Last checked at 
28 Nov 2014 07:00
Real Estate Credit Investments PCC Limited
Financial Results Announcement for the Half Year-Ended 30 September 2014
RECI1 records half year net profit of £7.5 million
· Net profits of £7.5 million include £4.3 million of fair value gains on the investment portfolio.
· Increase in NAV per share of 3.2% over the half year, to £1.590 as at 30 September 2014
· The Company's commercial and residential funded loan portfolio grew to £70.0 million (£92.6 million committed) as at 30 September 2014, which is a 37% increase from the £51.0 million funded loan portfolio held at 31 March 2014, reflecting the more attractive opportunity set RECI is seeing in the loan markets
· Suitable loans originated by Cheyne Capital continue to feed the investment pipeline; RECI has committed to make a further loan post half year end
· The directors of RECI intend to declare a dividend of 2.7p per share in respect of RECI Ordinary Shares for the quarter ended 30 September 2014
RECI Key Financial Data | H/E 30 Sept 2013 | Y/E 31 Mar 2014 | H/E 30 Sept 2014 |
Gross Assets | £108.5m | £157.0m | £159.4m |
Investment Portfolio | £99.2m | £133.5m | £136.5m |
Cash | £5.4m | £18.3m | £10.8m |
Operating Income | £6.8m | £13.7m | £7.2m |
Fair Value (Losses) / Gains on Investment Portfolio | £0.5m | £1.0m | £4.3m |
Net / Profit* | £3.9m | £8.1m | £7.5m |
Net Asset Value per RECI Ordinary Share | £1.556 | £1.541 | £1.590 |
* Net profit takes hedging, operating and finance expenses into account.
Over the half year RECI's investment strategy continued to deliver on NAV growth and increased dividend yield
The drawn Loan Portfolio has increased from £51 million at 31 March 2014 to £70 million as at 30 September 2014. During the half year, the Company made six new loans with commitments of £31 million, and also restructured its loans to a UK retail park and a German multifamily deal providing a further net increase in its commitments of £11 million. Since 30 September 2014 RECI has completed a further loan, with two loans being repaid during the same period. Cheyne Capital's (the "Manager") new loan origination pipeline remains strong with £32 million new loans in documentation. The Company is currently working to a maximum level of loan commitments of 75% of GAV.
The Company recorded solid gains on the bond portfolio.
The overall portfolio strategy led to an increase in NAV per share in the financial half year end to £1.590 as at 30 September 2014, up from £1.541 at 31 March 2014.
RECI delivered a positive financial performance in the half year ended 30 September 2014 with £7.5 million of profits. Tom Chandos, Chairman of RECI said: "The Board is confident that the loan portfolio can show further growth in the second half of the financial year, net of repayments of existing loans, thereby enhancing the expected total return from the portfolio."
The Company has previously announced that, following the changes to the Board last year, it would continue the process of rotating long-serving members of the Board. Tom Chandos, Chairman, will therefore not seek re-election at the next AGM and the Board will now be undertaking a thorough search for his successor.
1RECI refers to the core segment of Real Estate Credit Investments PCC Limited
Conference Call & Further Information
10.30 am BST Friday 28 November 2014.
+ 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 preference 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 currently 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' (ticker ERII LN). The Cell Shares trade on the Specialist Fund Market of the London Stock Exchange plc. Seven Residual Income Positions are attributed to ERII. Dividends or distributions will only be payable from ERII to the extent that the asset cover ratio (the Preference Share Cover Test) for the RECI Preference Shares is satisfied at the Company level.
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 30 September 2014
30/09/2013 (£ million) | 31/03/2014 (£ million) | 30/09/2014 (£ million) | |||
Loan Portfolio (includes accrued interest) | 43.1 |
51.0 |
70.0 | ||
Bond Portfolio (includes accrued interest) | 58.3 |
85.8 |
70.3 | ||
Cash and Cash Equivalents | 5.4 |
18.3 |
10.8 | ||
Derivative Assets | 1.8 |
1.9 |
3.1 | ||
Other Assets | - | - |
5.2 | ||
108.5 |
157.0 |
159.4 | |||
Other Liabilities Derivative Financial Liabilities | (1.2) (0.6) | (2.7) (0.5) | (2.0) | ||
Dividend Payable | - | - | - | ||
Preference Share Liability | (44.5) | (41.6) | (41.6) | ||
(46.3) | (44.8) | (43.6) | |||
Net Assets | 62.2 | 112.2 | 115.8 | ||
Shares outstanding | 39,966,985 | 72,818,496 | 72,818,496 | ||
Net Asset Value per Ordinary Share | 1.556 | 1.541 | 1.590 | ||
Loan Portfolio as at 30 September 2014
Significant loan portfolio growth
RECI significantly expanded its real estate loan portfolio to £70 million from £51 million in the financial half year ending 30 September 2014. During the half year, the Company made £31 million new commitments over 6 new deals, taking total loan commitments to £92.6 million as at 30 September 2014. Additionally, in August 2014, the performing loan secured against a multifamily residential portfolio across North Rhine Westphalia, Germany was successfully restructured, and increased to fund additional asset purchases on more favourable commercial terms. This increased RECI's total funded loans to this sponsor from £6.1 million to £12.5 million.
RECI made a £6.1 million commitment to a new investment loan to a purchaser and developer of distribution assets in core UK logistic locations. The Company also funded a new £7.2 million mezzanine loan to assist in the acquisition of a major German residential development company.
The average loan portfolio LTV exposure as at 30 September 2014 was 71.7% and the portfolio continues to provide attractive risk-adjusted returns with a weighted average yield of 13.2% per annum.
Loan realisations after 30 September 2014
A mezzanine loan secured against a new trading boutique hotel at King's Cross was sold for par plus all accrued interest and fees. This investment returned an annualised yield in excess of 15%.
Another position, previously an investment backed by German multi-family properties which had received an in specie transfer of shares, was successfully exited. This investment returned an annualised yield in excess of 25%.
Focus on Europe's strongest markets
RECI's strong position in originating attractive new loans enables the Company to focus investments 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 avoid lending in more borrower-friendly jurisdictions such as Italy, Spain and Portugal.
Loan Portfolio Summary as at 30 September 2014
Number of loans | 14 |
Drawn Dirty Fair Value (£ millions) Total Loan Commitments (£ millions) | 70.0 92.6 |
Loans as % of GAV (drawn loan balance) | 44% |
Loans as a % of GAV (committed loan balance) Weighted average yield of loan portfolio | 58% 13.2% |
Weighted average LTV of portfolio | 71.7% |
Top 10 Investment Portfolio Exposures2 as at 30 September 2014
Market Value £75.9 millionWA Original LTV3 66.2%WA Cheyne Current LTV3 67.7%WA Effective Yield4 10.0%
Type | Class | Collateral Description | |
Commercial | B | Bond - secured against government housing portfolio in the UK | |
Commercial | Loan | Whole loan secured against German multi-family properties | |
Commercial | Loan | Mezz loan secured on a fully let retail park in Essex | |
Commercial | Loan | Mezz loan to assist in the acquisition of major German residential development entity | |
Commercial | E | Portfolio of commercial loans secured by properties in Germany | |
Commercial | Loan | Mezz loan secured against a new operational hotel at King's Cross, London | |
Commercial | A | Portfolio of nursing homes operated by Four Seasons Health Care Group | |
Commercial | Loan | Mezz loan secured against a branded London hotel development in Shoreditch, London | |
Commercial | Loan | Priority ranking shareholder loan on a portfolio of UK logistics and industrial properties | |
Commercial | Loan | Mezz loan secured by residential land and homes under development in South East UK | |
Real estate bond portfolio records solid gains
As at 30 September 2014, the portfolio of 70 bonds was valued at £70.3 million, with a nominal face value of £85.5 million5. The total gross return of the bond portfolio in the half year ended 30 September 2014 was 9%. The weighted average effective yield to maturity of the portfolio at market prices as at 30 September 2014 was 4.9%, with a weighted average life of 6.9 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 30 September 2014, the average purchase price across the portfolio was 83% of par and assets were purchased with a weighted average expected yield to maturity of 9.9% (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 October 2014, the portfolio consisted of 69 bonds with a fair value of £68.3 million and a nominal face value of £83.8 million6.
2 Based on fair value of bonds and loans.
3 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 30 September 2014.
4 WA effective yield is based on the effective yield as at most recent purchase and is based on 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 30 September 2014.
5 Cost and nominal shown are calculated with original notional using pool factor and FX rate as at 30 September 2014.
6 Cost and nominal shown are calculated with original notional using pool factor and FX rate as at 31 October 2014.
Real Estate Bond Portfolio Breakdown
Breakdown of RECI's bond portfolio as at 30 September 2014 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 |
30 September 2014
UK | 70.5% |
Germany | 25.9% |
Italy | 1.5% |
France | 1.4% |
Holland | 0.5% |
Ireland | 0.2% |
Total (£mm) | £70.3mm |
Values may not sum to 100% due to rounding differences
Monthly Bond Performance Summary as at 30 September 2014
May | June | July | August | September | |
% Fair Value Change | 1.03% | 1.12% | 1.25% | -0.48% | 2.52% |
WA Purchase Price | 1.00 | - | 0.98 | 0.98 | - |
WA Purchase Yield | 2.59% | - | 3.81% | 4.43% | - |
Asset Class Distribution of Bond Portfolio by Fair Value as at 30 September 2014
Bond Class | UK CMBS | UK RMBS | Euro CMBS | Euro RMBS | Total | Total as at 31 March 2014 | |
A | 8.7% | 1.5% | 0.3% | 0.0% | 10.4% | 20.7% | |
B | 31.2% | 4.1% | 3.0% | 0.0% | 38.3% | 33.9% | |
C | 2.1% | 6.5% | 5.5% | 0.7% | 14.9% | 12.8% | |
D | 1.8% | 4.3% | 7.4% | 0.4% | 13.9% | 11.4% | |
E and Below | 2.9% | 8.1% | 11.1% | 0.5% | 22.5% | 21.2% | |
Total | 46.8% | 24.5% | 27.2% | 1.6% | 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
Outlook - Investment of new capital
The investment team expects to close several loan transactions in the coming months and has allocated upward of £32.1 million to these deals, all of which are in advanced stages. The Company expects the pipeline to continue growing, given the sector's strength, which juxtaposed with the long term reduction in commercial bank lending capacity, creates a compelling investment opportunity.
The bond portfolio had a total gross return of approximately 9% in the financial half year ended 30 September 2014 and strong bond portfolio performance is expected to continue into 2015. 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.
European Residual Income Investments (ERII)
It is the Company's objective, to the extent practicable, to realise the ERII portfolio and return cash to shareholders. The table below shows figures as at 30 September 2014 compared to 31 March 2014.
ERII Key Quarter Financial Data | Q/E 31 March 2014 | Q/E 30 September 2014 |
Cash and receivables (excluding expenses) | €1.1m | €18.1m |
Residual Total Dirty Fair Value | €9.4m | - |
Asset Coverage Ratio | 3.95 | 4.17 |
Distribution/Dividend Declared | 3.2c | N/A |
Net Asset Value per ERII Share | 0.68 | 4.47 |
ERII Shares Outstanding | 15.4m | 4.0m |
Investment Portfolio
Overview
On 7 October 2014 the Company announced the successful sale of Alba 05, Alba 06 and Eirles 236B at above their aggregate value assessed in previous valuations. Following these sales, there is one position remaining in the ERII Cell. That position has been held at zero value since the ERII Cell was created, and is expected to have no value in the foreseeable future.
The Company announced the return of predominantly all of the Cell's capital to ERII shareholders on 24 November. One remaining asset currently held at zero valuation will be retained for the time being.