# RECI – Hardman research underlines its strong liquidity and portfolio resilience, Feb 2024

- Link: https://www.directorstalkinterviews.com/reci-hardman-research-underlines-its-strong-liquidity-and-portfolio-resilience-feb-2024/4121145010
- Published: 2024-02-28T11:04:59+00:00
- Author: Amilia Stone

We last reviewed **Real Estate Credit Investments Limited **([LON:RECI](https://www.directorstalkinterviews.com/company/real-estate-credit-investments/reci.l))
operations in France, 25% of the latest portfolio, in our note, Vive la difference,
published 15 February 2022. The core approach is unchanged, but, following the December
2023 factsheet report of an unrealised hit of 1.6p to the NAV from a prime Grade
A Paris office exposure, we thought we would review them again. Also, with the November
Factsheet reporting a 1.1p NAV hit from a legacy mezzanine position exposed to a
Berlin asset, we have considered the de minimis German exposure. While the unrealised
losses were unexpected, we show how conservative RECI’s accounting has been and 
the portfolio resilience.

 * **Conservative approach:** Our note, Marks taken in uncertainty, released thereafter,
   highlighted RECI’s record of taking MTM hits in periods of uncertainty, only 
   to be followed by subsequent releases. This conservative accounting is on top
   of robust risk assessment, monitoring, problem account management and portfolio
   diversification.
 * **January 2024 factsheet**: Underlying NAV rose 1.3p, due to recurring interest
   income (1.1p). Cash was £23m, and gross leverage £62m. The book has 34 positions(
   28 loans, gross drawn value £394m, and 6 bonds, fair value £8m – down from 26
   and £90m, respectively, at end-March). The weighted average LTV is 60.3%, and
   the yield is 10.3%.
 * **Valuation:** In the five-year, pre-pandemic era, on average, Real Estate Credit
   Investments traded at a premium to NAV. In periods of market uncertainty, it 
   has traded at a discount. It now trades at a 17% discount, a level not seen since
   late 2020. RECI paid its annualised 12p dividend in 2022, which generated a yield
   of 10% ‒ expected to be covered by interest alone.
 * **Risks:** Credit cycle and individual loan risk are intrinsic. All security 
   values are currently under pressure. We believe RECI has appropriate policies
   to reduce the probability of default and has a good track record in choosing 
   borrowers. Some assets are illiquid. Much of the book is development loans.
 * **Investment summary:** Real Estate Credit Investments generates an above-average
   dividend yield from well-managed credit assets. Income from its positions covers
   the dividends. Sentiment to market-wide credit risk is difficult currently, but
   their strong liquidity and debt restructuring expertise provide extra reassurance.
   Where needed, to date, borrowers have injected further equity into deals.

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