Last checked at 
11 Jun 2015 07:00
Real Estate Credit Investments PCC Limited
Financial Results Announcement for the Year-Ended 31 March 2015
RECI1 records net profit of £13.8 million and total return of 12.3% over the year
· Taking dividends into account, the NAV total return per share was 12.3% in the year ended 31 March 2015
· Net profit of £13.8 million includes £5.8 million of fair value gains
· The Company's commercial and residential loan portfolio grew to £90 million drawn (£102 million committed) as at 31 March 2015, which is a 76% increase from the £51 million of drawn loans as at 31 March 2014. This reflects the continuing attractive opportunities RECI is seeing in the loan markets
· Suitable loans originated by Cheyne Capital Management (UK) LLP (the "Manager") continue to feed the investment pipeline; RECI has completed a further loan drawing post year end, and is in documentation on two further investments
· The directors of RECI are pleased to declare a dividend of 2.7p per share in respect of RECI Ordinary Shares for the quarter ended 31 March 2015
[1] RECI refers to the core segment of Real Estate Credit Investments PCC Limited
RECI Key Financial Data | Y/E 31 Mar 2014 | H/E 30 Sept 2014 | Y/E 31 Mar 2015 |
Gross Assets | £157.0m | £159.4m | £162.9m |
Investment Portfolio (excludes acc int) | £133.5m | £136.5m | £146.5m |
Cash | £18.3m | £10.8m | £8.1m |
Operating Income | £13.7m | £7.2m | £15.8m |
Fair Value Gains on Investment Portfolio | £1.0m | £4.3m | £5.7m |
Net / Profit* | £8.1m | £7.5m | £13.8m |
Net Asset Value per RECI Ordinary Share | £1.541 | £1.590 | £1.623 |
* Net profit takes hedging, operating and finance expenses into account.
Over the year RECI's flexible investment strategy continued to deliver a double-digit total shareholder return based on strong NAV growth combined with stable dividend yield
RECI continues to pursue a flexible investment strategy with allocation to both the bond and loan markets, where the portfolio is rebalanced consistently to capture the opportunities in higher-yielding loans, whilst taking advantage of the liquidity and ability to mitigate cash drag offered by the bond markets.
The combined portfolio strategy has led to an increase in NAV per share in the financial year end to £1.623 as at 31 March 2015, up 5.3% from the 31 March 2014 figure of £1.541. Taking dividends into account, the NAV total return per share was 12.3% in the year ended 31 March 2015.
The drawn dirty fair value of the loan portfolio has increased from £51 million at 31 March 2014 to £90 million as at 31 March 2015. During the year, RECI made nine new loans with commitments of £60 million, and also restructured its loans secured on a UK retail park and a German multi-family deal providing further net increases in its commitments of £11 million. Since 31 March 2015 RECI has completed a residential development loan. The Manager's new loan origination pipeline remains strong with some new loans in documentation. RECI is currently working to a maximum level of loan commitments of 75% of GAV.
RECI delivered a positive financial performance in the year ended 31 March 2015 with £13.8 million of profits. Tom Chandos, Chairman of the Company said: "The structural changes in the European real estate debt market in recent years, with a significant reduction in bank lending capacity, have generated the opportunity for RECI to build an exceptional portfolio of real estate debt. RECI has the ability, through the Investment Manager, to structure and underwrite relatively complex and specialised loans, in order to maximise risk-adjusted returns, as competition from other non-bank lenders has progressively increased, as well as there being some rebound in the bank market itself."
On 22 April 2015 the Company announced Bob Cowdell's appointment to the Board of Directors of the Company as an independent Non-Executive Director with effect from 1 June 2015. Mr Cowdell will become independent Non-Executive chairman of the Company with effect from 12 June 2015.
Outlook - Investment of new capital
The Manager's origination team expects to close several loan transactions in the coming months. The Company expects its pipeline to remain strong, given the growth in its loan book over the last 12 months, based on its growing reputation of delivering financial solutions across the capital stack in innovative structures at compelling pricing for both borrowers and investors.
The bond portfolio had a double digit gross return in the financial year ended 31 March 2015 and strong bond portfolio performance is expected to continue into the next financial year. The Manager remains well-placed to participate in new issue bonds at attractive yields, and will continue to rotate out of lower yielding liquid bonds to fund new loan opportunities where the risk/reward dynamics deem it appropriate.
Conference Call & Further Information
10.30 am BST 11 June 2015.
+ 44 (0)20 3059 8125. Please reference Real Estate Credit Investments PCC Limited.
A results presentation will be available on the Company's website:
www.recreditinvest.com/investmentmanager
A webcast of the conference call will also be available on a listen-only basis at:
www.recreditinvest.com/investmentmanager
For further information please contact:
Public Relations: Henrietta Dehn +44 (0)20 3540 6455
Investor Relations: Nicole von Westenholz +44 (0)20 7968 7482
About the Company
Real Estate Credit Investments PCC Limited is a protected cell company (the "Company"), being a cellular company governed by the Companies (Guernsey) Law 2008, comprising a core segment (the "Core" or "RECI") and a cell segment (the "Cell" or "ERII") each of which has its own portfolio of assets, investment objective and sub-section of the Company's Investment Policy.
The RECI Ordinary Shares (ticker RECI LN) reflect the performance of the Company's Core real estate debt strategy. The RECI 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 plc. RECI Ordinary Shares offer investors a levered exposure to a portfolio of real estate credit investments and aim to pay a quarterly dividend. Such leverage is provided by the RECI Preference Shares (ticker RECP) which confer the right to a preferential cumulative dividend (which is an amount in Sterling equal to 8 per cent per annum of the Preference Share Notional Value) payable quarterly on each Payment Date. The RECP Preference Shares are listed on the standard segment of the Official List of the UK Listing Authority and trade on the Main Market of the London Stock Exchange plc.
The real estate debt strategy focuses on secured residential and commercial debt in the UK and Western Europe, seeking to exploit opportunities in publicly traded securities and real estate loans. In making these investments the Company uses the expertise and knowledge of its investment manager, Cheyne Capital Management (UK) LLP. The Company has adopted a long term strategic approach to investing and focuses on identifying value.
The Cell within the Company is known as 'European Residual Income Investments Cell' or 'ERII'. The trading of the Cell Shares on the Specialist Funds Market of the London Stock Exchange (ticker ERII LN) was cancelled at the end of 2014 following the realization of ERII's substantive assets. There is one Residual Income Position remaining as at 31 March 2015. That position has been held at zero value since ERII was created.
This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "forecasts", "estimates", "anticipates", "expects", "intends", "considers", "may", "will" or "should". By their nature, forward-looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. The Company's actual results and performance may differ materially from the impression created by the forward-looking statements and should not be relied upon. The Company undertakes no obligation to publicly update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules). Past performance of the Company cannot be relied on as a guide to future performance . In this section, unless otherwise defined, capitalised terms have the meaning given to them in the Company's prospectus dated 16 October 2013.
Real Estate Credit Investments (RECI)
RECI Balance Sheet Summary as at 31 March 2015*
31/03/2014 (£ million) | 30/09/2014 (£ million) | 31/03/2015 (£ million) | |||
Loan Portfolio | 48.4 | 66.8 | 87.1 | ||
Bond Portfolio | 85.1 | 69.7 | 59.4 | ||
Cash and Cash Equivalents | 18.3 | 10.8 | 8.1 | ||
Derivative Assets | 1.9 | 3.1 | 4.8 | ||
Other Assets (includes accrued interest) | 3.3 | 9.0 | 3.5 | ||
157.0 | 159.4 | 162.9 | |||
Other Liabilities Derivative Financial Liabilities | (2.7) (0.5) | (2.0) - | (2.6) (0.5) | ||
Dividend Payable | - | - | - | ||
Preference Share Liability | (41.6) | (41.6) | (41.7) | ||
(44.8) | (43.6) | (44.8) | |||
Net Assets | 112.2 | 115.8 | 118.1 | ||
Shares outstanding | 72,818,496 | 72,818,496 | 72,818,496 | ||
Net Asset Value per Ordinary Share | 1.541 | 1.590 | 1.623 | ||
\* The values for each column may not sum to the total due to rounding differences | |||||
Loan Portfolio as at 31 March 2015
Significant loan portfolio growth
RECI significantly expanded its real estate loan portfolio to £89.9 million from £51.0 million in the financial year ending 31 March 2015, or excluding accrued interest to £87.1m (up from £48.4m). During the year, the Company made £60.0 million new commitments over nine new deals, taking total loan commitments to £102 million as at 31 March 2015. This has since increased to £98.5 million drawn and £106.0 million committed since the year end.
The average portfolio LTV exposure as at 31 March 2015 was 67.1% and the portfolio continues to provide attractive risk-adjusted returns with a weighted average yield of 13.2% per annum, before any back end fees or profit shares are taken into account.
Loan realisations
A mezzanine loan secured against a boutique hotel at King's Cross was sold for par plus all accrued interest and fees in October 2014. This investment returned an annualised yield in excess of 15%, and was tradable because of the quality of the loan documentation and superior rights it conferred on the mezzanine lender. Another position, previously an investment backed by German multi-family properties which had received an in specie transfer of publicly quoted shares, was successfully exited. This investment returned an annualised yield in excess of 25%.
Loan investments subsequent to year end
A £10.2 million whole loan secured on a 220 unit presold residential scheme in London was committed to in May 2015. The senior element of this loan is being sold down reducing RECI's commitment by 50% and drawn loan balance to £4.0 million which will increase the reduced loan return to in excess of 15%.
Focus on Europe's strongest markets
The Manager's strong position in originating attractive new loans enables the Company's investments to be focussed on Europe's strongest markets - the UK, Germany and also, potentially, Ireland. These markets offer both strong deal flows and, crucially, a lender-friendly legal framework. The Company will continue to avoid lending in less borrower-friendly jurisdictions such as Italy, Spain and Portugal.
Loan Portfolio Summary as at 31 March 2015
Number of loans | 15 |
Drawn Dirty Fair Value (£ millions) Total Loan Commitments (£ millions) | 89.9 101.9 |
Loans as % of GAV (drawn loan balance) | 55.4% |
Loans as a % of GAV (committed loan balance) Weighted average yield of loan portfolio | 62.9% 13.2% |
Weighted average LTV of portfolio | 67.1% |
Weighted average life of portfolio | 2.8 |
Top 10 Investment Portfolio Exposures1 as at 31 March 2015
Market Value £92.0 millionWA Original LTV2 66.3%WA Cheyne Current LTV2 67.3%WA Effective Yield3 10.6%
Type | Class | Collateral Description | |
Residential | Loan | Whole Loan secured against German multi-family properties | |
Commercial | B | Bond secured against government housing portfolio in the UK | |
Commercial | Loan | Mezz loan secured on a fully let retail park in Essex | |
Commercial | Loan | Mezz loan secured against two mixed use estates in Central London | |
Residential | Loan | Subordinate loan secured against retirement villages in London and South-East | |
Commercial | Loan | Mezz loan to assist in the acquisition of major German residential development company | |
Commercial | Loan | Priority ranking shareholder loan against a portfolio of UK logistics and industrial properties | |
Commercial | E | Bond secured by portfolio of commercial loans secured by properties in Germany | |
Commercial | Loan | Mezz loan secured against a branded London hotel development in Shoreditch | |
Commercial | Loan | Portfolio of nursing homes operated by Four Seasons Health Care Group | |
Real estate bond portfolio records solid gains
As at 31 March 2015, the portfolio of 52 bonds was valued at £59.8 million, with a nominal face value of £69.3 million4. The total gross return of the bond portfolio in the year ended 31 March 2015 was 16%. The weighted average effective yield to maturity of the portfolio at market prices as at 31 March 2015 was 6.3%, with a weighted average life of 5.3 years (the weighted average effective yield to maturity of the portfolio as at 31 March 2014, using market prices as at 31 March 2014, was 6.2%, with a weighted average life of 6.8 years). As at 31 March 2015, the average purchase price across the portfolio was 73.2% of par and assets were purchased with a weighted average expected yield to maturity of 10.1% (as at 31 March 2014, the average purchase price across the portfolio was 81% of par and assets were purchased with a weighted average expected yield to maturity of 9.9%). As at 31 May 2015, the portfolio consisted of 44 bonds with a fair value of £52.6 million and a nominal face value of £61.5 million5.
1 Based on fair value of bonds and loans.
2 The weighted average original loan to value has been calculated by reference to the original acquisition value of the relevant collateral as disclosed at the time of issue of the relevant bond or loan. The original LTV is weighted by the market value of the bonds and loans. The weighted average Cheyne current LTV has been calculated by the Investment Manager by reference to the current value ascribed to the collateral by the Investment Manager. In determining these values, the Investment Manager has undertaken its own internal valuation of the underlying collateral. Such valuations have not been subject to independent verification or review. WA LTV figures are calculated with original notional using pool factor and FX rate as at 31 March 2015.
3 WA effective yield is based on the effective yield as at most recent purchase and is based on the Investment Manager's pricing assumptions and actual returns may differ materially from those expressed or implied herein. WA effective yield figures are calculated with original notional using pool factor and FX rate as at 31 March 2015.
4 Cost and nominal shown are calculated with original notional using pool factor and FX rate as at 31 March 2015.
5 Cost and nominal shown are calculated with original notional using pool factor and FX rate as at 30 April 2015.
Bond Portfolio Summary as at 31 March 2015 | |
Number of bonds | 52 |
Dirty Fair Value of Bond Portfolio as at 31 March 2015 (£ millions) Nominal Face Value of Bond Portfolio as at 31 March 2015 (£ millions) | 59.8 69.3 |
Real Estate Bond Portfolio Breakdown
Breakdown of RECI's bond portfolio as at 31 March 2015 and 31 March 2014 by jurisdiction (by reference to underlying assets)
31 March 2014
UK | 69.8% |
Germany | 28.1% |
Italy | 1.3% |
Holland | 0.4% |
Ireland | 0.3% |
Portugal | 0.1% |
Total (£mm) | £85.8mm |
31 March 2015
UK | 72.8% |
Germany | 25.7% |
France | 0.7% |
Holland | 0.6% |
Ireland | 0.2% |
Total (£mm) | £59.8mm |
Values may not sum to 100% due to rounding differences
Monthly Bond Performance Summary as at 31 March 2015
November | December | January | February | March | |
% Fair Value Change | 0.30% | -0.48% | 5.74% | 0.20% | 0.35% |
WA Purchase Price | - | - | - | 1.00 | - |
WA Purchase Yield | - | - | - | 7.39% | - |
Asset Class Distribution of Bond Portfolio by Fair Value as at 31 March 2015
Bond Class | UK CMBS | UK RMBS | Euro CMBS | Euro RMBS | Total | Total as at 31 March 2014 |
A | 9.0% | 1.1% | 0.0% | 0.0% | 10.4% | 20.7% |
B | 41.4% | 0.0% | 3.4% | 0.0% | 44.8% | 33.9% |
C | 1.9% | 0.3% | 4.5% | 0.7% | 7.4% | 12.8% |
D | 2.4% | 1.7% | 7.4% | 0.2% | 11.7% | 11.4% |
E and Below | 6.3% | 8.4% | 11.3% | 0.0% | 26.1% | 21.2% |
Total | 61.0% | 11.5% | 26.6% | 0.9% | 100.0% | 100% |
Total as at 31 March 2014 | 44.5% | 26.0% | 29.1% | 0.4% |
Values may not sum to 100% due to rounding differences