (i) secured real estate loans, debentures or any other forms of debt instruments. Individual Secured Debt investments will have a weighted average life profile ranging from six months to 15 years. Investments in Secured Debt will also be directly or indirectly secured by one or more commercial or residential properties; (ii) listed debt securities and securitised tranches of real estate related debt securities; (iii) other direct or indirect opportunities, including equity participations in real estate.

[my retirement fund] 03/6/2018 11:05

I agree with that. Its either your cup of tea or its not.The postet who shouted good when the recent issue failed I only hope is not an investor. Its hardly something to celebrate is it, when your company is struggling to execute its business model?I'm not really sure why people like the fund anymore but prehaps they see simething I dont. Prehaps they know more about the loans Cheyne are issuing and prehaps in the future they envisage the funds doing really well ?

[skyship] 02/6/2018 17:02

"What is the concern here?" - none really, I just think that most of us would hope that they stop issuing new stock...

[holts] 02/6/2018 13:03

I don't think it's so much Italy etc , I feel it's too many issues , assuming they always approach previous supporters first to get away the majority , they have clearly said no and presumably because they feel there have been to many requests and that it has appropriate size and risk at present .

[yieldsearch] 02/6/2018 09:02

Ok assuming you have activists shareholders, what do you want them to do? Liquidate the co? Change the investment criteria? Reduce the level of fee ( and try to get another debt manager with the same skill as cheyne, good luck with that?)What is the concern here?

[my retirement fund] 02/6/2018 08:06

Contrary. Cheyne have a good screw here. They would hardly be letting go of that because a bit of short term sentiment brought about by say Italian politics or Brexit woes. The only thing that will change the setup thats evolved here now would be a significant activist shareholder. That dont look likely to me.

[holts] 01/6/2018 15:09

I think there would have to be a substantial,change in sentiment for them to try and issue any more for quite some time , they have had a substantial shot across the bow.

[my retirement fund] 01/6/2018 13:46

Its just an enormous slush fund basically fir Cheyne to dump its loans its dishing out mostly to clients whom a bank would no longer go near. Occasionally they like to steer investors to the odd more credible loan when talking their books but by and large its mezzanine mortgage backed high risk stuff that Cheyne can obvously make astronomic fees when underwriting. They will be back as soon as they can issue more reci shares. You can rest assured od that!

[skyship] 01/6/2018 13:45

The credit quality of the available high-yielding loans must inevitably decrease as there is only a finite pool. As RECI increases in size it will eventually have to trawl in more open waters - so performance will suffer.

I'm not saying we're anywhere near that point today; however, to maximise performance it is logical to surmise that they should stay small and nimble.

[yieldsearch] 01/6/2018 12:41

I disagree.
The structure is relatively commonly used, a board of directors based in guernsey and really not involved at all in the day to day running of the company ( just looking at their bios, they have no experience in real estate lending or abs bonds). All the loan origination, monitoring, reporting, cash flow management is completed by Cheyne. if one would go to the registered office of the company, i am pretty sure that the "substance" is there to comply with relevant laws, however not much more than that.
All in all, the directors are there to sign and execute documents (and as directors of a company they have obligations) but the bulk of the decisions are made by Cheyne. Reci is basically a SPV, managed by Cheyne. Swef is managed by Starwood. Cifu managed by blackstone, vta is Axa. Directors are clipping some directors remuneration to attend a few meetings.

Now in relation to maximising fees: I believe the fees are fixed %, so clearly increasing with asset under management, but not increasing exponentially. happy to pay a fee to a good manager, just like any other fund, trust or Etf as long as the manager is performing (and i believe for reci they have been).

I actually found it positive to have a large asset base (through equity placing), clearly improving loan diversification, so if one loan would go bad it would have a reduced impact on a larger base of shareholder. This as long as the assets can support the dividend and also no deterioration in the credit quality of the loans.