Last checked at 
14 Aug 2014 07:00
14 August 2014
Real Estate Credit Investments PCC Limited
Interim Management Statement
RECI1 Highlights
· From 31 March 2014 to 31 July 2014, RECI's NAV increased from £1.541 per share to £1.581 per share2.
· The Board has declared a dividend of 2.7p per share in respect of RECI Ordinary Shares for the quarter ended 30 June 2014.
Bonds
· As at 31 July 2014 the value of the bond portfolio was £78.6 million2 (approximately 49% of gross assets) and nominal value was £96.0 million2. The bond portfolio reduced in the period due to repayments of positions at par ahead of legal final maturities, and RECI's net sales of bonds in anticipation of new loan advances.
· Continued strong performance from the bond portfolio, recording positive net performance over each month from the start of the financial year.
Loans
· Between 1 April and 31 July 2014, £23.9 million new loan commitments were made through 5 loans closing.
· The funded loan portfolio grew to a value of £54.1 million2 as at 31 July 2014, accounting for approximately 34% of gross assets.
· As at 31 July 2014 RECI has undrawn loan commitments of £20.0 million2.
· During the period, two loans repaid at levels accretive to NAV, and another loan generated an in specie distribution of shares in the borrower.
Cash
· Cash at 31 July was £23.3 million2, up from £18.3 million as at 31 March. New commitments and loan drawdowns in excess of £20.0 million are anticipated before the end of September.
RECI Key Financial Data2 | 31 Mar 2014 | 31 July 2014 |
Gross Assets | £157.0m | £158.9m |
Bonds | £85.8m | £78.6m |
Loans | £51.0m | £54.1m |
Net Asset Value per Ordinary Share | £1.541 | £1.581 |
Qtrly Div declared per Ordinary Share | 2.7p | 2.7p |
1Real Estate Credit Investments PCC Limited is a protected cell company, consisting of a Core and a Cell. RECI refers to the Company's Core segment. Figures for 31 July 2014 are pro forma, as the Company will next produce financial statements for the half year ended 30 September 2014.
2Based on 31 July 2014 pro forma figures from monthly fact sheet. Bonds and loans shown as dirty fair values (including accrued interest).
This interim management statement relates to the period from 31 March 2014 to 14 August 2014 and has been prepared solely in order to comply with the requirement (pursuant to the EU Transparency Directive as implemented by the Disclosure and Transparency Rules) for an interim management statement to be made by the Company no earlier than 9 June 2014 and no later than 19 August 2014. Unless otherwise noted herein, the financial information provided in this interim management statement (and the asset valuations underlying that financial information) are as at 31 March 2014 and such financial information (and underlying valuations) will be stated as at a more recent date in the Company's forthcoming half year report. Terms set out in this interim management statement but not defined are as defined in the Company's most recent prospectus dated 16 October 2013.
Pro - forma Balance Sheet3
Figures for RECI for 31 March 2014 and 31 July 2014 (in £ million)
31/03/20149 | 31/07/20149 | |
Bond Portfolio4 | 85.8 | 78.6 |
Loan Portfolio4 Cash and Cash Equivalents | 51.0 18.3 | 54.1 23.3 |
Derivative Assets | 1.9 | 2.9 |
Other Assets5 | 0.0 | 0.0 |
157.0 | 158.9 | |
Other Liabilities6 | (2.7) | (1.6) |
Derivative Liabilities | (0.5) | - |
Preference Dividend7 | - | (0.3) |
Ordinary Dividend8 | - | - |
Preference Share Liability | (41.6) | (41.9) |
(44.8) | (43.8) | |
Net Assets (estimate) | 112.2 | 115.1 |
Shares outstanding | 72.82 | 72.82 |
Net Assets per Ordinary Share (estimate) | 1.541 | 1.581 |
|
|
|
Pro Forma NAV Assumptions |
3. Unaudited figures produced by Cheyne for Investment Portfolio, Cash and Cash Equivalents and Derivative Assets, otherwise uses latest public financial statement figures. Figures are estimates, and actual audited values may be materially different from the numbers shown. 4. Bond and Loan portfolio values shown include accrued interest. 5. Other Assets excludes accrued interest on the bonds and loans, but otherwise uses the Other Assets figure shown in the financial statements for 31 March 2014. 6. Other Liabilities for 31 March 2014 is the figure used in the financial statements for 31 March 2014. Other liabilities for 31 July 2014 is the figure used in the financial statements for 31 March 2014 but excluding the amount payable for preference shares repurchased, the figure for 31 July 2014 also includes an estimate of accrued performance fee to 31 July 2014. 7. Preference Dividend liability accrues over the quarter and is paid on each quarter end. 8. Ordinary Dividend liability is either ex or cum the dividend at the valuation date. 9. 31 March 2014 figures use EURGBP FX rates at 31 March 2014 and 31 July 2014 figures use EURGBP FX rates as at 31 July 2014. |
Source: Cheyne Capital. Unaudited. The NAV at the next reporting date may be materially different from the valuations implied above.
Top 10 Exposures10 (Bonds and Loans) as at 31 July 2014Market Value £68.6 millionWA Original LTV11 64.1%WA Cheyne Current LTV11 66.0%WA Effective Yield12 10.5%
Type | Class | Collateral Description | |
Commercial | B | Bond secured against government housing portfolio in the UK | |
Commercial | Loan | Mezzanine loan secured on a fully let retail park in Essex | |
Commercial | Loan | Whole Loan secured against German multi-family properties | |
Commercial | E | Portfolio of commercial loans secured by properties in Germany | |
Commercial | A | Portfolio of nursing homes operated by Four Seasons Health Care Group | |
Commercial | Loan | Mezzanine loan secured against a new operational hotel at King's Cross | |
Commercial | Loan | Whole loan secured against German multi-family properties | |
Commercial | A | Portfolio of UK commercial loans secured against office and retail properties | |
Commercial | Loan | Mezz loan secured against a branded London hotel development in Shoreditch | |
Commercial | Loan | Mezz loan secured by residential land & homes under development in South East UK | |
Source: Cheyne Capital. Unaudited. 10. Based on fair value of bonds and loans. 11. 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 Cheyne by reference to the current value ascribed to the collateral by Cheyne. In determining these values, Cheyne has undertaken its own internal valuation of the underlying collateral. Such valuations have not been subject to independent verification or review. 12. WA effective yield is based on the effective yield using prices as at 31 July 2014 and is based on Cheyne's pricing assumptions and actual returns may differ materially from those expressed or implied herein.
Bond Portfolio Summary (as at 31 July 2014) 31 Mar 31 Jul | |
Number of bonds 79 | 78 |
Dirty Fair Value of Bond Portfolio as at 31 July 2014 85.8m Nominal Face Value of Bond Portfolio as at 31 July 2014 108.3m | 78.6m 96.0m |
During the period from 1st April to 31st July, cash spend on bonds was £3.9m, and cash received from bond sales was £11.6m.
Monthly Bond Performance Summary
February | March | April | May | June | July | |
% Fair Value Change13 | 1.27% | 0.73% | 1.17% | 1.03% | 1.12% | 1.25% |
WA Purchase Price14 | 0.887 | 0.93 | - | 1.00 | - | 0.98 |
WA Purchase Yield14 | 4.60% | 8.67% | - | 2.59% | - | 3.81% |
13. % Fair Value Change is based on MTM P&L for the month.
14. WA Purchase Price and WA Purchase Yield are based on purchases in the period.
Bond Breakdown as at 31 July 2014
Asset Class | UK CMBS | UK RMBS | Euro CMBS | Euro RMBS | Total (31 Mar) |
CLASS A | 8.6% | 1.3% | 0.7% | 0.3% | 10.9% (20.7%) |
CLASS B | 28.1% | 9.0% | 2.6% | 0.0% | 39.7% (33.9%) |
CLASS C | 2.1% | 6.8% | 4.9% | 0.6% | 14.4% (12.8%) |
CLASS D | 1.5% | 4.0% | 6.7% | 0.6% | 12.7% (11.4%) |
CLASS E and below | 2.6% | 9.1% | 10.2% | 0.4% | 22.3% (21.2%) |
Grand Total | 42.8% | 30.3% | 25.1% | 1.9% | 100.0% |
Loan Portfolio Summary (as at 31 July 2014) 31 Mar 31 Jul
Number of loans | 9 | 13 |
Drawn Dirty Fair Value (£ millions) | 51.1 | 54.1 |
Total Loan Commitments (£ millions) | 63.1 | 74.2 |
Loans as % of GAV (drawn loan balance) | 33.0% | 34.0% |
Weighted average yield of loan portfolio15 | 12.9% | 13.8% |
Weighted average LTV of portfolio16 | 64.9% | 70.8% |
15. Weighted average effective yield is based on the effective yield using prices as at 31 July 2014 and is based on Cheyne's pricing assumptions and actual returns may differ materially from those expressed or implied herein.
16. Weighted average LTV has been calculated by Cheyne by reference to the current value ascribed to the collateral by Cheyne. In determining these values, Cheyne has undertaken its own internal valuation of the underlying collateral. Such valuations have not been subject to independent verification or review.
Outlook
RECI's investment strategy during the period has continued to focus on selectively growing its loan portfolio while enjoying the positive trading gains, and hence attractive total returns, from the more liquid bond portfolio.The Investment Manager sees significant intrinsic value in the existing bond portfolio. Some bonds have been repaid ahead of final maturity and further liquidity for investment in new loans can be derived from rotating out of lower yielding bonds.In the increasingly competitive market, the Investment Manager's strong platform and market position enable the Company to grow its loan portfolio with assets offering superior risk-adjusted prospective returns. With five new loans completed since the start of the financial year, the Company has a number of further whole and mezzanine loans in negotiation, which it expects to close in the coming months. The improving sentiment in both the real estate and lending markets in most European territories is increasing the number of potential transactions, generating interesting opportunities for a specialised lender such as RECI.
European Residual Income Investments (ERII)
ERII Cell Position Summary (in € million) | |
Number of Positions as at 31 July 2014 | 4 |
Residual Income Portfolio Valuation (31 July 2014)17 | €3.7m |
ERII Cell Cash Summary (in € million) | |
Cash as at 31 July 2014 | €0.5m |
Source: Cheyne Capital. Unaudited. Valuation of the Residual Income Portfolio may change, possibly materially, on the next reporting date. The NAV at the next reporting date may be materially different from the valuation implied above.
17. This figure contains the Residual Income Positions remaining as at 31 July 2014, but at the pro forma dirty fair value per 30 June 2014.
Overview
During the period the European Mortgage Portfolio (Magellan) was sold at a level accretive to NAV.
The remaining positions were marked up by €1.4 million as at 30 June 2014.
ERII paid a dividend of 3.2c per share on 25th July. Following the successful sale of the Magellan asset, the Cell also processed a mandatory redemption of capital (effective 25th July) returning €7.85 million to shareholders. The Company is therefore not declaring a dividend for the quarter ended 30 June 2014.
Disclaimer:
This document is issued by Cheyne Capital Management (UK) LLP ("Cheyne Capital"). Cheyne is authorised and regulated by the Financial Conduct Authority of the United Kingdom (the "FCA").
This document is being issued inside and outside the United Kingdom by Cheyne only to and/or is directed only at persons who are professional clients or eligible counterparties for the purposes of the FCA's Conduct of Business Sourcebook. This document must not be relied or acted upon by any other persons. Cheyne Capital neither provides investment advice to, nor receives and transmits orders from, investors in Real Estate Credit Investments PCC Limited ("Company") nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FCA Rules.
The information contained herein is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any dissemination or other unauthorised use of this information by any person or entity is strictly prohibited. The distribution of this document may be further restricted by law. No action has been or will be taken by either Cheyne Capital or the Company, to permit the possession or distribution of this document in any jurisdiction (other than as expressly described herein) where action for that purpose may be required. Accordingly, this document may not be given or used in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons to whom this document is communicated should inform themselves about and observe any such restrictions.
This document is not intended to constitute, and should not be construed as, investment advice. Potential investors in the Company should seek their own independent financial advice. This document has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein. This document is not intended as and is not to be taken as an offer or solicitation with respect to the purchase or sale of any security or interest, nor does it constitute an offer or solicitation in any jurisdiction, including those in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such a solicitation or offer. Any person subscribing for an investment must be able to bear the risks involved and must meet the suitability requirements relating to such investments. Some or all alternative investment programs may not be suitable for certain investors.
Although the information in this document is believed to be materially correct, no representation or warranty is given as to the accuracy of any of the information provided. Certain information included in this document is based on information obtained from sources considered to be reliable. We have not verified any such information and assume no responsibility for the accuracy or completeness thereof. Any projections or analysis provided to assist the recipient of this document in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any projections or analysis are subject to change without prior notification and should not be viewed as factual and should not be relied upon as an accurate prediction of future results. Furthermore, to the extent permitted by law, neither the Company nor Cheyne Capital nor any of their respective directors, agents, service providers or professional advisers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this document or for any decision based on it.
Past performance is not a reliable indicator of future results.
Among the risks we wish to call to the particular attention of recipients are the following: (1) The Company's investment program is speculative in nature and entails substantial risks; (2) the investments of the Company may be subject to sudden and large falls in price or value and there could be a large loss upon realisation of a holder's investment, which could equal the total amount invested; (3) as there is no recognised market for many of the investments of the Company, it may be difficult or impossible for the Company to obtain complete and/or reliable information about the value of such investments or the extent of the risks to which such investments are exposed; (4) the use of a single investment manager could mean a lack of diversification and, consequently, higher risk, and may depend upon the services of key personnel, and if certain or all of them become unavailable, the Company may suffer losses; (5) Cheyne Capital will receive performance-based remuneration; (6) the market price of shares in the Company do not necessarily reflect its underlying net asset value; and (7) the price of shares (and the income from them) can go down as well as up and may be affected by changes in rates of exchange.