Real Est.cred Regulatory News (RECI)

The following replaces the notice released on 25 June 2020 at 07:00, RNS number 9998Q, as the NAV total return was incorrect. The full amended text appears below:

This announcement contains inside information.

Date and time of release: 25 June 2020, 07:00

Real Estate Credit Investments Limited (the "Company")

Annual Report for RECI LN (Ordinary Shares)

The Board of Directors of the Company announces the release of the Company's Annual Report and Audited Financial Statements (the "Financial Statements") for the year ended 31 March 2020.

View the Financial Statements. http://www.recreditinvest.com/PDFs/2020/06/RECIAnnualReport2020.pdf 

For further information, please contact:

Broker: Richard Bootle / Richard Crawley (Liberum Capital) +44 (0)20 3100 2222

Investor Relations: Alastair Perry (Cheyne) +44 (0)20 7968 7444

Real Estate Credit Investments Limited

Annual Report and Accounts 2020

Real Estate Credit

Investments Limited

www.recreditinvest.com

Real Estate Credit Investments is a specialist investor in European real estate credit markets with a focus on fundamental credit and value.

What do we offer:

· Defensive credit exposure to UK and European real estate markets

- Stable dividend delivered consistently since October 2013

- 52 positions

- Top position: 12.0% of year end NAV (by commitment)

- Consistent dividend yield of 7%+ offering a significant buffer to risk-free rates

- A high-yielding portfolio, combined with a short weighted average life, ensuresminimal exposure to yield widening and the ability to redeploy at higher rates quickly

Highlights

As at 31 March 2020

TOTAL ASSETS

£441.8m

(2019: £355.2m)

NET ASSETS

£337.2m

(2019: £253.2m)

NAV PER SHARE

£1.47

(2019: £1.65)

Net (loss)/profit

£(17.4)m

(2019: £19.2m)

At a Glance

At a Glance

Our investment strategy continues to provide compelling risk-adjusted returns.

Real Estate Credit Investments ("RECI") is a closed-ended investment company which originates and invests in real estate debt secured by commercial or residential properties in Western Europe, focusing primarily on the United Kingdom, France and Germany.

The Company's aim is to deliver a stable quarterly dividend with minimal portfolio volatility, across economic and credit cycles, through a levered exposure to real estate credit investments.

Investments are predominantly in:

Loans

Real estate loans.

Bonds

Listed real estate debt securities such as commercial mortgage-backed securities ("CMBS") bonds.

Investment Portfolio Composition

RECI's investment portfolio, a diversified book of 52 positions in real estate bonds and loans, was valued at £375 million as at 31 March 2020, up from £302 million as at 31 March 2019. The portfolio had a weighted average levered yield of 11.0% and an average loan-to-value ratio of 64.4% as at 31 March 2020.

Portfolio by Geography

(funded fair value)

* Excludes 0.7% (2019: 1.0%) held in bonds backed by assets in multiple European countries.

Sector Breakdown (funded fair value)

NAV and Share Price

As at 31 March 2020

Total NAV Return

YTD = Calendar year, 1 yr = 2019, 3 yr = 2017-2019, 5 yr = 2015-2019

About the Company

About the Company

The Company invests in real estate debt secured by commercial real estate in Western Europe, focusing primarily on the United Kingdom, France and Germany.

Real Estate Credit Investments Limited ("RECI" or the "Company") is incorporated in Guernsey, governed by the Companies (Guernsey) Law, 2008 (the "Companies Law") and regulated as an authorised closed-ended investment scheme by the Guernsey Financial Services Commission. At the Annual General Meeting ("AGM") in September 2017, the continuation vote was passed and a further continuation resolution will be subject to shareholder approval at the AGM to be held in 2021.

The Company invests in real estate debt secured by commercial or residential properties in the United Kingdom and Western Europe, focusing primarily on those countries where it sees the changing dynamics in the real estate debt market offering a sustainable deal flow for the foreseeable future. The Company has adopted a long-term strategic approach to investing and focuses on identifying value in real estate debt. In making these investments, the Company uses the expertise and knowledge of its Alternative Investment Fund Manager ("AIFM"), Cheyne Capital Management (UK) LLP ("Cheyne" or the "Investment Manager").

The Ordinary Shares are currently listed on the premium segment of the Official List of the UK Listing Authority and trade on the Main Market of the London Stock Exchange. Ordinary Shares offer investors a leveraged exposure to a portfolio of real estate credit investments and pay a quarterly dividend.

On 24 May 2019, the Company announced that it had raised gross proceeds of £78.0 million through the issue of 45.9 million new Ordinary Shares at 170 pence per new Ordinary Share.

On 1 October 2019, the Company announced that it had raised gross proceeds of £17.0 million through the issue of a further 10.2 million new Ordinary Shares at 167 pence per New Ordinary Share.

These Ordinary Shares were issued under the Company's 2018/19 Programme as set out in the Company's prospectus dated 2 November 2018. The Second Placing Programme expired on 1 November 2019, having raised aggregate gross proceeds of £95.0 million and further diversified RECI's ownership and enhanced the liquidity of the Company's Ordinary Shares.

On 4 February 2020, the Company announced that it had raised gross proceeds of £33.5 million through the issue of 19.9 million new Ordinary Shares at 168 pence per new Ordinary Share. These Ordinary Shares were issued under the Company's general authority to allot and issue equity securities approved by Shareholders at the September 2019 AGM.

On 21 February 2020, the Company launched a new placing programme for the issue of up to 150 million new Ordinary Shares, which was approved by Shareholders at an extraordinary general meeting held on 10 March 2020.

Website and Share Price Information

The Company has a dedicated website, which can be found at www.recreditinvest.com that contains information, including regulatory announcements, share price information, financial reports, investment objectives and strategy, investor contacts, information on the Board and information on the Alternative Investment Fund Managers Directive ("AIFMD").

Investment Objective and Investment Policy

Investment Objective

The Investment Objective of the Company is to provide Shareholders with attractive and stable returns, primarily in the form of quarterly dividends, by exposure to a diversified portfolio of real estate credit investments, predominantly comprising real estate loans and bonds.

Investment Policy

To achieve the Investment Objective, the Company invests and will continue to invest in real estate debt secured by commercial or residential properties in the United Kingdom and Western Europe ("Real Estate Credit Investments"). 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 (together "Secured Debt"). Secured real estate loans are typically secured by mortgages over the property or charges over the shares of the property-owning vehicle. 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, and shall not exceed a loan-to-value ("LTV") of 85% at the time of investment;

(ii) listed debt securities and securitised tranches of real estate related debt securities, for example, residential mortgage backed securities and commercial mortgage backed securities (together "MBS"). For the avoidance of doubt, this does not include equity residual positions in MBS;

(iii) other direct or indirect opportunities, including equity participations in real estate, save that no more than 20% of the total assets will be invested in positions with an LTV in excess of 85% or in equity positions that are uncollateralised. On certain transactions, the Company may be granted equity positions as part of its loan terms. These positions will come as part of the Company's overall return on its investments and may or may not provide extra profit to the Company depending on market conditions and the performance of the loan. These positions are deemed collateralised equity positions. All other equity positions that the Company may invest in are deemed uncollateralised equity positions.

Dividend Policy

Subject to the applicable requirements and restrictions contained in the Companies Law, the Company may consider making interim dividend payments to Shareholders, having regard to the net income remaining after the potential reinvestment of cash or other uses of income, at a level the Directors deem appropriate, in their sole discretion, from time to time. There is no fixed date on which it is expected that dividends will be paid to Shareholders. The Directors intend that the Company pays dividends to Shareholders when it is able and appropriate to do so. It is the intention of the Company to continue to pay a stable quarterly dividend with the potential for additional payments if investment returns permit.

Chairman's Statement

Chairman's Statement

Delivering a stable quarterly dividend amid uncertain markets

"We are reporting today upon the year ended 31 March 2020, which prior to the impact of COVID-19 had been a busy and successful one for your Company."

Bob Cowdell

Chairman

A year ago, we published our financial statements against a background of ongoing Brexit concerns, related political uncertainties and global economic challenges.

This year, it is the impact of the COVID-19 pandemic upon the last month of our financial year ended 31 March 2020 and the environment in which your Company has been operating since, which dominates.

In addition to the health, social and economic impacts worldwide, the response to COVID-19 by the UK and foreign governments has inevitably affected economies and markets, including the credit and underlying real estate markets in which RECI participates.

I wrote last year that: "It is during times like these that the specialist investment expertise, market experience and transaction pipeline of our investment manager, Cheyne, come to the fore"; and the sentiment is never more relevant than at present.

We are reporting today upon the year ended 31 March 2020, which prior to the impact of COVID-19, had been a busy and successful one for your Company. At 29 February 2020, the NAV was £1.67 per Ordinary Share; the shares had traded at an average premium to NAV of 1.95% for the first 11 months; the first three interim dividends for the year had been paid at 3 pence each per share; and the Company had continued to grow as Shareholders and new investors supported further fundraisings.

The impact of COVID-19 was first keenly felt by markets during March, exacerbated by the unprecedented lockdown introduced in the UK and many other countries, resulting in the year ending with the NAV per Ordinary Share of £1.47. It should be noted, however, that as the Investment Manager's report more fully describes, the 20 pence month on month NAV per share decline during March (which had reduced to 18 pence by the end of May) was mainly comprised of unrealised losses.

The year-end NAV of £1.47, has been followed by the announcements of a NAV of £1.48 at the end of April and £1.49 at the end of May. The current return of liquidity to the credit markets and a general improvement in sentiment should support further NAV recovery over the coming months.

Turning to share price performance, March saw severe corrections in markets worldwide, as concerns over the negative implications of the rising global pandemic took hold. The Board was concerned and disappointed to see the sharp fall in the RECI share price during March, April and early May, which led to a significant discount to NAV. As often happens in times of uncertainty, financial markets fell in anticipation of future losses and there is a tendency for investments to be considered at a macro level, rather than individually.

In response to the general financial market stress and seeking to provide investors with a detailed understanding of RECI's portfolio, which underpins the Company's published NAV, the Board and Cheyne embarked upon a comprehensive and granular review of the entire portfolio of loans and bonds and modelled the expected impact on and outlook for, each individual holding.

The results of this exercise were published in an update to Shareholders on 15 May 2020. The update provided a detailed report of the consequences of COVID-19 disruption on the Company's existing portfolio and our Manager's view of how markets may develop and the future potential investment opportunities which may arise.

To provide certainty for Shareholders, the Board, having reviewed likely future cash flows and profits, decided to bring forward and also announced on 15 May, the declaration of the fourth interim dividend of 3 pence per share for the year ended 31 March 2020, to be paid to qualifying Shareholders on 30 July 2020. The Board also confirmed that there would be no change to its dividend policy for the current financial year ending 31 March 2021; and that the Company intends to continue to pay a stable quarterly dividend.

Investors will inevitably remain concerned about the broader future impact of the economic consequences of the global pandemic and the Board will remain vigilant; while being encouraged to note that the RECI share price has risen by 35% since the announcements of 15 May and the discount to NAV has significantly reduced.

Financial Performance

RECI reported a total net loss for the financial year ended 31 March 2020 of £17.4 million on year-end total assets of £441.8 million, compared with a £19.2 million net profit in the year ended 31 March 2019, on year-end total assets of £355.2 million.

The NAV as at 31 March 2020 was £1.47 per Ordinary Share (£1.65 per Ordinary Share as at 31 March 2019) which, combined with the 12 pence per Share payable in respect of the year ended 31 March 2020, represents an annualised total return for Shareholders of (3.64)% for the year.

During the financial year ended 31 March 2020, the Company's Ordinary Shares traded at an average premium to NAV of 0.16% (1.50% for the year ended 31 March 2019).

A fourth interim dividend of 3 pence per Ordinary Share was declared on 15 May 2020, in respect of the year ended 31 March 2020. Total dividends declared in respect of the financial year ended 31 March 2020 were 12 pence per share, returning £25.1 million to our Ordinary Shareholders.

During the last financial year, the Company utilised short-term leverage at an average cost of borrowing of 1.80%; with average gross leverage of 1.21x NAV.

As at 29 February 2020, just prior to the market impact of the pandemic, RECI had gross leverage of 1.25x and leverage net of cash of 1.1x. By 30 April 2020, responding to the impact of COVID-19, RECI had reduced its gross leverage to 1.15x (1.06x net of cash); with that modest level of gearing remaining at the end of May at gross leverage of 1.16x (1.07x net of cash). The Board and Cheyne will continue to consider and assess the appropriate level of gearing for the Company and the pricing and structure of a range of potential leverage options, including non-recourse lending on the loan portfolio.

During the financial year to 31 March 2020, the Company invested £218.6 million in the loan portfolio and purchased £84.0 million of new bonds for the portfolio. RECI also received cash repayments and interest of £202.3 million in this year.

Placing Programmes and Tap Issue

On 24 May 2019, RECI announced that it had raised gross proceeds of £78.0 million through the issue of 45,882,353 new Ordinary Shares, pursuant to the Placing Programme launched on 2 November 2018 ("Second Placing Programme").

On 1 October 2019, RECI announced that it had raised gross proceeds of £17.0 million through the issue of a further 10,208,480 new Ordinary Shares.

The Second Placing Programme expired on 1 November 2019, having raised aggregate gross proceeds of £95.0 million; further diversified RECI's ownership; and enhanced the liquidity of the Company's Ordinary Shares.

Responding to investor demand, on 4 February 2020, the Company announced that it had raised gross proceeds of £33.5 million through the tap issue of 19,920,363 new Ordinary Shares, the maximum available under the authority granted by Shareholders at the September 2019 Annual General Meeting.

On 21 February 2020, RECI launched a new Placing Programme for up to 150 million new Ordinary Shares, which was approved by Shareholders at the Extraordinary General Meeting held on 10 March 2020.

The Board is grateful for the support of our Shareholders and new investors in the Company during the last financial year.

Board Update

As part of ongoing Board development, John Hallam was appointed as the Senior Independent Non-executive Director with effect from 1 October 2019, succeeding Graham Harrison, who remains a member of the Board and its Committees.

During the financial year ended 31 March 2020 and prior to the Company entering a closed period for trading on 25 May 2020, members of the Board purchased an aggregate of 175,000 shares in the Company, further aligning ourselves with our Shareholders.

I am grateful for the dedication of my fellow Directors and the efforts of the staff of our Investment Manager and all our advisers, as they have worked tirelessly to support RECI in our response to the impacts of the COVID-19 pandemic, notwithstanding the operational challenges of remote working during lockdown.

Outlook

It is only a few months ago that the COVID-19 pandemic arose and impacted global markets and society. It brought with it the uncertainties caused by a "one in a hundred year event" and the completely unprecedented government lockdown responses worldwide. These uncertainties and the potential economic ramifications are forecast to continue for some time.

Against this background, your Board and Manager will remain disciplined and continue to closely monitor the Company's loan and bond portfolios, cash reserves, leverage, prevailing share price and discount. We believe that RECI is well positioned to navigate and potentially take advantage of these uncertain markets; and will maintain an open dialogue with our investors as we seek to share this message and continue to deliver an attractive return for our Shareholders.

Bob Cowdell

Chairman

24 June 2020

Strategic Framework and Performance Highlights

Objectives

The opportunity set in senior loans and bonds remains compelling and sustainable.

1. Provide investors with a diversified portfolio of real estate credit investments.

Progress in YE 31 March 2020

· Over the course of the last financial year RECI has invested a total of £302.5 million, of which £218.6 million was in real estate loan commitments and £84.0 million in real estate bonds.

2. Deliver a stable quarterly dividend with minimal volatility.

Progress in YE 31 March 2020

· Paid out 3 pence per share each quarter, 12 pence over the year.

· A total of £25.1 million returned to our Ordinary Shareholders.

3. Exploit opportunities in the real estate market.

Progress in YE 31 March 2020

· Investment book has grown to £375.6 million as at 31 March 2020.

- Spread across 52 positions with a weighted average levered gross yield of 11.0% and an average loan-to-value of 64.4%.

· RECI also received cash repayments and interest of £202.3 million in the year.

4. Grow the Company through opportunities the Investment Manager is delivering.

Progress in YE 31 March 2020

· RECI's growth has continued in the year with three issues raising gross proceeds of £128.5 million and a new Placing Programme launched in February 2020.

· The Investment Manager had substantially invested the proceeds of these raises in investments pre COVID-19.

· Post the impact of COVID-19 the Investment Manager continues to see a robust pipeline of continued opportunities.

Portfolio

Key Performance Indicators

* Average Premium is the average of the difference in the share price and the NAV per share divided by NAV per share.

** Leverage is the financing divided by the net assets.

Financial Highlights

* The Company's two reportable segments have changed for the year ending 31 March 2020 to reflect the separate management of the two portfolios by the Investment Manager. Please refer to Note 16 to the financial statements for further detail.

** Financing comprised of short-term repo financing.

* Net (loss)/profit may not sum due to rounding

** The effective yield of the loans is the accounting yield based on the funded loan balances, which includes interest and fees. Some loans also enjoy equity upside participation, which is only recognised following evidenced high probability of receipt, which can result in significant incremental gains in excess of the accounting yield. The yield is based on Cheyne Capital's pricing assumptions and actual returns may differ materially from those expressed or implied herein.

*** The weighted average effective yield is based on Cheyne Capital's pricing assumptions and actual returns may differ materially from those expressed or implied herein.

Further Information

Monthly fact sheets as well as quarterly update presentations are also available on the Company's website,

www.recreditinvest.com.

Strategic Report

Strategic Report

The Strategic Report describes the business of the Company and details the principal risks and uncertainties associated with its activities.

Investment Objective, Investment Policy and Business Model

The Investment Objective and Investment Policy are set out on page 5, and further to this the Company's business model is detailed in the Investment Manager's report. There is also an "About the Company" section on page 4 explaining in more detail the corporate structure and listing of the Company's Ordinary shares.

RECI is externally managed by Cheyne, a UK investment manager authorised and regulated by the Financial Conduct Authority ("FCA"). Cheyne is a limited liability partnership registered in England and Wales on 8 August 2006 and is authorised and regulated in the conduct of investment business in the United Kingdom by the FCA. Cheyne is also the AIFM of the Company.

Current and Future Development

A review of the year and outlook is contained in the Investment Manager's report and also within the Chairman's statement.

Performance

A review of performance is contained in the Key Performance Indicators ("KPIs") and financial highlights section and the Investment Manager's report.

A number of performance measures are considered by the Board and the Investment Manager in assessing the Company's success in achieving its objectives and considering its progress and performance. The KPIs are shown on page 9.

Duties and Responsibilities

The Board has overall responsibility for maximising the Company's success by directing and supervising the affairs of the business and meeting the appropriate interests of Shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:

· statutory obligations and public disclosure;

· strategic matters and financial reporting;

· risk assessment and management including reporting, compliance, governance, monitoring and control; and

· other matters having a material effect on the Company.

The Board is responsible to the Shareholders for the overall management and strategy of the Company but has delegated day-to-day operations to the Investment Manager and Citco Fund Services (Guernsey) Limited (the "Administrator"), while reserving the powers of decision making relating to the determination of the Investment Policy, corporate structure and the management of the share capital of the Company.

The Board is further responsible for financial reporting and controls and determining the dividend and accounting policies. While the Investment Manager manages the portfolio of the Company, the Board retains responsibility for overseeing the Investment Manager and ensuring the establishment and ongoing operation of a sound system of internal control. Any material contracts and those not in the normal course of business, are also subject to approval by the Board.

The Board is also responsible for its own structure, size and effectiveness, with the delegation of some duties to Committees made up of its members. The Board retains the control of the Committees and requires that they report to the full Board on a regular basis providing their findings and recommendations. The Nomination Committee reviews Directors' remuneration and, as appropriate, makes recommendations to the Board; the Board sets the levels of remuneration, which are clearly communicated to Shareholders.

The Board performs a formal and rigorous review of its own performance and continually scrutinises its independence and transparency.

The Board's responsibilities for the Annual Report are set out in the Directors' responsibility statement. The Board is also responsible for issuing appropriate half-yearly financial reports and other price-sensitive public reports.

Long-term Viability

The Directors have assessed the prospects of the Company over a longer period than the 12 months required by the "Going Concern" provision. The Board has chosen a period of three years for the following reasons:

(i) The Company's planning horizon covers a three year period;

(ii) The next continuation vote is due in 2021 and a three year plan takes the Company past this date. There is no indication currently that the next continuation vote won't be passed; and

(iii) The weighted average life of the bond portfolio is 2.2 years as at 31 March 2020 and the usual term of a new loan at origination is between 3 to 5 years, so the majority of the assets could be expected to be realised in a three-year period, or shortly thereafter.

The three-year review considers the Company's cash flows arising from the loan and bond portfolios, including interest received and proceeds from realisations, obligations of the Company and dividend cover. Further considerations are the inherent sensitivities within the loan and bond portfolios, their impact on the cash flows, continuation vote in 2021 and the ability to issue further shares as per the Placing Programme.

The Board has identified a number of principal risks, which are detailed below. The Board has taken these into account when considering the long-term viability of the Company.

The Board routinely conducts these three year reviews, stress testing the performance against a number of adverse scenarios, such as the fair value write down of the investments, or reduced cash flows from the investment portfolio. The fair value stress test was considered relevant to factor in any potential events affecting the underlying assets or credit concerns about the borrowers which potentially could impact on the fair value. The reduced cash flows stress test was considered relevant in the event of potential defaults arising on the loan portfolio and the inability to recover the interest or principal back in full.

In the current environment the Company has also considered the future of its manager when looking at its own viability, and given the size of the manager's platform away from the Company and the locked up capital it manages in numerous other funds, the manager is expected to be able to continue to manage RECI for the foreseeable future.

Further consideration has been given with respect to the current market environment, including the economic impacts of the current global COVID-19 pandemic and UK and overseas governments' lockdowns, as well as potential Brexit departure impacts. The Investment Manager has prepared sensitivity analyses including various stress scenarios. An evaluation was performed for each of the positions in light of the likely long-term impact of the COVID-19 economic crisis on operating models and valuations and hence recovery prospects for certain individual positions. The output of this analysis was used to

i) report fair value movements, and

ii) update all the cash and income forecasting for the portfolio.

The Investment Manager performed a granular analysis of the future liquidity profile of the Company. A detailed cash flow profile of each investment was completed, incorporating the probability of likely delays to repayments and additional cash needs.

Even taking these stress scenarios into account and bearing in mind the leverage and liquidity of the bond portfolio, the Company is expected to be able to meet its liabilities over the three-year period.

Risk Management

It is the role of the Board of Directors to review and manage all risks associated with the Company, mitigating these either directly or through the delegation of certain responsibilities to the Audit Committee and Investment Manager.

The Board considers that the following risks are the principal risks and uncertainties faced and has identified the mitigating actions in place to manage them.

Long-term Strategic Risk

The Company is subject to the risk that its long-term strategy and its level of performance fail to meet the expectations of its Shareholders. The shares may trade at a continuing discount to NAV and Shareholders may be unable to realise their investments through the secondary market at NAV per share. The Board monitors the level of premium or discount of share price to NAV per share.

The Board monitors investment strategy and performance on an ongoing basis and regularly reviews the Investment Objective and Investment Policy in light of prevailing investor sentiment to ensure the Company remains attractive to its Shareholders. While the Board may seek to enhance NAV per share and potentially reduce any discount to NAV through share buybacks, this will only be done when cash resources permit and there can be no certainty that they will do so and/or that an enhancement to share price will be achieved.

The Company has the authority to make market purchases of fully paid shares of up to 14.99% of each class of shares in issue, and renewal of this authority will be sought from Shareholders at the AGM in September 2020 and at each subsequent AGM, or earlier at an Extraordinary General Meeting if the Directors consider it appropriate.

Target Portfolio Returns and Dividend

The Company's targeted returns are based on estimates and assumptions that are inherently subject to significant business and economic uncertainties and contingencies, and the actual rate of return may be materially lower than the targeted returns. In addition, the pace of investment may be slower than expected, or principal may be repaid earlier than anticipated, causing the return on affected investments to be less than expected. In addition, if repayments are not promptly re-invested this may result in cash drag which may lower portfolio returns. However, as the Company is able to invest in both bonds and loans, the Investment Manager has the ability to adjust the asset mix towards bonds, thereby helping the Company mitigate potential cash drag when loan repayments are made.

As a result the level of dividends and other distributions to be paid by the Company may fluctuate and there is no guarantee that any such distributions will be paid.

The Investment Manager regularly provides the Board with reports on pipeline opportunities, which include analysis of the expected returns available. The Directors also regularly receive information on the performance of the existing loans which includes analysis of the likelihood of any early repayments which may impact returns.

Valuation

The valuation and performance of the Company's investments that comprise its portfolio of real estate debt instruments are the key value drivers for the Company's NAV and interest income. Judgements over fair value estimates could significantly affect these key performance indicators.

The Company categorises its financial assets and liabilities in accordance with IFRS 9 and establishes fair value utilising the methodology in accordance with IFRS 13, as set out in Note 15(d) to the financial statements.

Credit Risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.

Bonds - The Company is subject to the risk that issuers of asset backed securities in which it invests may default on their obligations and that certain events may occur which have an immediate and significant adverse effect on the value of such instruments. There can be no assurance that an issuer of an instrument in which the Company invests will not default or that an event which has an immediate and significant adverse effect on the value of such instruments will not occur, and that the Company will not sustain a loss on the transaction as a result. The Company seeks to mitigate this risk by monitoring its portfolio of investments, reviewing the underlying credit quality of its counterparties, on a monthly basis.

Loans - The Company is subject to the risk that the borrowers to the loans in which it invests, may default on their obligations and that certain events may occur which have an immediate and significant adverse effect on the value of such instruments. Any loan may become a defaulted obligation for a variety of reasons, including non-payment of principal or interest, as well as covenant violations by the borrower in respect of the underlying loan documents. In the event of any default on the Company's investment in a loan by the borrower, the Company will bear a risk of loss of principal and accrued interest on the loan, which could have a material adverse effect on the Company's investment. There can be no assurance that a borrower will not default, that there will not be an issue with the underlying real estate security or that an event which has an immediate and significant adverse effect on the value of these loans will not occur, and that the Company will not sustain a loss on the transaction as a result. The Company seeks to mitigate this risk by performing due diligence and monitoring its portfolio of investments, reviewing the underlying credit quality of its borrowers, performance of the underlying asset, and loan covenant compliance against financial information received and the performance of the security, on a quarterly basis.

Market Risk

Market risk is the risk that the fair value and future cash flows of a financial instrument will fluctuate because of changes in market factors. Market risk is comprised of interest rate risk, currency risk, price risk and liquidity risk.

The Company's strategy on the management of market risk is driven by the Company's Investment Objective as detailed on page 5 and in Note 1 to the financial statements.

The Company's market risk is managed on a daily basis by the Investment Manager in accordance with policies and procedures detailed in the latest Prospectus and summarised in the financial statements.

Interest Rate Risk

Interest rate risk is the risk that the fair value and future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company invests in both direct real estate loans and floating rate real estate debt securities, which include mortgage backed securities ("MBS").

Real estate loans can have fixed interest coupons and are therefore potentially exposed to the wider effects of changes in interest rates. For bonds, the interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair value of financial assets and liabilities and future cash flows. A segment of the portfolio consists of floating rate debt investments which are exposed to interest rate risk through changes in interest rates potentially having an effect on prepayments and defaults of the underlying loans of the securitisations.

While retaining the ability to do so the Company does not currently enter into hedging arrangements in respect of interest rate fluctuations.

Currency Risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk to the extent that foreign exchange rates fluctuate in relation to financial instruments that are denominated in currencies other than GBP.

The Company manages its foreign exchange risk on a portfolio basis. The Company may bear a level of currency risk that could otherwise be hedged where it considers that bearing such risks is appropriate. The Company manages its foreign exposure via forward foreign currency exchange contracts.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities on a timely basis.

The Company's liquidity risk is managed on a daily basis by the Investment Manager in accordance with policies and procedures detailed in Note 15(c) to the financial statements. Where needed, the Investment Manager will seek to liquidate positions to increase cash or reduce leverage.

Much of the market for MBS and real estate loans is relatively illiquid. In addition, investments that the Company purchases in privately negotiated (also called "over the counter" or "OTC") transactions may not be registered under relevant securities laws or otherwise may not be freely tradable, resulting in restrictions on their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result of this illiquidity, the Company's ability to vary its portfolio in a timely fashion and to receive a fair price in response to changes in economic and other conditions may be limited.

Furthermore, where the Company acquires investments for which there is not a readily available market, the Company's ability to deal in any such investment or obtain reliable information about the value of such investment or risks to which such investment is exposed may be limited.

For further information on risks please refer to Note 15 to the financial statements.

Brexit Impact Assessment

Following a UK-wide referendum in June 2016 in which 52% voted to leave the European Union ("EU"), the British government formally announced the country's withdrawal in March 2017 and the UK left the EU on 31 January 2020. It is acknowledged that uncertainty exists in relation to the United Kingdom's future relationship with the EU. The Company has been closely monitoring this and indeed all other Brexit related developments to ensure that any potential impact to the valuation of financial assets at fair value through profit or loss. Future valuation might change significantly in future due to Brexit.

COVID-19 Impact Assessment

The current worldwide Coronavirus outbreak (COVID-19),declared by the World Health Organization as a global health emergency on 30 January 2020, has caused disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets. COVID-19 has and continues to impact the wider global markets. The immediate impact, continuing and future uncertainty, and the currently unknown length and depth of the upcoming recession might all potentially impact the value of the underlying real estate assets, their performance, and the stability of the borrowers and the wider markets. Since the onset of this crisis and the resultant market turbulence, the Company moved to take the following measures:

· An evaluation of each of its positions in light of the likely long-term impact of the crisis on operating models and valuations and hence recovery prospects for the individual positions. The output of this analysis was to write down the value of just two of its mezzanine positions.

· Engaged positively with every one of its borrower counterparts to put in place mitigation and de-risking strategies for the long term.

· Improved the resilience and flexibility of the Company by increasing its cash balances and reducing its net leverage.

· Performed a granular analysis of the future liquidity profile of the Company. A detailed cash flow profile of each investment was completed, incorporating the probability of likely delays to repayments (and additional cash needs). The results of Cheyne's analysis was published on 15 May 2020 to update all Shareholders.

COVID-19 might therefore impact one or many of the other risks highlighted above, and these will continue to be monitored or considered by the Board and Investment Manager.

Investment Manager's Report

Investment Manager's Report

Delivering a diversified real estate debt portfolio

In looking back over the year, it is important to hold in mind the core aims of RECI, which are to provide its investors with a stable dividend yield by originating and making investments in conservative real estate debt in the European real estate markets.

That aim needs to hold true through economic cycles, which it has consistently done through the economic crisis periods of 2009 (credit crunch), 2011 (sovereign crisis) and 2016 (Brexit). We believe that RECI's profile, investments and rapid response to the current market leave it well placed, not only to see through the current market dislocation and disruption, but also eventually to emerge and thrive as it has previously.

RECI has made good progress towards its core aims during the year, and as at 31 May 2020:

· its portfolio comprised a diverse book of 48 deals with a conservative WA LTV of 63.0%;

· it is dominated by senior bilateral loans, which make up 77% of its Gross Asset Value ("GAV"); and

· it retains a conservative balance sheet, with a gearing level of 15.5% of NAV.

The Company has also successfully maintained its net income from its NAV, by deploying into loans and bonds with a WA gross yield of 11.0%1, thus being able to pay its quarterly dividends that have remained at a stable 7% on NAV since 2013.

In addition to these, the Company has at the same time grown its investor base and size, raising £128.5 million in the year which it successfully invested with minimal delay and launching a new Placing Programme for the issue of up to 150 million new Ordinary Shares in February 2020.

The rapid escalation of the novel coronavirus (COVID-19) from March this year presented the Company with unique challenges to deal with. The immediate concern of the Company was to defend its current investments and to strengthen its balance sheet quickly to ensure the long-term performance of its underlying investments and the success of the Company in the face of what is likely to be a prolonged period of uncertainty.

Post year end, the bulk of that work has been completed. We, as Investment Manager, released a substantial report on the Company and its individual positions in a comprehensive update on 15 May 2020.

With the severe market impact of COVID-19, between the end of February and the end of May, RECI's NAV declined by 18 pence per share. The majority of this reduction comprised an un-realised mark-to-market decline on its bond portfolio (8 pence), a fair value adjustment on its mezzanine loans (6 pence), the March dividend payment (3 pence) with just 2 pence being the realised loss on sales made.

Portfolio Construction and Investment Approach

RECI's investment focus is on European real estate credit comprising loans (mainly senior loans) and bonds. Since the 2016 Brexit vote, RECI has benefited from pivoting its investment strategy away from mezzanine (and subordinate) loans towards lower risk senior loans and bonds. This repositioning reflected the fact that global volatility and uncertainty were likely to persist and economic cycles were likely to be increasingly short.

As the Company has grown, it has also moved its origination away from the small/mid market borrowers and towards the larger, well capitalised and experienced borrower counterparties. These pivots positioned the Company's investment book well coming into the present crisis.

RECI's balance sheet leverage and liquidity have been managed to position it well for periods of stress. Coming into this crisis, RECI had gross leverage of 25.3% (net leverage of 9.5%) as at 29 February. As at 31 May 2020, the Company's leverage was just 15% of NAV or 1.16x (7% of NAV or 1.07x on a net look through basis).

Response to COVID-19

Since the onset of this crisis and the resultant market turbulence, RECI moved to take the following measures:

· An evaluation of each of its positions in light of the likely long-term impact of the crisis on operating models and valuations and hence recovery prospects for the individual positions. The output of this analysis was to write down the value of just two of its mezzanine positions. These impairments are not realised losses, but provisions for potential losses recognised today.

· Engaged positively with every one of its borrower counterparts to put in place mitigation and de-risking strategies for the long term.

· Improved the resilience and flexibility of the Company by increasing its cash balances and reducing its net leverage to just 1.06x as at 30 April 2020. This was achieved by a combination of repayments of loans as well as sales of select liquid bonds.

· Performed a granular analysis of the future liquidity profile of the Company. A detailed cashflow profile of each investment was completed, incorporating the probability of likely delays to repayments (and additional cash needs).

The outcome of this work is described in detail in our Company Update report to investors on 15 May 2020, which is available on the website www.recreditinvest.com.

Maintaining Dividend Stability

Since 2013, the Company has maintained a dividend on its NAV of 7% or better.

The Company has announced a dividend of 3 pence per Ordinary Share which will be paid on 30 July 2020. This represents a dividend yield of 9.6% on NAV of 31 May 2020.

It is the Company's policy to pay out substantially all of its income to investors by way of sustainable dividends. Dividend sustainability will depend on both income coverage and cash coverage. Our granular cash forecasting and stress scenarios give us the confidence that the Company can maintain its dividend cash coverage. To maintain and improve the Company's income coverage, the Company will gradually deploy into the increasingly attractive investment pipeline.

It remains the Company's intension to maintain a stable quarterly dividend paying capability through economic cycles.

Portfolio Composition

RECI's investment portfolio, a diversified book of 52 positions in real estate bonds and loans, was valued at £375.2 million as at 31 March 2020, up from £302.5 million as at 31 March 2019. The portfolio had a weighted average levered yield of 11.0% and an average loan-to-value of 64.4% as at 31 March 2020.

Portfolio by Geography

(funded fair value)

* Excludes 0.7% (2019: 1.0%) held in bonds backed by assets in multiple European countries.

Portfolio by Investment Strategy 

(funded fair value)

* Balance sheet value of amounts drawn by the borrowers.

1 Based on total commitment of bonds and loans.

2 The weighted average ("WA") loan-to-value("LTV") has been calculated by reference to the latest value of the relevant collateral of the relevant bond or loan.

3 WA based on commitment. WA effective yield is based on:

(i) for the bonds the effective yield is based on the current levered yield on the bonds using prices as at 31 March 2020;

(ii) for the loans the yield stated is the effective accounting yield based on the funded loan balances, which includes interest and fees.

Bilateral Loan and Bond Portfolio

The drawn fair value of the bilateral loan and bond portfolio, excluding accrued interest, had increased from £210.0 million as at 31 March 2019 to £287.3 million as at 31 March 2020. During the year, the Company made £218.6 million of commitments to new deals, taking total loan commitments to £270.4 million as at 31 March 2020. The average loan portfolio LTV exposure as at 31 March 2020 was 66.6%. The portfolio continues to provide attractive risk-adjusted returns with a weighted average unlevered yield of 10.2% per annum, before any back end fees, profit share or equity element contributions are taken into account.

Bilateral Loan and Bond Portfolio

Summary as at 31 March 2020

Market Bond Portfolio

As at 31 March 2020, the market bond portfolio of 28 bonds (excluding the self-originated bonds) was valued at £87.9 million, compared to £92.5 million as at 31 March 2019. The recorded interest income on the bonds in the year ended 31 March 2020 was £4.2 million compared to £2.4 million in the year ended 31 March 2019.

The market bond portfolio has the potential for strong defensive returns:

· The portfolio is characterised by a short duration (2.2 years) and high coupon, which is defensive to interest rate rise and provides resilience in turbulent markets.

· The weighted average unlevered yield of the market bond portfolio as at 31 March 2020 was 10.6%, and the weighted average levered yield of the market bond portfolio as at 31 March 2020 was 18.2%.

· The average leverage of the portfolio over the financial year was 20.7%, achieved through the provision of short-term flexible financing. The Company enters into repurchase arrangements agreements with several banks to provide leverage. This financing is collateralised against certain of the Company's market bond portfolio assets with a fair value totalling £108.1 million (31 March 2019: £128.3 million) and a weighted average cost as at 31 March 2020 of 1.80% (31 March 2019: 1.80%) per annum. The average period to maturity of the repurchase arrangements is two months.

Market Bond Portfolio

Summary as at 31 March 2020

Placement Programme and Deployment

RECI's capital raising continued in the year.

In May 2019, the Company raised gross proceeds of £78 million. This was followed in October with another raise of £17 million. While the previous Programme expired in November 2019, the Company also closed an oversubscribed tap issue in February 2020, raising gross proceeds of £33.5 million.

Following this, and to cater for anticipated demand, the Company established a new Placing Programme in March 2020, for the issue of up to 150 million new Ordinary Shares.

RECI has benefited from prior periods of economic crises by virtue of its flexible approach to real estate credit. It is capable of addressing the dislocations in liquid bond markets (where the distress is becoming especially acute now) by the provision of loan capital to institutional borrowers and projects desperately in need of expert financing solutions.

Real Estate Team

RECI is managed by the Real Estate team at Cheyne which is now one of the largest non-bank stand-alone real estate credit businesses in Europe, with AUM of $3.5 billion, 33 dedicated people and the support of Cheyne Capital's infrastructure. It has consistently delivered through cycles and economic shocks (2009, 2011, 2016 Brexit vote), and the continuing supportive dynamics and established infrastructure underpin it as a long-term, stable business.

Of particular relevance to this period of uncertainty, the team has, since 2008, engaged extensively in numerous distressed debt investments which entailed complex restructuring and workouts. The team also has an in-house capacity to take ownership of assets and develop them where necessary.

RECI continues to benefit from this and the opportunity to participate in Cheyne's strong pipeline of investments, which at the time of writing reflect the new environment for lending with lower risk points and substantially higher margins.

Outlook

This novel crisis will likely proceed along many unpredictable paths. The immediate priority of the Company is to ensure that it, and its investment portfolio, are best positioned to weather that uncertainty.

Looking ahead, the Company should seek to capitalise on the myriad of opportunities that the crisis will (and has already begun to) offer. The Company has already made large strides towards defending its long-term success and delivery of stable dividends, which leaves it in a comfortable position to start thinking of the next phase in its evolution.

Cheyne Capital Management (UK) LLP

24 June 2020

Board of Directors

Board of Directors

Bob Cowdell

Chairman (UK resident)

Bob Cowdell is an independent non-executive Director who has focused on the financial sector throughout his career; initially as a solicitor and then as a corporate broker and adviser. He was previously co-founder and Head of the ABN AMRO Global Investment Funds Team and then Head of Financials at RBS Hoare Govett. He is currently chairman of Castel Underwriting Agencies Limited and a non-executive director of Thomas Miller Holdings Limited; and a former non-executive director of Baillie Gifford UK Growth Fund Plc, Catlin Underwriting Agencies Limited, Catlin Insurance Company (UK) Limited, XL London Market Limited and XL Insurance Company SE. A Freeman of the City of London, he is a member of the Institute of Directors and the Chartered Insurance Institute. He has been a member of the Board since June 2015. 

Susie Farnon

Chairman of the Audit Committee (Guernsey resident)

Mrs Farnon is a Fellow of the Institute of Chartered Accountants in England and Wales and qualified as an accountant in 1983. She is a former Banking and Finance partner of KPMG Channel Islands from 1990 until 2001 and head of the Channel Island Audit Practice from 1999. She has served as President of the Guernsey Society of Chartered and Certified Accountants and as a member of the States of Guernsey Audit Commission and as vice-chairman of the Guernsey Financial Services Commission. Susie is a non-executive director of a number of property and investment companies listed on the London Stock Exchange or elsewhere and is a board member of the Association of Investment Companies. She has been a member of the Board since February 2018.

John Hallam

Senior Independent Director (Guernsey resident)

Mr Hallam is a Fellow of the Institute of Chartered Accountants in England and Wales and qualified as an accountant in 1971. He is a former partner of PricewaterhouseCoopers having retired in 1999 after 27 years with the firm both in Guernsey and in other countries. He is the chairman of NB Distressed Debt Investment Fund Ltd as well as being a director of a number of financial services companies, some of which are listed on recognised stock exchanges. He served for many years as a member of the Guernsey Financial Services Commission from which he retired in 2006 having been its chairman for the previous three years. He has been a member of the Board since March 2016.

Graham Harrison

(Guernsey resident)

Mr Harrison is co-founder and managing director of Asset Risk Consultants Limited, an investment consulting practice based in Guernsey. After obtaining a Masters in Economics from the London School of Economics, he began his career working in structured finance for Midland Montagu in London and then as a project economist for the Caribbean Development Bank in Barbados. In 1993, he moved back to Guernsey to help develop investment-related business for the Bachmann Group and in 2002 he led a management buy-out which saw Asset Risk Consultants Limited become an independent business. A Chartered Fellow of the Chartered Institute for Securities and Investment, he has been on the Board of the Company since launch. He is also currently a non-executive director of a number of investment and asset management companies including BH Global Limited and Volta Finance Limited.

Management Team

Management Team

Ravi Stickney

Head of Cheyne Real Estate/Portfolio Manager

Ravi is Head of the Real Estate Team. He joined Cheyne in 2008 and has 20 years' experience in the real estate debt markets. Previously, he was on ING Bank's proprietary investments desk (2005 to 2008), with sole responsibility for managing a €400 million long/short portfolio of European commercial real estate credits and CMBS. Prior to that, he was at Lehman Brothers (2002 to 2005), structuring and executing UK and European CMBS/RMBS and commercial real estate mezzanine loans. He acted as sole operating adviser on the restructuring and eventual sale of the first distressed UK CMBS deal, and he continues to play an active role in the direction of various distressed European real estate credits. He began his career on the UK commercial real estate desk at Ernst & Young in 1998.

Richard Lang

Co-Portfolio Manager/Head of Business Management

Richard is Business Manager of the real estate desk, and is a partner at Cheyne, having joined in 2007. Before joining Cheyne, Richard worked at Barclays Capital, and prior to that was at Deutsche Bank, where he was responsible for the controlling of the commercial mortgage-backed securities and Securitised Products businesses. Before that, he worked in management roles within the fixed income areas of RBS and Paine Webber. He is a Fellow of the Institute of Chartered Accountants in England and Wales, having qualified as a chartered accountant in 1999.

Arron Taggart

UK Origination 

Arron has over 20 years' experience in the real estate markets. He joined Cheyne in August 2012 to originate real estate loans in the UK and Northern Europe. Prior to Cheyne, Arron was a Property Specialist and Partner at Clydesdale Bank responsible for the origination and execution of real estate loans in London and the South of England. He was also responsible for the management of the loan portfolio and setting regional strategy. Prior to Clydesdale Bank, he was at Bank of Scotland and Hitachi Capital.

Raphael Smadja

French Origination

Raphael joined Cheyne in January 2014 and has 10 years' experience. Prior to Cheyne, he was an Associate Director in Real Estate Finance at Deutsche Pfandbriefbank, responsible for sourcing and structuring commercial real estate loans across Europe. Prior to that, he held positions within the Real Estate Finance and CMBS space at Moody's, UBS and Morgan Stanley.

Daniel Schuldes

German Origination

Daniel has over 10 years' experience in the European real estate debt and ABS markets. He joined Cheyne in 2007 and specialises in the origination, structuring, negotiation and execution of German real estate credit transactions. He was previously an associate on Credit Suisse's asset finance team in London, which was responsible for originating and structuring the bank's European securitisations. He focused on fundamental analysis of RMBS collateral.

Sa'ad Malik

Structured Credit

Sa'ad joined Cheyne in 2016. Prior to joining Cheyne, he founded Rhino Investment Management LLP in 2011, an FCA-authorised boutique investment and advisory firm, active in the European commercial real estate market. Among his responsibilities were strategy, origination, client management, structuring and execution. He previously worked for Lehman Brothers International (Europe) in 2004, and for Credit Suisse Securities (Europe) Limited in 2005, when he was Director in their European Real Estate Finance & Securitisation area, and had a central role in building the Titan Europe CMBS platform. Sa'ad started his career in 2000 with Commerzbank Securities in Asset-Backed-Finance.

Lydia Boos 

Legal Counsel

Lydia is Legal Counsel for the Cheyne Real Estate Team. Prior to joining Cheyne in 2018, Lydia was a senior associate at Bryan Cave Leighton Paisner LLP where she worked since starting her legal training in 2008. Lydia joined BCLP's real estate finance department upon qualifying as a solicitor in September 2010. At BCLP, Lydia was responsible for advising a range of lender and sponsor clients on real estate focused investment and development transactions across a variety of sectors, often including complex intercreditor structures.

Sophie Turner

Investor Relations/Business Manager

Sophie is a Business Manager for the Real Estate Team focusing on Investor Relations for RECI. Prior to this, Sophie worked at Cheyne in Investor Relations as Client Services Manager and Product Specialist for Convertible Bonds, and before that, as Assistant Business Manager for the Real Estate Team. Prior to joining Cheyne in 2008, she worked at the University of Exeter's Business School, co-ordinating executive education programmes for corporates such as 3i plc. Sophie earned her BSc in Business Administration from Cardiff University.

Directors' Report

Directors' Report

The Directors present their annual report and the audited financial statements for the year ended 31 March 2020.

General Information

The Company was incorporated in Guernsey on 6 September 2005 with registered number 43634.

The "About the Company" section of the Annual Report on page 4 provides information regarding the structure of the Company, the investment objective and the listing details of the shares of the Company.

The Company's investment management activities are managed by the Investment Manager, who is also the AIFM. The Company has entered into an Investment Management Agreement under which the Investment Manager manages its day-to-day investment operations, subject to the supervision of the Company's Board of Directors. The Company is an Alternative Investment Fund ("AIF") within the meaning of the Alternative Investment Fund Manager Directive ("AIFMD") and accordingly the Investment Manager has been appointed and registered as AIFM of the Company.

Principal Activity and Business Review

The principal activity of the Company during the year was that of an investment company investing in Real Estate Credit Investments. For full details of the Investment Policy of the Company see page 5.

A placing programme ("2018/19 Programme") which was announced on 2 November 2018 was approved at an Extraordinary General Meeting of the Company on 29 November 2018. The 2018/19 Programme was intended to enable the Company to raise additional capital through the issue of up to 100 million new Ordinary Shares before expiry on 1 November 2019, with net proceeds to be used to acquire investments in accordance with the investment objective and policy. The 2018/19 Programme expired on 1 November 2019, having raised aggregate gross proceeds of £95 million, further diversified RECI's ownership and enhanced the liquidity of the Company's Ordinary Shares.

A new placing programme was announced on 21 February 2020, and approved at an Extraordinary General Meeting of the Company held on 10 March 2020. This programme is intended to enable the Company to raise additional capital through the issue of up to 150 million new Ordinary Shares before its expiry on 20 February 2021.

Results and Dividends

The results for the year and the Company's financial position as at year end are shown on pages 44 and 45. Dividends totalling £25.1 million (31 March 2019: £17.6 million) were paid on the Ordinary Shares during the year.

A fourth interim dividend for the year ended 31 March 2020 of 3 pence per Ordinary Share (31 March 2019: 3 pence per share) was declared by the Directors on 15 May 2020 and is payable on 30 July 2020. This fourth interim has not been included as a liability in these financial statements.

Capital Structure

Details of the authorised, issued and fully paid Ordinary Share capital, together with details of the movements in the Company's issued share capital during the current and prior year are shown in Note 14 to the financial statements.

The Company has one class of Ordinary Shares which carry no right to fixed dividends. Each Ordinary Share carries the right to one vote at general meetings of the Company.

No person has any special rights of control over the Company's share capital.

Board of Directors

The Directors of the Company who served during the year and to the date of this report were:

Directors

Bob Cowdell (Chairman)

Susie Farnon

John Hallam

Graham Harrison

The following summarises the Directors' directorships in other public companies listed on the London Stock Exchange:

Mr Harrison and Mrs Farnon both sit on the board of BH Global Limited, but the Company believes that this does not impact their ability to be considered independent. All Directors are independent of the Investment Manager and free from any business or other relationship that would materially interfere with the exercise of their independence.

With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Incorporation (the "Articles") and The Companies (Guernsey) Law, 2008. The Articles themselves may be amended by special resolution of the Shareholders. The powers of Directors are described in the Articles and in the financial statements in the Corporate Governance Statement. Under its Articles, the Company has authority to issue an unlimited number of Ordinary Shares of no par value.

The Directors' interests in the share capital of the Company (some of which are held directly or by entities in which the Directors may have a beneficial interest) are:

Substantial Interests in Share Capital

Chapter 5 of the Disclosure and Transparency Rules, requires disclosure of major shareholder acquisitions or disposals (over 5% of the shares) in the Company (see list on the following page of major Shareholders). During the year, there were 4 notifications of such transactions, (31 March 2019: 3 notifications).

List of major Ordinary Shareholders as at 31 March 2020:

Issued Share Capital

The issued share capital of the Company consisted of 229.3 million Ordinary Shares (31 March 2019: 153.3 million Ordinary Shares).

Directors and Officers Liability Insurance

Directors and Officers liability insurance is in place and due for renewal on 5 July 2021.

Listing Information

The Ordinary Shares are currently listed on the premium segment of the Official List of the UK Listing Authority and trade on the Main Market of the London Stock Exchange.

Website

The Directors are responsible for the oversight of the website but delegate to Cheyne responsibility for the maintenance and integrity of the financial and corporate information included on it.

The Investment Manager

Having reviewed the performance of the Investment Manager, the Directors are satisfied that the continued appointment of the Investment Manager on the terms agreed is in the best interests of the Shareholders and the Company. The Company has entered into the Investment Management Agreement under which the Investment Manager manages its day-to-day investment operations. Details of the Investment Management Agreement can be found in Note 18 to the financial statements.

Auditor

Deloitte LLP has been the Company's external auditor since the Company's incorporation. Further information on the work of the auditor is set out in the Audit Committee report. The Company undertook a competitive tender process during Autumn 2018 and Deloitte was reappointed.

The Audit Committee reviews the appointment of the auditor on an annual basis.

Principal Risks and Uncertainties

Principal risks and uncertainties are discussed in the Strategic Report.

Related Party Transactions

Related party transactions are disclosed in Note 18 to the financial statements. There have been no material changes in the related party transactions described in the last annual report.

Going Concern

The Directors believe it is appropriate to adopt the going concern basis in preparing the financial statements as, after due consideration, they consider that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of signing the financial statements.

As highlighted in the long-term viability section of the Strategic Report, the Investment Manager performed an evaluation of each of its positions in light of the likely long- term impact of the COVID-19 crisis on operating models and valuations, and performed a granular analysis of the future liquidity profile of the Company. A detailed cash flow profile of each investment was completed, incorporating the probability of likely delays to repayments (and additional cash needs).

Taking account of the updated forecasting, the Directors consider that the cash resources available as at 31 March 2020 of £27.0 million together with the cash held at the broker of £25.0 million, the liquidity of the market bond portfolio and the financing available through activities such as repurchase agreements are sufficient to cover normal operational costs and current liabilities, including the proposed dividend, as they fall due for a period of at least twelve months from the date of signing the financial statements.

AGM

The AGM of the Company will be held at 10:30 am on 17 September 2020. Details of the resolutions to be proposed at the AGM, together with explanations, will appear in the Notice of Meeting to be distributed to Shareholders together with a copy of this Annual Report.

Members of the Board will be in attendance at the AGM and will be available to answer shareholder questions.

On behalf of the Board on 24 June 2020.

Bob Cowdell Susie Farnon

Director Director

Directors' Remuneration Report

The Directors of the Company are entitled to receive an annual fee for their services as Directors. Each Director shall be entitled to be repaid all expenses reasonably incurred in the performance of their duties as Director to the Company. If by arrangement by the Board, any Director shall perform or render any special duties or services outside of his ordinary duties as a Director, he may be paid such reasonable additional remuneration as the Board may determine.

Each of the Directors has signed a letter of appointment with the Company setting out the terms of their appointment.

The Company has not established a Remuneration Committee as the Company does not have any executive Directors or employees.

Remuneration Policy

The Company's Remuneration Policy is that fees payable to the Directors should reflect the time spent by the Directors on the Company's affairs and the responsibilities borne by the Directors and be sufficient to attract, retain and motivate Directors of a quality required to run the Company successfully. No element of the Directors' remuneration is performance related.

Shareholders will be given the opportunity to approve the Remuneration Report at the next AGM.

Directors' annual fees are listed in the table below:

Directors' remuneration for the years ended 31 March 2020 and 2019 and 31 March 2019 was as follows:

* The Directors' remuneration for the years ended 31 March 2020 and 2019 each include a transaction fee of £10,000 for the Chairman and £5,000 each for the other Directors in relation to the Placing Programme launched in February 2020 and the 2018/19 Programme.

Corporate Governance Statement

Corporate Governance Statement

Statement of Compliance with Corporate Governance

The Company is a member of the Association of Investment Companies (the "AIC") and by complying with the February 2019 edition of the AIC code of Corporate Governance for investment companies ("AIC Code") is deemed to comply with both the UK and Guernsey Codes of Corporate Governance.

To comply with the UK Listing Regime, the Company must comply with the requirements of the UK Corporate Governance Code.

The Board has considered the principles and recommendations of the AIC Code, by reference to the guidance notes provided by the AIC Guide, and considers that reporting against these will provide appropriate information to Shareholders. To ensure ongoing compliance with these principles the Board reviews a report from the Corporate Secretary identifying how the Company is in compliance and identifying any changes that might be necessary.

The Company has complied with the recommendations of the AIC Code throughout the accounting period, except as set out below.

The AIC Code includes provisions relating to:

· the role of the chief executive;

· executive Directors' remuneration;

· the remuneration committee; and

· the whistle-blowing policy.

The Board considers some of these provisions are not relevant to the position of the Company as it is an externally managed investment company. The Directors are non-executive and the Company does not have employees and the Board is satisfied that any relevant issues that arise can be properly considered by the Board or by shareholders at AGMs. The Board as a whole considers matters relating to Directors' remuneration. An external assessment of Directors' Remuneration has not been undertaken. The Company's Remuneration policy is that fees payable to the Directors should reflect the time spent by the directors on the Company's affairs and the responsibilities borne by the Directors and be sufficient to attract, retain and motivate Directors of a quality required to run the Company successfully. Please refer to the Directors' Remuneration Report on page 25.

The Board

The Directors details are listed in the Directors' Report, which set out their range of investment, financial and business skills and experience.

The Board meets at least four times a year and, in addition, there is regular contact between the Board, the Investment Manager and the Company Secretary including an annual strategy meeting and Investment Manager due diligence visits, when the Board attends the offices of the Investment Manager and meets with senior executives. Further, the Board requires that it is supplied in a timely manner with information by the Investment Manager, the Company Secretary and other advisers in a form and of a quality appropriate to enable it to discharge its duties.

Duties and Responsibilities

The Board has overall responsibility for optimising the Company's performance by directing and supervising the affairs of the business and meeting the appropriate interests of Shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:

· statutory obligations and public disclosure;

· strategic matters and financial reporting;

· risk assessment and management including reporting, compliance, governance, monitoring and control; and

· other matters having a material effect on the Company.

The Board is responsible to Shareholders for the overall management of the Company. The Board has delegated the day-to-day operation of the Company to the Investment Manager, Administrator and the Company Secretary. The Board reserves the powers of decisions relating to the determination of the Investment Policy, the approval of changes in strategy, capital structure, statutory obligations, public disclosure and the entering into of any material contracts by the Company.

The following table shows the number of regularly scheduled meetings held by the Board and each committee for the year ended 31 March 2020 as well as the number of attendances at each meeting.

Additionally, a number of ad-hoc meetings were held during the year which, as they dealt primarily with administrative and transaction matters, were attended by those Directors available at the time.

Chairman

The Chairman, Mr Cowdell, is responsible for leadership of the Board, ensuring its effectiveness on all aspects of its role and setting its agenda. The Chairman is also responsible for ensuring that the Directors receive accurate, timely and clear information. The Chairman is responsible for effective communication with Shareholders and can be contacted through the Company Secretary.

Senior Independent Director ("SID")

Mr Hallam is the SID and, as such, his primary roles are to support the Chairman and act as an intermediary for the other non-executive Directors in matters relating to the Chairman, including leading them in the annual performance evaluation of the Chairman. The SID is also available to Shareholders who may have any concerns which contact through the normal channels of the Chairman and AIFM has failed to resolve or for which such contact is inappropriate. Mr Hallam can also be contacted through the Company Secretary.

Board Independence

For the purposes of assessing compliance with the AIC Code 6th Principles and Provisions, the Board considers whether the current Directors are independent of the Investment Manager and free from any business or other relationship that could materially interfere with the exercise of their independent judgement. In making this assessment, consideration is also given to all other factors which might be relevant including length of service. The Board has concluded that all Directors remain independent.

Committees of the Board

In accordance with the AIC Code, the Board has established an Audit Committee, a Nomination Committee and a Management Engagement Committee, in each case with formally delegated duties and responsibilities within written terms of reference.

Audit Committee

The Audit Committee is chaired by Mrs Farnon, and its other members are Mr Cowdell, Mr Harrison and Mr Hallam.

The terms of reference of the Audit Committee state that it will meet not less than three times in each financial year. The Audit Committee report on pages 32 to 34 sets out the role and activities of this Committee and its relationship with the external auditor.

Nomination Committee

The Nomination Committee is chaired by Mr Cowdell and its other members are Mr Hallam, Mr Harrison and Mrs Farnon. The members of the Nomination Committee are and will be independent Directors. The terms of reference state that the Nomination Committee will meet not less than once a year; will have responsibility for considering the size, structure and composition of the Board; and retirements and appointments of additional and replacement Directors; consideration of Board remuneration; and that the Nomination Committee will make appropriate recommendations to the Board.

The Board aims to have a balance of skills, experience, diversity (including gender) and length of service and knowledge of the industry. The Board undertakes an evaluation of its performance on an annual basis. The performance of each Director is considered as part of a formal review by the Nomination Committee.

The position of Chairman of each Committee will be reviewed on an annual basis by the Nomination Committee and their membership and terms of reference are kept under review.

The performance of the Chairman of the Board will be assessed by the Senior Independent Director through discussions with the other Directors.

Management Engagement Committee

The Management Engagement Committee is chaired by Mrs Farnon, with its other members being Mr Hallam, Mr Cowdell and Mr Harrison. The Committee will meet at least once a year for the purpose of evaluating the performance of the Company's service providers, the review of service agreements and service level statements and the level and method of their remuneration.

Director Re-Election Tenure and Induction

The Nomination Committee has considered the question of a policy on Board tenure. It is strongly committed to striking the correct balance between the benefits of continuity and those that come from the introduction of new perspectives to the Board. As provided for in the AIC guidelines and in order to phase future retirements and appointments the Board has not, at this stage, adopted any specific limits to terms, but expects to refresh the Board at appropriate intervals.

The Board regards all Directors as being independent. The Board has adopted a policy whereby all Directors will be proposed for re- election each year and so all Directors will be proposed for re-election at the forthcoming AGM. Details of Directors' tenure are disclosed on pages 18 and 19.

Mr Harrison has served on the Board in excess of nine years, but his skillset, experience and contribution, which clearly demonstrate his independence, should be and remains of considerable value to the Board and the Company.

Internal Controls

The Board has established a continuous process for identifying, evaluating and managing the significant risks the Company faces. The Board regularly reviews the process, which has been in place from the start of the financial year to the date of approval of this report. The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

In compliance with the Principles and Provisions of the AIC Code, the Board regularly reviews the effectiveness of the Company's system of internal control. The Board's monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from the Investment Manager in order to consider whether all significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. To this end a Risk Matrix is maintained, which identifies the significant risks faced by the Company together with the controls intended to manage them and is reviewed at each scheduled Board meeting. The Board has also performed a specific assessment considering all significant aspects of internal control arising during the year covered by this report. The Audit Committee assists the Board in discharging its review responsibilities.

During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant.

While investment management is provided by Cheyne Capital Management (UK) LLP, the Board is responsible for setting the overall Investment Policy and monitors the actions of the Investment Manager at regular Board meetings. Administration services are provided by Citco Fund Services (Guernsey) Limited. Regular compliance reports from both the Investment Manager and the Administrator are received by the Board. In addition, the Administrator makes available its Global Fund Accounting and Custody Controls Examination, SOC 1 report to the Board on an annual basis.

Custody of assets is undertaken by the Depositary, The Bank of New York Mellon (International) Limited.

The Investment Manager has established an internal control framework and reviews the segregation of duties within this to ensure that control functions are segregated from the trading and investing functions. As a part of this framework, the valuation of financial instruments is overseen by an internal pricing committee which is supported by resources which ensure that it is able to function at an appropriate level of quality and effectiveness.

Specifically, the Investment Manager's pricing committee is responsible for establishing and monitoring compliance with valuation policy. Within the trading and investing functions, the Investment Manager has established policies and procedures that relate to the approval of all new transactions, transaction pricing sources and fair value hierarchy coding within the financial reporting system.

The Directors of the Company clearly define the duties and responsibilities of their agents and advisers, whose appointments are made by the Board after due consideration. The Board monitors the ongoing performance of such agents and advisers. Each agent and adviser maintains its own systems of internal control on which it reports to the Board. The systems are designed to ensure effective and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows, therefore, that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Administrator, Sub-Administrator and Investment Manager, including their own internal controls and procedures, provide sufficient assurance that a sound system of risk management and internal control, which safeguards Shareholders' investment and the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.

Shareholder Engagement

The Board believes that the maintenance of good relations with Shareholders is important for the long-term prospects of the Company and seeks engagement with investors. Where appropriate, the Chairman, and other Directors are available for discussion about governance and strategy with major Shareholders and the Chairman ensures communication of Shareholders' views to the Board. The Board receives feedback on the views of Shareholders from Liberum Capital Limited (the "Corporate Broker") and the Investment Manager, and Shareholders are welcome to contact the Chairman or any Director at any time via the Company Secretary. Additionally, the Investment Manager held a presentation for investors at its offices on 11 September 2019. The presentation is available on the Company's website.

The Directors believe that the AGM provides an appropriate forum for Shareholders to communicate with the Board and encourages participation. There is an opportunity for individual Shareholders to question the Chairmen of the Board and the Audit Committee at the AGM. The Board assesses the results of AGMs considering whether the number of votes against or withheld in respect of resolutions are such as to require discussion in the subsequent Annual Report.

Corporate Social Responsibility

The Board keeps under review developments involving social and environmental issues, and will report on those to the extent they are considered relevant to the Company's operations.

UK Criminal Finances Act 2017

In respect of the UK Criminal Finances Act 2017 which has introduced a new Corporate Criminal Offence of "failing to take reasonable steps to prevent the facilitation of tax evasion", the Board confirms that it is committed to zero tolerance towards the criminal facilitation of tax evasion.

GDPR

The Board confirms that the Company has considered GDPR and taken measures itself and with its service providers, to meet the requirements of GDPR and equivalent Guernsey law.

Anti-Bribery and Corruption Policy

The Board has adopted a formal Anti-bribery and Corruption Policy. The policy applies to the Company and to each of its Directors. Furthermore, the policy is shared with each of the Company's main service providers.

Whistle-Blowing

As the Company has no employees of its own, it does not have a whistle-blowing policy but in its review of service providers the Management Engagement Committee ensures that they do.

Employees and Socially Responsible Investment

The Company has a management contract with the Investment Manager. It has no employees and all of its Directors are non-executive, with day-to-day activities being carried out by third parties. There are therefore no disclosures to be made in respect of employees.

The Company's main activities are carried out by the Investment Manager who was one of the initial signatories to the Standards Board for Alternative Investments (formerly known as the Hedge Fund Standards Board) and is a signatory to the United Nations- supported Principles for Responsible Investment ("PRI").

ESG

The Investment Manager applies a Responsible Investment policy to its investment process. The Real Estate Team analyses ESG factors in relation to the Company's real estate lending transactions, and seeks to engage with the borrowers (to the extent relevant) to implement appropriate Responsible Investing ("RI") policies. Key factors taken into consideration, where appropriate and possible, are best-in-class environmental, design and construction standards, focus on Building Research Establishment Environmental Assessment "BREEAM" ratings, governance rights and engagement with sponsors. By following these steps, the Investment Manager seeks to ensure that the environmental, social and governance aspects of Company's investments are taken into account. While RECI seeks to consider all aspects of ESG, climate change is not something that is directly impacted by the investment activity of the Company.

Gender Metrics

The Board has chosen not to adopt a definitive policy with quantitative targets for Board diversity. However, gender, knowledge, skills, experience, residency and governance credentials are all considered by the Nominations Committee when recommending appointments to the Board and in formulating succession plans. The Board currently has 25% female representation, complying with the Hampton Alexander Report for companies of RECI's size.

Principal Risks and Uncertainties

The Board has carried out a robust assessment to identify the principal risks and any emerging risks that could affect the Company, including those that would threaten its business model, future performance, solvency or liquidity. It has adopted a controls based approach to its risk monitoring requiring each of the relevant service providers, including the Investment Manager, to establish the necessary controls to ensure that all known risks are monitored and controlled in accordance with agreed procedures. The Directors receive periodic updates at their Board meetings on key risks and have adopted their own control review to ensure where possible, risks are monitored appropriately.

Each Director is aware of the principal risks and uncertainties inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks.

The Board has adopted procedures and controls that enable it to manage these principal risks and uncertainties within acceptable limits and to meet all of its legal and regulatory obligations.

The Board considers the process for identifying, evaluating and managing these principal risks and uncertainties faced by the Company on an on-going basis and these principal risks and uncertainties are reported and discussed at Board meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld.

The Company's principal risks are discussed in the Strategic Report and in the Company's Prospectus, available on the Company's website (www.recreditinvest.com) while those specifically relating to financial reporting are discussed in the Audit Committee report and Note 15 to the financial statements.

Changes in Regulation

The Board monitors and responds to changes in regulation as it impacts the Company and its policies.

Stakeholder Engagement

Section 172 Statement

The Board is committed to promoting the long-term success of the Company whilst conducting business in a fair, ethical and transparent manner. Whilst directly applicable to companies incorporated in the UK, the Board recognises the intention of the AIC Code that matters set out in section 172 of the Companies Act, 2006 are reported on. The Board strives to understand the views of the Company's key stakeholders and to take these into consideration as part of its discussions and decision‑making process. As an investment company, the Company does not have any employees and conducts its core activities through third-party service providers. Each provider has an established track record and through regulatory oversight is required to have in place suitable policies and procedures to ensure they maintain high standards of business conduct, treat shareholders fairly, and employ corporate governance best practice. The Company strongly believes that fostering healthy and constructive relationships with its broad range of stakeholders should result in increased shareholder value over the long term.

Key stakeholder groups over the last year:

Shareholders: Institutional and Retail shareholders

Commercial service providers: Investment Manager, Administration agent, Corporate broker, Legal advisers, Auditor

Key service providers retained, providing continuity of service and familiarity with the objectives of the Company

How RECI has communicated and engaged:

· Annual general meeting

· Regular market announcements

· Investor communications including monthly factsheets and quarterly updates

· Dedicated RECI website

· Investor roadshows

· Investor Day

· Annual and interim reports

· Views and feedback sought from institutional shareholders via corporate broker

· Regular Board meetings during the period attended by representatives from the Investment Manager

· Annual service provider questionnaire

Key Information Document

In accordance with the EU Packaged Retail and Insurance- based Investment Products Directive on 1 January 2018, a Key Information Document is available on the Company's website at: http://recreditinvest.com/PDFs/RECI-KID.pdf

Audit Committee Report

Audit Committee Report

Dear Shareholder,

On the following pages, we present the Audit Committee's report for 2020, setting out the responsibilities of the Audit Committee and its key activities during the year ended 31 March 2020. As in previous years, the Audit Committee has reviewed the Company's financial reporting, the independence and effectiveness of the Independent Auditor and the internal control and risk management systems of the Company's service providers. In order to assist the Audit Committee in discharging these responsibilities, regular reports are received and reviewed from the Investment Manager, Administrator and Independent Auditor.

A member of the Audit Committee will be available at each AGM to respond to any shareholder questions on the activities of the Audit Committee.

Susie Farnon

Chairman of the Audit Committee

Membership of the Audit Committee

The Audit Committee is chaired by Mrs Farnon, and its other members are Mr Cowdell, Mr Harrison and Mr Hallam. The FRC Guidance on Audit Committees recommends that such a committee should comprise solely of independent non-executive directors and, as noted in the Corporate Governance Statement, the Board has considered the independence of its members and has concluded that they all remain independent. The Company Chairman currently serves as a member of the Audit Committee. The terms of reference state that the Audit Committee will meet not less than three times in the year and meet the external auditors a minimum of twice a year on which occasions the need to meet without representatives of either the Investment Manager or the Administrator being present is considered. The terms of reference include all matters indicated in the Disclosure and Transparency Rule 7.1 and the AIC Code.

The Board has taken note of the requirement that at least one member of the Committee should have recent and relevant financial experience and is satisfied that the Committee is properly constituted in that respect with all members being highly experienced and Mr Hallam and Mrs Farnon being chartered accountants who also sit on other audit committees.

Responsibilities

The Audit Committee has regard to the AIC Code and examines the effectiveness of the Company's internal control systems, the integrity of the annual and half-yearly reports and financial statements and ensures that they are fair, balanced and understandable and provide the necessary information. They also consider the auditors' remuneration and engagement, as well as the auditors' independence and any non-audit services provided by them. Other areas of responsibility include:

· Consideration of the fair value of the Company's investments and income generated from the portfolio;

· Consideration of the accounting policies of the Company;

· Meeting with the external auditor to discuss the proposed audit plan and reporting;

· Assess the effectiveness of the external auditor and audit process;

· Consideration of the need for an internal audit function;

· Review of any independent reports in respect of the Investment Manager, the Administrator or the Depositary;

· Consideration of the risks facing the Company including the Company's anti-bribery, corruption and similar obligations; and

· Monitoring the Company's procedures for ensuring compliance with statutory regulations and other reporting requirements.

In addressing all of the above considerations, the Audit Committee seeks the appropriate input from the auditors, Investment Manager, Administrator, Company Secretary and Legal Counsel and makes a recommendation to the Board of the Company as appropriate.

Meetings

The Audit Committee meets at least three times annually, including shortly before the Board meets to consider the Company's half-yearly and annual financial reports, and reports to the Board on its deliberations and recommendations. It also has an annual planning meeting with the auditor and other ad-hoc meetings as considered necessary.

The Audit Committee operates within clearly defined terms of reference and provides a forum through which the Company's external auditors report to the Board. The terms of reference of the Audit Committee are available from the Company's registered office. The Audit Committee receives information from the Company's service providers with the majority of information being directly sourced from the Company Secretary, Administrator, the Investment Manager and the external auditors. The Audit Committee considers the nature, scope and results of the auditor's work and reviews their performance annually prior to providing a recommendation to the Board on the reappointment or removal of the auditor.

Significant Issues Considered Over Financial Reporting

The Audit Committee has determined that the key risks of misstatement of the Company's financial statements relate to the judgements in respect of the fair value of the Company's portfolio and income recognition.

Additional information regarding principal risks and uncertainties is provided in the Strategic Report and in Note 15 to the financial statements.

The Board considers a report from the Investment Manager at each Board meeting which sets out a review of the portfolio and its performance. The report also details earnings forecasts and asset class analysis. As a result, the Board is able to interrogate the Investment Manager on the basis of the assumptions made and the validity of the expected forecasts.

Valuation of Portfolios

The Audit Committee conducted a detailed review, which was enhanced this year as a result of COVID-19, of each loan position through discussions with the AIFM's relevant individual asset managers challenging them as appropriate. Such discussions covered aspects such as:

· Available and recent professional valuations.

· Credit quality of the individual borrower.

· Quality of the underlying collateral.

· Status of development schedules compared to original plans.

· Planning or other disputes.

· Comparison between effective and actual yields.

· Whether or not any value should be ascribed to contingent fees and potential profit participations provided for in contractual arrangements.

When considering the bond investments the Audit Committee considered a number of factors including, but not restricted to:

· Pricing sources.

· The valuation approach used to value certain bonds by the independent pricing adviser and challenging the AIFM's assessment of the comparable securities used in determining the valuation of these bonds.

· Comparison between effective and actual yields.

· Depth of prices and any disparity between different marks.

· Indicative liquidity.

· Comparison of realised prices with previous valuations.

Having conducted this process the Committee concluded that any assumptions used were reasonable and that the valuations were in accordance with the applicable standards.

Income Recognition

The Audit Committee and the Board as a whole considered and challenged the Investment Manager's expected realisation or maturity dates and the resultant expected cash flows. The Committee found that the assumptions used were reasonable and that whilst it is possible that the expected realisation dates may change over time the Committee and the Board are satisfied that the assumed realisation dates and the Investment Manager's methods of calculating income are reasonable and in line with International Financial Reporting Standards ("IFRS").

Risk Management

The Company's risk assessment process and the way in which significant business risks are managed is a key area of focus for the Committee. The work of the Audit Committee is driven primarily by the Company's assessment of its principal risks and uncertainties as set out in the Strategic Report and in Note 15 to the financial statements, and it receives reports from the Investment Manager on the Company's risk evaluation process and reviews changes to significant risks identified.

Internal Audit

The Committee considers at least once a year whether or not there is a need for an internal audit function. Currently, the Committee believes that, given the Company has no employees, the SOC 1 internal control report provided by the Administrator and the reporting provided by the Investment Manager are sufficient and has made a recommendation to the Board to this effect.

External Audit

Deloitte LLP has been the Company's external auditor since the Company's inception.

The objectivity of the auditor is reviewed by the Committee which also reviews the terms under which the external auditor may be appointed to perform non-audit services. Auditor independence is maintained through limiting non-audit services to audit-related work that falls within defined categories for example acting as Reporting Accountant in connection with the Placing Programme. All engagements with the auditor are subject to pre-approval from the Audit Committee and fully disclosed within the Annual Report for the relevant period. A new lead audit partner is appointed every five years and the Audit Committee ensures the auditor has appropriate internal mechanisms in place to ensure its independence.

When evaluating the external auditor, the Committee has regard to a variety of criteria including industry experience, independence, reasonableness of audit plan, ability to deliver constructive criticism, effectiveness of communication with the Board and the Company's service providers, quality control procedures, management of audit process, price and added value beyond assurance in audit opinion.

In order to maintain auditor independence, Deloitte LLP ensured the following safeguards were in place:

· review and challenge of key decisions by the Quality Review Partner and engagement quality control review by a member of the Independent Professional Standard Review Team.

This is the fifth year that David Becker has served as an engagement partner on the audit. John Clacy, who has been proposed as the replacement, previously served as the audit partner for years ending 31 March 2011 to 31 March 2015. The Audit Committee has considered this in light of guidance and the changes to the business since this time, and as such, they are satisfied that his independence is not impaired.

The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor, with particular regard to the level of non-audit fees. During the year, Deloitte charged non-audit fees of £63,000 for work performed on the 2020 Placing Programme and £28,840 for the 30 September 2019 interim review.

Notwithstanding the provisions of such services, the Audit Committee considers Deloitte LLP to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit as appropriate safeguards are in place.

To fulfil its responsibility regarding the independence of the auditor, the Audit Committee considers:

· discussions with or reports from the auditor describing its arrangements to identify, report and manage any conflicts of interests; and

· the extent of non-audit services provided by the auditor and arrangements for ensuring the independence, objectivity and robustness and perceptiveness of the auditor and their handling of key accounting and audit judgements.

To assess the effectiveness of the auditor and the audit process, the Committee reviews:

· the auditor's fulfilment of the agreed audit plan and variations from it;

· discussions or reports highlighting the major issues that arose during the course of the audit;

· feedback from other service providers evaluating the performance of the audit team;

· arrangements for ensuring independence and objectivity; and

· robustness of the auditor in handling key accounting and audit judgements.

The Audit Committee was satisfied with the audit process and Deloitte LLP's effectiveness and independence as an auditor having considered the degree of diligence and professional scepticism demonstrated by them.

On behalf of the Audit Committee.

Susie Farnon

Chairman of the Audit Committee

24 June 2020

Directors' Responsibility Statement

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Company financial statements in accordance with IFRS. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing these financial statements, International Accounting Standard 1 ("IAS 1") requires that Directors:

· properly select and apply accounting policies;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

· make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

(i) The financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

(ii) The Chairman's Statement, the Strategic Report and the Investment Manager's report include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties they face; and

(iii) So far as each Director is aware, there is no relevant audit information of which the Company's auditors are unaware, and each Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 249 of the Companies (Guernsey) Law, 2008 (as amended).

Responsibility Statement of the Directors in Respect of the Annual Report under the AIC Code

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the Annual Report and financial statements, taken as a whole, as fair, balanced and understandable and that it provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.

By order of the Board

Bob Cowdell Susie Farnon

Director Director

24 June 2020

Financial Statements

Independent Auditor's Report to the Members of Real Estate Credit Investments Limited

Report on the audit of the financial statements

1. Opinion

In our opinion the financial statements of Real Estate Credit Investments Limited ('the Company'):

· give a true and fair view of the state of the Company's affairs as at 31 March 2020 and of the Company's loss for the year then ended;

· have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and

· have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

We have audited the financial statements which comprise:

· the statement of comprehensive income;

· the statement of financial position;

· the statement of changes in equity;

· the statement of cash flows; and

· the related notes 1 to 22.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

4. Conclusions relating to going concern, principal risks and viability statement

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

6. Our application of materiality

6.1. Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

6.2. Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance Materiality was set at 70% of materiality for the 2020 audit (2019: 70%). In determining performance materiality, we considered the following factors:

· our risk assessment, including our assessment of the Company's overall control environment; and

· our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods.

6.3. Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £335,000 (2019: £250,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

7. An overview of the scope of our audit

7.1. Scoping

Our audit was scoped by obtaining an understanding of the Company and its environment, including internal control, and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.

7.2. Our consideration of the control environment

The accounting function for the Company is provided by Citco Fund Services (Guernsey) Limited ('the Administrators'). We have obtained an understanding of relevant controls at the Administrators that are relevant to the business processes of the Company.

8. Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that:

· Fair, balanced and understandable - the statement given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

· Audit committee reporting - the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or

· Directors' statement of compliance with the UK Corporate Governance Code - the parts of the directors' statement required under the Listing Rules relating to the company's compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

We have nothing to report in respect of these matters.

9. Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

10. Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

11. Matters on which we are required to report by exception

11.1. Adequacy of explanations received and accounting records

Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

· we have not received all the information and explanations we require for our audit; or

· proper accounting records have not been kept; or

· the financial statements are not in agreement with the accounting records.

We have nothing to report in respect of these matters.

12. Use of our report

This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

David Becker

For and on behalf of Deloitte LLP

Recognised Auditor

St Peter Port, Guernsey

24 June 2020

Statement of Comprehensive Income

For the year ended 31 March 2020

All items in the above statement are derived from continuing operations.

The accompanying notes form an integral part of the financial statements.

Statement of Financial Position

As at 31 March 2020

The accompanying notes form an integral part of the financial statements.

Signed on behalf of the Board of Directors by:

Bob Cowdell Susie Farnon

Director Director

24 June 2020

Statement of Comprehensive Income

For the year ended 31 March 2020

All items in the above statement are derived from continuing operations.

The accompanying notes form an integral part of the financial statements.

Statement of Financial Position

As at 31 March 2020

The accompanying notes form an integral part of the financial statements.

Signed on behalf of the Board of Directors by:

Bob Cowdell Susie Farnon

Director Director

24 June 2020

Statement of Changes in Equity

For the year ended 31 March 2020

The accompanying notes form an integral part of the financial statements.

Statement of Cash Flows

For the year ended 31 March 2020

The accompanying notes form an integral part of the financial statements.

Notes to the Financial Statements

For the year ended 31 March 2020

1. General Information

Real Estate Credit Investments Limited ("RECI" or the "Company") was incorporated in Guernsey, Channel Islands on 6 September 2005 with registered number 43634. The Company commenced its operations on 8 December 2005.

The Company invests in real estate debt secured by commercial or residential properties in the United Kingdom and Western Europe, focusing primarily on those countries where it sees the changing dynamics in the real estate debt market offering a sustainable deal flow for the foreseeable future. The Company has adopted a long-term strategic approach to investing and focuses on identifying value in real estate debt. In making these investments the Company uses the expertise and knowledge of its Alternative Investment Fund Manager ("AIFM"), Cheyne Capital Management (UK) LLP ("Cheyne" or the "Investment Manager").

The ordinary shares ("Ordinary Shares") are currently listed on the premium segment of the Official List of the UK Listing Authority and trade on the Main Market of the London Stock Exchange. Ordinary Shares offer investors a levered exposure to a portfolio of Real Estate Credit Investments and aim to pay a quarterly dividend.

The Company's investment management activities are managed by the Investment Manager, who is also the AIFM. The Company has entered into an Investment Management Agreement (the "Investment Management Agreement") under which the Investment Manager manages its day-to-day investment operations, subject to the supervision of the Company's Board of Directors. The Company is an Alternative Investment Fund ("AIF") within the meaning of the Alternative Investment Fund Manager Directive ("AIFMD") and accordingly the Investment Manager has been appointed as AIFM of the Company, which has no employees of its own. For its services, the Investment Manager receives a monthly management fee, expense reimbursements and accrues a performance fee (see Note 18). The Company has no ownership interest in the Investment Manager.

Citco Fund Services (Guernsey) Limited is the Administrator and provides all administration services to the Company in this capacity. The Bank of New York Mellon (International) Limited is the Depositary and undertakes the custody of assets. Aztec Financial Services (Guernsey) Limited is the Company Secretary.

2. Significant Accounting Policies

Statement of Compliance

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, together with applicable legal and regulatory requirements of Guernsey Law and the Listing Rules of the UK Listing Authority. The same accounting policies, presentation and methods of computation have been followed in these financial statements as were applied in the preparation of the Company's audited financial statements for the year ended 31 March 2019.

New Standards, Amendments and Interpretations Issued and Effective for the Financial Year Beginning 1 April 2019

IFRS 16 Leases

IFRS 16 was issued in January 2016 in replacement of IAS 17 Leases. It requires the recognition of substantially all lease assets and lease liabilities on the Statement of Financial Position, with the exception of short-term leases. Certain disclosures of key information about leasing agreements have also been amended. Under the new guidance, a lessee would record a right-of-use ("ROU") asset representing its rights to use the underlying assets during the lease term and a corresponding liability. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. The adoption of IFRS 16 had no material impact on the financial statements as the Company does not have any lease contracts as defined by the standard.

IFRIC 23 Uncertainty over Income Tax Treatments

IFRIC 23 was published in June 2017. It addresses whether an entity considers uncertain tax treatments separately; the assumptions an entity makes about the examination of tax treatments by taxation authorities; how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and how an entity considers changes in fact and circumstances.

Guidance contained in IFRIC 23 includes; (i) if an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings; and (ii) if an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates. An entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the entity expects to better predict the resolution of the uncertainty; (a) the most likely amount - the single most likely amount in a range of possible outcomes. The most likely amount may better predict the resolution of the uncertainty if the possible outcomes are binary or are concentrated on one value; (b) the expected value - the sum of the probability-weighted amounts in a range of possible outcomes. The expected value may better predict the resolution of the uncertainty if there is a range of possible outcomes that are neither binary nor concentrated on one value. IFRIC 23 is effective for annual periods beginning on or after 1 January 2019. The adoption of IFRIC 23 had no material impact on the financial statements of the Company.

New Standards, Amendments and Interpretations Issued but not Effective for the Financial Year Beginning 1 April 2019 and not Early Adopted

Amendments to IFRS 3 has no material impact on the financial statements as the Company has not entered into business combinations.

IFRS 17 Insurance Contracts has no material impact on the financial statements as the Company does not have insurance contracts.

Amendments to IAS 1 affect only the presentation of liabilities in the Statement of Financial Position and not the amount or timing of recognition of any asset, liability income or expenses, or the information that the Company disclose about those items.

Basis of Preparation

The financial statements of the Company are prepared under IFRS on the historical cost or amortised cost basis except for financial assets and liabilities classified at fair value through profit or loss which have been measured at fair value.

The functional and presentation currency of the Company is GBP (£), which the Board considers best represents the economic environment in which the Company operates.

Going Concern

The Directors believe it is appropriate to adopt the going concern basis in preparing the financial statements as, after due consideration, they consider that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of signing the financial statements.

As highlighted in the long-term viability section of the Strategic Report, the Investment Manager performed an evaluation of each of its positions in light of the likely long-term impact of the COVID-19 crisis on operating models and valuations, and performed a granular analysis of the future liquidity profile of the Company. A detailed cash flow profile of each investment was completed, incorporating the probability of likely delays to repayments (and additional cash needs).

Taking account of the updated forecasting, the Directors consider that the cash resources available as at 31 March 2020 of £27.0 million (31 March 2019: £38.6 million), together with the cash collateral at broker of £25.0 million (31 March 2019: £1.4 million), the liquidity of the market bond portfolio and the financing available through activities such as repurchase agreements as described in Note 13 are sufficient to cover normal operational costs and current liabilities, including the proposed dividend, as they fall due for a period of at least twelve months from the date of signing the financial statements.

Since the onset of the COVID-19 crisis and the resultant market turbulence, the Company moved to take the following measures:

· An evaluation of each of its positions in light of the likely long-term impact of the crisis on operating models and valuations and hence recovery prospects for the individual positions. The output of this analysis was to write down the value of just two of its mezzanine positions. These impairments are not realised losses, but provisions for potential losses recognised today.

· Engaged positively with every one of its borrower counterparts to put in place mitigation and de-risking strategies for the long term.

· Improved the resilience and flexibility of the Company by increasing its cash balances and reducing its net leverage.

· Performed a granular analysis of the future liquidity profile of the Company. A detailed cashflow profile of each investment was completed, incorporating the probability of likely delays to repayments (and additional cash needs).

Having taken into account the above measures, which since 31 March 2020 has generated £24.3 million in proceeds from bond sales used towards a reduction of gross leverage to £50.5 million and net debt to £19 million, the Directors consider this to have strengthened the resilience of the Company to future market uncertainty. In particular, the Directors note that a key assumption adopted in their going concern analysis is that leverage through repurchase agreements is not withdrawn.

Notwithstanding the Directors belief that this assumption remains justifiable, the Directors have also determined a number of mitigations to address a scenario where all outstanding repurchase agreements are required to be settled as they fall due. Whilst there would be a number of competing strategic factors to consider before implementation of such options, the Directors assert that these are credible and can generate sufficient liquidity to enable the Company to meet its obligations as they fall due. Such strategies include further sales of assets within the bond portfolio, cessation or delay of any future dividends and obtaining longer-term, non-recourse financing.

In consideration of this additional stressed scenario and mitigations identified, the Directors consider that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of signing the financial statements.

Financial Assets at Fair Value Through Profit or Loss

The Company classifies its investments based on both the Company's business model for managing those financial assets and the contractual cash flow characteristics of the financial assets. The portfolio of financial assets is managed and performance is evaluated on a fair value basis. The Company is primarily focused on fair value information and uses that information to assess the assets' performance and to make decisions. The Company has not taken the option to irrevocably designate any equity securities at fair value through other comprehensive income. The contractual cash flows of the Company's debt securities are not solely principal and interest, and these securities are neither held for the purpose of collecting contractual cash flows nor held both for collecting contractual cash flows and for sale. The collection of contractual cash flows is only incidental to achieving the Company's business model's objective. Consequently, all investments are measured at fair value through profit or loss. The gain or loss on reassessment of fair value is recognised immediately in the Statement of Comprehensive Income.

Financial Liabilities at Fair Value Through Profit or Loss

Financing agreements entered into for the purpose of efficient portfolio management are measured at fair value through profit or loss. The gain or loss on reassessment of fair value is recognised immediately in the Statement of Comprehensive Income.

Financial Assets at Amortised Cost

A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. This includes cash and cash equivalents, cash collateral at broker and other assets.

Financial Liabilities at Amortised Cost

Other liabilities include cash collateral due to broker and other liabilities.

Initial Measurement

Financial assets and liabilities at fair value through profit or loss are measured initially at fair value, with transaction costs for such financial assets and liabilities being recognised directly in the Statement of Comprehensive Income. Financial assets and liabilities at amortised cost are measured initially at their fair value plus any directly attributable incremental costs of acquisition or issue. Purchases and sales of financial assets and liabilities at fair value through profit or loss are accounted for at trade date. Realised gain/(loss) on disposals of financial assets and liabilities are calculated using the first-in, first-out ("FIFO") method.

Subsequent measurement

After initial measurement, the Company measures financial assets and liabilities which are classified as at fair value through profit or loss, at fair value. After initial measurement, the Company measures financial assets and liabilities which are classified as at amortised cost, at amortised cost using effective interest method.

Recognition

All regular way purchases and sales of financial assets or liabilities are recognised on the trade date, which is the date on which the Company commits to purchase or sell the financial assets or liabilities. Regular way purchases or sales are purchases or sales of financial assets or liabilities that require delivery of assets within the period generally established by regulation or convention in the market place.

Derecognition

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IFRS 9. The Company derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or has expired.

Cash and Cash Equivalents

Cash and cash equivalents includes amounts held in interest bearing accounts and overdraft facilities with original maturities of less than three months.

Derivative Financial Instruments

Derivative financial instruments used by the Company to manage its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities that do not qualify for hedge accounting are accounted for as financial assets or liabilities at fair value through profit or loss. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on reassessment of fair value is recognised immediately in the Statement of Comprehensive Income.

The fair value of options is their quoted market price at the reporting date. Broker marks are obtained for these positions. The change in value is recorded in net gains on financial assets and liabilities at fair value through profit or loss in the Statement of Comprehensive Income. Realised gains and losses are recognised on the expiry or sale of the option. The fair value of an open forward foreign currency exchange contract is calculated as the difference between the contracted rate and the current forward rate that would close out the contract on the reporting date. The change in value is recorded in net gains on financial assets and liabilities through profit or loss in the Statement of Comprehensive Income. Realised gains and losses are recognised on the maturity of a contract, or when the contract is closed out and they are transferred to realised gains or losses in the Statement of Comprehensive Income.

Fair Value

All financial assets carried at fair value are initially recognised at cost and subsequently re-measured at fair value. If independent prices are unavailable, the fair value of the financial asset is estimated by reference to market information which includes, but is not limited to, broker marks, prices of comparable assets and using pricing models incorporating discounted cash flow techniques and valuation techniques such as modelling. These pricing models apply assumptions regarding asset specific factors and economic conditions generally, including delinquency rates, severity rates, prepayment rates, default rates, maturity profiles, interest rates and other factors that may be relevant to each financial asset.

The objective of a fair value measurement is to determine the price at which an orderly transaction would take place between market participants on the measurement date; rather than the price arrived at in a forced liquidation or distressed sale.

Where the Company has considered all available information and there is evidence that the transaction was forced, it will not use such a transaction price as being determinative of fair value.

Note 3 provides specific information regarding the determination of fair value for the Company's bonds and loans.

Offsetting Financial Instruments

Financial assets and liabilities are offset and the net amount is reported within assets and liabilities when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Expenses Attributable to Any Issue of Ordinary Shares

The expenses of the Company attributable to any issue of Ordinary Shares are those which are necessary to implement such an issue including registration, listing and admission fees, corporate finance fees, printing, advertising and distribution costs, legal fees and other applicable expenses. They are recognised as incurred and are included as a reduction to Reserves in the Statement of Changes in Equity.

Foreign Currency Transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Statement of Financial Position date are translated to GBP at the foreign exchange rate ruling at that date.

Foreign exchange differences arising on translation are recognised in gains and losses on financial assets and liabilities at fair value through profit or loss in the Statement of Comprehensive Income. Foreign currency denominated non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction.

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to GBP at foreign exchange rates ruling at the reporting date. Differences arising on translation of these non-monetary assets and liabilities between valuation points are recognised in the Statement of Comprehensive Income.

Interest Income

Interest income is accrued based on the expected realisation date of the investments using the effective interest method as defined under IFRS 9. Where the Company adjusts its expected cash flow projections to take account of any change in underlying assumptions, such adjustments are recognised in interest income in the Statement of Comprehensive Income by reflecting changes in the fair value of the investment calculated using the original effective interest rate and applying the original effective interest rate to this revised value for the purposes of calculating future income.

Expenses

All expenses are included in the Statement of Comprehensive Income on an accrual basis.

Taxation

The Company is a tax-exempt Guernsey limited company and accordingly, no provision for tax is made.

Other Receivables

Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Financial Liabilities and Equity

Financial liabilities and equity are classified according to the substance of the underlying contractual arrangements. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

Financial liabilities and equity are initially recorded at the proceeds received, net of issue costs and subsequently at amortised cost. The Ordinary Shares have been classified as equity.

Other Liabilities

Other liabilities are not interest-bearing and are stated at their accrued value.

Segment Information

The Company's two reportable segments have changed for the year ending 31 March 2020 to reflect the separate management of the two portfolios by the Investment Manager. The Company has two reportable segments, being the Bilateral Loan and Bond Portfolio and the Market Bond Portfolio. The real estate debt investment strategy of the Company focuses on secured commercial and residential debt in the UK and Western Europe. Each segment engages in separate business activities and the results of each segment are regularly reviewed by the Board of Directors which fulfils the role of Chief Operating Decision Maker for performance assessment purposes.

Financing Agreements

The Company enters into repurchase agreements for the purpose of efficient portfolio management. There are no material revenues arising from the use of repurchase agreements and transaction costs are embedded in the price of the investments and are not separately identifiable. Securities purchased under agreements to resell are valued at fair value and adjusted for any movements in foreign exchange rates. Interest rates vary for each repurchase agreement and are set at the initiation of each agreement. It is the Company's policy to take custody of securities purchased under repurchase agreements and to value the securities on a daily basis to protect the Company in the event the securities are not repurchased by the counterparty. The Company will generally post additional collateral if the market value of the underlying securities decline is less than the face value of the repurchase agreements plus any accrued interest. In the event of default on the obligation to repurchase, the Company has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realisation and/or retention of the collateral or proceeds may be subject to legal proceedings.

3. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

In the process of applying the Company's accounting policies (described in Note 2), the Company has determined that the following judgements and estimates have the most significant effect on the amounts recognised in the financial statements:

Critical Accounting Judgements

Classification of Financial Assets at Fair Value Through Profit or Loss

As described on page 50, classification and measurement of financial assets under IFRS 9 are driven by the entity's business model for managing financial assets and the contractual cash flow characteristics of those financial assets.

As further described on page 50, the contractual cash flow characteristics for loan investments are not solely payments of principal and interest. The Company instead receives the return for each underlying loan net of expenses in Stornoway Financial SARL compartment ("SPV") and so it not considered to be a basic lending arrangement under the standard. As such, these loan investments are required to be measured at fair value through profit or loss.

In making this judgement, the Directors have considered the power the Company has to influence the investment decisions of the SPV housing the underlying loans and where the Company holds the majority interest it has been determined that the contractual cash flow characteristics for a basic lending arrangement would be met. However, IFRS 9 also requires an assessment of the business model within which assets are held. In the case of the Company's loan investments the Directors have determined that they monitor and evaluate business performance, manage risk and compensate the investment manager based on fair value measures. The business model is therefore not solely for holding and collecting contractual cash flows to maturity and requires all loan investments to be measured at fair value through profit or loss.

The Company's bond investments are classified and measured at fair value through profit or loss in accordance with the above fact pattern.

Were it to be determined that the business model for managing financial assets and the contractual cash flow characteristics of those financial assets were not described above, these assets would be classified and measured at amortised cost with provisions made for expected credits losses and changes to expected credit losses at each reporting date.

Level Classification of Financial Assets at Fair Value Through Profit or Loss

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes "observable" requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

Key Sources of Estimation Uncertainty

Valuation of Financial Assets at Fair Value Through Profit or Loss

In accordance with the Company's accounting policies, the fair value of financial assets is based on quoted prices where such prices are available from a third party in a liquid market.

Bonds held in the Company are valued using independent market prices (supplied by Markit and BVAL) which constitute publicly available sources. In addition, the Company has obtained pricing reports from an independent adviser (Markit Private Team) for bonds where quoted prices are not directly available in the market. The adviser uses publicly available prices for comparable securities as the key input to the valuation of these bonds which are reviewed and corroborated by the Investment Manager.

In addition to the primary pricing sources described above, the Investment Manager has calibrated the fair value of the bonds to counterparty quotes on repurchase agreements as an additional data point in order to estimate the fair value of these investments. Although counterparty quotes for individual investments are based on readily available, non-proprietary, independent sources; the application of this calibration approach is a key source of estimation uncertainty to reflect the Investment Manager's estimate of the mark-to-market volatility caused by the COVID-19 outbreak. A change in the weighting of quotes received from primary or secondary pricing sources produces a range of fair value for the bond investments of £231.6m to £245.1m as at 31 March 2020.

The Company has made loans into structures to gain exposure to real estate secured debt in the United Kingdom, France and Germany. These loans are not traded in an active market and there are no independent quotes available for these loans. The fair values of financial instruments that are not traded in an active market are determined using valuation techniques such as modelling. The fair value of these loans is linked directly to the value of the real estate loans in the underlying structure the Company invests in, which are determined based on modelled expected cash flows (drawdown principal and interest repayments, and maturity dates) with effective yields ranging from 4.9% to 15.2% (31 March 2019: 5.1% to 13.5%) but with certain minor holdings having yields up to 24.0% (31 March 2019: 17.6%).

As highlighted in the long-term viability section of the Strategic Report, the Investment Manager performed an evaluation of each of its positions in light of the likely long-term impact of the COVID-19 crisis on operating models and valuations. A detailed cash flow profile of each investment was completed, incorporating the probability of likely delays to repayments (and additional cash needs), these were taken into account in the modelled expected cash flows for 31 March 2020. Adjustments in the fair value of the real estate loans are considered in light of changes in the credit quality of the borrower and underlying property collateral. On origination of the loan, the Investment Manager performs due diligence on the borrower and related security/property. This includes obtaining a valuation of the underlying property (to assess loan-to-value of the investment). In most instances, the terms of the loan require periodic re-valuation of the underlying property to check against loan-to-value covenants.

The valuation policy for contingent fees and potential profit participations provided for in contractual arrangements is to mark them at fair value, which in most instances have been obtained for a zero or de-minimis cost, and they are held at this value until there is sufficient evidence that the position should be revalued.

Valuation of Financial Assets at Fair Value Through Profit or Loss continued

By way of a referendum, on 23 June 2016, the United Kingdom voted to leave the European Union ("EU"). It is acknowledged that uncertainty exists in relation to the United Kingdom's future relationship with the EU and specifically with regards to current "passporting" which permits UK firms to manage certain EU domiciled funds.

The Company has been closely monitoring this and indeed all other material macro sources of uncertainty related developments, such as COVID-19 and the potential of a global recession, to ensure that these updated assumptions and any potential impact have been reflected in the valuation of financial assets at fair value through profit or loss as at 31 March 2020. Future valuation might change significantly in the future.

4. Net (Losses)/Gains on Financial Assets and Liabilities at Fair Value Through Profit or Loss

5. Operating Expenses

1 Legal fees for 31 March 2020 includes one off payment totalling £571,269 for legal work relating to two assets.

2 Includes fees in relation to the Placing Programme launched in February 2020 and the 2018/19 Programme.

6. Interest Income and Finance Costs

The following table details interest income and finance costs from financial assets and liabilities for the year:

7. Dividends

The total dividends paid during the financial year ended 31 March 2020 amounted to 12 pence per share (31 March 2019: 12 pence per share).

Under Guernsey law, companies can pay dividends provided they satisfy the solvency test prescribed under The Companies (Guernsey) Law, 2008 which considers whether a company is able to pay its debts when they become due and whether the value of a company's assets is greater than its liabilities.

The Directors considered that the Company satisfied the solvency test for each dividend payment during the years ended 31 March 2020 and 31 March 2019.

8. (Loss)/Earnings per Ordinary Share

The calculation of the basic and diluted (loss)/earnings per share is based on the following data:

The weighted average number of Ordinary Shares increased due to the issue of Ordinary Shares during the year (for more details refer to Note 14).

9. Categories of Financial Instruments

The following table details the categories of financial assets and liabilities held by the Company at the year end date.

The value of the bond portfolio was £237.6 million as at 31 March 2020 (31 March 2019: £163.1 million), the financing against these is shown as £97.0 million as at 31 March 2020 (31 March 2019: £100.1 million).

See Note 16 for a summary of the movement in fair value in the Company's investments for the year.

10. Derivative Contracts

Forward Foreign Exchange Contracts:

The following forward foreign exchange contracts were open as at 31 March 2020:

The following forward foreign exchange contracts were open as at 31 March 2019:

11. Other Assets

12. Other Liabilities

* The performance fee payable is accrued and will become payable on the passing of the next continuation vote to be held at the AGM in 2021. There was no performance fee payable accrued at year end and the prior year accrual was reversed as the Company did not perform as at 31 March 2020.

13. Financing Agreements

The Company enters into repurchase agreements with several banks to provide leverage. This financing is collateralised against certain of the Company's market bond portfolio assets with a fair value totalling £108.1 million (31 March 2019: £128.3 million) and a weighted average cost of 1.80% (31 March 2019: 1.80%) per annum. The average period to maturity of the repurchase arrangements is 2 months (31 March 2019: 2 months).

This short-term financing is shown as a current liability in the Statement of Financial Position whereas the collateralised assets are shown as non-current. The movement in financing agreement and the related finance charges amounting to £4.6 million (31 March 2019: £20.6 million) is shown as financing activity in the Statement of Cash Flows.

14. Share Capital

The issued share capital of the Company consists of Ordinary Shares and its capital as at the year end is represented by the net proceeds from the issuance of Ordinary Shares and profits retained up to that date. The Company does not have any externally imposed capital requirements. As at 31 March 2020, the Company had capital of £337.2 million (31 March 2019: £253.2 million).

Gross proceeds of approximately £128.5 million (£126.5 million net proceeds) were raised during the year ended 31 March 2020 (31 March 2019: £23.2 million and £23.0 million net proceeds). Expenses amounting to £2.0 million (31 March 2019: £0.2 million) were recognised as incurred and were treated as a reduction to Reserves in the Statement of Financial Position.

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to Shareholders. The Company's overall strategy was outlined in the Prospectus which was published as part of the Second Placing Programme. The capital structure of the Company consists of the equity of the Company as disclosed in the Statement of Changes in Equity.

On May 24 2019, the Company announced that 45.9 million shares had been issued under this programme at 170 pence per new Ordinary Share, raising gross proceeds of £78.0 million.

On 1 October 2019, the Company announced that it had raised gross proceeds of £17.0 million through the issue of a further 10.2 million new Ordinary Shares at 167 pence per new Ordinary Share.

The Second Placing Programme expired on 1 November 2019, having raised aggregate gross proceeds of £95.0 million and further diversified RECI's ownership and enhanced the liquidity of the Company's Ordinary Shares.

On 4 February 2020, the Company raised gross proceeds of £33.5 million through the issue of 19.9 million new Ordinary Shares at 168 pence per new Ordinary Share. These Ordinary Shares were issued under the Company's general authority to allot and issue equity securities.

15. Financial Instruments and Associated Risks

The Company's investment activities expose it to various types of risk which are associated with the financial instruments and markets in which it invests. The Company's risk management policies seek to minimise the potential adverse effects of these risks on the Company's financial performance.

The financial risks to which the Company is exposed include market price risk, interest rate risk, liquidity risk, currency risk, credit risk, prepayment and re-investment risk. In certain instances as described more fully below, the Company enters into derivative transactions in order to help mitigate particular types of risk.

(a) Market Risk

Market risk is the risk that the fair value and future cash flows of a financial instrument will fluctuate because of changes in market factors. Market risk comprises of interest rate risk, currency risk and other price risk.

The Company's strategy on the management of market risk is driven by the Company's investment objectives detailed in Note 1 which in respect of the Company is to invest primarily in debt secured by commercial or residential properties in the United Kingdom and Western Europe.

The Company's market risk is managed on a daily basis by the Investment Manager in accordance with policies and procedures detailed below.

The sensitivity analysis below is based on a change in one variable while holding all other variables constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated - for example, change in foreign currency rate and change in market values. In addition, as the sensitivity analysis uses historical data as a basis for determining future events, it does not encompass all possible scenarios, particularly those that are of an extreme nature.

(i) Currency Risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Company is exposed to currency risk to the extent that foreign exchange rates fluctuate as it has financial instruments that are denominated in currencies other than GBP.

The Company manages its foreign exchange exposure forward foreign currency exchange contracts. These instruments are detailed in Note 10.

The currency profile of the Company, including derivatives at fair value, at the year end date was as follows:

As at 31 March 2020:

As at 31 March 2019: