Real Estate Credit Investments says high yielding loan weighting helps


LONDON (Alliance News) – Real Estate Credit Investments PCC Ltd, which is managed by Cheyne Capital Management (UK) LLP, on Friday said the weighting of its portfolio towards higher yielding loans rather than bonds has proved beneficial.

The company said its loan portfolio benefits from a focus on the UK and West Germany, combined with “defensive capital characteristics” and backed by “well structured” documentation, has been well equipped to deal with recent volatility in European real estate markets.

The main reasons for that volatility have been the withdrawal of money from emerging economies and China, as well as growing worries about prime central London residential assets, and “the increasing concern expressed by some” for yields in prime City office and retail assets in London.

“The performance of the company’s bond portfolio remains supported by the amortisation and high coupon receipts, despite the relatively disappointing performance of the wider markets in the half year ended 30 September 2015. Yield widening as a result of the wider pull back in global capital flows into the core European real estate markets has impacted the pricing and performance of the bond portfolio,” Real Estate Credit Investments said.

“Ultimately, the long term performance of the bond portfolio will depend on the credit recovery from the underlying assets, and in this regard, the underlying asset performance backing the Company’s bond portfolio remains resilient,” Real Estate Credit Investments PCC added.

Real Estate Credit Investments said its investment manager is able to participate in new issue bonds at attractive yields, but will continue to rotate out of lower yielding liquid bonds to fund new loan opportunities.

Net asset value was GBP1.625 per RECI ordinary share on September 30, which when combined with dividends declared in the half year of 5.4p per share, provides a NAV total return to ordinary shareholders of 3.5% in the half year.

Net profit fell to GBP4.1 million in the six months ended September 30, compared with GBP7.5 million in the corresponding half the prior year.

“The loan portfolio provided strong returns in line with expectation, but the bond portfolio performance was lower than expected due to mark to market price performance driven by volatility in the wider markets,” the company said.

A dividend of 2.7 pence per ordinary share was declared for the quarter ended September 30.

Total dividends declared in respect of the financial half year will therefore be 5.4p per ordinary share, the company added.

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