REG - Real Est Crd InvsLtd - Half-year Report
28/11/2024 07:00
For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20241128:nRSb9310Na&default-theme=true
RNS Number : 9310N Real Estate Credit Investments Ltd 28 November 2024
Real Estate Credit Investments Limited (the "Company")
Interim Financial Statements for RECI LN (Ordinary Shares)
The Board of Directors of the Company announces the release of the Company's
Condensed Unaudited Interim Financial Statements for the six months ended 30
September 2024.
View the Interim Financial Statements:
https://realestatecreditinvestments.com/investors/results-reports-and-presentations
(https://realestatecreditinvestments.com/investors/results-reports-and-presentations)
A copy of the Interim Financial Statements has been submitted to the National
Storage Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
For further information please contact:
Investment Manager: RECIIR@cheynecapital.com (mailto:RECIIR@cheynecapital.com) (Cheyne) +44 (0)20 7968 7450
Broker: Darren Vickers / Alex Collins (Panmure Liberum) +44 (0)20 3100 2222
Real Estate Credit Investments Limited
Interim Financial Report 2024
Condensed Unaudited Interim Financial Statements
For the six months ended 30 September 2024
Consistent attractive dividends from credit exposure to UK and Western European real estate markets
Real Estate Credit Investments is a specialist investor in the United Kingdom and Western European real estate credit markets with a focus on fundamental credit and value
OVERVIEW
AS AT 30 SEPTEMBER 2024
Overview and Highlights
What We Offer
Defensive credit exposure to UK and Western European real estate credit
markets
· Stable and uninterrupted dividends delivered consistently since October 2013
Granular portfolio with detailed disclosure
· 26 positions
· Diverse portfolio across sectors and geography
Attractive and stable income in a changing interest rate environment
· Consistent portfolio yield of 7%+ offering a buffer to risk-free rates
· A high-yielding portfolio, combined with a short weighted average life,
ensures minimal exposure to yield widening and the ability to redeploy at
higher rates quickly
Access to Cheyne's established real estate investment team and substantial
origination pipeline
Key Figures
Net Assets
£321.8m
(31 March 2024: £326.4m)
NAV per Share
£1.45
(31 March 2024: £1.45)
Total Assets
£412.1m
(31 March 2024: £352.3m)
Net Profit
£12.9m
(30 September 2023: £15.6m)
RECI Offers:
Focus on senior secured credit, with defensive Loan-to-Values ("LTVs")
Strong governance control over its loan book
Management from Cheyne's Real Estate team
Large, experienced, well capitalised borrowers
Dividend stability without compromising risk
Conservative and flexible leverage profile
H1 2024 Total NAV Return (annualised)
9.0%
(30 September 2023: 9.4%)
Share Price
£1.28
(31 March 2024: £1.15)
Dividend Yield (annualised)
9.4%
(31 March 2024: 10.4%)
HY 2024 Dividends
6.0 pence
(30 September 2023: 6.0 pence)
OVERVIEW
At a Glance
Providing compelling risk-adjusted returns
Real Estate Credit Investments ("RECI") is a closed-ended investment company
which originates and invests in real estate debt secured by commercial or
residential properties in Western Europe, focusing primarily on the United
Kingdom, France and Spain.
The Company's aim is to deliver a stable quarterly dividend with minimal
portfolio volatility, across economic and credit cycles, through a levered
exposure to real estate credit investments.
Investment Portfolio Composition
RECI's investment portfolio, a diversified book of 26 positions in real estate
bonds and loans, was valued at £389.9 million, including accrued interest, as
at 30 September 2024, up from £329.4 million as at 31 March 2024. The
portfolio had a weighted average levered yield of 10.2% and an average LTV
ratio of 59.5% as at 30 September 2024.
Investments are Predominantly in:
Self-Originated Loans and Bonds
Predominantly bilateral senior real estate loans and bonds.
Market Bonds
Listed real estate debt securities such as Commercial Mortgage Backed
Securities ("CMBS") bonds.
NAV and Share Price
Net Assets £321.8m
Shares Outstanding (net of treasury shares) 221.9m
NAV (per share) £1.45
Share Price (per share) £1.28
Discount (11.8)%
Dividend Yield (Annualised) 9.4%
Market Capitalisation £284.0m
Total NAV Return(1)
Financial Half Year Ended
30 September 24 (Annualised) 9.0%
Prior Financial Year End 31 March 24 7.0%
Last Three Financial Years Ended 31 March 24 21.8%
Last Five Financial Years Ended 31 March 24 30.1%
1 The Total NAV Return measures the combined effect of any dividends paid,
together with the rise or fall in the NAV per share. Total NAV Return relates
to past performance and takes into account both capital returns and dividends
paid to Shareholders. Any dividends received by a Shareholder are assumed to
have been reinvested in the assets of the Company at its NAV per share on the
ex-dividend date. Total NAV Return is considered an Alternative Performance
Measure pursuant to ESMA Guidelines which is unaudited and outside of the
scope of International Financial Reporting Standards.
OVERVIEW
Chairman's Statement
RECI continued to deliver a stable NAV and attractive quarterly 3 pence dividend per share
Andreas Tautscher Chairman
As this is my first Chairman's statement, I would like to start by thanking my
predecessor, Bob Cowdell, both for his time as Chair of RECI but also for his
support during the handover and John Hallam who recently retired from the
Board after nine years of service. I would also like to welcome Mark Thompson
to the Board who brings a wealth of financial and board experience. I am also
happy to report my other fellow Directors have helped me to get up to speed on
RECI and I have had a number of good interactions with our investment manager,
Cheyne and broker, Panmure Liberum.
The period since commencement of the Company's current financial year on 1
April 2024 has seen a continuation of the geopolitical and economic themes
which have challenged global markets and investor sentiment. Neither of the
regional confrontations in Ukraine/Russia and Israel/Gaza show any sign of
abating and in many respects have only increased in intensity in the last six
months. Both conflicts represent a real risk of expanding into wider regional
wars.
The "Global Elections Super Cycle" is now drawing to a close, with 66 of the
74 elections now complete. Most recently, Donald Trump was emphatically
re-elected as US president and it is not yet clear to what extent he will
enact his campaign promises of tax cuts, immigration curbs and trade tariffs.
It is highly likely though that the president-elect's policies will lead to
higher inflation and interest rates in the US together with a stronger dollar.
It remains to be seen whether global trade will suffer to the extent forecast.
Of more immediate impact has been the move to rate cuts with the Federal
Reserve ("Fed"), Bank of England ("BoE") and European Central Bank ("ECB")
cutting rates for the first time in the current cycle. Both Fed and ECB have
seen inflation drop towards their 2% benchmarks. By contrast the BoE has been
more conservative as UK inflation rates have proved to be more stubborn.
The move to a rate-cutting environment is welcome and it is hoped that we are
finally starting to see the much predicted reversal of increases we saw in the
last three years. That said many commentators (and to some extent Central
Banks themselves) have managed expectations of a rapid reduction in rates to
pre pandemic levels: there is still a strong expectation that we will see
higher medium-term rates. The equity markets are all trading at or near highs
with most outlooks remaining positive albeit with a weather eye on any further
deterioration in the geopolitical tensions noted earlier. Bond markets are in
a more difficult position as they try to map out where the current rate
movements might lead to and how quickly.
The continuing focus on asset valuation in the alternative assets sector and
the discount within the Specialist Funds Segment is potentially of greater
significance to Shareholders. These factors impact RECI as there is limited
differentiation by the market on our segment. That said, we feel our
investment manager is well placed as their investment process and deal
selection continues to identify and lend against those quality real estate
assets within its preferred sectors and with fundamentals that underpin and
support their valuations. It remains the case that our manager sees more
opportunities than RECI is currently able to participate in, which is
something we would like to address in 2025. I would also like to highlight the
success of our buyback programme which has helped to reduce our discount to
11.8% at 30 September 2024.
Continuing the pivot towards senior loans which commenced in 2017, our
Investment Manager has strengthened the resilience of the Company's portfolio.
As at 30 September 2024, the exposure to lower risk senior loans and bonds was
87.4%; the total portfolio had a Weighted Average Life ("WAL") of 1.4 years;
and the weighted average entry LTV of the Company's portfolio was 59.5% (60.1%
at 30 September 2023), providing significant defensive equity headroom.
Financial Performance
RECI reported a total net profit for the half year ended 30 September 2024 of
£12.9 million on half year end total assets of £412.1 million, compared with
a £15.6 million net profit in the half year ended 30 September 2023, on half
year end total assets of £408.5 million.
The NAV as at 30 September 2024 was £1.45 per share (£1.48 per share as at
30 September 2023). The 30 September 2024 NAV reflects the dividends of 6
pence per share declared during the half year in respect of the fourth interim
dividend for the year ended 31 March 2024 and the first interim dividend of
the current financial year, returning £13.4 million to Shareholders and
providing an annualised total NAV return of 9.0% for the half year.
During the half year to 30 September 2024, the Company funded £104.2 million
into existing investments, compared with £50.7 million in the previous half
year. RECI received cash repayments and interest of £50.2 million compared
with £72.6 million in the half year ended 30 September 2023.
Half Year Review
Reflecting RECI's robust portfolio, the Company's NAV remained stable during
the half year to close at £1.45 per share at 30 September 2024.
Having commenced the half year period at a price of £1.15 per share, the
Company's shares traded at an average discount to NAV of 16.5% during the
financial half year to close at 30 September 2024 at £1.28 per share (a
discount of 11.8%). Reflecting market sentiment, the Real Estate debt sector
traded at an average discount of 20.4% (excluding RECI) over the six months to
30 September 2024 (source: Panmure Liberum, company data). The Board continues
its practice of considering all options when assessing the levels of excess
cash to be retained or deployed by the Company from time to time and how any
such cash available for deployment should be allocated. Excess cash is
regarded as the cash available following recognition of the obligation to
ensure sufficient cash resources to pay, inter alia, the Company's expenses,
borrowings, dividends and fund its ongoing contractual loan commitments
("Available Cash").
On 27 September 2024, the Board of Directors announced that, having reviewed
the current circumstances and assessed the Company's level and allocation of
cash available for deployment, it intends to undertake a further buyback
programme (the "Programme") which will run to 31 March 2025. The aggregate
purchase price of all shares acquired under the Programme will be no greater
than £10.0 million. The Company appointed Panmure Liberum Capital Limited to
make market purchases of shares in accordance with certain pre-set parameters,
the Company's existing authorities and relevant regulatory requirements. In
the period from the announcement of the preceding buyback programme to 25
September 2024 the Company's NAV increased from 144.9p (as at 31 March 2024)
to 147.5p (31 August 2024) and the share price increased from 114.5p to
127.5p. This resulted in a significant reduction in the share price discount
to 13.6% from 20.7% at the outset.
At the beginning of the financial year on 1 April 2024, RECI had gross balance
sheet leverage of £23.8 million (7.3% of NAV) and leverage net of cash was
£1.0 million (0.3% of NAV). The Board and Cheyne have continued to monitor
RECI's cash resources and repayments and to consider the appropriate level and
blend of gearing for the Company. To this end the Company introduced
asset-level leverage (which may be structured on a non-recourse or partial
recourse basis), alongside flexible balance sheet leverage. As at 30 September
2024, the Company's gross balance sheet leverage was £79.6 million (24.7% of
NAV); its leverage net of cash was £63.2 million (19.6% of NAV); and its net
effective leverage, including contingent liabilities of £3.0 million (being
the partial recourse commitment, representing 25% of asset level borrowings
provided to certain asset level structured finance counterparties), was £66.2
million (20.6% of NAV).
Reflecting your Board's and our Investment Manager's confidence in RECI and
its future, the Directors and employees of Cheyne have purchased an aggregate
of 3.3 million shares in the Company since the start of the current financial
year.
Outlook
The continued uncertainty as to the future level of inflation and interest
rates will likely persist for the rest of this financial year. The
macroeconomic background will feed into valuation concerns for certain sectors
and property types within the real estate market. The Board is confident that
Cheyne's management expertise and focus on only lending in respect of high
quality assets, in their preferred sectors and contracting with substantial
quality sponsors, will position RECI well to withstand the broader challenges
and steer a course through difficult market conditions.
The Company's buyback programme remains in place and will be reviewed at the
end of the current financial year. Scheduled portfolio repayments will boost
available cash resources during H1 2025, which may be deployed into a
successor to the programme and potential investments into the attractive
higher yielding opportunities identified by Cheyne.
During the next few months I am looking to meet with as many Shareholders as
possible to continue the active engagement of my predecessor.
Your Board remains committed to providing investors with a long-term
opportunity to receive an attractive dividend stream from an expertly managed
exposure to selected real estate credit assets.
Andreas Tautscher Chairman
27 November 2024
KPIs and Financial Highlights
Key Performance Indicators
30 Sep 2024 31 Mar 2024
Balance Sheet
NAV per share £1.45 £1.45
Share price £1.28 £1.15
Discount (11.8)% (20.7)%
Average discount in period/year1 (16.5)% (14.7)%
Leverage (% of NAV)2 24.7% 7.3%
1 Average discount in period/year is the average of the difference between the
share price and the NAV per share divided by NAV per share.
2 Leverage is the recourse financing divided by the net assets.
30 Sep 2024 30 Sep 2023
Profit, Loss and Dividends (6 months ended)
Earnings per share 5.8p 6.8p
Dividends per share declared for the period 6.0p 6.0p
Total NAV Return (including dividends) annualised1 9.0% 9.4%
1 Assumes re-investment of dividends.
Financial Highlights
30 Sep 2024 31 Mar 2024
£m £m
Balance Sheet
Cash, cash equivalents and cash collateral at/due to brokers 16.4 22.8
Net assets 321.8 326.4
30 Sep 2024 30 Sep 2023
£m £m
Profit and Loss (6 months ended)
Operating income 18.4 20.6
Net profit 12.9 15.6
The complete set of the Balance Sheet and Profit and Loss items are presented
in the Company's condensed unaudited interim financial statements.
Further Information
Monthly fact sheets as well as quarterly update presentations are available on
the Company's website: www.realestatecreditinvestments.com.
(http://www.realestatecreditinvestments.com/)
1 Alternative Performance Measures are described in Glossary on page 48.
BUSINESS AND STRATEGY REVIEW
Investment Manager's Report
Resilience and income through global uncertainty
Ravi Stickney Portfolio Manager
Managing Partner and CIO, Cheyne
Global Real Asset Valuations: Asset performance divergence against the backdrop of renewed capital market uncertainty
Asset Performance Remains Resilient for Select Productive Assets
This year has seen an accelerating divergence in asset-level performance
between productive real estate assets and those considered obsolete. The
previously prevailing low interest rate era had supported the valuations and
financing capacity of obsolete assets and as interest rates have risen over
the past two years, this support has effectively been withdrawn.
With terminal rates migrating upwards since late 2022 and remaining elevated,
the focus on valuations has shifted to which assets are meaningfully capable
of meeting a demand from society. Financial engineering (leverage and
valuations) has given way to the reward of actual value creation and utility.
To take the London office sector as an example; it is now becoming accepted
that tenants are no longer willing to reside in obsolete accommodation that
does not present an attractive place of work for employees. The acceptance of
sub-standard workspace has fallen away to be replaced by a demand for
high-quality accommodation offering attractive amenities, a desirable location
and strong sustainability credentials.
Occupiers, as well, are facing a growing need to leave their current
sub-standard obsolete accommodation (having postponed occupational decisions
since COVID). The need for new accommodation is met with a paucity of
available appropriate space.
That same supply and demand imbalance can be extended to the "living" sector
(multifamily, student housing, elderly housing and affordable housing),
industrial (light industrial and logistics), healthcare and science-driven
sectors (e.g. datacentres).
This retrenchment from obsolete assets presents an opportunity for well
capitalised investors to address that imbalance.
The challenge for the creation, and retention, of much needed assets is then
the valuation of assets and the availability of funding.
Valuation Yields and Funding Availability Face yet More Uncertainty
Recent downward trends in macro inflation in Western economies have reinforced
hopes that central banks will be able to taper the higher level of terminal
interest rates. Expectation of lower rates has caused a tightening of
valuation yields and debt funding rates over the last few months.
The recent sweeping re-election of Donald Trump as US president does bring his
stagflationary immigration, trade and fiscal policies promised on the campaign
trail into sharper focus. Whether he is able to implement these policies to
his desired extent remains to be seen but it is likely that his re-election
will be negative for the US economy. Europe and the wider world will similarly
face headwinds on growth and inflation.
To an extent, the UK and parts of Europe are relatively insulated from US
policy. However, Germany, the largest Eurozone economy is, probably, the most
exposed to an increase in tariffs and elevated inflation.
Coupled with reasonable growth and unemployment trends globally, we believe
that the inflationary environment (and higher rates environment) will remain
elevated for longer. This, we believe, will keep in check the yield
compression assumptions for assets and also the sustainability of existing
(pre 2022) debt finance.
RECI's Positioning
RECI's positioning and response to global macro fluctuations, since the Brexit
vote of 2016, has been to move its focus to senior loans (with the benefit of
first mortgage security, governance and covenants) and eschew legally
subordinated (mezzanine) positions.
That repositioning has seen RECI demonstrate a strong degree of credit
resilience in the pandemic period and also in this post 2022 higher rate
cycle.
RECI's focus on new investments remains consistent with our investment thesis,
and with Cheyne's wider origination focus on:
· Senior first mortgage loans in preference to mezzanine
· Supporting the creation and retention of productive, much needed assets
Challenges
Valuation declines and macro headwinds have thrown up challenges for RECI's
management of its loan book. Indeed, the significant negative change in the
German real estate market at the turn of the year, together with the political
uncertainty arising from the recent elections in France have posed challenges.
RECI's manager, Cheyne, with its large localised teams, have continued to work
to maximise recovery of the positions requiring more intensive asset
management as set out in the loan performance ranking table on the following
page.
Earlier this year, we started presenting the RECI loan book in tranches of
performance outlook, with a ranking that presents a view on our thoughts on
each loan's performance and recovery potential. This ranking table can be
found on the next page.
Opportunities
Given the ongoing significant gulf between the need for debt capital and its
availability in Europe, along with the very high barriers to entry in the
creation and operation of an alternative lender platform for real estate in
Europe, Cheyne has recorded its highest origination volume in its 16 year
history in 2024. Our increased senior loan origination has come with sustained
spreads and risk profile.
RECI's ability to participate in that senior loan origination is constrained
by the availability of its cash resources and the competing requirements of
cash generated through loan income and repayments (share buybacks and
dividends primarily).
Nonetheless, RECI did reinvest loan redemption proceeds from two investments
repaid in June and July into one senior loan in this period, at a 65% LTV and
secured by a portfolio of well performing core assets in London. The levered
investment provides a net running income of 16% to RECI, assisting RECI in
improving its net operating income and dividend cover.
RECI will seek to participate in further highly cash generative deals
presented by its manager, while taking into consideration its competing
capital requirements.
Portfolio Composition - Top 10 Assets
Deal Description Commitment % of Entry LTV Investment Strategy Sector Country Asset Type
NAV
1 Light industrial, office and mid-market residential portfolio in the UK £82.1m 26% 48% Senior Loan Mixed-Use United Kingdom Development
2 Senior Loan refinance of four 4-star upscale hotels in central London £65.6m 20% 65% Senior Loan Hotel United Kingdom Core+
3 Student accommodation development in London £48.1m 15% 58% Senior Loan Student Accommodation United Kingdom Development
4 Residential, affordable housing and mixed-use scheme over five blocks within £32.7m 10% 67% Senior Loan Residential United Kingdom Development
Greater London
5 Refurbishment and extension of a freehold office building in Saint Ouen, Paris £30.9m 10% 58% Senior Loan Office France Value Add/ Transitional
6 Fully operating Hotels in Nice and Paris, sale expected in Q1 2025 £22.7m 7% 80% Senior Loan Hotel France Development
7 Build-for-sale luxury villa development £22.4m 7% 50% Senior Loan Residential Spain Development
8 Income producing residential developer in France £20.6m 6% 36% Senior Loan Housebuilder France Development
9 Fully operating hotel in Helsinki £20.4m 6% 65% Senior Loan Hotel Finland Core
10 Acquisition of the leasehold interest in 190 luxury assisted living units in £19.7m 6% 60% Senior Loan Assisted Living United Kingdom Development
Kensington, London
Risk Ranking
Key Risk Rating Number Investment Portfolio Fair Value (Gross) % of NAV
1 Performing. Not on Watchlist 21 £331.8m 103%
2 Performing. Watchlist for potential underperformance 2 £45.6m 14%
3 Defaulted. No expected losses to NAV 1 £9.9m 3%
4 Defaulted. Possible loss to NAV 2 £2.6m 1%
Total 26 £389.9m 121%
Risk Rating (Dirty FV % of NAV)
Looking Forward
The immediate priority for RECI remains the following:
1) Preservation of value in its existing book. The focus here is on delivering a
full recovery for the remaining (albeit declining) loan book
2) Improving the overall net income of the loan book. This can only be achieved
by reinvesting some of the proceeds of loan repayments into highly selective
core income producing senior loans
Those priorities are aimed at the dual objectives of (a) reducing NAV
volatility (as the loan book reduces, NAV volatility is likely to increase
without further reinvestment) and (b) improving the dividend cover, without
the need for cover from trading profits (i.e. looking solely to income for
dividend cover through time). Expansion of the capital base would clearly help
to support this dual objective.
Cheyne Capital Management (UK) LLP 27 November 2024
BUSINESS AND STRATEGY REVIEW
Sustainability Report
RECI's Approach to Sustainability
RECI aims to operate in a responsible and sustainable manner over the long
term. The Company prioritises continuous enhancement of ESG credentials across
the portfolio, and its success is aligned with the delivery of positive
outcomes for all its stakeholders, not least the communities in which the
buildings that it finances live, work and enjoy.
The Company's main activities are carried out by Cheyne, the Investment
Manager, and as such the Company adopts the Investment Manager's policy and
approach to sustainability and integrating ESG principles.
The Investment Manager was one of the initial signatories to the Standards
Board for Alternative Investments (formerly known as the Hedge Fund Standards
Board) and is a signatory to the United Nations-supported Principles for
Responsible Investment ("PRI").
Several standards and codes have received prominence as metrics for investment
managers. These include, for example, the UN Principles for Responsible
Investment ("UN PRI"), the Task Force on Climate-related Financial Disclosures
("TCFD"), the Financial Reporting Council's Stewardship Code, and the FCA's
Sustainability Disclosure Requirements ("SDR").
The Investment Manager's Stewardship Committee provides firm wide oversight
over its processes, seeking to ensure compliance with existing Responsible
Investment and ESG policies and procedures, and creates a direct communication
channel for all ideas and concerns around ESG. In addition, the ESG
Implementation Forum acts as a conduit for the streamlining of various
initiatives across investment lines and ensures that it continuously improves
its ESG standards.
Cheyne's Partnership with Evora Global
ESG considerations have formed a key part of Cheyne's approach to investments
in real estate for many years. In February 2022, Cheyne partnered with Evora,
widely recognised as one of the leading sustainability consultancy specialists
to the real estate industry, to formalise its approach to the incorporation of
sustainability considerations into the investment process.
Cheyne Core ESG Principles
Incorporating Sustainability into the Investment Process
Due Diligence
RECI is primarily invested in real estate loans and other real estate-based
debt investments. Key factors taken into consideration, where appropriate and
possible, are best-in- class environmental, design and construction standards,
a focus on Building Research Establishment Environmental Assessment ("BREEAM")
ratings, governance rights and engagement with sponsors. Sustainability risks
are considered during the Investment Manager's initial due diligence in
respect of an investment opportunity, including as part of the external
valuations of the real estate being financed (such valuations typically
consider any environmental and/or social risks) and early engagement with
potential borrowers or issuers through a data gathering exercise.
The Investment Manager's analysts also compile reports using data gathered
from their own due diligence and external reports, environmental performance
indicators (including BREEAM ratings and Energy Performance Certificates) and
investigations (including through the use of forensic accountants and other
third-party consultants). This information is included in the investment
committee memorandum, which is considered by the Investment Manager's
investment committee prior to an investment being made.
Decision-Making Process
Sustainability risks are considered as part of the investment decision-making
process for RECI. In particular, the following sustainability risks are
typically considered, both in respect of the real estate being financed and/or
the relevant borrower or issuer:
· Environmental: power generation (including its sustainability), construction
standards, water capture, energy efficiency, land use and ecology and
pollution
· Social: affordable housing provisions, community interaction and health and
safety conditions
widening and the ability to redeploy at higher rates quickly
· Governance: management experience and knowledge and anti-money laundering,
corruption, and bribery practice.
Exit
ESG considerations are already having an impact on underlying real estate
values and whilst clear data-driven evidence is in its infancy, the Investment
Manager is acutely aware that during the life of the loans that RECI is
writing, this will become much clearer. As such this is an important
consideration regarding risk analysis now; hence the approach above is an
integral tool when calculating, managing and measuring risk.
Ongoing Management
Sustainability risks also form part of the ongoing monitoring of RECI's
investments, with regular reports and ongoing engagement from borrowers and
issuers incorporating information related to sustainability risks provided to
the Investment Manager. Where appropriate, the investment team will assist
borrowers and issuers in addressing ESG- related issues and support its
borrowers' and issuers' efforts to report externally and internally on their
ESG approach and performance in relation to material sustainability risks.
The ongoing (since 2022) partnership with Evora Global is expected to enable
Cheyne to remain at the forefront of the rapidly evolving ESG agenda and
provide an independent checkpoint to challenge their ESG investment process
and ensure robustness.
Cheyne has taken a staged approach in developing its ESG strategy, with its
philosophy drawing on the following four drivers:
1) The Greater Good
2) Value Enhancement/Risk Management
3) Regulation
4) Investor Expectations
Cheyne has worked with Evora to prepare customised ESG questionnaires for each
of the real estate asset types the Cheyne lending funds finance: standing,
refurbishment and development assets, together with a borrower questionnaire.
An ESG data template has also been prepared (one template for all asset
types).
The questionnaires seek to quantify each investment's ESG credentials,
utilising a consistent approach to enable aggregation across the assets within
the relevant Cheyne fund.
The questionnaires are utilised by the investment analysts as part of their
investment evaluation. Investment memos for all proposed investments include a
mandatory section on ESG considerations, which are reviewed and discussed at
the relevant Investment Committee meeting.
Standards and Guidance
A range of external guidance and best practice standards have been used to
inform the development of the ESG questionnaires, including:
· Building Research Establishment Environmental Assessment Method ("BREEAM")
· Carbon Risk Real Estate Monitor ("CRREM")
· EU Taxonomy
· Global Real Estate Sustainability Benchmark ("GRESB")
· Incorporating Sustainability into the Investment Process
· Minimum Energy Efficiency Standards ("MEES")
· Sustainable Finance Disclosure Regulations ("SFDR")
Cheyne's Partnership with Carbon.Climate.Certified
Cheyne has also now appointed Carbon.Climate.Certified to prepare a CRREM
alignment assessment for every proposed transaction, outlining how the deal
could ultimately achieve CRREM alignment, dependent on cost and viability.
Carbon.Climate.Certified will work to establish the scope for a
decarbonisation pathway, determine targets, deliverable requirements and
create an action plan for net zero alignment and staged gateway reporting. The
collation and analysis of this data will allow Cheyne to make strategic
investment decisions that align with the UK and EU's commitment to achieve a
net-zero carbon economy by 2050.
This commitment reflects Cheyne's dedication to environmental stewardship,
sustainability, and the well- being of the communities it serves.
Outlook and Focus Areas 2024 and Beyond
The Company knows that its Shareholders, including the Directors of the
Company, see attention to ESG factors as critical in its assessment of Cheyne
as the Investment Manager. The Company expects ESG to remain a dominant theme
within the financial services industry going forward; the course being taken
by regulators suggests that its importance will only increase in years to
come; the research process and the investment judgements the Company makes
will continue to reflect that and to evolve as necessary.
The continuing evolution is demonstrated through the Investment Manager in
completing and implementing its ESG framework which now forms the basis of an
evaluation tool to influence investment decisions from an ESG perspective for
new projects.
The most recent phase of its ESG evolution has involved the engagement of a
leading ESG asset level consultant to capture more defined asset level metrics
and develop a decarbonisation strategy. The initial focus of the strategy is
to quantify and report carbon impacts associated with each portfolio's assets.
The collation and analysis of this data will allow Cheyne to make strategic
investment decisions that align with the UK and EU's commitment to achieve a
net-zero carbon economy by 2050. This commitment reflects the Investment
Manager's dedication to environmental stewardship, sustainability, and the
wellbeing of the communities it serves. As part of its involvement with this
project, the Investment Manager has assessed and implemented new frameworks
(e.g. CRREM) to secure its assets and reduce the risk of stranding.
The Investment Manager firmly believes that adopting this approach has:
· Enhanced the quality of the portfolio and help to protect value;
· Enabled the IM to stay ahead of investor demand to invest in sponsors that
have a plausible and demonstrable ESG strategy;
· Used capital to drive/accelerate change in the Real Estate arena in regard to
ESG; and
· Provided a measurable approach to understanding the ESG dynamics of our
portfolio.
These efforts are being fully incorporated into the investment process and
allow the Investment Manager to influence borrowers and to improve the ESG
standards of projects which they fund.
Looking ahead, one of the main focuses will be on new regulatory requirements.
This year the Investment Manager advanced its reporting under the TCFD
framework and produced its inaugural FCA TCFD entity report. This report
outlines how Cheyne considers climate-related matters when managing assets,
and sets out Cheyne's approach to Governance, Strategy and Risk Management, as
well as relevant climate-related Metrics and Targets. Due to its role as
Investment Manager, Cheyne also produced a FCA TCFD product-level report for
RECI.
Both reports are publicly available and can be found on Cheyne's website
www.cheynecapital.com/esg- (http://www.cheynecapital.com/esg-)
responsibleinvestment
In addition, the UK's regulatory framework SDR continues to come into force in
stages. As a non-UK domiciled company, the existing scope of the SDR has very
little impact on RECI, with no additional reporting or product labelling
requirements imposed. Nonetheless, RECI will continue to monitor the
regulatory landscape as well as consider best practices as pertains to SDR and
other such frameworks. Effective 31 May 2024, the Investment Manager was
brought into scope of the FCA's Anti-Greenwashing Rule and continues to work
closely with relevant parties to ensure that it is meeting its regulatory
obligations.
Further details, Cheyne's ESG policy can be found on its website:
www.cheynecapital.com/esg- (http://www.cheynecapital.com/esg-)
responsibleinvestment Residential development in the United Kingdom
GOVERNANCE
Directors' Responsibility Statement
Governance
We confirm that to the best of our knowledge:
a) the condensed unaudited interim financial statements have been prepared in
accordance with International Accounting Standard 34 Interim Financial
Reporting ("IAS 34")
b) the interim management report (contained in the Chairman's Statement and
Investment Manager's Report) includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and a description of principal risks and uncertainties for the
remaining six months of the year); and
c) the interim management report (contained in the Chairman's Statement and
Investment Manager's Report) includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions and changes
therein).
Principal Risks and Uncertainties
The principal risks and uncertainties faced at the time of the last annual
report remain valid for the purposes of the interim management report. The
Board considers that the following are the principal risks and uncertainties
faced by the Company. There are no emerging risks since the publication of the
annual report.
Long-term Strategic Risk
The Company is subject to the risk that its long-term strategy and its level
of performance fail to meet the expectations of its Shareholders. The shares
may trade at a continuing discount to NAV and Shareholders may be unable to
realise their investments through the secondary market at NAV per share.
Target Portfolio Returns and Dividend Risk
The Company's targeted returns are based on estimates and assumptions that are
inherently subject to significant business and economic uncertainties and
contingencies, and the actual rate of return may be materially lower than the
targeted returns.
Valuation Risk
The valuation and performance of the Company's investments that comprise its
portfolio of real estate debt instruments are the key value drivers for the
Company's NAV and interest income. Judgements over fair value estimates could
significantly affect these key performance indicators.
Credit Risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company.
Market Risk
Market risk is the risk that the fair value and future cash flows of a
financial instrument will fluctuate because of changes in market factors.
Market risk comprises interest rate risk, currency risk and price risk.
Interest Rate Risk
Interest rate risk is the risk that the fair value and future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
Currency Risk
Currency risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in foreign exchange
rates.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities on a timely basis.
Other Risk Factors
These currently include: geopolitical and macroeconomic risks including
volatility, continuing higher rates, supply chain disruption, the continuing
impact of the Ukraine conflict, and the effects of climate change and cyber
security.
The detailed explanation of these principal risks and uncertainties can be
found in the Strategic Report section under the Risk Management section of the
31 March 2024 annual report, which is available on the Company's website.
By order of the Board
Andreas Tautscher
Director
Susie Farnon
Director
27 November 2024
Condensed Unaudited Interim Financial Statements
For the six months ended 30 September 2024
Financial Statements
Independent Review Report
to Real Estate Credit Investments Limited
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2024 which comprises the condensed unaudited statement of
comprehensive income, the condensed unaudited statement of financial position,
the condensed unaudited statement of changes in equity, the condensed
unaudited statement of cash flows and related notes 1 to 20.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2024 is not prepared,
in all material respects, in accordance with International Accounting Standard
34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410).
A review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the company are
prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the IASB. The condensed set of financial statements
included in this half-yearly financial report has been prepared in accordance
with International Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Company's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Review of the Financial Information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of Our Report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the Company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP Recognised Auditor
Guernsey, Channel Islands 27 November 2024
Condensed Unaudited Statement of Comprehensive Income
For the Six Months Ended 30 September 2024
Note 30 Sep 2024 30 Sep 2023
GBP GBP
Interest income 5 14,712,584 15,239,555
Net gains on financial assets and liabilities at fair value through profit or 3 3,439,720 5,028,184
loss
Net foreign currency gains 242,728 212,411
Other income 37,236 72,986
Operating income 18,432,268 20,553,136
Operating expenses 4 (3,629,542) (2,873,145)
Profit before finance costs 14,802,726 17,679,991
Finance costs 5 (1,897,862) (2,089,118)
Net profit 12,904,864 15,590,873
Other comprehensive income - -
Total comprehensive income 12,904,864 15,590,873
Earnings per share
Basic and diluted 10 5.8p 6.8p
Weighted average shares outstanding Number Number
Basic and diluted 10 223,863,025 229,332,478
All items in the above statement are derived from continuing operations.
The accompanying notes form an integral part of the condensed unaudited
interim financial statements.
Condensed Unaudited Statement of Financial Position
As at 30 September 2024
Note(s) 30 Sep 2024 31 Mar 2024
GBP GBP
Non-current assets
Financial assets at fair value through profit or loss 12,14 389,886,502 329,368,799
389,886,502 329,368,799
Current assets
Cash and cash equivalents 16,911,500 18,289,567
Cash collateral at broker 15 930,745 4,489,272
Derivative financial assets 13 4,337,086 -
Other assets 55,201 104,298
22,234,532 22,883,137
Total assets 412,121,034 352,251,936
Equity and liabilities
Equity
Share capital 11 330,950,337 331,405,039
Treasury shares 11 (9,192,906) (5,023,350)
321,757,431 326,381,689
Current liabilities
Financing agreements 8 79,599,932 23,789,792
Dividends payable 9 6,656,820 -
Cash collateral due to broker 15 1,420,000 14,400
Derivative financial liabilities 13 - 87,967
Other liabilities 6 2,686,851 1,978,088
90,363,603 25,870,247
Total liabilities 90,363,603 25,870,247
Total equity and liabilities 412,121,034 352,251,936
Shares outstanding 11 221,894,004 225,237,478
Net asset value per share £1.45 £1.45
The accompanying notes form an integral part of the condensed unaudited
interim financial statements. Signed on behalf of the Board of Directors by:
Andreas Tautscher, Director
Susie Farnon, Director
27 November 2024
Condensed Unaudited Statement of Changes in Equity
For the Six Months Ended 30 September 2024
Note Share capital Treasury shares Total equity
GBP GBP GBP
Balance as at 31 March 2024 331,405,039 (5,023,350) 326,381,689
Total comprehensive income 12,904,864 - 12,904,864
Dividends 9 (13,359,566) - (13,359,566)
Treasury shares purchased 11 - (4,169,556) (4,169,556)
Balance as at 30 September 2024 330,950,337 (9,192,906) 321,757,431
Note Share capital Treasury shares Total equity
GBP GBP GBP
Balance as at 31 March 2023 336,965,907 - 336,965,907
Total comprehensive income 15,590,873 - 15,590,873
Dividends 9 (13,759,948) - (13,759,948)
Balance as at 30 September 2023 338,796,832 - 338,796,832
The accompanying notes form an integral part of the condensed unaudited
interim financial statements.
Condensed Unaudited Statement of Cash Flows
For the Six Months Ended 30 September 2024
Notes 30 Sep 2024 30 Sep 2023
GBP GBP
Net profit 12,904,864 15,590,873
Purchases of investment portfolio (97,788,622)1 (50,695,576)
Repayments/sales proceeds on investment portfolio 45,100,906 59,321,049
Movement in realised and unrealised losses/(gains) on investment portfolio 3 1,379,979 (1,784,919)
Net movement on derivative financial assets and liabilities (4,425,053) 3,411,976
Interest income (14,712,584) (15,239,555)
Finance costs 1,897,862 2,089,118
Operating cash flows before movement in working capital (55,642,648) 12,692,966
Decrease/(increase) in cash collateral at broker 3,558,527 (4,769,975)
Decrease/(increase) in other assets 49,097 (18,015)
Increase in cash collateral due to broker 1,405,600 -
Increase in other liabilities 708,763 219,242
Movement in working capital 5,721,987 (4,568,748)
Interest received 5,502,6181 13,279,611
Net cash flow (outflow)/inflow operating activities (44,418,043) 21,403,829
Financing activities
Dividends paid to Shareholders 9 (6,702,746) (6,879,974)
Payments under financing agreements 8 (52,295,011) (154,253,212)
Proceeds under financing agreements 8 107,184,229 132,884,372
Finance costs paid 8 (976,940) (1,830,437)
Payments on treasury shares purchased 11 (4,169,556) -
Net cash inflow/(outflow) financing activities 43,039,976 (30,079,251)
Net decrease in cash and cash equivalents (1,378,067) (8,675,422)
Cash and cash equivalents at the start of the period 18,289,567 14,081,343
Cash and cash equivalents at the end of the period 16,911,500 5,405,921
1 Excludes payment-in-kind amounting to £6,439,463 for the period ended 30
September 2024.
The accompanying notes form an integral part of the condensed unaudited
interim financial statements.
Notes to the Condensed Unaudited Interim Financial Statements
For the Six Months Ended 30 September 2024
1. General Information
Real Estate Credit Investments Limited ("RECI" or the "Company") was
incorporated in Guernsey, Channel Islands on 6 September 2005 with registered
number CMP 43634. The Company commenced its operations on 8 December 2005.
The Company invests in real estate debt secured by commercial or residential
properties in the United Kingdom and Western Europe, focusing primarily on
those countries where it sees the changing dynamics in the real estate debt
market offering a sustainable deal flow for the foreseeable future. The
Company has adopted a long-term strategic approach to investing and focuses on
identifying value in real estate debt. In making these investments, the
Company uses the expertise and knowledge of its Alternative Investment Fund
Manager ("AIFM"), Cheyne Capital Management (UK) LLP ("Cheyne" or the
"Investment Manager").
The Company's shares are currently listed and trade on the Main Market of the
London Stock Exchange. The shares offer investors a levered exposure to a
portfolio of real estate credit investments and aim to pay a quarterly
dividend.
The Company's investment management activities are managed by the Investment
Manager, who is also the AIFM. The Company has entered into an Investment
Management Agreement (the "Investment Management Agreement") under which the
Investment Manager manages its day-to-day investment operations, subject to
the supervision of the Company's Board of Directors. The Company is an
Alternative Investment Fund ("AIF") within the meaning of the Alternative
Investment Fund Managers Directive ("AIFMD") and accordingly the Investment
Manager has been appointed as AIFM of the Company, which has no employees of
its own. For its services, the Investment Manager receives a monthly
Management Fee, expense reimbursements and accrues a Performance Fee (see Note
16). The Company has no ownership interest in the Investment Manager.
Citco Fund Services (Guernsey) Limited is the Administrator and provides all
administration services to the Company in this capacity. The Bank of New York
Mellon (International) Limited is the Depositary and undertakes the custody of
assets. Aztec Financial Services (Guernsey) Limited is the Company Secretary.
2. Material Accounting Policies
Statement of Compliance
The condensed unaudited interim financial statements for the period ended 30
September 2024 have been prepared in accordance with International Accounting
Standard ("IAS") 34 Interim Financial Reporting ("IAS 34") as issued by the
International Accounting Standards Board ("IASB"). The same accounting
policies, presentation and methods of computation have been followed in these
condensed unaudited interim financial statements as were applied in the
preparation of the Company's audited financial statements for the year ended
31 March 2024.
The condensed unaudited interim financial statements do not contain all the
information and disclosures required in a full set of annual financial
statements and should be read in conjunction with the audited financial
statements of the Company for the year ended 31 March 2024, which were
prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the IASB.
The comparative information for the year ended 31 March 2024 does not
constitute Statutory Accounts as defined by Guernsey Law. A copy of the
Statutory Accounts for that year has been delivered to the Shareholders and is
available on the Company's website: www.realestatecreditinvestments.com.
(http://www.realestatecreditinvestments.com/)
The operations of the Company are not subject to seasonal fluctuations.
New Standards, Amendments and Interpretations Issued and Effective for the
Financial Year Beginning 1 April 2024
The Company has applied the following standards and amendments for the first
time for its interim reporting period commencing 1 April 2024:
· Classification of Liabilities as Current or Non-current and Non-current
liabilities with covenants - Amendments to IAS 1 Presentation of financial
statements;
· Lease Liability in Sale and Leaseback - Amendments to IFRS 16; and
· Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7.
The amendments listed above have no material impact on the financial
statements of the Company.
New Standards, Amendments and Interpretations Issued but not Effective for the
Financial Year Beginning 1 April 2024 and not Early Adopted.
Title Effective for periods beginning on or after
Amendments to IAS 21 - Lack of Exchangeability 1 January 2025
Amendments to the Classification and Measurement of Financial Instruments - 1 January 2026
Amendments to IFRS 9 and IFRS 7
IFRS 19 Subsidiaries without Public Accountability: Disclosures 1 January 2027
IFRS 18 Presentation and Disclosure in Financial Statements 1 January 2027
Amendments to IAS 21 provide guidance to specify when a currency is
exchangeable and how to determine the exchange rate when it is not. Earlier
application is permitted. The Company did not early adopt these amendments and
expects that the amendments will have no material impact on the financial
statements.
Amendments to IFRS 9 and IFRS 7 respond to recent questions arising in
practice, and to include new requirements not only for financial institutions
but also for corporate entities. These amendments:
· clarify the date of recognition and derecognition of some financial assets and
liabilities, with a new exception for some financial liabilities settled
through an electronic cash transfer system;
· clarify and add further guidance for assessing whether a financial asset meets
the solely payments of principal and interest criterion;
· add new disclosures for certain instruments with contractual terms that can
change cash flows (such as some financial instruments with features linked to
the achievement of environment, social and governance targets); and
· update the disclosures for equity instruments designated at fair value through
other comprehensive income.
The Company did not expect these amendments to have a material impact on its
operations or financial statements.
IFRS 19 allows for certain eligible subsidiaries of parent entities that
report under IFRS Accounting Standards to apply reduced disclosure
requirements. The Company did not expect this standard to have an impact on
its operations or financial statements.
IFRS 18 will replace IAS 1, introducing new requirements that will help to
achieve comparability of the financial performance of similar entities and
provide more relevant information and transparency to users. Even though IFRS
18 will not impact the recognition or measurement of items in the financial
statements, its impacts on presentation and disclosure are expected to be
pervasive, in particular those related to the statement of financial
performance and providing management-defined performance measures within the
financial statements. The Company did not early adopt these amendments and the
management is currently assessing the detailed implications of applying the
new standard on the Company's financial statements.
Basis of Preparation
The condensed unaudited interim financial statements of the Company are
prepared under IFRS on the historical cost or amortised cost basis except for
financial assets and liabilities classified at fair value through profit or
loss which have been measured at fair value.
For the period ended 30 September 2024 and year ended 31 March 2024, the
financial assets at fair value through profit or loss include the related
interest receivable to reflect the measurement of the Company's investments as
a single unit of account, which includes all cash flows associated with the
asset.
The functional and presentation currency of the Company is British Pounds
("GBP" or "£"), which the Board considers best represents the economic
environment in which the Company operates.
Going Concern
The Directors believe it is appropriate to adopt the going concern basis in
preparing the condensed unaudited interim financial statements as, after due
consideration, they consider that the Company has adequate resources to
continue in operational existence for a period of at least twelve months from
the date of signing the condensed unaudited interim financial statements.
The Investment Manager performed an evaluation of each of its positions in
light of all geopolitical and macroeconomic factors on operating models and
valuations, and performed a granular analysis of the future liquidity profile
of the Company. A detailed cash flow profile of each investment was completed,
incorporating the probability of likely delays to repayments, other stress
tests (and additional cash needs).
Taking account of the updated forecasting, the Directors consider that the
cash, cash equivalents and cash collateral at/to brokers as at 30 September
2024 of £16.4 million (31 March 2024: £22.8 million), the liquidity of the
market bond portfolio and the financing available through activities such as
repurchase agreements as described in Note 8, are sufficient to cover normal
operational costs and current liabilities, including the proposed dividend,
and the expected funding of loan commitments as they fall due for a period of
at least twelve months from the date of signing the condensed unaudited
interim financial statements. The Directors note that a key assumption adopted
in the going concern analysis is that leverage through repurchase agreements
is not withdrawn. Net debt (leverage minus cash) as at 30 September 2024 was
20.6% (31 March 2024: 1.5%).
As disclosed in Note 17, as at 30 September 2024, the Company had committed
£494.8 million into the loan and bond portfolio of which £409.7 million had
been funded (31 March 2024: £489.0 million commitment of which £352.1
million had been funded). The Investment Manager models these expected
commitments and only funds if the borrowers meet specific business plan
milestones.
Notwithstanding the Directors' belief that this assumption remains
justifiable, the Directors have also determined a number of mitigations to
address a scenario where all outstanding repurchase agreements are required to
be settled as they fall due. Whilst there would be a number of competing
strategic factors to consider before implementation of such options, the
Directors believe that these are credible and can generate sufficient
liquidity to enable the Company to meet its obligations as they fall due. Such
strategies include cessation or delay of any future dividends, obtaining
longer-term and non-recourse financing, and further sales of assets within the
bond portfolio.
In carrying out the Company's strategy, the Investment Manager undertakes the
following measures:
· An initial and continuing detailed evaluation of each of its portfolio
positions in light of the various impacts of changing economic circumstances
on operating models and valuations;
· Positive engagement with all borrowers and counterparties; and
· Continued granular analysis of the future liquidity profile of the Company.
In consideration of this additional stressed scenario and mitigations
identified, the Directors consider that the Company has adequate resources to
continue in operational existence for a period of at least twelve months from
the date of signing the condensed unaudited interim financial statements.
3. Net Gains on Financial Assets and Liabilities at Fair Value through Profit or Loss
30 Sep 2024 30 Sep 2023
GBP GBP
Net gains/(losses)
Net gains on market bond portfolio 462,583 1,526,664
Net (losses)/gains on bilateral loan and bond portfolio (3,263,343) 439,399
Net gains/(losses) on equity securities 1,420,781 (181,144)
Net gains on forward foreign exchange contracts 4,819,699 3,243,265
Net gains on financial assets and liabilities at fair value through profit or 3,439,720 5,028,184
loss
4. Operating Expenses
Note 30 Sep 2024 30 Sep 2023
GBP GBP
Investment management, administration and depositary fees
Investment management fees 16 2,084,951 2,139,184
Administration fees 16 141,823 142,064
Depositary fees 16 35,690 32,060
2,262,464 2,313,308
Other operating expenses
Deal and underwriting expenses 496,3771 -
Legal fees 211,273 60,375
Directors' fees 137,510 115,775
Audit fees 67,500 56,625
Corporate Secretary fees 55,000 37,500
Fees to auditor for non-audit services 45,000 39,500
Research fees 35,136 18,450
Registration fees 30,000 30,000
Regulatory body expenses 19,247 8,733
Directors and Officers' insurance fees 9,259 10,239
Other expenses 260,776 182,640
1,367,078 559,837
Total operating expenses 3,629,542 2,873,145
1 The costs relate to the annual running costs of each securitization entity
(ENIV) compartment along with any abortive costs on failed deals
The ongoing charges are calculated based on the most recent Association of
Investment Companies ("AIC") guidance issued in October 2024. For 30 September
2024 they are 1.78% and the restated costs, based on the most recent AIC
guidance, for 30 September 2023 are 1.67%.The costs exclude legal transaction
fees and financing.
5. Interest Income and Finance Costs
The following table details interest income and finance costs from financial
assets and liabilities for the period:
30 Sep 2024 30 Sep 2023
GBP GBP
Interest income on financial assets at fair value through profit or loss
Real Estate Credit Investments - market bond portfolio 411,325 1,428,088
Real Estate Credit Investments - bilateral loan and bond portfolio 13,843,797 13,700,139
14,255,122 15,128,227
Interest income on financial assets at amortised cost
Cash and cash equivalents and cash collateral at broker 457,462 111,328
Total interest income 14,712,584 15,239,555
Finance costs
Cost of financing agreements (1,897,862) (2,089,118)
Total finance costs (1,897,862) (2,089,118)
6. Other Liabilities
Note 30 Sep 2024 31 Mar 2024
GBP GBP
Investment management, depositary and administration fees payable
Investment management fees payable 16 330,008 317,221
Depositary fees payable 16 91,804 66,708
Administration fees payable 16 58,502 37,548
480,314 421,477
Other operating payables
Deal and underwriting expenses payable 310,4931 -
Legal fees payable 198,486 86,436
Registration fees payable 178,916 148,917
Corporate Secretary fees payable 92,500 37,500
Audit fees payable 83,067 85,375
Directors' fees payable 70,233 57,887
Research fees payable 26,070 35,144
Regulatory body fees payable 8,040 -
Other expense accruals 1,238,732 1,105,352
2,206,537 1,556,611
Total other liabilities 2,686,851 1,978,088
1 The costs relate to the annual running costs of each securitization entity
(ENIV) compartment along with any abortive costs on failed deals.
7. Structured Entities not Consolidated
A structured entity is an entity that has been designed so that voting or
similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and
the relevant activities are directed by means of contractual arrangements. A
structured entity often has some or all of the following features or
attributes:
· restricted activities;
· a narrow and well-defined objective, such as to effect a tax-efficient lease,
carry out research and development activities, provide a source of capital or
funding to an entity or provide investment opportunities for investors by
passing on risks and rewards associated with the assets of the structured
entity to investors;
· insufficient equity to permit the structured entity to finance its activities
without subordinated financial support; and
· financing in the form of multiple contractually linked instruments to
investors that create concentrations of credit or other risks (tranches).
The Company has concluded that the unlisted entities in which it invests, but
does not consolidate, meet the definition of structured entities. Cheyne
utilises structured entities in order to obtain leverage, whilst limiting
recourse to the underlying funds. Cheyne implements an off-balance sheet
funding structure by establishing an orphan Special Purpose Vehicle or SPV
("LOL Vehicle") to own and manage a discrete, diversified pool of repackaged
senior debt exposures financed pro rata by Cheyne funds and a bank. The
Sponsors who will fund the Orphan SPV will be a combination of Cheyne-managed
funds, of which RECI is one. The bank lender faces Real Estate Loan Funding
("RELF") (an orphan SPV established for the purpose of holding and financing a
discrete pool of senior mortgage exposures, held in listed/cleared bond
format). RECI, alongside other participating Cheyne funds, holds asset-linked
notes issued by RELF. The recourse is either to the RELF only, or via certain
limited recourse fund guarantees (i.e. maximum 25% of amounts borrowed).
Financing is "off-balance sheet" and all other assets in RECI are
unencumbered, except insofar as a limited recourse guarantee is provided. This
arrangement limits RECI's exposure to the underlying credit(s) and financing.
This conclusion will be reassessed on an annual basis, if any of these
criteria or characteristics change.
As a result, the Company recognises its interests in structured entities as
investments at fair value through profit or loss in accordance with IFRS 10
Consolidated Financial Statements and therefore there is no requirement to
consolidate in full. However, in line with IFRS 12 Disclosure of Interest in
Other Entities, the details of the interests in the unconsolidated structured
entities are disclosed on the below. The maximum exposure to loss is the
carrying amount of the financial assets held which is equal to the fair value
of loans and units in funds as at 30 September 2024 and 31 March 2024.
30 September 2024
Fair value of loans(1) Fair value Undrawn commitment Carrying value Nature and purpose of the entity Location Equity held Percentage Other exposure(3)
Name GBP of loans(1) GBP GBP held(2)
GBP %
RELF4
To invest in Fulton United
Fulton Road 22,696,326 10,145,896 11,705,405 Road real estate Kingdom No - No
To invest in
Kensington real United
Kensington 16,917,751 235,920 8,099,449 estate Kingdom No - No
To invest in Ruby
Ruby 9,474,125 279,577 4,756,613 real estate Luxembourg No - No
To invest in Sabina
Sabina 14,512,114 7,918,938 9,000,342 real estate Luxembourg No - No
To invest in Cheyne
French Funding
Cheyne French Sub-Fund 3
Funding Sub-Fund 3 9,899,445 3,210,513 9,899,445 real estate France No - No
To invest in Cheyne
French Funding
Cheyne French Sub-Fund 8
Funding Sub-Fund 8 21,952,635 5,047,924 22,319,730 real estate France No - No
1 This amount excludes interest receivables.
2 RECI has interest in the structured entities through loan notes instruments
and hence the equity percentage held is nil.
3 Other exposure indicates if the investment in the structured entity comes
with any associated potential valuation uplift. These can include, but are not
limited to: profit share, variable exit fees, and exposure to enterprise value
uplift.
4 The total loan exposure on RELF will not equal the carrying value disclosed
above due to financing within the RELF structure.
31 March 2024
Fair value of loans(1) Fair value Undrawn commitment Carrying value Nature and purpose of the entity Location Equity held Percentage Other exposure(3)
Name GBP of loans(1) GBP GBP Held(2)
GBP %
RELF4
To invest in Fulton United
Fulton Road 15,261,761 17,463,239 7,887,798 Road real estate Kingdom No - No
To invest in
Kensington real United
Kensington 17,550,039 235,920 8,035,371 estate Kingdom No - No
Lifestory 12,650,000 - 4,162,723 To invest in Lifestory real estate Luxembourg No - No
To invest in Ruby
Ruby 8,193,829 1,559,872 4,166,958 real estate Luxembourg No - No
To invest in Sabina
Sabina 15,868,950 6,562,102 8,865,264 real estate Luxembourg No - No
To invest in Cheyne
French Funding
Cheyne French Sub-Fund 3
Funding Sub-Fund 3 10,371,910 3,298,879 10,371,911 real estate France No - No
To invest in Cheyne
French Funding
Cheyne French Sub-Fund 8
Funding Sub-Fund 8 24,477,358 5,202,294 24,709,172 real estate France No - No
1 This amount excludes interest receivables.
2 RECI has interest in the structured entities through loan notes instruments
and hence the equity percentage held is nil.
3 Other exposure indicates if the investment in the structured entity comes
with any associated potential valuation uplift. These can include, but are not
limited to: profit share, variable exit fees, and exposure to enterprise value
uplift.
4 The total loan exposure on RELF will not equal the carrying value disclosed
above due to financing within the RELF structure.
8. Financing Agreements
The Company enters into repurchase agreements with several banks to provide
leverage. This financing is collateralised against certain of the Company's
bond portfolio assets with a fair value totalling £118.6 million (31 March
2024: £39.5 million) and a weighted average cost of 7.92% (31 March 2024:
7.73%) per annum. The contractual maturity period of the repurchase
arrangements is minimum of 6 months or term matched to the underlying loan (31
March 2024: 3 to 6 months).
This short-term financing is shown as a current liability in the Condensed
Unaudited Statement of Financial Position whereas the collateralised assets
are shown as non-current. The movement in financing agreements amounting to
£54.9 million (30 September 2023: £21.4 million) and finance costs paid
amounting to £1.0 million (30 September 2023: £1.8 million) are shown as
financing activities in the Condensed Unaudited Statement of Cash Flows.
The following table summarises movements under financing agreements as at 30
September 2024 and 31 March 2024.
30 Sep 2024 31 Mar 2024
GBP GBP
Balance as at 1 April 23,789,792 80,441,157
Proceeds under financing agreements 107,184,229 240,694,426
Payments under financing agreements (52,295,011) (297,180,747)
Finance costs 1,897,862 3,514,078
Finance costs paid (976,940) (3,679,122)
79,599,932 23,789,792
During the financial period ended 30 September 2024, the Company continued to
maintain some off-balance sheet financing agreements. These facilities entered
into during the previous financial year do not have recourse to the Company,
and the lending is structured using off-balance entities, and secured against
the specific loans involved. The aggregate amount of these off-balance sheet
loans as at 30 September 2024 was £33.8 million (31 March 2024: £33.9
million).
During the financial period ended 30 September 2024, the Company continued to
maintain an off-balance sheet financing agreement which does have partial
recourse to the Company. The amount of partial recourse commitment as at 30
September 2024 was £3.6 million (31 March 2024: £3.9 million). No expected
loss from providing this guarantee has been recognised in these condensed
unaudited interim financial statements and no additional collateralisation has
been paid as of period end.
9. Quarterly Dividends
30 Sep 2024 30 Sep 2023
GBP GBP
Share Dividends
Fourth interim dividend for the year ended 31 March 2024/31 March 2023 6,702,746 6,879,974
First interim dividend for the year ending 31 March 2025/31 March 2024 6,656,820 6,879,974
Dividends announced to Shareholders during the period 13,359,566 13,759,948
The total dividends announced during the financial period ended 30 September
2024 amounted to 6.0 pence per share (30 September 2023: 6.0 pence per share).
During the financial period ended 30 September 2024, the dividends paid
totalled £6.7 million (30 September 2023: £6.9 million) while £6.7 million
(31 March 2024: £Nil) was payable at the period end.
Under Guernsey Law, companies can pay dividends provided they satisfy the
solvency test prescribed under the Companies (Guernsey) Law, 2008 (as
amended), which considers whether a company is able to pay its debts when they
become due and whether the value of a company's assets is greater than its
liabilities.
The Directors considered that the Company satisfied the solvency test for all
dividends approved.
10. Earnings per Share
The calculation of the basic and diluted earnings per share is based on the
following data:
30 Sep 2024 30 Sep 2023
Net earnings attributable to shares (GBP) 12,904,864 15,590,873
Weighted average number of shares for the purposes of basic and diluted 223,863,025 229,332,478
earnings per share1
Earnings per share
Basic and diluted (pence) 5.8 6.8
1 The weighted average number of shares takes into account the weighted
average effect of changes in treasury shares during the period.
11. Share Capital
The issued share capital of the Company consists of shares and its capital as
at the period end is represented by the net proceeds from the issuance of
shares and profits retained up to that date. The Company does not have any
externally-imposed capital requirements. As at 30 September 2024, the Company
had equity of £321.8 million (31 March 2024: £326.4 million).
30 Sep 2024 31 Mar 2024
Number of Shares Number of Shares
Authorised Share Capital
Shares of no par value each Unlimited Unlimited
Shares issued and fully paid 229,332,478 229,332,478
Shares outstanding
Shares at the start of the period/year 225,237,478 229,332,478
Shares repurchased and held in treasury (3,343,474) (4,095,000)
Shares at the end of the period/year 221,894,004 225,237,478
Treasury Shares
Shares repurchased and held in treasury at the start of the period/year 4,095,000 -
Shares repurchased and held in treasury 3,343,474 4,095,000
Shares repurchased and held in treasury at the end of the period/year 7,438,474 4,095,000
Pursuant to the share buyback authority approved by the Company's Shareholders
at the Annual General Meeting on 18 September 2024, the Board has granted
authority to the Company's broker, Panmure Liberum Limited, to purchase the
Company's shares in the market, subject to preagreed parameters. All shares
purchased during the period/year are held in treasury.
The Company purchased 3.3 million (31 March 2024: 4.1 million) shares in the
market during the period. The total amount paid to purchase the shares was
£4.2 million (31 March 2024: £5.0 million) and this was presented as a
reduction from the total equity.
The Company manages its capital to ensure that it will be able to continue as
a going concern while maximising the return to Shareholders. The Company is a
closed-ended listed investment company and, as such, Shareholders in the
Company have no right to redeem their shares. Any redemption offered to
Shareholders shall be at the discretion of the Directors of the Company.
The Company currently conducts its affairs so that the shares issued by the
Company can be recommended by Independent Financial Advisers to ordinary
retail investors in accordance with the Financial Conduct Authority ("FCA")
rules in relation to non-mainstream pooled investment products and intends to
continue to do so for the foreseeable future. The shares are excluded from the
FCA's restrictions which apply to non-mainstream investment products because
they are shares in an investment company, which if it were domiciled in the
United Kingdom, would currently qualify as an investment trust.
There were no changes in the policies and procedures during the period ended
30 September 2024 with respect to the Company's approach to its share capital
management.
12. Valuation of Financial Instruments
IFRS 13 Fair Value Measurement requires disclosures surrounding the level in
the fair value hierarchy in which fair value measurement inputs are
categorised for assets and liabilities measured in the Condensed Unaudited
Statement of Financial Position. The determination of the fair value for
financial assets and liabilities for which there is no observable market price
requires the use of valuation techniques. For financial instruments that trade
infrequently and have little price transparency, fair value is less objective.
The Company categorises investments using the following hierarchy as defined
by IFRS 13:
· Level 1 - Quoted market prices in an active market for an identical
instrument;
· Level 2 - Valuation techniques based on observable inputs. This category
includes instruments valued using: quoted market prices in active markets for
similar instruments; quoted prices for similar instruments in markets that are
considered less than active; or other valuation techniques where all
significant inputs are directly or indirectly observable from market data;
and;
· Level 3 - Valuation techniques using significant unobservable inputs. This
category includes all instruments where the valuation technique includes
inputs not based on observable data and the unobservable inputs could have a
significant impact on the instrument's valuation. This category includes
instruments that are valued based on quoted prices for similar instruments
where significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
The following tables analyse within the fair value hierarchy of the Company's
financial assets and liabilities measured at fair value at the period/year end
date:
As at 30 September 2024: Level 1 GBP Level 2 GBP Level 3 GBP Total GBP
Current assets
Forward foreign exchange contracts - 4,337,086 - 4,337,086
Non-current assets
Real Estate Credit Investments - market bond portfolio - 88,463 7,817,224 7,905,687
Real Estate Credit Investments - bilateral loan and bond portfolio - - 366,415,923 366,415,923
Real Estate Credit Investments - equity securities - - 15,564,892 15,564,892
Total non-current assets - 88,463 389,798,039 389,886,502
Current liabilities
Real Estate Credit Investments - repurchase agreements - (79,599,932)1 - (79,599,932)
- (75,174,383) 389,798,039 314,623,656
1 Includes repurchase agreements related to Level 3 investments.
As at 31 March 2024: Level 1 GBP Level 2 GBP Level 3 GBP Total GBP
Non-current assets
Real Estate Credit Investments - market bond portfolio - 100,405 7,793,554 7,893,959
Real Estate Credit Investments - bilateral loan and bond portfolio - - 305,036,801 305,036,801
Real Estate Credit Investments - equity securities - - 16,438,039 16,438,039
Total non-current assets - 100,405 329,268,394 329,368,799
Current liabilities
Real Estate Credit Investments - repurchase agreements - (23,789,792)1 - (23,789,792)
Forward foreign exchange contracts - (87,967) - (87,967)
Total current liabilities - (23,877,759) - (23,877,759)
- (23,777,354) 329,268,394 305,491,040
1 Includes repurchase agreements related to Level 3 investments.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined based on the lowest level input
that is significant to the fair value measurement in its entirety.
The fair value of forward foreign exchange contracts is the difference between
the contracts price and reported market prices of the underlying contract
variables. These are included in Level 2 of the fair value hierarchy.
The fair value of the repurchase agreements is valued at cost or principal and
is included in Level 2 of the fair value hierarchy.
The fair values of investments that trade in markets that are not considered
to be active but are valued based on quoted market prices, dealer quotations
or alternative pricing sources supported by observable inputs are classified
within Level 2. These include investment-grade corporate bonds ("Real Estate
Credit Investments").
As Level 2 investments include positions that are not traded in active markets
and/or are subject to transfer restrictions, valuations may be adjusted to
reflect illiquidity and/or non-transferability, which are generally based on
available market information. In cases where material discounts are applied,
the positions will be valued as Level 3.
The Company makes loans into structures to gain exposure to real estate
secured debt in the United Kingdom and Western Europe. These loans are not
traded in an active market and there are no independent quotes available for
these loans. Such holdings are classified as Level 3 investments. The fair
value of these loans is linked directly to the value of the real estate loans
that the underlying structures invests in, which are determined based on
modelled expected cash flows (drawdown principal and interest repayments, and
maturity dates) with effective yields ranging from 6.2% to 13.2% (31 March
2024: 6.2% to 13.2%) (the unobservable input).
Fair value of the real estate loans is adjusted for changes in the credit
quality of both the borrower and the underlying property collateral, and
changes in the market rate on similar instruments where changes are material.
No material movements on the fair value of the real estate loans have been
identified and the par value of the loans was used. On origination of the
loan, the Investment Manager performs due diligence on the borrower and
related security/property. This includes obtaining a valuation of the
underlying property (to assess LTV of the investment). In most instances, the
terms of the loan require periodic revaluation of the underlying property to
check against LTV covenants. All the fees associated with the investments
(arrangement fees, exit fees, etc.) are paid directly to the Company and not
paid to the Investment Manager.
RECI may invest in equity securities which are not quoted in an active market
and which may be subject to restrictions on redemptions such as lock-up
periods, redemption gates and side pockets. Transactions in the shares of the
funds occur on a regular basis. Equity securities are valued using discounted
cash flow.
In determining the level, RECI considers the length of time until the
investment is redeemable, including notice and lock-up periods or any other
restriction on the disposition of the investment. If RECI has the ability to
redeem its investment at the reported net asset valuation as of the
measurement date, the investment is generally categorised in Level 2 of the
fair value hierarchy. If RECI does not know when it will have the ability to
redeem the investment or it does not have the ability to redeem its investment
in the near term, the investment is categorised in Level 3 of the fair value
hierarchy. Equity securities are categorised in Level 3 of the fair value
hierarchy.
The following tables set out information about significant unobservable inputs
used as at 30 September 2024 and 31 March 2024 in measuring financial assets
categorised as Level 3:
As at 30 September 2024: Fair value Valuation technique Unobservable
GBP input
Market bond portfolio 7,817,224 Priced via external pricing source Comparable set used
Bilateral loan and bond portfolio 366,415,923 Discounted cash flow Risk-adjusted discount rate and sector-based yields
Equity securities 15,564,892 Discounted cash flow Risk-adjusted discount rate and sector-based yields
As at 31 March 2024: Fair value Valuation technique Unobservable
GBP input
Priced via external pricing source
Market bond portfolio 7,793,554 Comparable set used
Risk-adjusted discount rate and sector-based yields
Bilateral loan and bond portfolio 305,036,801 Discounted cash flow
Risk-adjusted discount rate and sector-based yields
Equity securities 16,438,039 Discounted cash flow
Although management believes that its estimates of fair value are appropriate,
the use of different methodologies or assumptions could lead to different
measurements of fair value. Changes in unobservable inputs, such as discount
rates used in loans and bonds valuation and sector-based yields used in
collateral valuation can have a negative or positive impact on fair value.
Sensitivities around the discount rates are discussed in detail in the
interest rate risk note found in the 31 March 2024 Annual Report while
sensitivity around expected future cash flows including collateral valuation
is explained below. Sensitivities range from 5% to 10% for external valuations
dated prior to the end of 30 September 2024. The higher percentage of 10% is
applicable to office assets, which have been historically demonstrated and are
expected to continue to be more sensitive (+5%) compared to other asset
classes. For valuations after 30 September 2024, the sensitivities are set
from 5% to 10% with the higher percentage of 10% being assigned to the office
sector. This represents management's assessment of a reasonable possible
change and would have a negative or positive effect on the fair value
measurements for the Level 3 assets of £6,583,013 (31 March 2024:
£7,212,730).
Previously, many of the Company's investments in loans were made through a
Luxembourg based entity, Stornoway Finance S.à r.l. via loan note
instruments. The majority of the Company's investments are now made through
another Luxembourg based entity, ENIV S.à r.l. and RELF via separate note
instruments. As and when market information, such as market prices from
recognised financial data providers becomes available, the Company will assess
the impact on its portfolio of loans and whether there should be any transfers
between levels in the fair value hierarchy.
As at 30 September 2024, the Investment Manager has taken into account
movements in market rates, any indications of impairment, significant credit
events or significant negative performance of the underlying property
structures, which might affect the fair value of the loans and bonds.
Level 3 Reconciliation
The following table shows a reconciliation of all movements in the fair value
of financial instruments categorised within Level 3 between the beginning and
the end of the financial period/year:
Level 3 Level 3
30 Sep 2024 31 Mar 2024
GBP GBP
Financial assets at fair value through profit or loss
Opening balance 329,268,394 370,978,642
Total losses recognised in the Condensed Unaudited Statement of Comprehensive
Income for the period/year
(1,379,979) (6,381,030)
Purchases 104,228,085 95,164,446
Sales (45,100,906) (125,398,359)
Increase/(decrease) in interest receivable 2,782,445 (5,095,305)
Closing balance 389,798,039 329,268,394
Unrealised losses on investments classified as Level 3 at period/year end (1,763,931) (3,267,385)
13. Derivative Contracts
The Company has credit exposure in relation to its financial assets. The
Company invested in financial assets with The Bank of New York Mellon with the
credit quality of AA- (31 March 2024: AA-) according to Standard and Poor's.
Transactions involving derivative instruments are usually with counterparties
with whom the Company has signed master netting agreements. Master netting
agreements provide for the net settlement of contracts with the same
counterparty in the event of default. The impact of the master netting
agreements is to reduce credit risk from the amounts shown as derivative
financial assets in the Condensed Unaudited Statement of Financial Position.
The credit risk associated with derivative financial assets subject to a
master netting arrangement is eliminated only to the extent that financial
liabilities due to the same counterparty will be settled after the assets are
realised.
The exposure to credit risk reduced by master netting arrangements may change
significantly within a short period of time as a result of transactions
subject to the arrangement. The corresponding assets and liabilities have not
been offset in the Condensed Unaudited Statement of Financial Position.
Below are the derivative financial assets and liabilities by counterparty as
at 30 September 2024 and 31 March 2024.
Forward Foreign Exchange Contracts
The following forward foreign exchange contracts were open as at 30 September
2024:
Counterparty Settlement date Buy currency Buy amount Sell currency Sell amount Unrealised gain
GBP
The Bank of New York Mellon 15 November 2024 GBP 137,650,525 EUR (159,945,000) 4,337,086
Unrealised gain on forward foreign exchange contracts 4,337,086
The following forward foreign exchange contracts were open as at 31 March 2024
Counterparty Settlement date Buy currency Buy amount Sell currency Sell amount Unrealised gain
GBP
The Bank of New York Mellon 16 May 2024 GBP 153,069,538 EUR (178,830,000) (87,967)
Unrealised gain on forward foreign exchange contracts (87,967)
14. Segmental Reporting
The Company has adopted IFRS 8 Operating Segments. The standard requires a
"management approach", under which segment information is presented on the
same basis as that used for internal reporting purposes.
Whilst the Investment Manager may make the investment decisions on a
day-to-day basis regarding the allocation of funds to different investments,
any changes to the investment strategy or major allocation decisions have to
be approved by the Board, even though they may be proposed by the Investment
Manager. The Board retains full responsibility as to the major allocation
decisions made on an ongoing basis and is therefore considered the "Chief
Operating Decision Maker" under IFRS 8.
The Company invests in Real Estate Credit Investments. The Real Estate Credit
Investments may take different forms but are likely to be: (i) secured real
estate loans; (ii) debentures or any other form of debt instrument,
securitised tranches of secured real estate related debt securities, for
example, RMBS and CMBS (together "MBS"); and (iii) equity securities. The real
estate debt strategy focuses on secured residential and commercial debt in the
United Kingdom and Western Europe, seeking to exploit opportunities in
publicly traded securities and real estate loans.
The Company has three reportable segments, being the Market Bond Portfolio,
Bilateral Loan and Bond Portfolio and Equity Securities.
For each of the segments, the Board of Directors reviews internal management
reports prepared by the Investment Manager on a quarterly basis. The
Investment Manager has managed each of the Market Bond Portfolio, Bilateral
Loan and Bond Portfolio and Equity Securities separately; thus three
reportable segments are displayed in the condensed unaudited interim financial
statements.
Information regarding the results of each reportable segment is included
below. Performance is measured based on segment profit/(loss), as included in
the internal management reports that are reviewed by the Board of Directors.
Segment profit/(loss) is used to measure performance as management believes
that such information is the most relevant in evaluating the results.
Market Bond Portfolio Bilateral Loan and Equity Total
GBP Bond Portfolio Securities GBP
For the six months ended 30 September 2024: GBP GBP
Interest income 411,325 13,843,797 - 14,255,122
Net gains/(losses) on financial assets and liabilities
at fair value through profit or loss 462,583 (3,263,343) 1,420,781 (1,379,979)
Reportable segment profit 873,908 10,580,454 1,420,781 12,875,143
Finance costs (108,343) (1,789,519) - (1,897,862)
For the six months ended 30 September 2023: Market Bond Portfolio Bilateral Loan and Bond Portfolio Equity Securities Total
GBP GBP GBP GBP
Interest income 1,428,088 13,700,139 - 15,128,227
Net gains/(losses) on financial assets and liabilities
at fair value through profit or loss 1,526,664 439,399 (181,144) 1,784,919
Reportable segment profit/(loss) 2,954,752 14,139,538 (181,144) 16,913,146
Finance costs (593,865) (1,495,253) - (2,089,118)
As at 30 September 2024: Market Bond Portfolio Bilateral Loan and Bond Portfolio Equity Securities Total
GBP GBP GBP GBP
Reportable segment assets 7,905,687 366,415,923 15,564,892 389,886,502
Non-segmental assets 22,234,532
Financing agreements (4,820,843) (74,779,089) - (79,599,932)
Non-segmental liabilities (10,763,671)
Net assets 321,757,431
As at 31 March 2024: Market Bond Portfolio Bilateral Loan and Bond Portfolio Equity Securities Tota
GBP GBP GBP GBP
Reportable segment assets 7,893,959 305,036,801 16,438,039 329,368,799
Non-segmental assets 22,883,137
Financing agreements (4,732,841) (19,056,951) - (23,789,792)
Non-segmental liabilities (2,080,455)
Net assets 326,381,689
Information regarding the basis of geographical segments is presented in the
Investment Manager's Report and is based on the countries of the underlying
collateral.
All segment revenues are from external sources. There are no inter-segment
transactions between the reportable segments during the period. Certain income
and expenditure is not considered part of the performance of either segment.
This includes gains/(losses) on net foreign exchange and derivative
instruments, expenses and interest on borrowings.
The following table provides a reconciliation between reportable segment
profit and net profit.
30 Sep 2024 30 Sep 2023
GBP GBP
Reportable segment profit 12,875,143 16,913,146
Net gains on forward foreign exchange contracts 4,819,699 3,243,265
Interest income on financial assets at amortised cost 457,462 111,328
Net foreign currency gains 242,728 212,411
Other income 37,236 72,986
18,432,268 20,553,136
Operating expenses (3,629,542) (2,873,145)
Finance costs (1,897,862) (2,089,118)
Net profit 12,904,864 15,590,873
Certain assets are not considered to be attributable to either segment; these
include other receivables and prepayments, cash and cash equivalents, cash
collateral at broker and derivative financial assets.
The following table provides a reconciliation between net total segment assets
and total assets.
30 Sep 2024 31 Mar 2024
GBP GBP
Reportable segment assets 389,886,502 329,368,799
Cash and cash equivalents 16,911,500 18,289,567
Cash collateral at broker 930,745 4,489,272
Derivative financial assets 4,337,086 -
Other assets 55,201 104,298
Total assets 412,121,034 352,251,936
The following is a summary of the movements in the Company's investments
analysed by the Loan and Bond Portfolios and Equity Securities for the period
ended 30 September 2024:
As at 30 September 2024: Market Bond Portfolio Bilateral Loan and Equity Total
GBP Bond Portfolio Securities GBP
Financial assets at fair value through profit or loss
Opening fair value 7,893,959 305,036,801 16,438,039 329,368,799
Transfer - 2,311,728 (2,311,728) -
Purchases1 - 104,210,285 17,800 104,228,085
Repayments/sales proceeds (438,913) (44,661,993) - (45,100,906)
(Decrease)/increase in interest receivable (11,942) 2,782,445 - 2,770,503
Realised losses on sales (42,780) (70,062) (4,789) (117,631)
Net movement in unrealised gains/(losses) 505,363 (3,193,281) 1,425,570 (1,262,348)
Closing fair value 7,905,687 366,415,923 15,564,892 389,886,502
1 Includes payment-in-kind amounting to £6,439,463 for the period ended 30
September 2024.
The following is a summary of the movements in the Company's investments
analysed by the Loan and Bond Portfolios and Equity Securities for the year
ended 31 March 2024:
As at 31 March 2024 Market Bond Portfolio Bilateral Loan and Equity Total
GBP Bond Portfolio Securities GBP
Financial assets at fair value through profit or loss
Opening fair value 49,243,187 341,474,617 10,024,106 400,741,910
Transfer - (11,650,667) 11,650,667 -
Purchases1 - 94,866,164 298,282 95,164,446
Repayments/sales proceeds (42,942,292) (112,045,599) (259,257) (155,247,148)
Decrease in interest receivable (214,533) (5,095,305) - (5,309,838)
Realised (losses)/gains on sales (4,232,205) 1,337,147 (485) (2,895,543)
Net movement in unrealised gains/(losses) 6,039,802 (3,849,556) (5,275,274) (3,085,028)
Closing fair value 7,893,959 305,036,801 16,438,039 329,368,799
1 Includes payment-in-kind amounting to £13,800,493 for the year ended 31
March 2024.
15. Cash Collateral
The Company manages some of its financial risks through the use of financial
derivative instruments and repurchase agreements which are subject to
collateral requirements. The following table provides the cash held by various
financial institutions as at 30 September 2024 and 31 March 2024. The cash
held by brokers is restricted and is shown as Cash collateral at/due to broker
in the Condensed Unaudited Statement of Financial Position.
30 Sep 2024 31 Mar 2024
GBP GBP
Cash collateral at broker
JPMorgan Chase & Co 930,745 915,807
The Bank of New York Mellon - 3,572,705
Deutsche Bank Securities Inc. - 760
930,745 4,489,272
Cash collateral due to broker
The Bank of New York Mellon (1,420,000) (14,400)
(1,420,000) (14,400)
16. Material Agreements and Related Party Transactions
Loan Investments
Previously, many of the Company's investments in loans were made through a
Luxembourg based entity, Stornoway Finance S.à r.l. via loan note
instruments. The loan investments are now made through another Luxembourg
based entity, ENIV S.à r.l., and RELF via separate note instruments. This
entity has separate compartments for each loan deal which effectively
ringfences each loan deal. Other funds managed by the Investment Manager may
invest pari passu in these compartments.
Investment Manager
The Company is party to an Investment Management Agreement with the Investment
Manager, dated 22 February 2017, pursuant to which the Company has appointed
the Investment Manager to manage its assets on a day-to-day basis in
accordance with its investment objectives and policies, subject to the overall
supervision and direction of the Board of Directors.
The Company pays the Investment Manager a Management Fee and a Performance
Fee.
Management Fee
Under the terms of the Investment Management Agreement, the Investment Manager
is entitled to receive from the Company an annual Management Fee of 1.25% on
an adjusted NAV, being the NAV of the shares.
During the period ended 30 September 2024, the Management Fee totalled £2.1
million (30 September 2023: £2.1 million), of which £0.3 million (31 March
2024: £0.3 million) was outstanding at the period end.
Performance Fee
Under the terms of the Investment Management Agreement, the Investment Manager
is entitled to receive from the Company a performance fee calculated as ((A-B)
x 20% x C) where:
A = the Adjusted Performance NAV per share, as defined in the Prospectus.
B = the NAV per share as at the first business day of the Performance Period
increased by a simple annual rate of return of 7% over the Performance Period
or, if no Performance Fee was payable in the previous Performance Period, the
NAV per share on the first business day of the Performance Period immediately
following the last Performance Period in which a Performance Fee was paid (the
"Starting Date") increased by a simple annual rate of return of 7% over the
period since the Starting Date ("Hurdle Assets").
C = the time weighted average number of shares in issue in the period since the
Starting Date.
On 1 October 2021, the Company entered a new Performance Period which is
expected to run until the end date of the quarter in which the next
continuation resolution is passed. As no Performance Fee was payable in the
previous Performance Period, the NAV on which the Hurdle Assets will be
determined in accordance with the above formula was the NAV per share of
£1.63 as at 2 October 2017 (being the Starting Date of the Performance Period
immediately following the last Performance Period in which a Performance Fee
was paid).
During the period ended 30 September 2024 and 30 September 2023, there were no
performance fees paid.
Administration Fee
Under the terms of the Administration Agreement, the Administrator is entitled
to receive from the Company a monthly administration fee based on the prior
month gross assets of the Company adjusted for current month subscriptions and
redemptions of the Company at the relevant basis points per annum rate,
subject always to a minimum monthly fee £10,000.
During the period ended 30 September 2024, the administration fee totalled
£141,823 (30 September 2023: £142,064), of which £58,502 (31 March 2024:
£37,548) was outstanding at the period end.
Depositary Fee
Under the terms of the Depositary Agreement, the Depositary is entitled to
receive from the Company an annual Depositary fee of 0.02% (31 March 2024:
0.02%) of the NAV of the Company. During the period ended 30 September 2024,
the Depositary fee totalled £35,690 (30 September 2023: £32,060). The
Company owed £91,804 (31 March 2024: £66,708) to the Depositary at the
period end date.
17. Contingencies and Commitments
As at 30 September 2024, the Company had committed £494.8 million into
bilateral loans and bonds of which £409.7 million had been funded (31 March
2024: £489.0 million into bilateral loans and bonds of which £352.1 million
had been funded).
During the financial period ended 30 September 2024, the Company entered into
some off-balance sheet financing agreements which have partial recourse to the
Company. The amount of partial recourse commitment as at 30 September 2024 was
£3.6 million (31 March 2024: £3.9 million). This represents a financial
guarantee and the Company recognises that there's no need for provision on
assets at reporting date.
18. Subsequent Events
The Directors declared a second interim dividend of 3.0 pence per share on 27
November 2024.
Bob Cowdell retired on 31 October 2024, Andreas Tautscher became Chairman on 1
November 2024, and Mark Thompson was appointed Board Director on 4 November
2024.
There have been no other significant events affecting the Company since the
period end date that require amendment to or disclosure in the condensed
unaudited interim financial statements.
19. Foreign Exchange Rates Applied to Combined Totals Used in the Preparation of the Condensed Unaudited Interim Financial Statements
The following foreign exchange rates relative to the GBP were used as at the
period/year end date:
30 Sep 2024 31 Mar 2024
Currency GBP GBP
EUR 1.20 1.17
USD 1.34 1.26
20. Approval of the Condensed Unaudited Interim Financial Statements
The condensed unaudited interim financial statements of the Company were
approved by the Directors on 27 November 2024.
Directors and Advisers
Directors
Andreas Tautscher (appointed 7 May 2024 and Chairman from 1 November 2024)
Colleen McHugh
Mark Thompson (appointed 4 November 2024) Susie Farnon
Bob Cowdell (resigned 31 October 2024)
John Hallam (resigned 18 September 2024)
Secretary of the Company
Aztec Financial Services (Guernsey) Limited PO Box 656
East Wing Trafalgar Court
Les Banques, St. Peter Port Guernsey, GY1 3PP
Corporate Broker
Panmure Liberum Capital Limited Ropemaker Place, Level 12
25 Ropemaker Street London, EC2Y 9LY
Registrar
Link Market Services (Guernsey) Limited Mount Crevelt House
Bulwer Avenue St. Sampson
Guernsey, GY2 4LH
Depositary
The Bank of New York Mellon (International) Limited One Canada Square
London, E14 5AL
Registered Office
East Wing Trafalgar Court
Les Banques, St. Peter Port Guernsey, GY1 3PP
Alternative Investment Fund Manager Cheyne Capital Management (UK) LLP
Stornoway House
13 Cleveland Row London, SW1A 1DH
Independent Auditor
Deloitte LLP Regency Court Glategny Esplanade St. Peter Port Guernsey, GY1 3HW
UK Transfer Agent Link Group Limited Central Square
29 Wellington Street Leeds, LS1 4DL
Administrator
Citco Fund Services (Guernsey) Limited PO Box 273
Frances House Sir William Place St. Peter Port
Guernsey, GY1 3RD
Sub-Administrator
Citco Fund Services (Ireland) Limited Custom House Plaza, Block 6
International Financial Services Centre Ireland, Dublin 1
Glossary
Asset Strategy definitions
Core Assets that benefit from having long-term income.
Core + Assets that benefit from having strong current income, but do require some
measure of asset management to optimise their income profile and term.
Development De-Risked Development assets which benefit from being substantially pre-sold or pre-let.
Development Fit-Out Assets that have either been built from the ground up and have reached the
completion of the superstructure ("topped out"), or assets which are in need
of substantial refurbishment works. These typically already benefit from the
requisite consent to develop.
Development Groundworks/Superstructure Assets that are to be built from the ground up and are in the groundworks
stage or building the superstructure has commenced. These typically already
benefit from the requisite consent to develop.
Real Estate Op-Co/Prop-Co Loan Loan secured by both the operating company as well as all of the
Company's real assets.
Value add/transitional Assets that require asset management (typically refurbishment) and re-letting
to secure a core income profile.
Alternative Performance Measures
Dividend Yield The total dividends paid in the reporting period (per share) divided by the
quoted price of each share as at the relevant reporting date.
Market Capitalisation The number of shares in issuance at the relevant reporting date multiplied by
the share price at the relevant reporting date.
NAV per share The net asset value of the Company divided by the number of shares in issuance
at the relevant reporting date.
Share Price Premium/Discount The percentage difference between the NAV per share and the quoted price of
each share as at the relevant reporting date.
Total NAV Return The return on the movement in the NAV per share at the end of the period
together with all the dividends paid during the period, divided by the NAV per
share at the beginning of the period/year.
Real Estate Credit Investments Limited
East Wing Trafalgar Court Les Banques St. Peter Port Guernsey
GY1 3PP
www.realestatecreditinvestments.com
(http://www.realestatecreditinvestments.com/)
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR DGBDBRGDDGSRRecent news on Real Estate Credit Investments
See all newsREG - Real Estate Credit - Fact Sheet Announcement
AnnouncementREG - Real Estate Credit - Transaction in Own Shares
AnnouncementREG - Real Estate Credit - Further Buyback Programme
AnnouncementREG - Real Estate Credit - Director/PDMR Shareholding
AnnouncementREG - Real Estate Credit - Fact Sheet Announcement
Announcement