Real Estate Credit Inves... Share Discussion Threads

[skyship] 06/6/2023 11:50

Got a very small top-up at 122p; and now looks to be on the turn.

[catch007] 05/6/2023 16:23

Given the monthly fact sheet hasn't shown any red flags or warning issues on positions I remain confused at the ongoing decline in the share price

[chucko1] 05/6/2023 12:11

At 2.9 year average maturity, the interest rate moves are easily manageable from a margining perspective.

[cc2014] 05/6/2023 12:09

So, invest £1m at 14.3% without borrowing gives £143k
To create £396k you have to invest £2.76m without borrowing or as far as I can see what they are doing is that they are borrowing £1.76m against the £1m capital.

Now, I don't really care if they are doing it with CFD's, repo's or swaps or whatever but that's still a bunch of margin unless you consider that the margin isn't on just the bond portfolio but on everything (which is a fair position to take). The tolerance for getting margined out as bond prices go against them as they have been as bonds are falling with interest rate rises is not neglible although of course they could put up more margin ultimately from elsewhere in the portfolio if required.


I do support the move away from these bonds to senior debt. That makes sense.
Perhaps I should be more concerned about the overall debt to equity ratio rather than the nuances of the smaller part of the bond portfolio which I do not like. That gives a debt to equity ratio of 30%.

[chucko1] 05/6/2023 11:46

It's a bond portfolio being financed perhaps around 75% (on REPO?). Nothing unusual in that at all.

Notable is that the have been steadily reducing the extent of the bond portfolio as the senior loans they have in the pipeline (and have had ...) are increasingly senior and juicy.

2 year average life on the loans with about 60% LTV. At 20% discount to NAV, which is really large for a loan portfolio absent obviously poor management (no evidence that is the case here - the opposite is far more likely), all sorts of bad luck is in the margin.

[cc2014] 05/6/2023 11:19

Can anyone help me understand this:

On page 2 near the bottom we have the market bond portfolio summary. 15 bonds comprising less than 10% of the gross assets.

Weighted average unlevered yield 14.3%. So that's quite juicy and higher than what I'm really looking for personally for the underlying investments but we all understand what it means and can take our own decisions.

However, weighted average leverged yield 39.6%. wtf??? 40% yield. This seems crazy high and I don't understand. I could come up with theories but in a sense it just looks wrong, unless it's some kind of crazy leveraged up thing. I do note from the presentation that these bonds aren't all bonds in the traditional sense but some are packaged that way presumably to make them more marketable.

Any thoughts anyone? What it appears to be saying to me that this part of the portfolio is using a huge amount of leverage???!!!???

[spittingbarrel] 05/6/2023 11:00

I've just bought more at 1.21445. It's either a real bargain or...

[cwa1] 05/6/2023 10:40

I struggling to make my mind up on this one whether "something awful this way comes"...but if it isn't that-and there's no sign other than the SP-then it surely must be good value hereabouts? Anyway, I've put some more money where my mouth is and had some at 121p but I have NO confidence that it won't fall further first if this seller isn't finished...

[return_of_the_apeman] 05/6/2023 10:13

I think if someone (IIs) knew something bad was coming, they'd be running for the door quicker than this

20 day average volume 250k
1yr average 220k

Not doubting though that there is/has been a tap here

Anyone have sight of the order book/L2?

[chucko1] 05/6/2023 09:54

This has just overtaken SUPR as my largest non-MM holding.

I am not fussed if it falls further. In fact, I welcome it.

[williamcooper104] 05/6/2023 09:40

All looking good Senior loans funded with low leverage Credit losses are of course possible; but catastrophic losses highly unlikely

[skinny] 05/6/2023 09:29

A reminder of the latest update:-

MONTHLY UPDATE
• NAV as at 30 April 2023 was £1.480 per share, representing an increase of 1.1p
per share from the 31 March 2023 NAV of £1.469 per share
• The change in NAV per share was primarily due to receipt of net interest income
• During the month the Company continued the rotation of the market bond
portfolio into the funding of existing strong senior loans with attractive returns
• At 30 April 2023, the Company’s balance sheet leverage net of cash was 9.7%
and net effective leverage, including contingent liabilities being the partial
recourse guarantees provided to certain asset level structured finance
counterparties, was 10.8%. The Company had £59.7m borrowings, £26.7m cash
and £3.6m contingent liabilities (representing 25% of asset level borrowings
subject to partial recourse)
• The Company expects to deploy its currently available cash resources in near
term commitments and continues to see a growing pipeline of senior loans at
attractive floating rates
• The Investment Manager has released its latest Company Update presentation
today (12 May), which is available on the Company’s website

[jp69] 05/6/2023 09:15

Looking at dividend pay dates over last two years , 6p (2 dividends) maybe in next 3 months by mid September should attract a bit of buying

[cc2014] 05/6/2023 09:09

Either someone has some information and wants out before the bad news breaks or it's just some institutional doing what institutions sometimes do.

What is apparent is that whoever is selling is trying to get the best price they can but they also have plenty of stock. Indeed so much stock has gone through over the last few weeks it seems likely there is more than one seller.

It feels like buying this could be playing with fire.

[cwa1] 05/6/2023 08:58

This seems to be on its knees, with no end to the selling in sight...

[skyship] 01/6/2023 11:24

Averaged down at 123.2p. Will add further at 122p - if they get down that far.

[badtime] 31/5/2023 16:32

Topped up yesterday..should have waited

[williamcooper104] 30/5/2023 20:23

Yep remember the prefs - I'd buy them again happily

[mwj1959] 30/5/2023 19:24

A reduction in yield, even if the sensible thing to do if we were to see defaults, would not be taken kindly by the market, regardless of the current discount. A frustrating stock for LT holders, but at least we've been clipping a decent coupon for years. But the Prefs (for those that remember) were much easier to hold and certainly didn't have the the current level of volatility. I'm not at the buying level yet, largely because I've got plenty of exposure already, but if the discount widens dramatically further I'll be tempted. But that is likely below the 120p level. I rather hope that will never occur!

[skyship] 30/5/2023 08:39

Back in here again this morning at 125.5p. The 15.2% discount obviously provides protection against a default somewhere; though only the hotel in France with an 80% LTV might look a little exposed.

Meanwhile the 9.56% yield speaks for itself.

Even if they decided to reduce, say to 10p, the yield would still be 8%.

[chucko1] 24/5/2023 17:10

In my opinion, fair value is a few percent premium. But who cares about a few percent when you are earning roughly 10% against a base rate of 4.5% and you feel you are able to carry this for a few years at least.

[mwj1959] 24/5/2023 14:15

The RECI risk is around loan defaults leading to dividend cuts. I agree that the risk of these has, at the margin, increased, but a 16% discount should more than compensate for that risk, particularly given the senior status of the vast majority of these loans and the (relatively) conservative LTVs on most of them. Fair value for me in this sort of asset class with the quality of management and "low" risk approach (well diversified senior loan focused portfolio and "conservative" LTVs) is around a 5-7% discount.

[chucko1] 24/5/2023 12:05

Fair summary even given the small sample of examples! The low loan average life is key. They can reinvest at higher rates and improve covenants and seniority at the same time (even if forgoing some further yield). And they are proudly and loudly doing this.

I expect to add more even though it currently accounts for 5% of my portfolio, which, in itself, is 60% in MM funds. I.e. it is one eighth of everything else! (apart from my home and car and hi-fi, though the car's not worth as much since my daughter borrowed it).