Real Estate Credit Investments: Marks taken in uncertainty, released thereafter

Hardman & Co
[shareaholic app="share_buttons" id_name="post_below_content"]

In this note, we review Real Estate Credit Investments Ltd (LON:RECI) track record of taking MTM hits on its bond portfolio in periods of uncertainty, followed by releases in the subsequent periods. We believe this reflects the market applying a broad-brush approach to risk, and giving insufficient credit to RECI’s superior control assessment, monitoring and restructuring systems, which we summarise again in this note. We have outlined in previous reports why we believe RECI shows resilience against inflation, interest-rate increases and inflation risks (inter alia, see New faces, same resilience, Vive la difference, Experience shows resilience of the model, Experience shows resilience of the model (2) and Why rising rates should not hurt RECI).

  • July quarterly update: Key themes are i) attractive returns from low LTV credit exposure to UK and European commercial real estate assets, ii) quarterly dividends delivering consistently since October 2013, iii) a highly granular book, iv) transparent and conservative leverage, and v) access to strong pipeline.
  • June Factsheet update: Recurring interest income added 1p to NAV. There was a negative 1.3p mark-to-market (MTM) on the bond portfolio; with the corporate yield widening. Real Estate Credit Investments had cash of £38m and gross leverage of £99m. The book has 62 positions (35 loans, 27 bonds), with a weighted average LTV of 60% and a yield of 10%.
  • Valuation: In the five-year, pre-pandemic era, on average, RECI traded at a premium to NAV. In periods of market uncertainty, it has traded at a small discount. It now trades at a 3.6% discount, a level not seen since May 2021. RECI paid its annualised 12p dividend, which generates a yield of 8.2% ‒ expected to be covered by interest.
  • Risks: Any lender is exposed to the credit cycle and individual loans going wrong. Security is currently hard to value and to crystallise. We believe RECI has appropriate policies to reduce the probability of default, and loss in the event of default. Some assets are illiquid, and repo financing has a short duration.
  • Investment summary: Real Estate Credit Investments generates an above-average dividend yield from well-managed credit assets. Bond pricing includes a slight discount, reflecting uncertainty, which should unwind when conditions normalise. Market-wide credit risk is currently above-average, but RECI’s strong liquidity and debt restructuring expertise should allow it time to manage problem accounts. Borrowers, to date, have injected further equity into deals.

DOWNLOAD THE FULL REPORT

Share on:
Twitter
LinkedIn
Facebook
Email
Reddit
Telegram
WhatsApp
Pocket
Find more news, interviews, share price & company profile here for:
The commercial real estate market is evolving rapidly, with 2025 set to unlock new opportunities. Investors must adapt strategies to navigate shifting demands effectively.
Real Estate Credit Investments Limited (LON:RECI) reports a diversified portfolio valued at £292.2m as of March 31, 2025, showcasing solid returns and strategic investments.
As banks withdraw amid economic uncertainty, savvy developers are increasingly turning to private credit providers for tailored financing solutions.
The UK real estate credit market is set for significant growth in 2025, driven by better borrowing conditions, rising lender competition, and evolving investment trends.
Real Estate Credit Investments Limited (LON:RECI) has released its February 2025 Fact Sheet, detailing a diversified portfolio of £301.1m and updated NAV figures.
These latest equity research reports provide valuable insights into the performance and prospects of key UK-listed companies.

Search

Search