Real Estate Credit Investments: Why rising rates should not hurt RECI

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

In this note, we explore Real Estate Credit Investments Ltd (LON:RECI) low sensitivity to a rising rate environment by analysing i) borrower revenue sensitivity, ii) borrower debt sensitivity, iii) RECI’s portfolio risk mitigation techniques, iv) the MTM on the bond portfolio, v) the impact of RECI’s own funding mix, vi) international diversification), vii) previous share price experience, viii) sentiment to the stock, and ix) potential opportunities that may arise. This reinforces the message in our last two notes that RECI’s business has shown limited downside during the COVID-19 crisis. We use a case study of a hotel exposure to illustrate how Cheyne’s management of challenging relationships materially reduces the final loss.

  • Why low sensitivity: The key is how RECI manages its book in its selection of less rate-sensitive borrowers and primarily income-generating projects, the structuring of deals, and balance-sheet management and diversification. Credit exposure from rising rates, the critical risk, is tightly controlled. As rates rise, income is likely to increase.
  • Historical market reaction: In three of the four periods of sustained rate rises in the past decade, RECI’s share price has risen. Even in the fourth case, the share price rose in the early stages of the interest rate hikes. Prima facie, the market has treated RECI as at least neutral to, if not a beneficiary from, rate increases.
  • Valuation: Real Estate Credit Investments trades at a 1.4% premium to a conservative NAV, in line with pre-pandemic average levels. With a 2022E 12p dividend, the 7.8% dividend yield is the highest of its immediate peers and covered by income. RECI’s defensive qualities mean that the dividend has been held throughout the COVID-19 crisis.
  • 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:
Find more news, interviews, share price & company profile here for:

Commercial real estate begins its pivot

A shift is underway in commercial real estate with transaction volume and fundamentals stirring.

When real estate credit becomes core capital allocation

Real estate credit is quietly stepping into the spotlight, reshaping how institutions build real assets exposure.

Real Estate Credit Investments extends share buybacks up to £10 million

Real Estate Credit Investments has extended its share buyback programme to 31 March 2026 with a limit of up to £10 million. Since the launch of its first programme in 2023, the Company has repurchased over 7.6 million shares for £9.4 million.

Private credit finds new footing as property values edge upward

Commercial property prices are stirring just as private credit broadens into more complex and flexible strategies, creating a moment of recalibration for investors.

Real Estate Credit Investments maintains quarterly 3p dividend for 8 years (LON:RECI)

Real Estate Credit Investments has declared a first interim dividend of 3.0 pence per Ordinary Share for the year ending 31 March 2026, payable on 17 October 2025 to shareholders on the register as of 26 September 2025.

Search

Search