In previous reports, we have highlighted Real Estate Credit Investments Limited (LON:RECI) downside resilience. Our key takeaway from the November Investor Day was the scale of RECI’s current opportunities. The key driver to the strong pipeline is the manager having the expertise and scale to access the least competitive sectors of real estate lending. By doing so, it can earn good returns (typically 8%-10% unleveraged) and only see a modest impact from whole-market dynamics. Regular repayments, both contractual and customers refinancing, mean that there is flexibility to take opportunities as they emerge. We sense an increased appetite for development finance.
- Access to least competitive subsectors: Real estate finance is not one market. Competition varies enormously; banks, for example, have little appetite for development finance due to regulatory capital penalties. Cheyne’s scale means it accesses deals that are too large for many other finance providers.
- Capital allocation: In our view, investors should marry the positive investment-driven opportunities from the large Cheyne-sourced pipeline with the buyback and many years of maintained dividend payout, evidencing RECI’s commitment to optimising immediate and direct shareholder returns.
- Valuation: Real Estate Credit Investments traded at premiums to NAV in the five-year, pre-pandemic era. The current discount to NAV is 13%. The dividend has been a consistent 3p per quarter for many years and generates a 9.7% yield. RECI is moving to lower-risk but higher-margin exposures, which should improve dividend cover.
- Risks: Any lender is exposed to credit risks. We believe RECI has appropriate policies to reduce default probability and loss in the event of default. Positions are illiquid. Its average total commitment to expected value LTV is 64.4%, and most loans (all of the top 10) are senior secured, providing a downside cushion.
- Investment summary: Real Estate Credit Investments generates an above-average dividend yield from well-managed credit assets; directors and management have demonstrated their confidence in its sustainability through share purchases. 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. An extended £10m buyback programme was announced on 30 September 2025.
