Real Est.cred Regulatory News (RECI)

This announcement contains inside information.

Date and time of release: 29 November 2019, 7:00 am

Real Estate Credit Investments Limited (the "Company")

Interim Report for RECI LN (Ordinary Shares)

The Board of Directors of the Company announces the release of the Company's Condensed Interim Report for the six months ended 30 September 2019.

View the Interim Report.

http://recreditinvest.com/PDFs/2019/11/Interim-report-29112019.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

Condensed Unaudited Interim Financial Report

For the six months ended 30 September 2019 (unaudited)

Real Estate Credit Investments originates and invests in credit collateralised by commercial real estate assets in Europe. Its focus is on capital preservation and the delivery of a stable, attractive quarterly dividend.

• Externally managed by Cheyne Capital's established real estate platform which is a market leader in the origination and management of European real estate credit

Highlights

As at 30 September 2019

TOTAL ASSETS

£394.0m

(31 March 2019: £355.2m)

NET ASSETS

£329.4m

(31 March 2019: £253.2m)

NAV PER SHARE

£1.65

(31 March 2019: £1.65)

Total net profit

£11.6m

Half year ended 30 September 2019 (H1 2018: £8.5m)

This condensed unaudited interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report should be read in conjunction with the annual report and audited financial statements for the year ended 31 March 2019 and any public announcements made by Real Estate Credit Investments Limited (the 'Company') during the interim reporting period.

The condensed unaudited interim financial statements of the Company were approved by the Directors on 28 November 2019.

The condensed unaudited interim financial statements have been reviewed by Deloitte LLP but not audited. 

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 properties in the United Kingdom and Western Europe.

The Company's aim is to deliver a stable quarterly dividend with minimal 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, presents a diversified book of 50 positions in real estate bonds and loans, was valued at £334.0 million as at 30 September 2019, up from £302.5 million as at 31 March 2019. The portfolio had a weighted average levered yield of 9.1% and an average loan-to-value of 64.2% as at 30 September 2019.

Portfolio by Geography (Funded Fair Value)

Bond Portfolio Summary

As at 30 September 2019

Loan Portfolio Summary

As at 30 September 2019

NAV and Share Price

As at 30 September 2019

Total NAV Return

YTD = Calendar year, 1 yr = 2018, 3 yrs = 2016-2018, 5 yrs = 2014-2018

Chairman's Statement

"Your Company maintained positive momentum by continuing to identify and invest in attractive opportunities and grow by further share issuance, to achieve the current market capitalisation of £350 million."

Bob Cowdell,

Chairman

I am pleased to report that during the financial half year ended 30 September 2019, despite the continuing market uncertainty caused by Brexit and the political and economic concerns at home and abroad, your Company maintained positive momentum by continuing to identify and invest in attractive opportunities and grow by further share issuance, to achieve the current market capitalisation of £350 million.

Your Board and Investment Manager remain disciplined and focused on seeking to deliver a stable NAV while providing an attractive and sustainable dividend stream for our Shareholders.

Financial Performance

RECI reported total net profit for the half year ended 30 September 2019 of £11.6 million on half year end total assets of £394.0 million; a 35.6% increase from £8.5 million in the half year ended 30 September 2018 on half year end total assets of £286.8 million.

The NAV as at 30 September 2019 was £1.65 per Ordinary Share, maintaining the £1.65 per Ordinary Share as at 31 March 2019. The 30 September 2019 NAV reflects the payment of 6p per Ordinary Share during the half year in respect of the fourth interim dividend for the year ended 31 March 2019 and the first interim dividend of the current financial year; returning £12.0 million to Ordinary Shareholders and providing an annualised total return of 7.3% for the half year.

As at close of trading on 30 September 2019, the Company's Ordinary Shares stood at a premium of 1.1% to NAV, having traded at an average premium to NAV of 2.1% during the half year.

During the half year, the Company funded £56.8 million in loans and purchased £63.1 million of new bonds for the portfolio. RECI also received cash repayments and interest of £93.0 million in this period.

A second interim dividend of 3p per Ordinary Share was declared on 28 November 2019.

Placing Programme and Issuance

Pursuant to the placing programme launched on 2 November 2018 ('Second Placing Programme'), the Company announced on 24 May 2019, that it had raised gross proceeds of £78 million through the issue of 45,882,353 new Ordinary Shares.

On 1 October 2019, the Company announced that it had raised gross proceeds of £17 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 million and further diversified RECI's ownership and enhanced the liquidity of the Company's Ordinary Shares.

Board Update

In accordance with Board succession planning, on 1 October 2019, John Hallam, a Non-executive Director since March 2016, became the Senior Independent Director, succeeding Graham Harrison, who remains a member of the Board.

Outlook

As I write, the uncertainty caused by Brexit and an imminent general election appear set to continue to overshadow UK financial markets and the real estate sector. Nevertheless, RECI is well positioned to take advantage of potential market volatility and selectively invest in opportunities in the UK and Europe which should continue to deliver attractive and stable returns for our Shareholders.

Bob Cowdell

Chairman

28 November 2019

Financial Highlights

* Financing comprised of short-term repo financing.

* 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 material 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.

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.

Further Information

Monthly fact sheets as well as quarterly update presentations are available on the Company's website: www.recreditinvest.com

Investment Manager's Report

Another year of strong risk-adjusted returns

"RECI benefits from access to Cheyne Capital's established origination and investment capabilities in both private debt (loans) and listed debt (bonds) across Europe through primary market transactions."

Ravi Stickney,

Portfolio Manager

Heading into the second half of 2019, we can add growing concerns on global economic slowdown (or indeed recession) and the high level of corporate debt to the list of macroeconomic considerations for investors.

A large amount of global capital has taken flight into government and corporate bonds. The demand for which has driven the phenomenon of a multi-trillion dollar market in negative yielding bonds. The concept of paying a corporate or sovereign to buy bonds from them is perhaps a consequence of the persistent inability for markets to shake off economic concerns and hence the low rates environment.

Persistent low rates have driven the search for yield, with corporate bond issuers being the main beneficiaries. New issues are priced at increasingly high leverage points, on unsustainable business plan assumptions, tightly priced and offering scant covenant and security protection for investors.

The Company, as advised by Cheyne, continues to believe that a defensive credit thesis (with low leverage, set on a strong set of real enforceable security and covenants) and which offers an attractive yield will remain RECI's focus.

This thesis continues to hold in the highly inefficient and dislocated European real estate debt markets. The primary causes of the dislocation (generating attractive returns with superior security and low credit risk), namely the inability of banks to lend to this asset class in Europe and very high barriers to entry, hold true today, as they have since 2008.

The first half year has been marked by:

• The successful raise of additional capital, growing the balance sheet from £253.2 million as at 31 March to £329.4 million as at the half year end, and by a further £17.0 million post the half year end;

• Dividends continue to be covered by total earnings, which facilitates the Company's intention to provide investors with a stable quarterly return;

• A robust pipeline of new investments, resulting from Cheyne Capital's significantly larger footprint and positioning in European real estate lending.

Given the heightened state of uncertainty today (mainly from Brexit and global recessionary concerns), the Company will likely hold a larger cash position than normal, to position it to take advantage of potential investment opportunities. Through the course of the prior economic crises (2008, the European sovereign crisis in 2011 and the Brexit vote in 2016), the Company had been well served by having built up a cash position to enable it to profit from any disruption in prices for the strongest credits.

The current climate provides for a similar thinking.

State of the Markets

European Real Estate and Real Estate Debt Markets

Following a strong start to 2019, the first half of RECI's financial year has seen several negative macroeconomic influences, including US trade tensions, a leadership election for the UK's Conservative Party, continued Brexit uncertainty and southern European elections which are beginning to cause some concern in these markets. The UK and French markets remain lagging, in the case of the UK this is likely to continue for some time whilst Brexit moves from the current phase into the transition phase (or indeed a post 'hard' Brexit phase).

ABS issuance increased significantly in Q2 2019 compared with Q1. In particular, there were a significant number of new issuances in June, resulting in a quieter secondary market. UK spreads remained relatively stable, indicating that investors are continuing to participate in UK deals despite Brexit uncertainty. Whilst primary and secondary ABS markets were relatively busy at the start of July, they quietened in late July and August. Despite a volatile macro environment, the impact on the ABS market was muted due to the drop in trading activity in both the primary and secondary markets over the summer. Despite slightly more activity in September, activity remains muted by macro headlines dominating broader markets as we approach the Brexit deadline of 31 January 2020.

Brexit

Over the last three years the implications of Brexit on UK real estate prices have been accepted and priced by buyers and sellers. The UK real estate market is, and has been for some time now, a 'stressed' market. The borrowers we work with have pricing assumptions that assume significant downside scenarios and high yield expectations. The real estate lending market in the UK has been impacted by Brexit in that foreign lenders (US and European) have largely withdrawn from this market for most transitional/value-add/development lending. Local banks are still active, albeit only on core/core+ income loans at very constrained LTV levels. Core income loans are assets that benefit from having long term income while core+ income loans are assets that benefit from having strong current income, but do require some measure of asset management to optimise its income profile and term. As such, Cheyne has seen its origination volumes substantially increase, especially for senior loans in the value-add/transitional space, closing on over £700m of new commitments, across our managed funds, in the first nine months of this calendar year. We have also seen our senior loan margins improve by 50-100 bps and have moved substantially to a lower risk profile in the UK as a result of Brexit. We are originating senior loans at LTVs in the region of 60%-70%, capable of withstanding further significant shifts in values in the event of a 'hard' Brexit. The pipeline for RECI reflects this risk thinking i.e. to originate mainly senior loans with low LTV points, whilst maintaining the gross returns we charge our borrowers.

WeWork

At the time of writing, the issues effecting WeWork, the large co-working office provider, have received increased publicity.

The Company's exposure to WeWork leases as at the 30 September was small and mitigated heavily by the 'mixed-use' nature of the estates securing those loans (i.e. the value of the other non-WeWork parts of the collateral significantly mitigates the residual exposure to WeWork). Following the full repayment of a loan in October 2019, only one remaining loan made by the Company has any connection to WeWork. Our analysis indicates that even a worst case scenario for WeWork would not impact on the borrower's ability to repay.

The Opportunity for RECI

RECI benefits from access to Cheyne Capital's established origination and investment capabilities in both private debt (loans) and listed debt (bonds) across Europe.

The origination volumes Cheyne Capital saw last year, which were significantly ahead of any previous year, have continued at a similar rate this year. This is mainly due to the further retrenchment of banks, the increasing volume of real estate deal flows, the ability of Cheyne Capital's platform to continually present innovative and timely solutions to the real estate community and the growth of its origination capabilities into France in particular (following on from the established origination capabilities in the UK and Germany).

Cheyne Capital originates all of its private debt (in contrast to taking participations in externally originated deals), thus capturing superior economics and retaining control over the deal structure. It is also a prominent investor in the listed bond markets for real estate (e.g. core and core+/CMBS).

Given this, the current investment focus is on:

• Senior lending against value-add and development assets; and

• Senior lending against core and core+ income assets across Europe.

Placement Programme and Deployment

RECI has continued to build on its growth in the half year. In May 2019, in the first placing under the placing programme established last year, RECI raised gross proceeds of £78 million increasing net assets to circa £329 million. A further £17 million was raised post the half year end.

The proceeds have been used to make new real estate loan commitments and bond purchases, whilst also reducing net leverage to ensure RECI is defensively positioned (with significant 'dry powder') ahead of potential market volatility. New commitments include:

• April: RECI invested £15 million in a new UK loan deal, backed by a portfolio of high quality hotels in central London;

• May: RECI invested £8.8 million in two new CMBS bonds, backed by a mixed portfolio of Italian commercial real estate let to rated tenants;

• June: Committed £8.7 million for the acquisition and refurbishment of a mixed use office/retail building in Paris' central business district;

• July: Committed £10.5 million to a whole loan for the development of an office building located in Clichy (Paris suburbs) in France; and

• August: Committed a further £25 million in a senior loan investment to support an institutional grade sponsor with the development of a 369 key aparthotel in central Lisbon.

Dividend Stability

The weighted average levered gross yield of the investment portfolio as at 30 September 2019 was 9.1% (30 September 2018: 9.2%), which after taking into account fair value adjustments, returned a total NAV per share including dividends of 3.7% in the half year to 30 September 2019 (8.0% for the 12 months to 30 September 2019), showing dividends continue to be fully covered by total earnings in the period.

Portfolio Composition

RECI's investment portfolio, a diversified book of 50 positions in real estate bonds and loans, was valued at £334.0 million as at 30 September 2019, up from £302.5 million as at 31 March 2019. The portfolio had an average loan to value of 64.2% as at 30 September 2019.

Portfolio by Geography (Funded Fair Value*)

Real Estate Loan Portfolio

The fair value of the drawn loan portfolio, excluding accrued interest, had increased from £139.4 million as at 31 March 2019 to £168.1 million as at 30 September 2019. During the half year, the Company committed £59.3 million to four deals, taking total loan commitments to £222.3 million as at 30 September 2019. The average loan portfolio LTV exposure as at 30 September 2019 was 66.6%, up slightly from 65.9% as at 31 March 2019. The portfolio continues to provide attractive risk-adjusted returns with a weighted average yield of 9.6% per annum, before any back end fees, profit share or equity element contributions are taken into account.

Loan Portfolio Summary

As at 30 September 2019

Real Estate Bond Portfolio

As at 30 September 2019, the bond portfolio of 33 bonds was valued at £165.9 million, compared to 37 bonds valued at £163.1 million as at 31 March 2019. The recorded interest income on the bonds in the half year ended 30 September 2019 was £4.9 million compared to £6.9 million in the year ended 31 March 2019.

The bond portfolio, valued at £165.9 million has the potential for strong defensive returns:

• The portfolio is characterised by a short duration (2.3 years) and high coupon, which is defensive to interest rate rise and provides resilience in turbulent markets;

• The weighted average unlevered yield of the bond portfolio as at 30 September 2019 was 6.0% (31 March 2019: 5.8%), the weighted average levered yield of the bond portfolio as at 30 September 2019 was 8.3% (31 March 2019: 12.3%); and

• The average leverage of the portfolio over the half year was 22.5%, 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 the Company's bond portfolio with a fair value of £165.9 million (31 March 2019: £163.1 million) and a weighted average cost as at 30 September 2019 of 2.1% (31 March 2019: 1.8%) per annum. The average period to maturity of the repurchase arrangements is two months.

Bond Portfolio Summary

As at 30 September 2019

Outlook

The current environment continues to present an extremely challenging time for global capital markets. Most asset classes continue to suffer negative returns as key macroeconomic concerns remain. Cheyne remains cautious in its investment approach, to reflect these conditions, and continues its focus on senior loans and bonds.

Cheyne Capital Management (UK) LLP

28 November 2019

Top 10 Positions 1

* Balance Sheet value of amounts drawn by the borrowers.

1 Based on total commitment of bonds and loans.

2 The Weighted Average Loan to Value has been calculated by reference to the value of the relevant collateral of the relevant bond or loan at the time of thelast valuation.

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 30 September 2019,

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

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

(a) the condensed unaudited interim financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report (contained in the Chairman's Statement and Investment Manager's Report) includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and a description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report (contained in the Chairman's Statement and Investment Manager's Report) includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

Principal Risks and Uncertainties

The principal risks and uncertainties faced at the time of the last annual report remain valid for the purposes of the interim management report. The detailed explanation of the principal risks and uncertainties can be found in the Strategic Report section under the Risk Management section of the 31 March 2019 annual report.

By order of the Board

Bob Cowdell

Director

Susie Farnon

Director

28 November 2019

Independent Review Report

We have been engaged by Real Estate Credit Investments Limited ('the Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2019 which comprises the Condensed Unaudited Statement of Comprehensive Income, the Condensed Unaudited Statement of Financial Position, the Condensed Unaudited Statement of Changes in Equity and Condensed Unaudited Statement of Cash Flows and related notes 1 to 20. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 2, the annual financial statements of the Company are prepared in accordance with IFRSs as issued by the International Accounting Standards Board. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of

persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as issued by the International Accounting Standards Board and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

Guernsey, Channel Islands

28 November 2019

Condensed Unaudited Statement of Comprehensive Income

For the period from 1 April 2019 to 30 September 2019

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

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

Condensed Unaudited Statement ofFinancial Position

As at 30 September 2019

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

Signed on behalf of the Board of Directors by:

Bob Cowdell

Director

Susie Farnon

Director

28 November 2019

Condensed Unaudited Statement of Changesin Equity

For the period from 1 April 2019 to 30 September 2019

For the period from 1 April 2018 to 30 September 2018

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

Condensed Unaudited Statement of Cash Flows

For the period from 1 April 2019 to 30 September 2019

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

Notes to the Condensed Unaudited Financial Statements

For the six months ended 30 September 2019

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 plc. 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 16). 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 condensed unaudited financial statements for the period ended 30 September 2019 have been prepared in accordance with International Accounting Standard ('IAS') 34 Interim Financial Reporting ('IAS 34') as issued by the International Accounting Standards Board ('IASB'). With the exception of those described below, the same accounting policies, presentation and methods of computation have been followed in these condensed unaudited financial statements as were applied in the preparation of the Company's audited financial statements for the year ended 31 March 2019.

The condensed unaudited financial statements do not contain all the information and disclosures required in a full set of annual financial statements and should be read in conjunction with the audited financial statements of the Company for the year ended 31 March 2019, which were prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the IASB.

The comparative information for the year ended 31 March 2019 does not constitute Statutory Accounts as defined by Guernsey Law.A copy of the Statutory Accounts for that year has been delivered to the Shareholders and is available on the Company's website: www.recreditinvest.com.

The operations of the Company are not subject to seasonal fluctuations.

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. 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; (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

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

Basis of preparation

The condensed unaudited 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 condensed unaudited financial statements as, after due consideration, they consider that the Company has adequate resources to continue in operational existence for the foreseeable future.

Even though the Company is currently in a net current liability position, the Directors consider that the cash resources available as at 30 September 2019 of £46.8 million, together with the cash held at the broker, the liquidity of the bond portfolio and the financing available through activities such as repurchase agreements as described in Note 8 are sufficient to cover normal operational costs and current liabilities, including the proposed dividend, as they fall due for the foreseeable future.

3. Net Gains on Financial Assets and Liabilities at Fair Value through Profit or Loss

4. Operating Expenses

5. Interest Income and Finance Costs

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

6. Other Assets

7. 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.

8. Financing Agreements

The Company enters into repurchase agreements with several banks to provide leverage. This financing is collateralised against certain of the Company's bond portfolio assets with a fair value totalling £81.0 million (31 March 2019: £128.3 million) and a weighted average cost of 2.1% (31 March 2019: 1.80%) per annum. The average period to maturity of the repurchase arrangements is 2 months.

This short-term financing is shown as a current liability in the Condensed Unaudited 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 £39.9 million (31 March 2019: £21.8 million) is shown as a financing activity in the Condensed Unaudited Statement of Cash Flows.

9. Dividends

The total dividends paid during the financial period ended 30 September 2019 amounted to 6.0p per share (30 September 2018: 6.0p).

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 period from 1 April 2019 to 30 September 2019.

10. Earnings per Ordinary Share

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

11. Share Capital

The issued share capital of the Company consists of Ordinary Shares and its capital as at the period 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 30 September 2019, the Company had capital of £329.4 million (31 March 2019: £253.2 million).

Authorised Share Capital

Ordinary Shares issued and fully paid

Gross proceeds of approximately £78.0 million (£76.6 million net proceeds) were raised during the period ended 30 September 2019 (31 March 2019: £23.2 million gross and £23.0 million net proceeds). Expenses amounting to £1.4 million (31 March 2019: £0.2 million) were recognised as incurred and were treated as a reduction to Reserves in the Condensed Unaudited 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 Condensed Unaudited Statement of Changes in Equity.

On 29 November 2018, the Company's Shareholders approved a Placing Programme for the issue of up to 100.0 million new Ordinary Shares. On May 24, 2019, the Company announced that 45.9 million shares had been issued under this programme raising gross proceeds of £78.0 million.

On 1 October 2019, the Company announced that it had raised gross proceeds of £17 million through the issue of a further 10.2 million new Ordinary Shares.

The Second Placing Programme expired on 1 November 2019, having raised aggregate gross proceeds of £95 million and further diversified RECI's ownership and enhanced the liquidity of the Company's Ordinary Shares.

12. Valuation of Financial Instruments

IFRS 13 'Fair Value Measurement' requires disclosures surrounding the level in the fair value hierarchy in which fair value measurement inputs are categorised for assets and liabilities measured in the Condensed Unaudited Statement of Financial Position. The determination of the fair value for financial assets and financial liabilities for which there is no observable market price requires the use of valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective.

The Company categorises investments using the following hierarchy as defined by IFRS 13:

• Level 1 - Quoted market prices in an active market for an identical instrument.

• Level 2 - Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

• Level 3 - Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The following tables analyse the fair value hierarchy of the Company's financial assets and liabilities measured at fair value at the period/year end date:

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The fair value of forward contracts is the difference between the contracts price and reported market prices of the underlying contract variables. These are included in Level 2 of the fair value hierarchy.

The fair values of investments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include investment-grade corporate bonds (Real Estate Credit Instruments), repurchase agreements and over-the-counter derivatives

As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. In cases where material discounts are applied, the positions will be valued as Level 3.

The Company makes loans into structures to gain exposure to real estate secured debt in the UK and Western Europe. These loans are not traded in an active market and there are no independent quotes available for these loans. Such holdings are classified as Level 3 investments. The fair value of these loans are linked directly to the value of the real estate loans, the underlying structures invests in, which are determined based on modelled expected cash flows (drawdown principal and interest repayments, and maturity dates) with effective yields ranging from 5.1% to 13.8% (31 March 2019: 7.6% to 26.0%) (the unobservable input).

Fair value of the real estate loans is adjusted for changes in the credit quality of both the borrower and the underlying property collateral, and changes in the market rate on similar instruments. 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 revaluation of the underlying property to check against loan-to-value covenants. All the fees associated with the investments (arrangement fees, exit fees, etc.) are paid directly to the Company and not paid to the Manager.

The majority of the Company's investments in loans are made though a Luxembourg based entity, Stornoway Finance SARL via loan note instruments. As and when market information, such as market prices from recognised financial data providers becomes available, the Company will assess the impact on its portfolio of loans and whether there should be any transfers between levels in the fair value hierarchy. There were no transfers between levels during the period ended 30 September 2019.

As at 30 September 2019, the Investment Manager was not aware of any significant movement in the market rates, any indications of impairment, significant credit events or significant negative performance of the underlying property structures, which might affect the fair value of the loans and bonds. Whilst no defaults in the underlying investment are expected, a 1% decrease in the discount rate would increase the fair value by £5.2 million (31 March 2019: increase £7.1 million) and increase net profit by an equal amount; an equal change in the opposite direction would decrease the equity of the loan and bond portfolio within the Company and decrease net profit by an equal amount.

Level 3 Reconciliation

The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the financial period:

* During the year ended 31 March 2019, following a review of the levels for some of the bonds, they have been moved from Level 3 to Level 2.

13. Derivative Contracts

The Company has credit exposure in relation to its derivative contracts. The Company was invested in derivative contracts with the Bank of New York Mellon and Goldman Sachs International as at 30 September 2019 and 31 March 2019, respectively with the following credit quality:

Transactions involving derivative instruments are usually with counterparties with whom the Company has signed master netting agreements. Master netting agreements provide for the net settlement of contracts with the same counterparty in the event of default. The impact of the master netting agreements is to reduce credit risk from the amounts shown as derivative financial assets on the Condensed Unaudited Statement of Financial Position. The credit risk associated with derivative financial assets subject to a master netting arrangement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realised.

The exposure to credit risk reduced by master netting arrangements may change significantly within a short period of time as a result of transactions subject to the arrangement. The corresponding assets and liabilities have not been offset on the Condensed Unaudited Statement of Financial Position.

Below are the derivative assets and liabilities by counterparty as at 30 September 2019 and 31 March 2019.

Forward Foreign Exchange Contracts

The following forward foreign exchange contracts were open as at 30 September 2019:

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

14. Segmental Reporting

The Company has adopted IFRS 8 'Operating Segments'. The standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes.

Whilst the Investment Manager may make the investment decisions on a day-to-day basis regarding the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions have to be approved by the Board, even though they may be proposed by the Investment Manager. The Board retains full responsibility as to the major allocation decisions made on an ongoing basis and is therefore considered the 'Chief Operating Decision Maker' under IFRS 8.

The Company invests in Real Estate Credit Investments. The Real Estate Credit Investments may take different forms but will be likely to be: (i) secured real estate loans; and (ii) debentures or any other form of debt instrument, securitised tranches of secured real estate related debt securities, for example, RMBS and CMBS (together MBS). 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.

The Company has two reportable segments, being the Loan Portfolio and the Bond Portfolio.

For each of the segments, the Board of Directors reviews internal management reports prepared by the Investment Manager on a quarterly basis. The Investment Manager has managed each of the Loan Portfolio and the Bond portfolio separately, thus two reportable segments are displayed in the condensed unaudited financial statements.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit/(loss), as included in the internal management reports that are reviewed by the Board of Directors. Segment profit/(loss) is used to measure performance as management believes that such information is the most relevant in evaluating the results.

Information regarding the basis of geographical segments is presented in the Investment Manager's Reports and is based on the countries of the underlying collateral.

All segment revenues are from external sources. There are no inter-segment transactions between the reportable segments during the period. Certain income and expenditure is not considered part of the performance of either segment. This includes gains/(losses) on net foreign exchange and derivative instruments, expenses and interest on borrowings.

The following table provides a reconciliation between net reportable income and operating profits.

Certain assets and liabilities are not considered to be attributable to either segment, these include, other receivables and prepayments, cash and cash equivalents and derivative financial assets.

The following table provides a reconciliation between net total segment assets and total assets.

The following is a summary of the movements in the Company's investments analysed by the Loan and Bond Portfolios for the period ended 30 September 2019:

The following is a summary of the movements in the Company's investments analysed by the Loan and Bond Portfolios for the year ended 31 March 2019:

* Excludes effective interest adjustment of £0.2 million relating to the Bond Portfolio for the year ended 31 March 2019, which has been included in the Interest income in the Condensed Unaudited Statement of Comprehensive Income.

15. Cash Collateral

The Company manages some of its financial risks through the use of financial derivative instruments which are subject to collateral requirements. As at 30 September 2019, a total of £1.5 million was due to various financial institutions (31 March 2019: £1.3 million was due from various financial institutions) under the terms of the relevant arrangements. The cash held by brokers is restricted and is shown as Cash collateral at broker on the Condensed Unaudited Statement of Financial Position.

16. Material Agreements and Related Party Transactions

Loan Investments

The Company has made, and will continue to make, certain loan investments through a Luxembourg based entity, Stornoway Finance SARL, via Loan Note Instruments. This entity has separate compartments for each loan deal which effectively ring fences each loan deal. Other funds managed by the Investment Manager may invest pari passu in these compartments.

Investment Manager

The Company is party to an Investment Management Agreement with the Investment Manager, dated 22 February 2017, pursuant to which the Company has appointed the Investment Manager to manage its assets on a day-to-day basis in accordance with its investment objectives and policies, subject to the overall supervision and direction of the Board of Directors.

The Company pays the Investment Manager a Management Fee and a Performance Fee.

Management Fee

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive from the Company an annual Management Fee of 1.25% on an adjusted NAV, being the NAV of the Ordinary Shares.

During the period ended 30 September 2019, the Management Fee totalled £1.9 million (30 September 2018: £1.4 million), of which £0.3 million (31 March 2019: £0.5 million) was outstanding at the period end.

Performance Fee

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive from the Company a performance fee calculated as ((A-B) x 20% x C) where:

A = the Adjusted Performance NAV per share, as defined in the Prospectus.

B = the NAV per Ordinary Share as at the first Business Day of the Performance Period increased by a simple annual rate of return of 7% over the Performance Period or, if no Performance Fee was payable in the previous Performance Period, the NAV per Ordinary Share on the first Business Day of the Performance Period immediately following the last Performance Period in which a Performance Fee was paid (the 'Starting Date') increased by a simple annual rate of return of 7 per cent over the period since the Starting Date ('Hurdle Assets').

C = the time weighted average number of Ordinary Shares in issue in the period since the Starting Date.

On 1 October 2017, the Company entered a new Performance Period which is expected to run until the end date of the quarter in which the second continuation resolution, to be proposed at the AGM to be held in 2021, is passed. With the commencement of a new Performance Period, the NAV on which the Hurdle Assets will be determined in accordance with the above formula was reset to the NAV per Ordinary Share on 2 October 2017 (being the Starting Date of the new Performance Period).

During the period ended 30 September 2019, the Performance Fee totalled £0.2 million (30 September 2018: £0.3 million) and the related aggregate Performance Fee payable at the period end date amounted to £1.1 million (31 March 2019: £1.0 million).

Administration Fee

Under the terms of the Administration Agreement, the Administrator is entitled to receive from the Company a monthly administration fee calculated as a percentage based on the prior month gross assets of the Company adjusted for current month subscriptions and redemptions of the Company at the relevant basis points per annum rate, subject always to a minimum monthly fee £10,000.

During the period ended 30 September 2019, the administration fee totalled £117,313 (30 September 2018: £95,863), of which £19,651 (31 March 2019: £32,281) was outstanding at the period end.

Depositary Fee

Under the terms of the Depositary Agreement, the Depositary is entitled to receive from the Company an annual Depositary fee of 0.02% (31 March 2019: 0.02%) of the NAV of the Company. During the period ended 30 September 2019, the Depositary fee totalled £35,152 (30 September 2018: £36,015). The Company owed £6,700 to the Depositary at the period end date (31 March 2019: £2,343).

17. Contingencies and Commitments

As at 30 September 2019, the Company had committed £222.3 million into loans through compartments of Stornoway Finance SARL.,of which £168.1 million had been funded (31 March 2019: £184.7 million commitment of which £139.4 million was funded).

18. Subsequent Events

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

These Ordinary Shares were issued under the Company's Second Placing 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 million and further diversified RECI's ownership and enhanced the liquidity of the Company's Ordinary Shares.

The Directors declared an interim dividend of 3.0 pence per Ordinary Share on 28 November 2019.

There have been no other significant events affecting the Company since the period end date that require amendment to or disclosure in the condensed unaudited financial statements.

19. Foreign Exchange Rates Applied to Combined Totals Used in the Preparation of the Condensed Unaudited Financial Statements

The following foreign exchange rates relative to the GBP were used as at the period/year end date:

20. Approval of the Condensed Unaudited Financial Statements

The condensed unaudited financial statements of the Company were approved by the Directors on 28 November 2019.

Directors and Advisers

Directors

Bob Cowdell (Chairman)

Sally-Ann ('Susie') Farnon

John Hallam

Graham Harrison

Secretary of the Company

Aztec Financial Services (Guernsey) Limited

PO Box 656

East Wing

Trafalgar Court

Les Banques, St. Peter Port

Guernsey, GY1 3PP

Corporate Broker

Liberum Capital Limited

Ropemaker Place, Level 12

25 Ropemaker Street

London, EC2Y 9LY

Registrar

Link Market Services (Guernsey) Limited

Mount Crevelt House

Bulwer Avenue

St. Sampson

Guernsey, GY2 4LH

Depositary

The Bank of New York Mellon (International) Limited

One Canada Square

London, E14 5AL

Registered Office

PO Box 656

East Wing

Trafalgar Court

Les Banques, St. Peter Port

Guernsey, GY1 3PP

Alternative Investment Fund Manager

Cheyne Capital Management (UK) LLP ('Cheyne' or 'Cheyne Capital')

Stornoway House

13 Cleveland Row

London, SW1A 1DH

Independent Auditor

Deloitte LLP

Regency Court

Glategny Esplanade

St. Peter Port

Guernsey, GY1 3HW

UK Transfer Agent

Link Market Services

The Registry

34 Beckenham Road

Beckenham

Kent, BR3 4TU

Administrator

Citco Fund Services (Guernsey) Limited

Arnold House

St. Julian's Avenue

St. Peter Port

Guernsey, GY1 3RD

Sub-Administrator

Citco Fund Services (Ireland) Limited

Custom House Plaza, Block 6

International Financial Services Centre

Ireland, Dublin 1

Real Estate Credit Investments Limited

East Wing

Trafalgar Court

Les Banques

St. Peter Port

Guernsey GY1 3PP

www.recreditinvest.com