RECI fills its boots and posts 12.3% return

Approach to gross value limit on loans suggests fund may look to raise capital

Real Estate Credit Investments (RECI), the listed debt fund which invests in loans and bonds, is getting close to its 75 percent gross asset value limit for new loan origination, PDI's sister title, Real Estate Capital, reported. 

Delivering strong results for the year to 31 March 2015, the company announced it had made nine additional loans during the year with new commitments of £60 million ($93 million; €82.6 million) and restructured two, increasing those commitments by a further £11 million. After one loan sale and four repayments, it took the drawn value of the loan portfolio from £51 million in March 2014 to £91 million.

And with three more loans due to close by end of June and four more at term sheet stage, investment manager Graham Emmett said “these loans should take us to close to our 75 percent gross asset value limit on loans relative to bonds”.

The Guernsey-domiciled fund, which is managed by Cheyne Capital, has been making the transition from a 50:50 bond-loan split in its portfolio to a higher proportion in loan origination to take advantage of market demand for its product: high-yielding real estate debt for value-added deals at loan to values up to 85 percent.

The evolution suggests that RECI could soon look to grow by raising further capital for more investment.

The company has also appointed a new chairman, Bob Cowdell, who joined this month, and who has capital markets experience from previous roles at ABN Amro and RBS Hoare Govett.

RECI’s net asset value total return per share was 12.3 percent and it declared a dividend for Q1 2015 of 2.7p per share, taking the dividend for the year for the ordinary share class to 10.8p. “If you add in the share price movement the total return was 23 percent”, Emmett said.

Liberum, the broker, said the NAV return compared favourably to peers in the property listed debt sector, Starwood Real Estate Debt Fund and TwentyFour Income Fund, which delivered 7 percent and 8.4 percent NAV total return respectively.

Emmett said: “We’re very pleased with progress. We’ve been making the transition into a more loans-orientated business and we’re 90 percent of the way there now. Our shareholder returns this year are right at the top of the asset class.”

Last month, the fund committed £10.2 million in a whole loan to a sponsor to start the 18-month development of an entirely pre-sold, 220-unit residential scheme in east London. RECI takes c20 to 30 percent participations in large loans alongside Cheyne’s private funds implying a total loan size of £40 million to £50 million.

The senior element is being sold down to a bank which will reduce RECI’s commitment by 50 percent and increase its return to 15 percent.

The one loan sold during the year was a mezzanine investment in the Great Northern Hotel at King’s Cross which RECI said sold at par in October 2014 after returning a 15 percent annual yield.

The 52-strong bond portfolio, which is managed by Ravi Stickney, made a total gross return of 16 percent.