The key messages from Real Estate Credit Investments Limited (LON:RECI) FY’26 results to March and update presentation were, firstly, that the dividend of 3p per quarter has continued to be paid (yield 10.3%). While uncovered in FY’26, there are clear paths for the cover to be reestablished in due course. In the meantime, the board appears committed to maintaining the payout at the current level. Secondly, credit remains very good, with 92% of the portfolio performing and clear strategies to managing the defaulting assets. Thirdly, while leverage has increased, it is conservative.
- Strategy: RECI’s manager, Cheyne, has a large real estate lending team, with multiple on-the-ground offices bringing it close to borrowers. Its whole-market experience means it can identify the optimal risk/reward opportunities at any given time, making it only modestly sensitive to macro trends.
- Dividend cover: We see clear paths to reestablishing dividend cover with normalised fair value (losses)/gains – inter alia, FY’26 equity participation loan losses should not recur/may reverse. New investments are at higher margins and the book’s short duration means higher income can be generated quickly.
- Valuation: In the five years, pre-pandemic, on average, Real Estate Credit Investments traded at a premium to NAV. It is now trading at a substantial discount, which appears anomalous. RECI is paying an annualised 12p dividend, generating a yield of 10.3%, which we expect to be covered by recurring net interest income.
- Risks: Any lender is exposed to credit risks. We believe RECI has appropriate policies to reduce the probability of default. Its average LTV is 67.4%, and most loans (inc. all of the top 10) are senior-secured, providing a downside cushion. Some assets are illiquid. In the short term, investor sentiment could be an issue.
- Investment summary: Real Estate Credit Investments generates an above-average dividend yield from well-managed credit assets. RECI’s strong liquidity, credit assessment, close relationships with borrowers and restructuring expertise should allow it time to manage problem accounts in more challenging conditions. Borrowers have injected further equity into deals. Three buybacks were seen in March 2026.
260713-Hardman-Real-Estate-Credit-Investments-FY26-results-High-yield-clear-path-to-dividend-coverDownload
