Real Estate Credit Investments Limited (LON:RECI) is the topic of conversation when Hardman & Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Now, your recent report on Real Estate Credit Investments, it sits behind a disclaimer. Can you just tell us why that’s there?
A1: It’s a very standard disclaimer that many investment companies have. In essence, for regulatory reasons, there are some countries, like the US, where the report should not be read. It’s not a simple asset class, real estate lending, and the report should be looked at by professional and qualified investors, but it’s a very standard disclaimer and nothing to worry about.
Q2: Your recent report was called ‘Manager Presentation and Q&A’. What can you tell us about that report?
A2: RECI hosted two short webinars, which were available on our website in the video folder of the news and events section.
In the first, RECI’s Chair and Manager gave a presentation outlining the fund’s strategy and operational management to deliver superior returns.
In the second, they answered investor questions, including why the fund recently secured overwhelming shareholder support in the continuation vote at the AGM, unlike many lending investment companies. They discussed how structural shifts are shaping pricing dynamics and how risks are managed.
The discussion also explored its competitive advantages in recoveries, a key point for us, and the rationale behind selective share buybacks, and how RECI’s lending model meets current opportunities and risks.
Q3: What was your sound bite from the presentation?
A3: RECI’s Chair and Manager outlined how RECI delivers a 10% plus weighted average yield by focusing on senior secured loans backed by UK and European property. Real Estate Credit Investments is actively redeploying early repayments by borrowers into a healthy pipeline of opportunities across a range of sectors supported by prudent LTVs and at rates which are higher than the existing and repaying loans.
Q4: What did you take away from the Q&A session?
A4: In our view, investors should marry the positive investment-driven opportunities from the large Cheyne-resourced pipeline with a buyback programme, a rolling 10 million, which in the recent past has been renewed every six months, and many years of a maintained dividend policy and payout at the same level.
In our view, this evidences RECI’s commitment to optimising both immediate and long-term shareholder returns.
Q5: How would you summarise Real Estate Credit Investments’ priorities from these sessions?
A5: RECI’s priorities are firstly, credit preservation. In many of our previous reports, we have emphasised the importance of its culture and all the loans made by the Cheyne team, with the same people making the recoveries when accounts get into difficulties as actually make the loans. They’ve been doing it for 17 years.
We also have highlighted the importance of good senior security, close relationships with borrowers and a raft of other credit assessment, management, monitoring and resolution factors. These webinars reconfirmed the opinions we had expressed in those notes.
The second priority is dividend sustainability, with income and profit stability driving the stable dividend. We believe this is especially important to retail investors. The third current priority is to close the share price discount to the NAV. Actions have included the rapid deployment of higher-paying loans into a diversified portfolio and increased investor communication.
Q6: Finally, Mark, can you tell me about the risks?
A6: All investments have risks. The risks of a recession are clear to see with higher interest rates, lower disposable income, falling property prices, both residential and commercial, compounded by distressed sellers of assets. That obviously is compounded by macro uncertainties such as developments in the Middle East and rising oil prices. Potentially we’ve also seen a rise in social tensions, government’s big deficits and inflationary pressures.
All of those are reasonably clear and in previous notes we’ve highlighted how RECI manages those risks.
