Real Estate Credit Inves... Share Discussion Threads

[davebowler] 13/9/2021 09:05

Liberum;7.7%EventReal Estate Credit Investments' NAV per share at 31 August 2021 was 150.6p, representing a NAV total return of 0.7% in August. The NAV uplift was primarily driven by strong income generation in the month. In the period from March 2020 to August 2021, the manager's real estate debt platform has completed 24 deals with a total commitment of £1.1bn and a weighted average yield of 10.1%. RECI has participated in 10 of the transactions, committing over £130m. Four loans have been realised over that period at or above NAV. The cash returned to RECI has been in excess of £130m since March 2020. The manager also expects a further seven deals to repay in the coming months, returning c.£100m to RECI. The manager's pipeline of new investments comprises 12 potential deals in the UK, France and Spain. RECI had cash of £45m at the end of August which will be used to fund existing loan commitments (£108m of commitments). Gross and net leverage were 29.7% and 16.7% of NAV at the month-end. Liberum viewRECI has generated a 6.8% YTD NAV total return with robust interest collection augmented by mark-to-market gains. We expect continued strong NAV performance from RECI. The mark-to-market recovery in European real estate debt has lagged other credit markets and we believe there is potential for further NAV growth.The portfolio has generated a high level of cash repayments since mid-2020 and the expected repayments of £100m in the coming months represent approximately 25% of the portfolio value. It underlines the importance of the manager's differentiated origination capabilities. All of the bilateral loans and bonds are self-originated, providing greater control and security. The underlying borrowers are typically well-capitalised institutions with significant operational and financial resources. The accelerating repayments demonstrate the advantage of lending on transitional properties, given the potential for value creation and greater scope for exiting positions.  

[metis20] 31/8/2021 22:22

j49 - search with "RECI" using these filters -

"past week" "daily telegraph" "body of article"

The article was in the business part of the Daily Telegraph for 27th August.

[jonathan49] 31/8/2021 15:10

Ref Questor in telegraph. They quote the four funds mentioned as being in their "income portfolio". I am a subscriber but I cannot find the Questor portfolio listings? so are these portfolios real and available to review on the telegraph website? Thanks,

[grahamburn] 31/8/2021 14:44

Interesting - or not, maybe - that Premier Miton Group plc have effectively halved their holding.

It was a significant holder.

Now not quite ao aignificant.

[skyship] 28/8/2021 12:04

Came to the table rather late in the day!

[badtime] 28/8/2021 10:23

Buy rec in today's Questor

[catch007] 16/8/2021 15:51

jonathan49: Estimated Nav is 152 However if you see quarter update below there are no defaults in portfolio so I agree with your logic that NAV will be upgraded in due course as undisclosed impairments will be released. I added more shares last week in RECI.

Key Quarter Updates
• Portfolio
– No defaults in the portfolio.
– Successful and favourable completion on the last remaining hotel loan restructuring.
– Migration of portfolio to senior lending in keeping with the compelling opportunity set therein
– 9 new deals completed (£117m of commitments) since 31 March 2020, showing strength of opportunity post the
initial impact of Covid
• Cash
– Cash reserves remain robust at between 5% to 10% of NAV
• Dividend
– Dividends maintained at 3p per quarter, 8.2% yield, based on share price, as at 30 June 2021
– Dividend cover from net profits in the quarter of 1.09x
• Term matched financing
– Successful conclusion of 1st term matched financing on a senior loan deal
• Share Price Discount to NAV
– Reduction in the discount – which as at 26 July 2021 was 2.3%
• Opportunities
– Bank lending remains constrained across Europe and high barriers to entry secures a continued compelling
investment landscape, especially in senior lending.

[jonathan49] 16/8/2021 14:17

Thanks Catch007, I have looked at much of their reporting. From what I can see one loan was marked down by 5.5p, but has come back by 1p, so they are now 4.5p down on that one. The bond portfolio went down by 10p and if I add up all the reported recoveries in the factsheets since March 20, then 5.8p is recovered. So in total they are now 8.5p down according to that analysis compared to actually being 15p down. There is no information on the carrying (fair) value of all loans and bonds compared to the investment values. In my view, they ought to state the amount by which the bilateral loans and bond portfolio are impaired from the principal amount due to their "fair value" valuation. The 2021 report and accounts doesn't have it either which I would have expected. The 2021 report does have some information in the notes to accounts and the level 3 investment analysis, but this is not a complete picture. So I guess we are blind to just how much the portfolio is marked down vs the investment values of the loans/bonds.

[catch007] 16/8/2021 12:05

jonathon49: You may find the Q1 presentation helpful

[...]

[jonathan49] 16/8/2021 09:09

Hi, I cannot follow why the NAV (ignoring income) is still down at 155p compared to 170p before the virus crisis, can anyone explain it. The March 2020 factsheet broke down the 15p loss into a 10p loss on the market bond portfolio and a 5.4 markdown on the housebuilder loan which is at risk. Commentary implies that the housebuilder loan has been marked up a bit since then and that the market bonds loss is now recovered except for perhaps 1p. Therefore I would expect most of the original 15p loss to have been recovered but this is not the case. I thought that all the dividends had been covered, but perhaps not? Put another way, would the 15p loss be recovered if the market bonds recover to original values and the housebuilder loan was fully written back up? Can anyone explain this apparent capital loss? I can't get much out of the accounts because it is confused by the fact that there was a big increase in shares in issue during year to March 20 - from £153K shares to £229K shares. Thanks for any insights.

[cwa1] 12/8/2021 08:37

Hardman research:-



The key messages we take from RECI’s July quarterly investor update and end-July 2021 factsheet are i) attractive returns from low LTV (average 65%) credit exposure to UK and European large, well-capitalised and experienced institutional borrowers, ii) stable dividends, at 3p per quarter (latest yield: 7.9%), iii) a highly granular book – 61 positions, with the top position 14% of NAV (by commitment), iv) modest leverage – gross 29%, net 16.0% (with £44.4m cash on the balance sheet), and v) access to a strong pipeline of enhanced return investment opportunities identified by Cheyne. The premium to NAV (2%) is in line with pre-pandemic average levels.

Investment summary: RECI generates an above-average dividend yield from well-managed credit assets. Management has confirmed no change to dividend policy, showing its confidence in its sustainability. Bond pricing includes a discount, reflecting uncertainty, which should unwind when conditions normalise. Market-wide credit risk is currently above-average, but RECI’s strong liquidity and debt restructuring expertise should allow it time to manage problem accounts. Borrowers have, to date, injected further equity into deals.

[my retirement fund] 10/8/2021 09:34

So lots of anticipated mark to market NAV gains still to trickle through. NAV could easily return to 1.70 fairly rapidly I guess.

[davebowler] 10/8/2021 09:05

Liberum;
Event

Real Estate Credit Investments' NAV per share at 31 July 2021 was 152.5p, representing a NAV total return of 0.6% in July. The NAV uplift was due to income generation with no material mark-to-market movement in the month.

In terms of investment activity, £2.3m was deployed to fund existing loan commitments. RECI has a cash balance of £44m to fund its pipeline of loan transactions. Gross and net leverage have remained relatively stable at 28.9% and 16.2% of NAV.

Liberum view

RECI has generated a 6.0% NAV total return in the six months to June 2021 with robust interest collection augmented by mark-to-market gains. The recent investor update demonstrated the quality of the manager's underwriting process. All of the bilateral loans and bonds are self-originated, providing greater control and security. The underlying borrowers are typically well-capitalised institutions with significant operational and financial resources. We note that some of the borrowers have injected further equity into transactions this year, de-risking RECI’s exposure. The weighted average LTV ratios across the loans (68.%) and bonds (51.4%) offer considerable downside protection. We expect continued strong NAV performance from RECI. The mark-to-market recovery in European real estate debt has lagged other credit markets and we believe there is potential for further NAV growth.

[loglorry1] 10/8/2021 07:34

Looks like they make roughly 0.9p in income per month vs 1p paid out in divi most months. I still don't see how this adds up when loans are 9.8% WA yeild and are geared up 1.16x. Even with costs the divi should be covered.

[skyship] 10/8/2021 07:12

MONTHLY UPDATE:

• NAV as at 31 July 2021 was £1.525 per share,

• Following the 3.0p quarterly dividend going ex and being
paid in July, this represents an underlying increase of 0.9p
in the month from the 30 June NAV of £1.546 per share.

• Gains driv en by continued strong interest income on the
portfolio and improved volume of deployment.

• In July, RECI invested a further £2.3m in existing loan commitments.

• The Company had cash at the month end of £44.4m and gross
leverage of £101.1m (representing 28.9% of NAV and 1.16x
net/effective look through leverage).

• RECI expects to close on some investments in the continued
healthy pipeline of Cheyne’s deals comprising predominantly of
loans that are senior risk, at lower LTVs, but which have attractive
returns.

• The Investment Manager released their Company Update on 27 Jul'21

[williamcooper104] 09/8/2021 22:34

Yep; logistics expected un-levered returns are now 5 something - or 7-8 with a bit of leverage (but assuming current low interest rates are with us for the long term and taking refinance risk) And those 5 something returns tend to assume above trend rental growth for 10-15 years (which is not actually unreasonable) but also that you can exit at pretty much the same yield as you are paying now to buy (which is much less reasonable) Against that you need to take care with RECI when they state the LTV of a development loan - as that's usually the LTV once the development is complete - which is a very different thing from the actual risk profile of a lender has to step into a development

[yieldsearch] 09/8/2021 21:13

the warehouse reits own the assets, and therefore the value of the asset can go up and down (the nav reit), as well as the rental income (the reit dvd).
just for example, if reci would do a loan on that warehouse reit, clearly the income is capped by the loan interest, but the downside is also capped, if the loan is default, reci would exercice its mortgage and become owner of the warehouse.

so really the question is do you want 6% income with full volatility up or down (ie own a warehouse reit) or you want 6% income on secured debt ( upside limited and with downside to some extent protected).

[loglorry1] 09/8/2021 20:58

The warehouses reits own the underlying assets, which can appreciate and their rents increase. I suppose RECI is not in that position.

[chucko1] 09/8/2021 20:23

As I see it, the subordination they have combined with the LTV profile would see this comfortably at a 6% yield - that would be quite a premium from here. But I think it would take ongoing benign market conditions for this to occur. By no means impossible - consider where warehouses are now priced (although they did not rely on simply benign conditions - they are experiencing truly favourable conditions).

There are some who would say that it is possible to price theoretically the yield this should trade at given certain market credit spreads inter alia. This is actually nonsense - any pricing model that relies upon correlation is wholly exposed to the whim of the market flows, and why I believe the length of benign conditions will determine how much higher this thing goes. If I were to guess - somewhat higher. But I am gradually lowering my holding to match risk with reward - and even in that, I could be some way off. All I can say is that I have some which is a better situation than someone who doesn't. Digital thinking.

[williamcooper104] 09/8/2021 15:40

Good argument for that; I hope they don't trade at a huge premium, as their loans are pretty low tenor so if RECIs trades at a big premium then they have to maintain the same level of returns, whereas over the course of a credit cycle there's a point when it's best to lower returns and lower risk; and it would be nice to be able to do that without hitting the share price Good problem to have though

[evaluate] 09/8/2021 13:40

I have it as part of my personal pension & (pretty) risk-free dividends of 12p a year mean that I'm probably going to hold it for a long time.

[my retirement fund] 05/8/2021 18:31

Given its track record and stonking regular dividends, it certainly deserves to trade on a decent premium.

[williamcooper104] 05/8/2021 17:28

And back then we had the double discount in that RECIs CMBS assets were discounted by the market in RECIs book valuation and then the equity market further discounted that in RECIs share price

[loglorry1] 05/8/2021 17:27

It's great until things go wrong and they take the brunt of it. I have done very well in bank prefs over the years but they've had their challenges.