In our view, there remains great uncertainty over the effects of tariffs and whether the US/global economies will fall into a recession. Over the past six years, we have written many times on Real Estate Credit Investments Limited (LON:RECI) resilient model. In this note, we revisit why RECI’s model is so strong, noting in particular i) its credit assessment, monitoring and problem account management, ii) the benefit of being a senior finance provider, iii) geographical and sector diversity, iv) portfolio mix changes, including the reduction in MTM bond holdings. As noted in previous reports, in challenging macro times, spreads widen, and peers withdraw, giving RECI new investment opportunities.
- Credit skills core: Key to Real Estate Credit Investments’ resilience are the credit skills of its manager, Cheyne. We detail the multiple facets of this resilience. If we were to highlight the single differentiating factor among many finance providers, we believe it is the ownership of the loan by the relationship manager who initiates that loan.
- Opportunities as well as threats: In a risk-on environment, it is easy to lose sight of the opportunities. When the macro outlook is challenging, many lenders withdraw from financing commercial real estate or cannot get financing themselves. Spreads widen, making RECI’s new investments more attractive.
- Valuation: RECI traded at premiums to NAV in the five-year, pre-pandemic era. The current discount to NAV is 15%. The dividend has been a consistent 3p per quarter for many years and generates a 9.8% 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 Real Estate Credit Investments has appropriate policies to reduce default probability. Positions are illiquid. Its average total commitment to expected value LTV is 66%, and most loans (all of the top 10) are senior-secured, providing a downside cushion.
- Investment summary: RECI 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. A new £10m buyback programme was announced on 31 March 2025.
