REG - Real Estate Credit - Annual Financial Report
25/06/2025 07:02
For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20250625:nRSY2648Oa&default-theme=true
RNS Number : 2648O Real Estate Credit Investments Ltd 25 June 2025
Real Estate Credit Investments Limited (the "Company")
Annual Report for RECI LN (Ordinary Shares)
The Board of Directors of the Company announces the release of the Company's
Annual Report and Audited Financial Statements (the "Financial Statements")
for the year ended 31 March 2025.
View the Financial Statements:
https://realestatecreditinvestments.com/investors/results-reports-and-presentations
(https://realestatecreditinvestments.com/investors/results-reports-and-presentations)
A copy of the 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
Annual Report and Accounts 2025
Consistent attractive dividends from credit exposure to UK and Western
European real estate credit 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 31 MARCH 2025
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
• 21 positions
• Diverse portfolio across sectors and geography
Attractive and stable income in a changing interest rate environment
• Consistent portfolio yield of 9%+ 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
£318.4m
(31 March 2024: £326.4m)
NAV per Share
£1.43
(31 March 2024: £1.45)
Total Assets
£391.7m
(31 March 2024: £352.3m)
Net Profit
£22.8m
(for the year ended 31 March 2024: £21.9m profit)
RECI Offers:
• Focus on senior secured credit, with defensive Loan-to-Values ("LTVs")
• Strong governance control over its loan book
• Large, experienced, well capitalised borrowers
• Conservative and diversified leverage profile
• Dividend stability without compromising risk
• Management from Cheyne's Real Estate team
Total NAV Return
7.7%
(31 March 2024: 7.0%)
Dividend Yield
9.8%
(31 March 2024: 10.4%)
Share Price
£1.22
(31 March 2024: £1.15)
Dividends
12.0 pence
(31 March 2024: 12.0 pence)
OVERVIEW
At a Glance
Providing compelling risk-adjusted returns.
Real Estate Credit Investments Limited ("RECI" or the "Company") 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.
RECI's investments are predominantly in Self-Originated Loans and Bonds. The
Company also holds a small portfolio of Market Bonds (listed real estate debt
securities such as Commercial Mortgage Backed Securities ("CMBS")).
Investment Portfolio Composition
RECI's investment portfolio, a diversified book of 21 positions in real estate
bonds and loans, was valued at £369.5 million including accrued interest, as
at 31 March 2025, up from £329.4 million as at 31 March 2024. The portfolio
had a weighted average levered yield of 11.4% and an average LTV ratio of
66.0% as at 31 March 2025.
Portfolio by Geography
by % of Total Committed Capital including PIKCountry
Country Allocation March 2025 % Change since March 2024 %
United Kingdom 65.5 7.7
France 24.5 (1.9)
Spain 4.6 (1.3)
Italy 2.5 (1.5)
Germany 2.9 0.0
Finland 0.0 (4.1)
Ireland 0.0 (1.9)
Share Price vs NAV per Share
Performance (Pence)
NAV and Share Price As at Total NAV Return(1)
31 March 2025
Net Assets £318.4m Financial Year Ended 31 March 2025 7.7%
Shares Outstanding (net of treasury shares) 221.9m Prior Financial Year Ended 31 March 2024 7.0%
NAV (per share) £1.43 Last Three Financial Years Ended 31 March 2025 22.0%
Share Price (per share) £1.22 Last Five Financial Years Ended 31 March 2025 43.2%
Discount (14.9)%
Dividend Yield 9.8%
Market Capitalisation £270.7m
1 The Total NAV Return measures the combined effect of any dividends paid,
together with the rise or fall in the NAV per share. The 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. The Total NAV Return is considered an
Alternative Performance Measure pursuant to ESMA Guidelines which is unaudited
and outside of the scope of IFRS Accounting Standards ("IFRS").
OVERVIEW
About the Company
The Investment Objective of the Company is to provide Shareholders with
attractive and stable returns, primarily in the form of quarterly dividends.
Real Estate Credit Investments Limited ("RECI" or the "Company") is
incorporated in Guernsey, governed by the Companies (Guernsey) Law, 2008 (as
amended) (the "Companies Law") and regulated as an authorised closed- ended
investment scheme by the Guernsey Financial Services Commission. The Company
will be subject to a continuation resolution by the Shareholders at the next
Annual General Meeting ("AGM") to be held in September 2025.
The Company invests in real estate debt secured by commercial or residential
properties in the United Kingdom and Western European countries 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 shares are currently listed and traded on the Main Market of the London
Stock Exchange. The shares offer investors a leveraged exposure to a portfolio
of real estate credit investments and pay a quarterly dividend.
Website and Share Price Information
The Company has a dedicated website, which can be found at
realestatecreditinvestments.com (http://www.realestatecreditinvestments.com/)
that contains information, including regulatory announcements, share price
information, financial reports, investment objectives and strategy, investor
contacts, information on the Board and information on the Alternative
Investment Fund Managers Directive ("AIFMD").
Investment Objective and Investment Policy
Investment Objective
The Investment Objective of the Company is to provide Shareholders with
attractive and stable returns, primarily in the form of quarterly dividends,
by exposure to a diversified portfolio of real estate credit investments,
predominantly comprising real estate loans and bonds.
Investment Policy
To achieve the Investment Objective, the Company invests and will continue to
invest in real estate debt secured by commercial or residential properties in
the United Kingdom and Western European countries.
The real estate credit investments may take different forms but are likely to
be:
(i) real estate loans are typically secured by mortgages over the property or
charges over the shares of the property- owning vehicle. Individual Secured
Debt investments will have a life profile ranging from six months to five
years. Investments in Secured Debt will also be directly or indirectly secured
by one or more commercial or residential properties, and shall not exceed a
LTV of 85% at the time of investment;
(ii) listed debt securities and securitised tranches of real estate related debt
securities, for example, residential mortgage-backed securities and commercial
mortgage- backed securities (together "MBS"). For the avoidance of doubt, this
does not include equity residual positions in MBS; and
(iii) other direct or indirect opportunities, including equity participations in
real estate, save that no more than 20% of the total assets will be invested
in positions with an LTV in excess of 85% or in equity positions that are
uncollateralised. On certain transactions, the Company may be granted equity
positions as part of its loan terms. These positions will come as part of the
Company's overall return on its investments and may or may not provide extra
profit to the Company depending on market conditions and the performance of
the loan. These positions are deemed collateralised equity positions.
It is the intention of the Company to continue to pay a stable quarterly
dividend with the potential for additional payments if investment returns
permit
OVERVIEW
Chairman's Statement
I am pleased to report that for the year ended 31 March 2025, RECI delivered a
total net profit of £22.8 million and maintained an unchanged dividend of 3.0
pence per quarter, despite challenging times for the listed investment company
sector.
Andreas Tautscher Chairman
The last financial year has been marked by continued geopolitical instability.
The war in Ukraine remains unresolved, while the conflict in Gaza has
significantly heightened tensions across the Middle East, most recently marked
by Israeli and U.S. strikes against Iran, targeting nuclear
facilities/infrastructure sites. On the economic front, although inflation has
moderated from previous highs, it remains persistent, prompting central banks
to adopt a more gradual approach to interest rate cuts.
There is also growing evidence that markets are pricing Government Debt at
significantly higher risk premium, take the UK where there have been three
interest rate cuts but ten-year gilts have risen from 4.2% to 4.6% since July
2024. The consensus remains that interest rates will reduce, for most
economies, over the rest of 2025.
Furthermore, we need to consider the impact of President Trump's 'liberation
day' and the shock introduction of significant tariffs on every trading
partner of the US. I will not get into a full résumé of the twists and turns
but suffice to say we have seen an almost unprecedented level of volatility in
equity markets which has also been mirrored in the debt markets, particularly
for US government debt. This level of volatility in both government policy and
market impact makes it very difficult to give many forward predictions.
The challenges we had seen in the investment company segment of the last year,
allied to discount, liquidity and some governance issues, have not abated. The
impact of the Trump announcements has not helped although at the time of
writing the overall impact in terms of valuations has been netted out, but we
are clearly only part way through this process and we might expect further
periods of volatility in the markets.
Against this challenging backdrop, the Board and Cheyne have continued to
focus on RECI's core strengths and seek to deliver for our Shareholders. The
Company's shares traded at an average discount to NAV of 15.4% during the
financial year ended 31 March 2025. Reflecting market sentiment, the Real
Estate Debt Sector traded at an average discount of 20.4% (excluding RECI)
over the same 12 months (source: Liberum, company data).
During the financial year, interest and repayments received on the Company's
portfolio has funded new and existing commitments. 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, from
time to time ("Available Cash").
Mindful of the Company's prevailing discount and Available Cash, the Board
launched a second buyback programme in September 2024 and a successor buyback
programme in March 2025.
The Directors and Cheyne remain committed to providing detail and transparency
regarding the Company's portfolio and investment strategy, allowing all
investors to focus upon RECI and its merits and opportunities, notwithstanding
the challenging broader market environment.
I am pleased to report that RECI won the Best Performance Award as the top
performer over three years in the Specialist Debt Category at Citywire's
annual awards ceremony in November 2024.
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 213,000 shares in the Company since the start of the financial year on 1
April 2024.
Financial Performance
RECI reported a total net profit for the financial year ended 31 March 2025 of
£22.8 million on year end total assets of £391.7 million, compared with a
£21.9 million net profit in the year ended 31 March 2024, on year end total
assets of £352.3 million.
The NAV as at 31 March 2025 was £1.43 per share (£1.45 per share as at 31
March 2024) which, combined with the 12.0 pence per share of dividends payable
in respect of the year ended 31 March 2025, represents an annualised total NAV
return for Shareholders of 7.7%.
During the financial year ended 31 March 2025, the Company's shares traded at
an average discount to NAV of 15.4%, (14.7% discount for the year ended 31
March 2024).
Total quarterly dividends declared in respect of the financial year ended 31
March 2025 were an unchanged 12.0 pence per share, returning £26.7 million to
our Shareholders.
During the year, RECI had average asset level structured leverage of
approximately £34.4 million, at an average borrowing cost of circa 7.9%.
During the financial year to 31 March 2025, the Company funded £139.8 million
into existing investments, compared with £95.2 million in the previous
financial year. RECI also received cash repayments and interest of £113.6
million in this year, compared with £134.2 million in the year ended 31 March
2024.
Financial Year Review
Despite the challenging real estate and credit markets, the Company's robust
portfolio ensured the NAV remained stable at an average of £1.46 per share
during the financial year, notwithstanding the payment to Shareholders of four
unchanged dividends, totalling 12.0 pence per share, during the year.
Cheyne maintained the strategy of focusing portfolio exposure upon lower risk
senior loans, with 90% of the Company's positions comprised of senior assets
by the financial year end. RECI's holding of market bonds had reduced to
comprising just 1.8% of the portfolio by 31 March 2025. The weighted average
life of the whole portfolio was one year for the financial year ended 31 March
2025; and the weighted average LTV of the Company's portfolio was 66.0% (64.9%
at 31 March 2024).
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. As at 31 March 2025, the Company's gross balance sheet leverage was
£70.9 million (22.3% of NAV); its net effective leverage, including
contingent liabilities of £9.3 million (being the partial recourse
commitment, representing 25% of asset level borrowings provided to certain
asset level structured finance counterparties), was 18.2% of NAV.
The negative market sentiment during our last financial year inevitably
impacted RECI's share price and saw material discount widening across the
investment funds sector generally and the credit and real estate sectors, in
particular.
The Company's initial buyback programme was announced on 31 August 2023, with
an aggregate purchase price of all shares purchased of no more than £5.0
million. Pursuant to that programme, a total of 4,095,000 ordinary shares of
no par value each ("Ordinary Shares") were purchased for treasury for an
aggregate amount of £5.0 million. The Company announced a successor buyback
programme on 28 March 2024, with an aggregate purchase price of all shares
purchased of no more than £10.0 million, pursuant to which a total of
3,343,474 Ordinary Shares were purchased for treasury for an aggregate amount
of £4.2 million. A further buyback programme was then announced on 27
September 2024 for £10.0 million, which was not utilised.
On 31 March 2025, the Company 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
which will run to 30 September 2025. The aggregate purchase price of all
shares acquired under the programme will be no greater than £10.0 million and
200,000 Ordinary Shares have been repurchased to date.
The Company's shares closed at 127.5 pence on 20 June 2025 (a discount of
approximately 12.4% which would provide a yield of 7.1% on the basis of
continuing to pay a quarterly 3.0 pence dividend per share for the rest of the
current financial year.
The merits of RECI's offering and, in particular, the yield at current share
price levels, appear to have been overlooked amid the broader volatile market
and negative sector background. Your Board continues to believe that RECI
provides investors with a highly attractive and sustainable long-term income
stream.
RECI is well positioned to deliver this attractive dividend stream alongside a
resilient NAV and provide investors with a substantial and liquid company
(with total assets of £391.7 million and market capitalisation of £270.7
million as at 31 March 2025) with the potential for the shares to re-rate and
the Company to grow over time.
Board Update
In line with the Board's succession planning and following the appointment of
an independent recruitment firm and a comprehensive search process, the
Company announced on 8 May 2024 that I had been appointed as an independent
non-executive director of the Company. Following Bob Cowdell's decision to
step down in November 2024, I was appointed as Chairman. As noted in my
interim statement, I thank Bob for leaving behind a stable 'ship' that has
weathered the storms in the last few weeks.
I would also like to introduce Mark Thompson who joined us in November 2024 as
our latest member of the Board. Mark brings a wealth of knowledge and
experience from both his auditing years at KPMG as well as his more recent
experience on a number of private and listed investment vehicles.
Environmental, Social and Governance Matters ("ESG")
Your Board continues to recognise and support the growing focus on ESG
considerations and the importance of ethical factors, including climate
change, when pursuing the Company's investment objective and in the selection
of service providers and advisers to the Company.
In her role as "ESG Lead", Colleen McHugh is working closely with Cheyne in
developing and implementing RECI's ESG approach.
Page 28 of the Stakeholder Engagement section and pages 30 to 35 of the
Sustainability Report provide further information about the Company's and the
Manager's approach to ESG matters.
Outlook
While easing inflation will allow central banks to continue reducing interest
rates over time, this process is likely to be slower than previously predicted
- particularly in the UK, where inflation is still persistent, complicating
the Bank of England's policy decisions. Nonetheless, a gradual shift towards a
lower interest rate environment, even if it does not reach the ultra-low
levels of recent years, should prove supportive for RECI as it continues to
provide investors with a highly attractive and sustainable yield. We will need
to continue to factor in the potential for further impacts from the US
Administration's policies.
In considering all options when deciding on the appropriate allocation of the
Company's Available Cash resources, the Board is mindful of when opportunities
present themselves to achieve attractive repeatable returns from new
investments and thereby enhance the "investment case" for RECI. Encouragingly,
Cheyne and its new deal pipeline have ensured that RECI already has and will
continue to benefit from the opportunities to lend at attractive returns of
over 10% to enhance portfolio returns and dividend cover. Scheduled portfolio
repayments over the rest of the year will boost available cash to be deployed
into new higher yielding opportunities alongside funding the current and
potential future buyback programmes.
The Directors believe that RECI remains soundly positioned to continue to
deliver an attractive and stable dividend to investors seeking a reliable
long-term income stream from a listed and liquid investment company, with a
highly regarded specialist Investment Manager.
Andreas Tautscher
Chairman
24 June 2025
KPIs and Financial Highlights(1)
Key Performance Indicators 31 Mar 2025 31 Mar 2024
Balance Sheet
NAV per share £1.43 £1.45
Share price £1.22 £1.15
Discount (14.9)% (20.7)%
Average discount in year(1) (15.4)% (14.7)%
Leverage (% of NAV)(2) 22.3% 7.3%
1 Average discount in 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.
31 Mar 2025 31 Mar 2024
Profit, Loss and Dividends
Earnings per share 10.2p 9.6p
Dividends per share declared for the year 12.0p 12.0p
Total NAV Return (including dividends) annualised(1) 7.7% 7.0%
1 Assumes re-investment of dividends.
Financial Highlights
31 Mar 2025 31 Mar 2024
£m £m
Balance Sheet
Cash, cash equivalents and cash collateral held at/due to brokers 22.2 22.8
Net assets 318.4 326.4
31 Mar 2025 31 Mar 2024
£m £m
Profit and Loss
Operating income 34.2 31.4
Net profit 22.8 21.9
The complete set of the Balance Sheet and Profit and Loss items are presented
in the Company's financial statements.
Further Information
Monthly fact sheets as well as presentations are available on the Company's
website: realestatecreditinvestments.com.
1 Alternative Performance Measures are described in Glossary on page 101
Annual Report and Accounts 2025
Business and Strategy Review
In this section
Strategic Framework and Performance Highlights
Strategic Report
Investment Manager's Report
Stakeholder Engagement
Sustainability Report
Responsible Investment Highlights 2025
Strategic Framework and Performance Highlights
Senior real estate lending remains a high conviction theme Objectives
1 Provide investors with a diversified portfolio of real estate credit
investments
2 Deliver a stable quarterly dividend with minimal volatility
3 Exploit opportunities in the real estate credit market
4 Position the Company to grow through opportunities the Investment Manager is
delivering
Performance Highlights
• Deal Repayments and Interest in Year £113.6m (for the year ended 31 March
2025)
• Dividends Paid £26.7m (for the year ended 31 March 2025)
• Investment Portfolio £369.5m (as at 31 March 2025)
Progress in Year Ended 31 March 2025
1 RECI's investment portfolio is a diversified book of 21 positions in real
estate loans and bonds.
Over the course of the last financial year, RECI funded £139.8 million into
existing deals during the year with two new commitment to deals.
2 Paid out dividends of 3.0 pence per share each quarter, 12.0 pence over the
year.
A total of £26.7 million in dividends returned to our Shareholders.
3 The investment portfolio stands at £369.5 million as at 31 March 2025 which
is spread across 21 positions with a weighted average levered gross yield of
11.4% and an average LTV of 66.0%.
RECI also received cash repayments and interest of £113.6 million in this
year.
4 RECI continues to migrate towards an all-senior loan book.
Measures to position the Company to achieve its longer-term aim of growing the
Company.
Protection and maintenance of dividends by improved returns on the loans and
re-investment.
Continue to optimise funding lines.
BUSINESS AND STRATEGY REVIEW
Strategic Report
The Strategic Report describes the business of the Company and details the
principal risks and uncertainties associated with its activities.
Investment Objective and Investment Policy
The Investment Objective and Investment Policy are set out on page 6, along
with a further paragraph "About the Company" explaining in more detail the
corporate structure and listing of the Company's shares.
RECI is externally managed by Cheyne, a UK investment manager authorised and
regulated by the Financial Conduct Authority ("FCA"). Cheyne is a limited
liability partnership registered in England and Wales on 8 August 2006 and is
authorised and regulated in the conduct of investment business in the United
Kingdom by the FCA. Cheyne is also the AIFM of the Company. Cheyne has offices
in London, Berlin, Bermuda, Dubai, Dublin, Madrid, Monaco, Munich, New York,
Paris, Sydney and Zurich.
Current and Future Development
A review of the year and outlook is contained in the Investment Manager's
Report and also in the Chairman's Statement.
Performance
A review of performance is contained in the Key Performance Indicators
("KPIs") and Financial Highlights section and the Investment Manager's Report.
A number of performance measures are considered by the Board and the
Investment Manager in assessing the Company's success in achieving its
objectives and considering its progress and performance. The KPIs are shown on
page 11.
Duties and Responsibilities
The Board has overall responsibility for optimising the Company's performance
by directing and supervising the affairs of the business and meeting the
appropriate interests of Shareholders and relevant stakeholders, while
enhancing the value of the Company and also ensuring the protection of
investors. A summary of the Board's responsibilities is as follows:
• statutory obligations and public disclosure;
• strategic matters and financial reporting;
• risk assessment and management including reporting, compliance, governance,
monitoring and control; and
• other matters having a material effect on the Company.
The Board is responsible to the Shareholders for the overall management and
strategy of the Company but has delegated day-to-day operations to the
Investment Manager and Citco Fund Services (Guernsey) Limited ("Citco" or the
"Administrator"), while reserving the powers of decision making relating to
the determination of the Investment Policy, corporate structure and the
management of the share capital of the Company.
The Board is further responsible for financial reporting, risk management and
determining the dividend and accounting policies. While the Investment Manager
manages the portfolio of the Company, the Board retains responsibility for
overseeing the Investment Manager and ensuring the establishment and ongoing
operation of a sound system of internal control. Any material contracts and
those not in the normal course of business are also subject to approval by the
Board.
The Board is also responsible for its own structure, size and effectiveness,
with the delegation of some duties to Committees made up of its members. The
Board retains control of the Committees and requires that they report to the
full Board on a regular basis providing their findings and recommendations.
The Nomination Committee is responsible for considering the size, structure
and composition of the Board; retirements and appointments of additional and
replacement Directors and, as appropriate, making recommendations to the
Board. The Remuneration Committee determines Directors' remuneration and sets
the Company's remuneration policy.
The Board performs a formal and rigorous review of its own performance and
continually scrutinises its independence and transparency.
The Board's responsibilities for the Annual Report are set out in the
Directors' Responsibility Statement. The Board is also responsible for issuing
appropriate semi-annual financial reports and other price-sensitive public
reports.
Long-term Viability
The Directors have assessed the prospects of the Company over a longer period
than the 12 months required by the 'Going Concern' provision. The Board has
chosen a period of three years which reflects the Company's three-year
planning horizon. In doing so it notes that the average life of assets in its
portfolio is approximately one year and there will be a substantial turnover
of its investments in the three- year period.
The Board conducts an annual review, stress testing the Company's cash flows
arising from the loan and bond portfolio over a three-year period, including
interest received and proceeds from realisations, short-term finance
obligations of the Company and dividend cover. Further considerations are the
inherent sensitivities within the loan and bond portfolios and their impact on
the cash flows.
The Board has identified a number of principal risks, which are detailed
below. The Board has taken these into account when considering the long-term
viability of the Company.
The Board routinely conducts three-year reviews, stress testing the
performance against a number of adverse scenarios, such as the fair value
write-down of the investments, or reduced cash flows from the investment
portfolio. The fair value stress test was considered relevant to factor in any
potential events affecting the underlying assets or credit concerns about the
borrowers which potentially could impact on the fair value. The reduced cash
flow stress test was considered relevant in the event of potential defaults
arising on the loan portfolio and the inability to recover the interest or
principal back in full.
In the current environment the Company has also considered the future of its
Investment Manager when looking at its own viability, and given the size of
the Investment Manager's platform away from the Company and the private
capital it manages in numerous other real estate debt funds, of which the
combined total is approximately £5 billion Assets Under Management ("AUM"),
the Investment Manager is expected to be able to continue to manage the
Company for the foreseeable future.
Further consideration has been given with respect to the current market
environment, including the ongoing economic impacts of relevant geopolitical
and macroeconomic risks: including increased interest rates, tariffs,
heightened inflation, supply chain disruption, the continuing impact of
conflicts and the effects of climate change and cyber security. The Investment
Manager has prepared sensitivity analyses including various stress scenarios.
An evaluation continues to be performed for each of the positions in light of
these potential impacts on operating models and valuations and hence recovery
prospects for certain individual positions.
The output of this analysis was used to (i) report fair value movements, and
(ii) update all the cash and income forecasting for the portfolio. The
Investment Manager continues to perform 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).
Even taking these stress scenarios into account and bearing in mind the
leverage and liquidity of the bond portfolio, the Company is expected to be
able to meet its liabilities over the three-year period.
A continuation vote is due in September 2025 and although the three-year plan
takes the Company past this date the Directors have no reason to believe that
the continuation vote will not be passed by Shareholders. If any continuation
resolution is not passed, the Directors are required to put proposals for the
reconstruction or reorganisation of the Company to the Shareholders for their
approval within six months of the date of the vote.
Risk Management
It is the role of the Board of Directors to review and manage all risks
associated with the Company, mitigating these either directly or through the
delegation of certain responsibilities to the Audit and Risk Committee and
Investment Manager. Additionally, the Board seeks to identify emerging risks
and responds to them as they evolve.
The Board considers that the following are the principal risks and
uncertainties faced and has identified the mitigating actions in place to
manage them. There are no additional emerging risks that have been identified.
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. The
Board monitors the level of premium or discount of share price to NAV per
share.
The Board monitors investment strategy and performance on an ongoing basis and
regularly reviews the Investment Objective and Investment Policy in light of
prevailing investor sentiment to ensure the Company remains attractive to its
Shareholders. The Board is committed in promoting the Company with the
long-term aim of its share price trading at or around NAV and considers all
options to achieve this.
This includes consideration, as part of the ongoing cash allocation policy, of
implementing share buybacks to enhance NAV per share and potentially reduce
any discount to NAV. This may be done when cash resources permit and in the
context of prevailing market conditions and the one-time potential NAV uplift
of a buyback compared with the potential repeatable long-term benefit of
investments in attractive high yielding opportunities to enhance RECI's
returns.
The Company has the authority to make market purchases of fully paid shares of
up to 14.99% of the shares in issue, and renewal of this authority will be
sought from Shareholders at the AGM in September 2025 and at each subsequent
AGM, or earlier at an Extraordinary General Meeting if the Directors consider
it appropriate.
As at 31 March 2025, a total of 7.4 million shares have been purchased for
treasury for an aggregate amount of £9.2 million. A further buyback programme
was then announced on 31 March 2025 for £10.0 million, of which £0.2 million
has been utilised by 31 May 2025.
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. In addition, the pace of investment may be slower than
expected, or principal may be repaid earlier than anticipated, causing the
return on affected investments to be less than expected. In addition, if
repayments are not promptly re-invested this may result in cash drag which may
lower portfolio returns. However, as the Company is able to invest in both
bonds and loans, the Investment Manager has the ability to adjust the asset
mix towards bonds.
As a result, the level of dividends and other distributions to be paid by the
Company may fluctuate and there is no guarantee that any such distributions
will be paid.
There may be economic circumstances and wider market considerations that
arise, that mean the Investment Manager and Board deem it appropriate to
maintain higher levels of cash reserves.
The Investment Manager regularly provides the Board with reports on pipeline
opportunities, which include analysis of the expected returns available. The
Directors also regularly receive information on the performance of the
existing loans which includes analysis of the likelihood of any early
repayments which may impact 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.
The Company categorises its financial assets and liabilities in accordance
with IFRS 9 and establishes fair value utilising the methodology in accordance
with IFRS 13, as set out in Note 14(d) to the financial statements. Further
information on valuation is detailed in the Audit and Risk Committee Report on
page 55 and Note 2 to the financial statements.
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 Bond Portfolio - The Company is subject to the risk that issuers of
asset-backed securities in which it invests may default on their obligations
and that certain events may occur which have an immediate and significant
adverse effect on the value of such instruments. There can be no assurance
that an issuer of an instrument in which the Company invests will not default
or that an event which has an immediate and significant adverse effect on the
value of such instruments will not occur, and that the Company will not
sustain a loss on the transaction as a result.
The Company seeks to mitigate this risk by monitoring its portfolio of
investments and reviewing the underlying credit quality of its counterparties
on a monthly basis. In addition to the underlying credit quality of borrowers,
the weighted average life of the market bonds as at 31 March 2025 is two
years, which is an additional mitigant regarding any loss in value due to
changes in borrowers' circumstances over the long term.
Bilateral Loan and Bond Portfolio - The Company is subject to the risk that
the underlying borrowers to the loans and bonds in which it invests may
default on their obligations and that certain events may occur which have an
immediate and significant adverse effect on the value of such instruments.
Any loan and bond may become a defaulted obligation for a variety of reasons,
including non-payment of principal or interest, as well as covenant violations
by the borrower in respect of the underlying loan and bond documents. In the
event of any default on the Company's investment in a loan and bond by the
borrower, the Company will bear a risk of loss of principal and accrued
interest on the loan and bond, which could have a material adverse effect on
the Company's investment. There can be no assurance that a borrower will not
default, that there will not be an issue with the underlying real estate
security or that an event which has an immediate and significant adverse
effect on the value of these loans and bonds will not occur, and that the
Company will not sustain a loss on the transaction as a result. The Company
seeks to mitigate this risk by performing due diligence and monitoring its
portfolio of investments, reviewing the underlying credit quality of its
borrowers, performance of the underlying asset, and loan and bond covenant
compliance against financial information received and the performance of the
security, on a quarterly basis.
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 foreign currency risk, interest rate risk and other
price risk.
The Company's strategy on the management of market risk is driven by the
Company's Investment Objective as detailed on page 6 and in Note 1 to the
financial statements.
The Company's market risk is managed on a daily basis by the Investment
Manager in accordance with policies and procedures detailed in the latest
Prospectus and summarised in the financial statements.
Foreign Currency Risk
Foreign 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. The Company is exposed to foreign currency risk to the extent that
foreign exchange rates fluctuate in relation to financial instruments that are
denominated in currencies other than British Pounds ("GBP" or "£").
The Company manages its foreign exchange risk on a portfolio basis. The
Company may bear a level of foreign currency risk that could otherwise be
hedged where it considers that bearing such risks is appropriate. The Company
manages its foreign exposure via forward foreign exchange contracts.
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.
The Company invests in both direct real estate loans and floating rate real
estate debt securities, which include CMBS.
Real estate loans can have fixed interest coupons and are therefore
potentially exposed to the wider effects of changes in interest rates. For
bonds, the interest rate risk arises from the effects of fluctuations in the
prevailing levels of market interest rates on the fair value of financial
assets and liabilities and future cash flows. A segment of the portfolio
consists of floating rate debt investments which are exposed to interest rate
risk through changes in interest rates, potentially having an effect on
prepayments and defaults of the underlying loans of the securitisations.
In addition to the underlying credit quality of borrowers, the weighted
average life of the loans as at 31 March 2025 is one year, which is an
additional mitigant regarding any losses in value due to changes in borrowers'
circumstances over the long term.
While retaining the ability to do so, the Company does not currently enter
into hedging arrangements in respect of interest rate fluctuations.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities on a timely basis.
The Company's liquidity risk is managed on a daily basis by the Investment
Manager in accordance with policies and procedures detailed in Note 14(c) to
the financial statements. Where needed, the Investment Manager will seek to
liquidate positions to increase cash or reduce leverage.
Much of the market for CMBS and real estate loans is relatively illiquid. In
addition, investments that the Company purchases in privately negotiated (also
called "over-the-counter" or "OTC") transactions may not be registered under
relevant securities laws or otherwise may not be freely tradable, resulting in
restrictions on their transfer, sale, pledge or other disposition except in a
transaction that is exempt from the registration requirements of, or is
otherwise in accordance with, those laws. As a result of this illiquidity, the
Company's ability to vary its portfolio in a timely fashion and to receive a
fair price in response to changes in economic and other conditions may be
limited.
Furthermore, where the Company acquires investments for which there is no
readily available market, the Company's ability to deal in any such investment
or obtain reliable information about the value of such investment or risks to
which such investment is exposed may be limited.
For further information on risks, please refer to Note 14 to the financial
statements.
Other Risk Factors
The Board gives consideration to and, together with Cheyne, monitors other
relevant risks, in addition to the ones highlighted above; this includes a
consideration of any relevant Emerging Risks as they evolve. The Board and
Cheyne regularly measure and evaluate the performance of the providers. These
currently include: geopolitical and macroeconomic risks sustained higher
interest rates and stubborn inflation pressure, supply chain disruption, the
continuing impact of conflicts around the world; and the effects of climate
change and cyber security. Given the short weighted average life of the
assets, and the continual replacement of assets in the portfolio from the
wider Investment Manager's pipeline, such macro risks are worked through in
the life of the assets. Any issues that might potentially impact the value of
the investments, including impacts to supply chains, are taken into account in
the fair value. An evaluation of each of the Company's positions in light of
these risks is continually monitored. The performance of service providers is
a relevant risk, as the Company is dependent on the performance of the service
providers.
BUSINESS AND STRATEGY REVIEW
Investment Manager's Report
Supporting the Company's key objectives through a challenging period
Ravi Stickney Portfolio Manager
Managing Partner and CIO, Cheyne Real Estate
Positioning to grow into the accelerating demand for European real estate
credit
I would like to start the commentary on the past year by acknowledging the
immense contribution of both the Company's retiring Chairman, Bob Cowdell, and
Board member, John Hallam.
Bob has worked tirelessly with Cheyne, as manager, and the Company's advisors
through the many challenges in the last 10 years. Firstly, in working to set
forward a path to growth, and then, in navigating the very difficult periods
of Brexit, the COVID Pandemic and also the turbulence of 2022. Each of those
periods required deft skills in navigating the risks to the Company whilst
continual communication with its investors. Bob leaves RECI on a sound footing
, ready to face the challenges ahead.
I am happy to also welcome Mark Thompson and the new Chairman, Andreas
Tautscher. The team at Cheyne Real Estate look forward to working with RECI's
Board in furtherance of our service to investors.
Macroeconomic backdrop and implications for real assets
Tariffs, growth, taxes, policy chaos, inflation (or disinflation) and
uncertainty. All of these factors have been magnified since the election of a
new US president in January 2025.
As investment managers seeking the most defensive and highest return
investments for our investors, we do need to frame the continued changes in so
many variables and their implications over the short and longer terms.
To unpick the recent changes since January this year, the following are clear
to us:
1 Tariffs imposed by the Trump administration are highly inflationary on the US
consumer and are an impediment to growth in the US (mainly)
2 More importantly, the chaotic and ill-conceived policies of this US
administration may well have very long-term implications for global capital
allocation and the movement of the global skilled workforce
3 Europe, and the rest of the free world, are responding rapidly in various ways
to counter the effect of these policies on their economics and security
4 The implications of all of these on the US are not the same for the rest of
the world
We see the following as just some of the factors that are relevant for
European real estate:
1 US tariffs are expected to be disinflationary on input prices to European real
estate (both for construction and operations). This is due to the redirection
of supply away from the US markets to the rest of the world
2 Whilst the US is seeing rising inflation expectations, the Eurozone, in
particular, is experiencing the reverse. Consequently, the rate cut
expectations are pronounced in the Eurozone, with expectations of benchmark
rates falling below 2.0% by end of 2026
3 The change in the flow of the global skilled workforce is perhaps anecdotally
captured by the following headlines:
(a) US applications for UK citizenship have hit a record
high with a 12% increase from the previous quarter (FT 23 May 2025) and (b)
the UK is now the largest destination of choice for US students and also all
international students, with a significant drop in demand for US universities
(Economist 28 April 2025). These factors are highly supportive of the demand
base for Living assets and, especially, student housing and higher education
infrastructure assets
4 The Eurozone and the UK present policy stability and a sharp focus on
productivity and growth. The Draghi report on the future of European
competitiveness and policy changes across the UK and Eurozone point to a focus
on growth, productivity, reduction in unnecessary regulatory burden and
economic security
5 The beginning of a reset in UK and European relations
6 Germany's recent fiscal stimulus package focused on boosting investment,
infrastructure and energy transition
In the short term, we do expect the heightened uncertainty unleashed by the US
administration to be negative for real asset investment sentiment and demand.
However, in the longer term, we see the above factors as being very supportive
for key UK and Eurozone real assets.
We also note the beginnings of incremental inward investment shifts towards
the rest of the world and away from the US. This includes investor appetite
for key real assets.
The significant need for debt capital
The long-term shift in policy focus to growth and productivity necessitates a
rapid investment in key real assets from housing, industrial, offices and also
infrastructure (energy, digital, transport and social). The funding markets
for real assets in Europe and the UK remain lagging vs the large, dynamic
capital markets of the US.
As an example, US focused real estate credit funds raised over $164 billion in
the five years ending 2023 Private Equity Real Estate (PERE), and of the
largest 10 global real estate debt managers, only one is domiciled in Europe
(PDI Real Estate Debt ranking).
All of this points to the growing need for debt capital markets to support the
creation (and retention) of these much needed assets.
The debt capital markets for real assets in Europe are deeply underserved due
to (a) the continued restrictions on banks from regulatory capital charges and
(b) the very high barriers to entry, into a highly specialised asset class,
for nascent and non-local managers.
Cheyne Real Estate has continually increased its presence in the European real
estate debt markets since inception in 2008. The supportive macro backdrop and
growing need have seen RECI's manager (Cheyne Real Estate) grow its team,
geographic footprint and business size significantly.
It is our intent that RECI grows to scale into providing for this immense
long-term need.
RECI - Review of the prior year
RECI has navigated another challenging year by its continued focus on:
• NAV preservation
• Income stability and income growth
• Dividend stability
• Growth
NAV preservation: Benefiting from the move to senior loans
RECI's move towards a focus on senior loans (accelerated post the 2020
pandemic period), continues to give it the ability to mitigate risks arising
from macro or sponsor challenges. Senior loans give RECI the absolute
security, governance, control and covenants necessary to work with sponsors to
navigate their challenged valuations. This has been in sharp focus during the
difficult post pandemic and 2022 period. It will also continue to provide
support in this period of tariffs and heightened uncertainty.
Challenged Sectors - Offices & Retail
The RECI senior loan book is resilient across its 17 deals. There have been no
additions to the challenged loan investments from the prior year. The
challenged sector, for RECI, remains its two offices in France that have seen
a slow take up post the pandemic. These French office senior loans make up
10.8% of RECI's NAV, post fair value losses, which have increased since 2024.
Both senior loans' collateral are located in Paris. Both are to sponsors who
have successfully delivered prime "Grade A", ESG excellent offices. Both
assets are, however, in secondary locations outside the core central business
district. Of the two, one asset is located in the weaker eastern district
(2.8% of NAV), whilst the other (larger) asset is in the stronger north west
district (8.1% of NAV).
The sponsor in the former asset has defaulted on its loan and RECI has reduced
the fair value of the loan to reflect the ultimate recovery value that has
been assessed by its valuers. The loan is carried today at 81% of its par
balance. The latter asset continues to be supported by its private equity
sponsor, with further equity injections during the year and an improving
leasing landscape. RECI benefits from the continued work of Cheyne Real
Estate's large French team in working towards a recovery on both assets.
RECI's exposure to retail rests in a single mixed-use asset, which is
currently carried at a valuation that is 38% of its par balance and represents
0.9% of the Company's NAV.
Repayments and reinvestment
Other than the challenged assets above, we continue to see timely repayments
on RECI's loan book. This year has seen the repayment of seven deals, with
gross proceeds of £113.6 million.
Yields available on new senior loans far exceed those created prior to late
2022 (due to higher margins and base rates), RECI has progressed on its path
to a higher net income (and hence dividend profile) via reinvestment into two
floating rate senior loans:
1 A senior loan with LTV of 65% secured by a core London hotel portfolio
2 A senior loan with LTV of 48% secured by a core hotel in the French Alps
RECI's cost of leverage has declined during the year and has been reflected in
the cost of leverage secured on both these investments. The running yield on
these levered senior loans is in excess of 12% today.
Over the last five years, since 2020, RECI's loan book has decreased
substantially. This is due to the constraints on available cash (with
justifiable competing cash needs for share buybacks and, in volatile times,
cash retention as a defensive measure).
A less granular loan book does lead to increased NAV volatility as any fair
value adjustment to the remaining positions leads to an outsized variation on
NAV. A less granular book also impairs operational efficiency (for example in
cash flow optimisation).
Dividend
Maintaining, and improving upon, the net income of RECI is key to supporting
(and potentially adding to) the dividend payments to investors. Dividend cover
from total returns for the year amount to 0.81x. The path to full dividend
cover remains (in absence of further capital formation), the recycling of loan
repayments into new investments at higher returns and a marginally lower cost
of financing.
Cheyne Team
The Cheyne Real Estate team today stands at 36 investment professionals,
supported by a captive loan servicing and asset management team of a further
29 professionals. The 65-strong team operates out of localised offices in
London, Paris, Madrid and Berlin, providing for a dedicated long-term
origination and management platform present throughout Europe.
The Year Ahead
The prior year has seen RECI stabilise on its NAV movements and also on its
path to income growth. Whilst our work towards those objectives has been
satisfactory, the key objective of growth has not been met.
In our view, the growth of RECI remains a key aim for Cheyne for following
reasons:
• RECI should be fully capable of participating in the fast growing, compelling
market for senior lending in Europe
• New loans provide higher risk adjusted returns, driving higher income without
increased risk
• A larger book promotes efficiency in funding and cash flow management, thus
improving further on long-term stable net income
• A larger, more diverse book presents lower NAV volatility from any single
impaired position
• A larger RECI should provide for increased liquidity and investability for
investors
We remain committed to the management of RECI and to working with its
investors and Board and we look forward to working on our objectives for the
Company, including the delivery on the growth of the Company.
BUSINESS AND STRATEGY REVIEW
Stakeholder Engagement
The Board is committed to promoting the long-term success of the Company
whilst conducting business in a fair, ethical and transparent manner.
Whilst directly applicable only to companies incorporated in the UK, the Board
recognises the intention of the AIC Code that matters set out in section 172
of the Companies Act 2006 are reported on. The Board strives to understand the
views of the Company's key stakeholders and to take these into consideration
as part of its discussions and decision- making process. As an investment
company, the Company does not have any employees and conducts its core
activities through third-party service providers.
Each provider has an established track record and through regulatory oversight
is required to have in place suitable policies and procedures to ensure they
maintain high standards of business conduct, treat their own stakeholders
fairly, and employ corporate governance best practice. The Company strongly
believes that fostering healthy and constructive relationships with its broad
range of stakeholders should result in increased Shareholder value over the
long term.
Investors
Why they are important
The Board believes that the maintenance of good relations with Shareholders is
important for the long-term prospects of the Company and seeks engagement with
investors.
How the Board engages
The Directors and Cheyne are committed to providing detail and transparency
regarding the Company's portfolio and investment strategy, allowing all
investors to focus upon RECI and its merits and opportunities, notwithstanding
the broader market environment. The Chairman and other Directors are available
for discussion about governance and strategy with major Shareholders and the
Chairman ensures communication of Shareholders' views to the Board. The Board
also receives feedback on the views of Shareholders from Panmure Liberum
Limited (the "Corporate Broker") and the Investment Manager, and Shareholders
are welcome to contact the Chairman or any Director at any time via the
Company Secretary.
Key activities during the year
AGM
The Directors believe that the AGM provides an appropriate forum for
Shareholders to communicate with the Board and encourages participation. There
is an opportunity for individual Shareholders to question the Chairmen of the
Board and the Audit and Risk Committee at the AGM. The Board assesses the
results of AGMs considering whether the number of votes against or withheld in
respect of resolutions are such as to require discussion in the subsequent
Annual Report.
Publications
The Company reports to Shareholders with both monthly fact sheets and
quarterly update presentations, along with the Annual and interim reports.
These are available on the Company's website: realestatecreditinvestments.com
(http://realestatecreditinvestments.com/)
In accordance with the EU Packaged Retail and Insurance-based Investment
Products Directive on 1 January 2018, a Key Information Document is available
on the Company's website.
Events
Throughout the last financial year, the Investment Manager continued to
provide a detailed and comprehensive review of RECI's portfolio as part of our
programme of enhanced investor communication. A number of online events and
meetings were held to maintain a regular dialogue with our Shareholders and
potential new investors. In addition, the Board continues to work with its
service providers to enhance the Company's website and fact sheet.
Community and Environment
Why they are important
In carrying out its activities, the Company aims to conduct itself
responsibly, ethically and fairly. The Directors recognise the importance of
environmental, social and governance factors, including climate change, when
pursuing the Company's Investment Objective and in the selection of the
service providers and advisers the Company works with. The Board is alive to
the magnitude of the evolving ESG landscape. It has determined that ESG
considerations, and their communication, must be fundamental to all its
operations and has consequently nominated an ESG lead to co-ordinate and drive
internal discussion. The Board, in conjunction with the Investment Manager,
continues to closely monitor upcoming regulation and any developments in this
area.
How the Board engages
The Board's ESG Lead, Colleen McHugh works closely with Cheyne in monitoring
RECI's approach towards developing and implementing ESG. Pages 30 to 35 of the
Sustainability Report provide further information about the Company's and the
Investment Manager's approach to ESG matters.
Key activities during the year
The Investment Manager engages on an ongoing basis with an external Real
Estate ESG specialist consultant to assist with developing its framework and
provide assurance on a comprehensive scorecard-based approach using a borrower
questionnaire and ESG data templates for each deal. The questions in Cheyne's
borrower questionnaire have been grouped and weighted to enable a proprietary
0-5 scoring against the following Target Characteristics:
• E1 Commitment to Environmental Risk Monitoring
• E2 Contribution to Positive Environmental Action
• S1 Supporting Social Wellbeing
Qualifying Investments must achieve a score of 3 or higher on at least one of
the Target Characteristics.
The ultimate aim is to align the Investment Manager's principles with industry
recognised benchmark standards to identify a minimum ESG standard needed
across RECI's portfolio. The move to a more qualitative system has
significantly helped the Investment Manager identify and understand ESG-based
risks in its portfolio more easily, and not only assist with lowering risk and
increasing quality, but also helped collate and measure the data required to
track progress in what is a fast-moving but increasingly important area of
focus. The Investment Manager has now fully embedded the ESG framework within
its investment process, which includes regular training for the Real Estate
team and wider Cheyne employees.
The Investment Manager has also appointed a leading Real Estate asset-level
focused sustainability consultant to develop its Decarbonisation Strategy.
Every proposed transaction across RECI's portfolio is now subject to a Carbon
Risk Real Estate Monitor ("CRREM") alignment assessment. An asset is
considered CRREM-aligned if its current or projected operational carbon and
energy use intensity are in line with the targets set by CRREM for a
particular building type, location and time horizon. These targets are based
on global climate goals to limit warming to 1.5°C or 2°C, and becoming
CRREM-aligned means the asset avoids 'stranding' by maintaining acceptable
levels of carbon intensity as regulations and market expectations tighten over
time.
Additionally, the Company has decided to purchase carbon offsets for all
flights that may be required by the Directors and the Investment Manager,
thereby facilitating a carbon neutral position, as pertains to travel. The
Company recognises that this action is the first step in an evolving climate
strategy, that should encompass carbon removal as well as carbon offsets.
To further reduce its carbon footprint, Shareholder communications are
electronic only for Shareholders on the share register. Accordingly, the
Company's website is now the default method of communication for Shareholder
publications. Currently approximately 72% of the Company's Shareholder
register receive documents and other communications electronically.
Service Providers
Why they are important
Effective relationships with service providers help the Company achieve its
objectives, including its investment objectives, and to operate in an
efficient and compliant manner.
Commercial service providers: Investment Manager, Administration agent,
Corporate broker, Legal advisers, Auditor and Key service providers are
retained, providing continuity of service and familiarity with the objectives
of the Company.
The Audit and Risk Committee receives information from the Company's service
providers with the majority of information being directly sourced from the
Company Secretary, Administrator, the Investment Manager and the external
auditor.
How the Board engages
The Management Engagement Committee meets at least once a year for the purpose
of evaluating the performance of the Company's service providers, the review
of service agreements and service level statements and the level and method of
their remuneration. The Audit and Risk Committee considers the nature, scope
and results of the auditor's work and reviews its performance annually prior
to providing a recommendation to the Board on the reappointment or removal of
the auditor.
Key activities during the year
The Board has detailed and constructive discussions with major service
providers regarding service provision and fees. Details of the
responsibilities of the Investment Manager, Investment Advisor, MUFG Corporate
Markets (Guernsey) Limited (Registrar), and Aztec Financial Services
(Guernsey) Limited (Company Secretary) can be found on page 100. Other service
providers include our corporate broker, lenders, auditors, counsel and other
advisors.
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 ("UN PRI").
Several standards and codes have received prominence as metrics for investment
managers. These include, for example, the 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"). As of 15 December 2023, the Financial Stability Board
("FSB") requested the IFRS take over from, and be responsible for, the
monitoring of climate-related disclosures from the TCFD.
The UK government has started the process of how to endorse the IFRS
Sustainability Disclosure Standards for use in the UK. This reporting
framework will be known as the UK Sustainability Reporting Standards and is
not expected to be effective until January 2026 at the earliest.
The Investment Manager's Stewardship Committee provides firmwide 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.
The ongoing partnership with a leading external specialist 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's Partnership with Carbon.Climate.Certified
This new partnership, established in September 2024, represents the evolution
of Cheyne's approach to ESG as it relates to their real estate portfolios.
Cheyne has appointed Carbon.Climate.Certified ("CCC") to prepare a CRREM
alignment assessment for every proposed transaction. A CRREM aligned asset has
an emissions and energy intensity profile aligned with the Paris climate goals
of limiting global temperature rise to 2° C, with ambition towards 1.5° C.
For standing assets, this is the current profile, for development assets, the
projected profile to have once operational.
CCC will work to establish the scope for the net zero pathway, determine
targets, deliverable requirements and create an action plan for net zero
alignment and staged gateway reporting. Cheyne will evaluate the assessment,
together with the borrower, to consider viability of achieving CRREM
alignment. While not all our investments will be CRREM aligned, we require all
our borrowers to commit to the CRREM alignment assessment process.
Cheyne Real Estate Core ESG Principles
VALUE ENHANCING RISK REDUCING ACTIVELY ENGAGED
Cheyne believes that an overarching focus on ESG considerations is entirely ESG considerations in our investments are not merely a passive analysis but
aligned with our investment goals. rather the opportunity to effect positive change.
Sustainability credentials directly support real estate valuations Cheyne is a key stakeholder in our investments, frequently the sole lender to
a real estate asset
Sustainable, energy efficient buildings are more valuable to asset owners by: This provides the ability to directly engage with all new sponsors to help
drive the ESG agenda directly and seek to address any deficiencies and
Supporting higher rents, lower vacancies and lower operating costs opportunities to improve sustainability credentials of the asset
Supporting exit valuations.
This is particularly relevant in development, value add and transitional
financing, which represents a core focus for Cheyne.
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 Method
("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.
• Governance: management experience and knowledge and anti-money laundering,
corruption, and bribery practice.
Documentation
The Investment Manager seeks to ensure that borrowers are formally required to
adhere to its ESG processes, as well as applicable ESG laws and regulations,
as a condition to lending. ESG considerations are therefore an integral part
of RECI's loan documentation. All borrowers are expected to comprehensively
complete ESG data requests in a timely manner, including the ESG questionnaire
and carbon emissions data and/or energy use data. In addition, the Investment
Manager expects its borrowers to commit to a CRREM alignment evaluation, and
engage in a discussion on viability of achieving CRREM alignment.
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.
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.
Business as Usual
Cheyne has taken a staged approach in developing its ESG strategy, with its
philosophy drawing on the following four drivers:
• The Greater Good
• Value Enhancement/Risk Management
• Regulation
• Investor Expectations
Cheyne has worked with Evora to prepare customised ESG questionnaires for each
of the real estate asset types the Cheyne real estate 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 performance against key
ESG criteria, utilising a consistent approach to enable aggregation across the
assets within the relevant Cheyne fund. The score is set at a stringent enough
level to effect a conversation about enhancing the ESG characteristics if they
are not up to Cheyne's standards.
The questionnaires are used by Cheyne's analysts to undertake a broad-based
ESG evaluation of a proposed investment - focusing on both the sponsor and the
asset itself.
Standards and Guidance
A range of external guidance and best practice standards have been used to
inform the development of the ESG questionnaires, including:
• Global Real Estate Sustainability Benchmark ("GRESB")
• Building Research Establishment Environmental Assessment Method ("BREEAM")
• EU Taxonomy
• Sustainable Finance Disclosure Regulations ("SFDR")
• Minimum Energy Efficiency Standards ("MEES")
Outlook and Focus Areas 2025 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 addition of a leading ESG asset level consultant to capture
more defined asset level metrics and formulate a Decarbonisation Strategy,
represents the next phase of the Investment Manager's ESG evolution. 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 will
assess the alignment of its investments with the CRREM framework, to secure
its assets and reduce the risk of stranding.
The Investment Manager firmly believes that adopting this approach will:
• Enhance the quality of the portfolio and help to protect value;
• Stay ahead of investor demand to invest in sponsors that have a plausible and
demonstrable ESG strategy;
• Use capital to drive/accelerate change in the Real Estate arena in regard to
ESG; and
• Provide 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 evolving regulatory
requirements. This year the Investment Manager will produce its second FCA
TCFD entity report. Cheyne will also be producing a publicly available FCA
TCFD product level report for RECI, due to its role as Investment Manager.
In addition, the Investment Manager is monitoring the potential forthcoming
changes to the SFDR. The European Supervisory Authorities ("ESAs") have
published a joint opinion on this matter, which suggest turning the SFDR into
either a product categorisation regime and/or a framework that uses
sustainability indicators to grade sustainability products. The European
Commission will take the ESAs' joint opinion into consideration as part of its
review into SFDR, but it is under no obligation to make the changes
recommended. There is no firm date for the European Commission's revision of
the SFDR, but proposals are expected during 2025.
Further details on Cheyne's ESG policy can be found on its website:
cheynecapital.com/esg-responsible-investment/
Responsible Investment Highlights 2025(1)
1 Unchanged from 2024
Investment example 1
Taxi House - Co-Living Scheme (United Kingdom)
ENVIRONMENTAL SOCIAL GOVERNANCE
The co-living development will be a car-free development, and residents will The Sponsor will aim to provide rental levels for studio apartments which are Cheyne has a firm grasp over the governance of the structure and continues to
be encouraged to use sustainable modes of transport and the scheme will have 10% lower than the comparable rents in the area oversee management initiatives
dedicated cycle parking
The scheme will be devoted to tackling the issue of loneliness and isolation Cheyne will retain control rights through its JV participation and will
The Sponsor is dedicated to deliver as BREEAM Outstanding utilising a range of through communal spaces and on-site events therefore ensure the Sponsorship upholds the highest quality of due diligence
green and sustainable technologies and measures
and governance in its investments
The co-living concept provides high-quality community-focused accommodation.
The Sponsor will also ensure 100% of electricity and gas supplies are from Ample amenity spaces are dedicated for the residents to socialise and form a
renewable energy sources community
The Sponsor will strive to achieve a recycling rate of 90% and zero waste to The scheme will provide local employment opportunities through apprenticeships
landfill. and training at the site.
Investment example 2
Fulton Road - Residential Development (United Kingdom)
ENVIRONMENTAL SOCIAL GOVERNANCE
Air source heat pump technology will provide heating and hot water The project has helped create up to 925 construction jobs and 205 permanent Regal are a strongly governed business with environmental, anti-slavery and
jobs. human trafficking, modern slavery and health and safety policies in place and
50% carbon reduction, 41 photovoltaic panels, 2,037 square metres of new
followed
public planning, 51 new trees and 2,500 square metres of biodiverse green Regal will establish on-site training and construction academies at its
roofs developments to support and give back to local communities in an exclusive They are in the process of creating their Diversity and Inclusion policy
relationship with Building Heroes
Biodiversity net gain and BREEAM Excellent rating
Two new pedestrian raised table crossings and a new bus shelter
New cycle connections and four new public spaces including 3,192 square metres
of new play spaces
Annual Report and Accounts 2025
Governance
In this section
Board of Directors
Management Team
Directors' Report
Remuneration Committee Report
Corporate Governance Statement
Audit and Risk Committee Report
Directors' Responsibility Statement
Board of Directors
Andreas Tautscher
(Chairman from 1 November 2024) (Guernsey Resident).
Mr Tautscher is an experienced Financial Services former executive who now
focuses on acting as an Independent Director on Listed and Private Funds as
well as other regulated businesses. He is currently a Director and Chairman of
Audit Committee for two AIM Listed Boards, a LSE listed Aircraft Leasing
platform as well as a local Bank and Asset Manager. From 1994 until 2018,
Andreas was a senior executive at Deutsche Bank and was most recently CEO
Channel Islands and Head of Financial Intermediaries for EMEA and LATAM. He
also sat on the UK Regional Governance Board of Deutsche and the EMEA Wealth
Management Exco. He has also served on Local Government advisory committees
and was for six years a non-executive director on the Virgin Group Board.
Andreas' first career was in the Oil Industry as a Geologist before moving to
PricewaterhouseCoopers CI LLP where he qualified as a Chartered Accountant
in 1994. He has been a member of the Board since May 2024.
Susie Farnon
(Chair of the Audit and Risk Committee, Chair of the Nomination Committee from
1 November 2024 and Senior Independent Director from 12 June 2024) (Guernsey
resident).
Mrs Farnon is a Fellow of the Institute of Chartered Accountants in England
and Wales and qualified as an accountant in 1983. She is a former Banking and
Finance partner of KPMG Channel Islands from 1990 until 2001 and head of the
Channel Island Audit Practice from 1999. She has served as President of the
Guernsey Society of Chartered and Certified Accountants and as a member of the
States of Guernsey Audit Commission and as vice-chairman of the Guernsey
Financial Services Commission. Susie is a non-executive director of two
investment companies listed on the London Stock Exchange and was a board
member of the Association of Investment Companies from 2018 until January
2025.
Colleen McHugh
(Chair of the Management Engagement Committee, Chair of the Remuneration
Committee from 1 November 2024 and ESG Lead) (Guernsey resident).
Mrs McHugh is an experienced investment professional with over 25 years in the
financial services industry, including roles in investment management and
private banking. She has worked with publicly listed banks such as HSBC,
Barclays, and Butterfield Bank, primarily within international financial
centres. Her career includes senior investment roles, most recently as Chief
Investment Officer at Wealthify, a UK-regulated digital adviser within the
Aviva PLC group, and previously as Managing Director of 1818 Venture Capital,
a Guernsey-based licensed asset manager. In addition to her executive
experience, Colleen serves as a non-executive director on the boards of listed
and private investment funds, as well as a Guernsey-licensed commercial and
captive insurance company. Colleen is a Chartered Wealth Manager and a Fellow
of the Chartered Institute for Securities & Investment (CISI). She holds
an Economics degree from the University of Ireland, Galway, and an MBA from
the University of London. She has also recently completed the ESG Investing
Certificate from the CFA Institute. She has been a member of the Board since
March 2021.
Mark Thompson
(Independent Director) (Guernsey resident).
Mr Thompson is a Guernsey resident with over 30 years' experience in the
offshore finance industry. He is a Chartered Accountant (ICAEW), Chartered
Director (IoD) and a former chairman of the Guernsey Branch of the Institute
of Directors. Mark is a non-executive director of Rocq Capital Holdings
Limited and was formerly the chairman of the London listed investment company
Trian Investors 1 Ltd. Mark worked for KPMG for 31 years in London, Hong Kong
and Guernsey where his roles included audit partner, head of audit and senior
partner of KPMG in the Channel Islands.
Management Team
Ravi Stickney
Head of Cheyne Real Estate/Portfolio Manager
Ravi is Head of the Real Estate Team. He joined Cheyne in 2008 and has 20
years' experience in the real estate debt markets. Previously, he was on ING
Bank's proprietary investments desk (2005 to 2008), with sole responsibility
for managing a €400 million long/short portfolio of European commercial real
estate credits and CMBS. Prior to that, he was at Lehman Brothers (2002 to
2005), structuring and executing UK and European CMBS/RMBS and commercial real
estate mezzanine loans. He acted as sole operating adviser on the
restructuring and eventual sale of the first distressed UK CMBS deal, and he
continues to play an active role in the direction of various distressed
European real estate credits. He began his career on the UK commercial real
estate desk at Ernst & Young in 1998.
Andrew Sergeant
Head of Operations, Real Estate
Andrew has 16 years' experience with Cheyne, having joined in 2007. He is
responsible for the daily operations of the Real Estate business including
cash management, securitisations, loan drawdowns, hedging, tax compliance and
corporate governance. Andrew is an approved director in Jersey under the JFSC
and holds several UK directorships. Prior to Cheyne, Andrew held trading
support positions at Deutsche Bank, JP Morgan, and Citibank. Andrew earned a
First Class BA from the University of Leicester in 2003 and holds the CFA
Certificate in Investment Management (IMC).
Kirran Sky
Deputy Portfolio Manager, Real Estate
Kirran joined Cheyne in 2022 from a subsidiary of Oaktree Capital where he
worked with the flagship Opportunities Funds since 2016 in Portfolio
Management, Origination/UW, and modelling/systems development. Prior to this
he worked for Apollo Global Management's European Principal Finance funds in
Portfolio Management, and Nationwide Building Society's Management Development
Programme in Non- Performing Loans, and Commercial Credit Risk. Kirran has a
BSc in Mathematics from Loughborough University.
Ashley Martinelli
Portfolio Associate
Ashley joined Cheyne in 2024 as Portfolio Associate with the Real Estate Team
in the London office. Ashley comes from JP Morgan Chase where she was Audit
Senior Associate. Previously, she completed the Audit graduate program at PwC
Ireland in the Asset and Wealth Management division. Ashley is a Chartered
Accountant and a CFA charter holder. She has earned a BSc in Business and
Economics at the University of Bologna and an MSc in Finance at UCD's Michael
Smurfit Graduate Business School.
Arron Taggart
Head of UK
Arron has over 25 years' experience in the real estate markets. He joined
Cheyne in August 2012 to originate real estate loans in the UK and Northern
Europe. Prior to Cheyne, Arron was a Property Specialist and Partner at
Clydesdale Bank responsible for the origination and execution of real estate
loans in London and the South of England. He was also responsible for the
management of the loan portfolio and setting regional strategy. Prior to
Clydesdale Bank, he was at Bank of Scotland and Hitachi Capital.
Raphael Smadja
French Origination
Raphael joined Cheyne in January 2014 and has 20 years' experience. Prior to
Cheyne, he was an Associate Director in Real Estate Finance at Deutsche
Pfandbriefbank, responsible for sourcing and structuring commercial real
estate loans across Europe. Prior to that, he held positions within the Real
Estate Finance and CMBS space at Moody's, UBS and Morgan Stanley.
Daniel Schuldes
European Origination
Daniel has over 18 years' experience in the European real estate debt and ABS
markets. He joined Cheyne in 2007 and specialises in the origination,
structuring, negotiation and execution of German real estate credit
transactions. He was previously an associate on Credit Suisse's asset finance
team in London, which was responsible for originating and structuring the
bank's European securitisations. He focused on fundamental analysis of RMBS
collateral.
Sa'ad Malik
Structured Credit
Sa'ad joined Cheyne in 2016. Prior to joining Cheyne, he founded Rhino
Investment Management LLP in 2011, an FCA-authorised boutique investment and
advisory firm, active in the European commercial real estate market. Among his
responsibilities were strategy, origination, client management, structuring
and execution. He previously worked for Lehman Brothers International (Europe)
in 2004, and for Credit Suisse Securities (Europe) Limited in 2005, when he
was Director in their European Real Estate Finance & Securitisation area,
and had a central role in building the Titan Europe CMBS platform. Sa'ad
started his career in 2000 with Commerzbank Securities in Asset-Backed
Finance.
Lydia Boos
Legal Counsel
Lydia is Legal Counsel for the Cheyne Real Estate Team. Prior to joining
Cheyne in 2018, Lydia was a senior associate at Bryan Cave Leighton Paisner
LLP where she worked since starting her legal training in 2008. Lydia joined
BCLP's real estate finance department upon qualifying as a solicitor in
September 2010. At BCLP, Lydia was responsible for advising a range of lender
and sponsor clients on real estate focused investment and development
transactions across a variety of sectors, often including complex
intercreditor structures.
GOVERNANCE
Directors' Report
The Directors present their report and the audited financial statements for
the year ended 31 March 2025.
General Information
The Company was incorporated in Guernsey on 6 September 2005 with registered
number CMP43634.
The "About the Company" section of the Annual Report on page 6 provides
information regarding the structure of the Company, the investment objective
and the listing details of the shares of the Company.
The Company's investment management activities are managed by the Investment
Manager, who is also the Alternative Investment Fund Manager ("AIFM"). The
Company has entered into an Investment Management Agreement under which the
Investment Manager manages its day-to- day investment operations, subject to
supervision by 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 and registered as the AIFM of the Company.
Principal Activity and Business Review
The principal activity of the Company during the year was that of an
investment company investing in real estate credit investments. For full
details of the Investment Policy of the Company see page 6.
Results and Dividends
The results for the year and the Company's financial position as at year end
are shown on pages 69 and 70. Dividends totalling £26.7 million (31 March
2024: £27.4 million) were paid on the shares during the year.
A fourth interim dividend for the year ended 31 March 2025 of 3.0 pence per
share (31 March 2024: 3.0 pence per share) was declared by the Directors on 24
June 2025 and is payable on 25 July 2025. This fourth interim dividend has not
been included as a liability in these financial statements.
The Company purchased 3.3 million (31 March 2024: 4.1 million) shares in the
market during the year. The total amount paid to purchase the shares was £4.2
million (31 March 2024: £5.0 million).
Capital Structure
Details of the authorised, issued and fully paid share capital, together with
details of the movements in the Company's issued share capital during the
current and prior year, are shown in Note 13 to the financial statements.
The Company has one class of shares which carry no right to fixed dividends.
Each share carries the right to one vote at general meetings of the Company.
No person has any special rights of control over the Company's share capital.
Board of Directors
The Board appoints all Directors on merit. When the Nomination Committee
considers Board succession planning and recommends appointments to the Board,
it takes into account a variety of factors. Knowledge, experience, skills,
personal qualities, residency and governance credentials play an important
part.
The Directors of the Company who served during the year and to the date of
this report were:
Andreas Tautscher (appointed 7 May 2024 and Chairman from 1 November 2024)
Susie Farnon Colleen McHugh
Mark Thompson (appointed 4 November 2024)
Bob Cowdell (resigned 31 October 2024)
John Hallam (resigned 18 September 2024)
The following summarises the Directors' directorships in other public
companies listed on the London Stock Exchange:
Director Company Name
Andreas Tautscher Doric Nimrod Air Three Limited, Doris Nimrod, Air Two Limited
Susie Farnon Apax Global Alpha Limited, Ruffer Investment Company Limited
Colleen McHugh Ruffer Investment Company Limited
All Directors are independent of the Investment Manager and free from any
business or other relationship that would materially interfere with the
exercise of their independence.
Mrs Farnon and Mrs McHugh are both on the board of Ruffer Investment Company
Limited but the Company believes that this does not impact their ability to be
considered independent.
With regard to the appointment and replacement of Directors, the Company is
governed by its Articles of Incorporation (the "Articles") and the Companies
(Guernsey) Law, 2008 (as amended). The Articles themselves may be amended by
special resolution of the Shareholders. The powers of Directors are described
in the Articles and in the financial statements in the Corporate Governance
Statement.
The Directors' interests in the share capital of the Company (some of which
are held directly or by entities in which the Directors may have a beneficial
interest) as at the publication date are:
Number of % of Company
Shares
Andreas Tautscher (Chairman) 17,500 0.01%
Susie Farnon 57,250 0.03%
Colleen McHugh 70,000 0.03%
Mark Thompson 10,000 0.00%
Substantial Interests in Share Capital
Chapter 5 of the Disclosure and Transparency Rules, requires disclosure of
major Shareholder acquisitions or disposals (over 5% of the shares) in the
Company (see list below of major Shareholders). During the year, there were
ten notifications of such transactions (31 March 2024: three notification).
Since 1 April 2025, there were no notifications.
List of major Shareholders as at 31 March 2025:
Name Total Shares Held % Shares Held
Close Brothers Group 23,266,882 10.49%
Hargreaves Lansdown PLC 17,422,571 7.85%
Premier Milton Group 13,255,018 5.97%
Aberdeen plc 12,233,727 5.51%
Waverton Investment Management 11,933,884 5.38%
Canaccord Genuity Group Inc 11,311,278 5.10%
Tilney Smith & Williamson 11,100,879 5.00%
Issued Share Capital
The issued share capital of the Company was 229.3 million shares, consisted of
221.9 million outstanding shares and 7.4 million treasury shares (31 March
2024: 229.3 million shares, consisted of 225.2 million outstanding shares and
4.1 million treasury shares).
Directors and Officers Liability Insurance
Directors and Officers liability insurance is in place and was renewed on 6
July 2024.
Listing Information
The shares are currently listed and traded on the Main Market of the London
Stock Exchange.
Website
The Directors are responsible for the oversight of the website and delegate to
Cheyne responsibility for the maintenance and integrity of the financial and
corporate information included on it.
The Investment Manager
Having reviewed the performance of the Investment Manager, the Directors are
satisfied that the continued appointment of the Investment Manager on the
terms agreed is in the best interests of the Shareholders and the Company. The
Company has entered into the Investment Management Agreement under which the
Investment Manager manages its day-to-day investment operations. Details of
the Investment Management Agreement can be found in Note 17 to the financial
statements.
Auditor
During the year the Audit and Risk Committee conducted a tender process for
the position of external auditor, which, in-line with best practice, included
one "challenger" audit firm. A request for proposal was sent to suitably
qualified audit firms and a rigorous interview process was conducted for those
firms that tendered. The Board will nominate PricewaterhouseCoopers CI LLP
CI LLP at the 2025 AGM to be appointed external auditor and a motion will be
proposed to Shareholders on whether to approve their appointment.
The Audit and Risk Committee reviews the appointment of the auditor on an
annual basis.
Principal Risks and Uncertainties
Principal risks and uncertainties are discussed in the Strategic Report.
Related Party Transactions
Related party transactions are disclosed in Note 17 to the financial
statements. There have been no material changes in the related party
transactions described in the last annual report.
Going Concern
The Directors believe it is appropriate to adopt the going concern basis in
preparing the 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 12 months from the date of signing the audited
financial statements.
Note 2 of the financial statements provides details of the matters the
Directors have taken into account in making their assessment of going concern.
Continuation Vote
A continuation vote is due in September 2025 and if any continuation
resolution is not passed, the Directors are required to put proposals for the
reconstruction or reorganisation of the Company to the Shareholders for their
approval within six months of the date of the vote. The Directors have no
reason to believe that the continuation vote will not be approved by
Shareholders and note:
• The previous vote was passed by an overwhelming majority;
• The Company's performance since then has been robust; and
• The current general market conditions are much improved from last year's
market and major investors have been commenting on the relevance and
attractiveness of RECI's proposition.
AGM
It is intended that the AGM of the Company will be held at 10:30am on 17
September 2025 and details of the resolutions to be proposed at the AGM,
together with explanations, will appear in the Notice of Meeting to be
distributed to Shareholders in due course. Members of the Board will be in
attendance at the AGM and will be available to answer Shareholder questions.
On behalf of the Board on 24 June 2025.
Andreas Tautscher Susie Farnon
Director Director
GOVERNANCE
Remuneration Committee Report
As in other areas of corporate governance, the Company seeks to adhere to the
AIC Code of Corporate Governance and has established a Remuneration Committee.
Although the Company is not incorporated in England and Wales it is mindful of
the regulations that apply to such companies in the context of remuneration
and will seek to make appropriate disclosures. All Directors are non-executive
and are not eligible for bonuses, pension benefits, share options, long-term
incentive schemes or other benefits, performance related or otherwise.
Directors do not have service contracts and there is no provision for
compensation for loss of office. All Directors are entitled to be repaid all
expenses reasonably incurred in the performance of their duties and have
signed a letter of appointment setting out the terms of such appointment.
The prime purpose of the Committee is to determine the Company's remuneration
policy within the limits set by the Articles of Incorporation which currently
state that the remuneration paid to each Director by way of fees shall not
exceed €160,000 in any financial year. Additionally, they provide that if
any Director performs any special duties, or renders services, outside of the
ordinary duties of a Director, that Director shall be paid such reasonable
additional remuneration as the Board may determine.
The Committee is authorised by the Board to seek, subject to a financial
limit, such independent advice as it may deem necessary in the discharge of
its responsibilities.
Composition of the Committee
The Committee is chaired by Colleen McHugh and is composed of all the
Directors including the Chairman of the Company, who was deemed independent at
the time of his appointment. This membership is considered appropriate as,
collectively, its members are believed to have the necessary experience and
knowledge to fairly determine remuneration.
Remuneration Policy
The current policy adopted by the Committee is set out below and will be
tabled at the next AGM for approval by Shareholders along with this Report.
The Company's Remuneration Policy is that fees payable to the Directors should
reflect the experience and expertise of and the responsibilities borne by the
Directors and the time spent on the Company's affairs and be sufficient to
attract, retain and motivate individuals of high calibre with suitable skills,
experience and knowledge and to ensure that their remuneration is set at a
reasonable level commensurate with their duties and responsibilities. No
element of the Directors' remuneration is performance related.
In determining the level of these fees, the Committee obtains and takes
account of reliable, up-to-date information about remuneration in other
companies of comparable scale and complexity together with general economic
conditions.
To help it fulfil its obligations, the Committee shall have full authority to
appoint remuneration consultants and to commission or purchase any reports,
surveys or other information which it deems necessary.
Implementation of the policy
Remuneration is reviewed every three years, with the last major review of
Board remuneration taking place in 2022. In the intervening years the
Committee reviewed changes in Guernsey Retail Price Index ("RPIX") to
determine if it was appropriate to increase the Chairman's fee and the base
fee for the other directors, to maintain real remuneration levels in line with
inflation. The Remuneration Committee, therefore, considered that it was
timely for a fundamental review of the remuneration structure with any
revisions taking place with effect from 1 April 2025.
In accordance with the stated policy several factors were considered:
(a) Given the residence of the Company and the Board members, Guernsey RPIX, which
excludes mortgage and interest payments is considered to be the relevant
inflation benchmark and in the 12 months to 31 December 2024 this rose by 4%,
(b) Publicly available market research was reviewed,
(c) The current remuneration levels reported by other listed investment companies,
of a similar size and nature, and
(d) The responsibilities of different Board members were analysed to identify
significant changes since the 2022 review.
As stated in the policy, and given that all Directors are non-executive,
remuneration decisions are not influenced by the financial performance of the
Company, be that in terms of share price or net asset value. Accordingly, such
information is not presented here.
The Remuneration Committee concluded that the Chairman's and Directors' fees
did not require an increase along the line of the 4% rise in Guernsey RPIX;
rather, half of this, namely 2% (rounded) was competitive. Therefore, the
Chairman's fee should increase from £91,000 to £93,000, and the base fee for
other Directors should increase from £44,000, as set in 2024, to £45,000.
The review of other responsibilities and leadership roles concluded that the
following changes were appropriate:
Audit and Risk Committee chair - the additional fee should increase from
£12,500 to £13,500 per annum in light of further risk responsibilities.
Senior Independent Director - it was determined that the role of SID warranted
a fee of £2,500 per annum, to acknowledge the additional workload being
undertaken.
No changes were made to:
Management Engagement Committee chair - Fee to remain £2,500 per annum;
ESG lead - Fee to remain £2,500 per annum;
Remuneration Committee chair - Fee to remain £2,500 per annum;
Nomination Committee chair - It was determined that a fee would no longer be
payable for this role.
As a consequence of these recommendations, the following table sets out the
remuneration of Board members for the financial year ending 31 March 2026 as
compared to the previous year; it should be noted that the additional fees
relate to the roles performed and not to specific individuals while the table
assumes that the named individuals will discharge the roles indicated
throughout the coming year.
Year ending Year ended
31 March 2026 31 March 2025
GBP GBP
Andreas Tautscher (Chairman)(1) 93,000 59,111
Susie Farnon (Audit and Risk Committee Chair, Senior Independent Director and 61,000 56,500
Nomination Committee Chair)(2)
Colleen McHugh (Remuneration Committee Chair, Management Engagement Committee 52,500 49,000
Chair and ESG Lead)(3)
Mark Thompson (Independent Director)(4) 45,000 17,973
Bob Cowdell (resigned 31 October 2024) 53,083
John Hallam (resigned 18 September 2024) 21,734
1 Andreas Tautscher was appointed chair to succeed Bob Cowdell with effect
from 1 November 2024
2 Susie Farnon took over from John Hallam as Senior Independent Director
with effect from 12 June 2024 and as Nomination Committee Chair from Bob
Cowdell with effect from 1 October 2024
3 Colleen McHugh took over from John Hallam as Remuneration Committee
chair with effect from 1 October 2024
4 Mark Thompson was appointed with effect from 4 November 2024
Statement of Shareholder Voting
At the last AGM held on 18 September 2024, a resolution to approve the
Remuneration Committee Report and Remuneration Policy was passed with
93,717,723 votes (99.92%) being cast in favour and 78,331 votes (0.08%)
against reflecting the same very high level of approval as the previous AGM.
Future Reviews
It is anticipated that full reviews will not take place at less than three
yearly intervals but that the Committee will, in the early part of each year,
review the changes in Guernsey RPIX to determine if it is appropriate to
increase the Chairman's fee and the base fee for other Directors.
Colleen McHugh
Remuneration Committee Chair 24 June 2025
GOVERNANCE
Corporate Governance Statement
Statement of Compliance with Corporate Governance
The Company is a member of Association of Investment Companies (the "AIC") and
by complying with the AIC Code is deemed to comply with both the UK and the
GFSC Code where relevant.
To comply with the UK Listing Regime, the Company must comply with the
requirements of the UK Corporate Governance Code.
The Board has considered the principles, provisions and recommendations of the
AIC Code and considers that reporting against these will provide appropriate
information to Shareholders. To ensure ongoing compliance with these
principles the Board reviews a report from the Company Secretary identifying
how the Company is in compliance and identifying any changes that might be
necessary.
The Company has complied with the recommendations of the AIC Code throughout
the accounting period, except as set out below.
The AIC Code includes provisions relating to:
• the role of the chief executive;
• executive directors' remuneration; and
• the whistle-blowing policy.
The Board considers some of these provisions are not relevant to the position
of the Company as it is an externally-managed investment company. The
Directors are non-executive and the Company does not have employees and the
Board is satisfied that any relevant issues that arise can be properly
considered by the Board or by Shareholders at AGMs. The Remuneration Committee
considers matters relating to Directors' remuneration. An external assessment
of Directors' remuneration has not been undertaken. The Company's Remuneration
policy is that fees payable to the Directors should reflect the experience and
expertise of and the responsibilities borne by the Directors and the time
spent on the Company's affairs and be sufficient to attract, retain and
motivate Directors of a quality required to run the Company successfully.
Please refer to the Remuneration Committee Report on pages 46 to 47.
The Board
The Directors' details are listed in the Directors' Report, which set out
their range of investment, financial and business skills and experience.
The Board meets at least four times a year and, in addition, there is regular
contact between the Board, the Investment Manager and the Company Secretary
including an annual strategy meeting and the Investment Manager due diligence
visits, when the Board attends the offices of the Investment Manager and meets
with senior executives. Further, the Board requires that it is supplied in a
timely manner with information by the Investment Manager, the Company
Secretary and other advisers in a form and of a quality appropriate to enable
it to discharge its duties.
Duties and Responsibilities
The Board has overall responsibility for optimising the Company's performance
by directing and supervising the affairs of the business and meeting the
appropriate interests of Shareholders and relevant stakeholders, while
enhancing the value of the Company and also ensuring the protection of
investors. A summary of the Board's responsibilities is as follows:
• statutory obligations and public disclosure;
• strategic matters and financial reporting;
• risk assessment and management including reporting, compliance, governance,
monitoring and control; and
• other matters having a material effect on the Company.
The Board is responsible to Shareholders for the overall management of the
Company. The Board has delegated the day-to-day operation of the Company to
the Investment Manager, Administrator and the Company Secretary.
The Board reserves the powers of decisions relating to the determination of
the Investment Policy, the approval of changes in strategy, capital structure,
statutory obligations, public disclosure and the entering into of any material
contracts by the Company.
Scheduled Nomination Audit and Risk Management Engagement Remuneration
Board Committee Committee Committee Committee
Meetings Attendance Meeting Attendance Meeting Attendance Meeting Attendance Meeting Attendance
Attendance by:
Andreas Tautscher (Chairman) 4/4 4/4 3/3 1/1 1/1
Susie Farnon 4/4 4/4 3/3 1/1 1/1
Colleen McHugh 4/4 4/4 3/3 1/1 1/1
Mark Thompson (appointed 4 November 2024) 2/2 1/1 2/2 0/0 1/1
Bob Cowdell (resigned 31 October 2024) 2/2 2/2 1/1 1/1 0/0
John Hallam (resigned 18 September 2024) 1/1 0/0 0/0 0/0 0/0
The previous table is an extract of the various Directors' attendance at Board
and Committee meetings for the financial year compared against those for which
they were eligible to attend.
Additionally, eight ad-hoc meetings and a further two informal meetings were
held during the year which, as they dealt primarily with administrative and
transaction matters, were attended by those Directors available at the time.
Chairman
The Chairman, Mr Tautscher, is responsible for leadership of the Board,
ensuring its effectiveness on all aspects of its role and setting its agenda.
The Chairman is also responsible for ensuring that the Directors receive
accurate, timely and clear information. The Chairman is responsible for
effective communication with Shareholders and can be contacted through the
Company Secretary.
Senior Independent Director
Mrs Farnon was appointed as Senior Independent Director ("SID") with effect
from 12 June 2024. The primary roles are to support the Chairman and act as an
intermediary for the other non-executive Directors in matters relating to the
Chairman including leading them in the annual performance evaluation of the
Chairman. The SID is also available to Shareholders who may have any concerns
which contact through the normal channels of the Chairman and AIFM has failed
to resolve or for which such contact is inappropriate. Mrs Farnon can also be
contacted through the Company Secretary.
Board Independence
For the purposes of assessing compliance with the AIC Code's Principles and
Provisions, the Board considers whether the current Directors are independent
of the Investment Manager and free from any business or other relationship
that could materially interfere with the exercise of their independent
judgement. In making this assessment, consideration is also given to all other
factors which might be relevant including length of service. The Board has
concluded that all Directors remain independent.
Committees of the Board
In accordance with the AIC Code, the Board has established an Audit and Risk
Committee, a Nomination Committee, a Management Engagement Committee and a
Remuneration Committee, in each case with formally delegated duties and
responsibilities within written terms of reference.
Audit and Risk Committee
The Audit and Risk Committee is chaired by Mrs Farnon, and its other members
are Mr Tautscher, Mrs McHugh and Mr Thompson. The terms of reference of the
Audit and Risk Committee state that it will meet not less than three times in
each financial year. In the year ended 31 March 2025, the Audit and Risk
Committee met at four informal meetings. The Audit and Risk Committee Report
on pages 54 to 57 sets out the role and activities of this Committee and its
relationship with the external auditor.
Nomination Committee
The Nomination Committee is chaired by Mrs Farnon and its other members are Mr
Tautscher, Mrs McHugh and Mr Thompson. The members of the Nomination Committee
are and will be independent Directors. The terms of reference state that the
Nomination Committee will meet not less than once a year; will have
responsibility for considering the size, structure and composition of the
Board; retirements and appointments of additional and replacement Directors;
and that the Nomination Committee will make appropriate recommendations to the
Board.
The Board appoints all Directors on merit. When the Nomination Committee
considers Board succession planning and recommends appointments to the Board,
it takes into account a variety of factors. Knowledge, experience, skills,
personal qualities, residency and governance credentials play an important
part. The Board aims to have a balance of skills, experience, diversity
(including gender) and length of service and knowledge of the industry. The
Board undertakes an evaluation of its performance on an annual basis. The
performance of each Director is considered as part of a formal review by the
Nomination Committee.
The position of Chairman of each Committee will be reviewed on an annual basis
by the Nomination Committee and their membership and terms of reference are
kept under review.
The performance of the Chairman of the Board will be assessed by the SID
through appraisal questionnaires and discussions with the other Directors.
Management Engagement Committee
The Management Engagement Committee is chaired by Mrs McHugh, with its other
members being Mr Tautscher, Mrs Farnon and Mr Thompson. The Committee will
meet at least once a year for the purpose of evaluating the performance of the
Company's service providers, the review of service agreements and service
level statements and the level and method of their remuneration.
Remuneration Committee
The Remuneration Committee is chaired by Mrs McHugh, with its other members
being Mr Tautscher, Mrs Farnon and Mr Thompson. The Committee will meet at
least once a year for the purpose of determining Directors' remuneration and
setting the Company's remuneration policy.
Director Re-Election, Tenure and Induction
The Nomination Committee has considered the question of a policy on Board
tenure. It is strongly committed to striking the correct balance between the
benefits of continuity and those that come from the introduction of new
perspectives to the Board. As provided for in the AIC guidelines, and in order
to phase future retirements and appointments, the Board has not, at this
stage, adopted any specific limits to terms, but expects to refresh the Board
at appropriate intervals.
The Board regards all Directors as being independent. The Board has adopted a
policy whereby all Directors will be proposed for re-election each year and so
all other Directors will be proposed for re-election at the forthcoming AGM.
Details of Directors' tenure are disclosed on pages pages 38 and 39.
Internal Controls
The Board has established a continuous process for identifying, evaluating and
managing the significant risks the Company faces. The Board regularly reviews
the process, which has been in place from the start of the financial year to
the date of approval of this report. The Board is responsible for the
Company's system of internal control and for reviewing its effectiveness. Such
a system is designed to manage rather than eliminate the risk of failure to
achieve business objectives, and can only provide reasonable and not absolute
assurance against material misstatement or loss.
In compliance with the Principles and Provisions of the AIC Code, the Board
regularly reviews the effectiveness of the Company's system of internal
control. The Board's monitoring covers all controls, including financial,
operational and compliance controls and risk management. It is based
principally on reviewing reports from the Investment Manager in order to
consider whether all significant risks are identified, evaluated, managed and
controlled and whether any significant weaknesses are promptly remedied and
indicate a need for more extensive monitoring. To this end, a Risk Framework
is maintained, which identifies the significant risks faced by the Company
together with the controls intended to manage them and is reviewed at each
scheduled Board meeting. The Board has also performed a specific assessment
considering all significant aspects of internal control arising during the
year covered by this report. The Audit and Risk Committee assists the Board in
discharging its review responsibilities.
During the course of its review of the system of internal control, the Board
has not identified nor been advised of any failings or weaknesses which it has
determined to be significant.
While investment management is provided by Cheyne, the Board is responsible
for setting the overall Investment Policy and monitors the actions of the
Investment Manager at regular Board meetings. Administration services are
provided by Citco. Regular compliance reports from both the Investment Manager
and the Administrator are received by the Board. In addition, the
Administrator makes available its Global Fund Accounting and Custody Controls
Examination, SOC 1 report to the Board on an annual basis.
Custody of assets is undertaken by the Depositary, The Bank of New York Mellon
(International) Limited.
The Investment Manager has established an internal control framework and
reviews the segregation of duties within this to ensure that control functions
are segregated from the trading and investing functions. As a part of this
framework, the valuation of financial instruments is overseen by an internal
pricing committee which is supported by resources which ensure that it is able
to function at an appropriate level of quality and effectiveness.
Specifically, the Investment Manager's pricing committee is responsible for
establishing and monitoring compliance with valuation policy. Within the
trading and investing functions, the Investment Manager has established
policies and procedures that relate to the approval of all new transactions,
transaction pricing sources and fair value hierarchy coding within the
financial reporting system.
The Directors of the Company clearly define the duties and responsibilities of
their agents and advisers, whose appointments are made by the Board after due
consideration. The Board monitors the ongoing performance of such agents and
advisers. Each agent and adviser maintains its own systems of internal control
on which it reports to the Board. The systems are designed to ensure effective
and efficient operation, internal control and compliance with laws and
regulations. In establishing the systems of internal control, regard is paid
to the materiality of relevant risks, the likelihood of costs being incurred
and costs of control. It follows, therefore, that the systems of internal
control can only provide reasonable but not absolute assurance against the
risk of material misstatement or loss.
The Board has reviewed the need for an internal audit function and has decided
that the systems and procedures employed by the Administrator and the
Investment Manager, including their own internal controls and procedures,
provide sufficient assurance that a sound system of risk management and
internal control, which safeguards Shareholders' investment and the Company's
assets, is maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
Corporate Social Responsibility
The Board keeps under review developments involving social and environmental
issues, and will report on those to the extent they are considered relevant to
the Company's operations. The Company's ESG strategy is outlined on page 28 of
the Stakeholder Engagement section and in the Sustainability Report on pages
30 to 35.
UK Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has introduced a new
Corporate Criminal Offence of "failing to take reasonable steps to prevent the
facilitation of tax evasion", the Board confirms that it is committed to zero
tolerance towards the criminal facilitation of tax evasion.
General Data Protection Regulation ("GDPR")
The Board confirms that the Company has considered GDPR and taken measures
itself and with its service providers, to meet the requirements of GDPR and
equivalent Guernsey law.
Anti-Bribery and Corruption Policy
The Board has adopted a formal Anti-Bribery and Corruption Policy. The policy
applies to the Company and to each of its Directors. Furthermore, the policy
is shared with each of the Company's main service providers.
Whistle-blowing
As the Company has no employees of its own, it does not have a whistle-blowing
policy but in its review of service providers the Management Engagement
Committee ensures that they do.
Employees and Socially Responsible Investment
The Company has a management contract with the Investment Manager. It has no
employees and all of its Directors are non-executive, with day-to-day
activities being carried out by third parties. There are therefore no
disclosures to be made in respect of employees.
The Company's main activities are carried out by the Investment Manager who
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.
Modern Slavery Act 2015
The Company's Modern Slavery and Human Trafficking Statement is available on
the Company's website and is reviewed by the Board on an annual basis.
Gender Metrics
The Company, in conjunction with the Investment Manager, strives to achieve a
diverse workforce that embraces individuals of all gender, race, nationality,
religion, age and orientation and to develop a unique workplace to come
together and grow professionally and personally.
Cheyne is committed to supporting diversity, equality and inclusion through
implementing change and supporting initiatives, partnerships and programmes
across the firm and the industry, under the oversight of Cheyne's Diversity,
Equity and Inclusion ("DE&I") Committee. Cheyne is comprised of a diverse
range of employees and is committed to providing equal employment
opportunities to all colleagues and applicants without regard to gender, race,
nationality, religion, age, orientation or disability. To this end, Cheyne has
implemented reporting tools within its HR system to enable a more granular
measurement of gender and ethnicity, using the AIMA/Albourne classifications
within their DE&I Questionnaire, that is compliant with data privacy
considerations. The ongoing evolution and monitoring of this data will allow
the Investment Manager to assess how its DE&I Policy and supporting action
plans are working in practice, while enabling the DE&I Committee to
identify areas for improvement and target its efforts to effect change.
The business case behind the data collection has been communicated to all
employees.
Number of Board members % of Board members Number of senior
positions on the Board
(CEO, CFO,
SID, Chair)
Male 2 50.0 Not applicable - see note(1)
Female 2 50.0
Minority ethnic background - -
1 This column is inapplicable as the Company is externally managed and
does not have executive management functions, specifically it does not have a
CEO or CFO. The chair of the Board is male. However, the Company considers
that chairing the permanent sub-committees of the Board are senior roles in an
investment company context. The SID, and the chair of the Audit and Risk
Committee, Nomination Committee, Management Engagement Committee and
Remuneration Committee are held by women.
The Board acknowledges the importance of diversity for the effective
functioning of the Board which helps create an environment for successful and
effective decision-making. The Board currently has equal representation of men
and women. The Company does not currently comply with the ethnic diversity
target set out in the Listing Rules. However, the Board continues to keep this
under review in the context of planned Board succession opportunities. In view
of the nature, scale and complexity of the Company, the Board believes a
formal diversity policy for the Company is not necessary at this time.
Diversity of the Board is further considered on at least an annual basis
through the Board evaluation process.
Principal Risks and Uncertainties
The Board has carried out a robust assessment to identify the emerging and
principal risks that could affect the Company, including those that would
threaten its business model, future performance, solvency or liquidity. It has
adopted a controls-based approach to its risk monitoring requiring each of the
relevant service providers, including the Investment Manager, to establish the
necessary controls to ensure that all known risks are monitored and controlled
in accordance with agreed procedures. The Directors receive periodic updates
at their Board meetings on key risks and have adopted their own control review
to ensure, where possible, risks are monitored appropriately.
Each Director is aware of the principal risks and uncertainties inherent in
the Company's business and understands the importance of identifying,
evaluating and monitoring these risks. The Board has established a Risk
Framework that enables it to manage these principal risks and uncertainties
within acceptable limits and to meet all of its legal and regulatory
obligations.
The Board considers the process for identifying, evaluating and managing these
principal risks and uncertainties faced by the Company on an ongoing basis and
these principal risks and uncertainties are reported and discussed at Board
meetings. It ensures that effective controls are in place to mitigate these
risks and that a satisfactory compliance regime exists to ensure all
applicable local and international laws and regulations are upheld.
The Company's principal risks are discussed in the Strategic Report of these
financial statements while those specifically relating to financial reporting
are discussed in the Audit and Risk Committee Report and Note 14 to the
financial statements.
Changes in Regulation
The Board monitors and responds to changes in regulation as it impacts the
Company and its policies.
GOVERNANCE
Audit and Risk Committee Report
Dear Shareholders,
On the following pages, we present the Audit and Risk Committee's report for
2025, setting out the responsibilities of the Audit and Risk Committee and its
key activities during the year ended 31 March 2025. As in previous years, the
Audit and Risk Committee has reviewed the Company's financial reporting, the
independence and effectiveness of the external auditor and the internal
control and risk management systems of the Company's service providers. In
order to assist the Audit and Risk Committee in discharging these
responsibilities, regular reports are received and reviewed from the
Investment Manager, Administrator and external auditor.
A member of the Audit and Risk Committee will be available at each AGM to
respond to any Shareholder questions on the activities of the Audit and Risk
Committee.
Membership of the Audit and Risk Committee
The Audit and Risk Committee is chaired by Mrs Farnon, and its other members
are Mrs McHugh, Mr Tautscher and Mr Thompson. The FRC Guidance on Audit and
Risk Committees recommends that such a committee should comprise solely of
independent non-executive directors and, as noted in the Corporate Governance
Statement, the Board has considered the independence of its members and has
concluded that they all remain independent.
The Company Chairman currently serves as a member of the Audit and Risk
Committee. The terms of reference state that the Audit and Risk Committee will
meet not less than three times in the year and meet the external auditor twice
a year, on which occasions the need to meet without representatives of either
the Investment Manager or the Administrator being present is considered. The
terms of reference include all matters indicated in the Disclosure and
Transparency Rule 7.1 and the AIC Code.
The Board has taken note of the requirement that at least one member of the
Committee should have recent and relevant financial experience and is
satisfied that the Committee is properly constituted in that respect with all
members being highly experienced and Mrs Farnon, Mr Tautscher and Mr Thompson
being chartered accountants who have chaired or sit or have sat on other audit
committees.
Responsibilities
The Audit and Risk Committee has regard to the AIC Code and examines the
effectiveness of the Company's internal control systems, the integrity of the
annual and semi- annual reports and financial statements and ensures that they
are fair, balanced and understandable and provide the necessary information.
It also considers the external auditor's remuneration and engagement, as well
as the external auditor's independence and any non-audit services provided by
them. Other areas of responsibility include:
• Consideration of the fair value of the Company's investments and income
generated from the portfolio;
• Consideration of the accounting policies of the Company;
• Meeting with the external auditor to discuss the proposed audit plan and
reporting;
• Assess the effectiveness of the external auditor and audit process;
• Consideration of the need for an internal audit function;
• Review of any independent reports in respect of the Investment Manager, the
Administrator or the Depositary;
• Consideration of the risks facing the Company including the Company's
anti-bribery, corruption and similar obligations; and
Monitoring the Company's procedures for ensuring compliance with statutory
regulations and other reporting requirements.
In addressing all of the above considerations, the Audit and Risk Committee
seeks the appropriate input from the external auditor, Investment Manager,
Administrator, Company Secretary and Legal Counsel and makes a recommendation
to the Board of the Company as appropriate.
Meetings
The Audit and Risk Committee normally meets at least three times annually,
including shortly before the Board meets to consider the Company's semi-annual
and annual financial reports, and reports to the Board on its deliberations
and recommendations. It also has an annual planning meeting with the external
auditor and other ad-hoc meetings as considered necessary.
The Audit and Risk Committee operates within clearly defined terms of
reference and provides a forum through which the Company's external auditor
reports to the Board. The terms of reference of the Audit and Risk Committee
are available from the Company's registered office. The Audit and Risk
Committee receives information from the Company's service providers with the
majority of information being directly sourced from the Company Secretary,
Administrator, the Investment Manager and the external auditor. The Audit and
Risk Committee considers the nature, scope and results of the external
auditor's work and reviews their performance annually prior to providing a
recommendation to the Board on the reappointment or removal of the external
auditor.
Significant Issues Considered over Financial Reporting
The Audit and Risk Committee has determined that the key risks of misstatement
of the Company's financial statements relate to the judgements in respect of
the fair value of the Company's portfolio and income recognition.
Additional information regarding principal risks and uncertainties is provided
in the Strategic Report and in Note 14 to the financial statements.
The Board considers a report from the Investment Manager at each Board meeting
which sets out a review of the portfolio and its performance. The report also
details earnings forecasts and asset class analysis. As a result, the Board is
able to interrogate the Investment Manager on the basis of the assumptions
made and the validity of the expected forecasts.
Valuation of Portfolios
The Audit and Risk Committee conducted a detailed review of each bilateral
loan and bond position through discussions with the AIFM's relevant individual
asset managers challenging them as appropriate. Such discussions covered
aspects such as:
• Available and recent professional valuations of the underlying collateral;
• Credit quality of the individual borrower;
• Quality of the underlying collateral;
• Operational and financial performance of the borrower;
• Status of development schedules compared to original plans;
• Planning or other disputes;
• Comparison between effective and actual yields; and
• Whether or not any value should be ascribed to contingent fees and potential
profit participations provided for in contractual arrangements.
When considering the bilateral bond investments, the Audit and Risk Committee
considered a number of factors including, but not restricted to:
• The key valuation judgement whereby the effective yield calculated is used as
proxy for the market yield at the valuation date;
• Pricing sources;
• The range of valuations determined by the independent pricing adviser in light
of the approaches used and the weighting applied by the Investment Manager to
derive a fair value point estimate;
• Comparison between effective and actual yields;
• Depth of prices and any disparity between different marks;
• Indicative liquidity;
• Comparison of realised prices with previous valuations; and
• The significance of unobservable inputs used to determine the fair value of
the bond investments and classification within the fair value hierarchy.
Having conducted this process the Audit and Risk Committee concluded that any
assumptions used were reasonable and that the valuations were in accordance
with the applicable standards.
During the year, the Chair of the Audit and Risk Committee and/or other
members of the Board attended at least one of the meetings held between the
external auditor and the Investment Manager in respect of valuations.
Income Recognition
The Audit and Risk Committee and the Board as a whole considered and
challenged the Investment Manager's expected realisation or maturity dates and
the resultant expected cash flows. The Committee found that the assumptions
used were reasonable and that whilst it is possible that the expected
realisation dates may change over time the Committee and the Board are
satisfied that the assumed realisation dates and the Investment Manager's
methods of calculating income are reasonable and in line with IFRS Accounting
Standards.
As highlighted in the long-term viability section in the Strategic Report, the
Investment Manager performed an evaluation of each of its positions, taking
into account all relevant geopolitical and macroeconomic risks, on its
operating models and valuations. 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); these were taken
into account in the modelled expected cash flows for 31 March 2025.
Risk Management
The Company's risk assessment process and the way in which significant
business risks are managed is a key area of focus for the Committee. The work
of the Audit and Risk Committee is driven primarily by the Company's Risk
Framework and the assessment of its principal risks and uncertainties as set
out in the Strategic Report and in Note 14 to the financial statements, and it
receives reports from the Investment Manager on the Company's risk evaluation
process and reviews changes to significant risks identified.
Internal Audit
The Committee considers at least once a year whether or not there is a need
for an internal audit function. Currently, the Committee believes that, given
the Company has no employees, the SOC 1 internal control report provided by
the Administrator and the reporting provided by the Investment Manager are
sufficient and has made a recommendation to the Board to this effect.
External Audit
The current appointed external auditor is Deloitte LLP. Deloitte LLP has
served as RECI's external auditor for 20 years and under the Mandatory Audit
Firm Rotation Rules (UK & LSE-listed entities), this represents the
maximum allowable audit firm tenure. A tender process has taken place in the
second half of 2024 to appoint new external auditor. In accordance with the
standard, the tender process was led by the Audit and Risk Committee and
invited three audit firms to participate. The Audit and Risk Committee
considered key criteria in its decision including audit quality, experience in
real estate and debt audits and valuation, audit approach and fees. Following
a thorough evaluation, PricewaterhouseCoopers CI LLP was selected as the
preferred firm. The Board approved the Audit and Risk Committee
recommendation, and PricewaterhouseCoopers CI LLP will be appointed as
external auditor following the publication of the Annual Report. The
appointment will also be recommended to Shareholders for approval at the 2025
AGM.
The objectivity of the external auditor is reviewed by the Committee which
also reviews the terms under which the external auditor may be appointed to
perform non-audit services. Auditor independence is maintained through
limiting non-audit services to audit-related work that falls within defined
categories. All engagements with the external auditor are subject to
pre-approval from the Audit and Risk Committee and fully disclosed within the
Annual Report for the relevant period. A new lead audit partner is appointed
every five years and the Audit and Risk Committee ensures the external auditor
has appropriate internal mechanisms in place to ensure its independence.
When evaluating the external auditor, the Committee has regard to a variety of
criteria including industry experience, independence, reasonableness of audit
plan, ability to deliver constructive criticism, effectiveness of
communication with the Board and the Company's service providers, quality
control procedures, management of audit process, price and added value beyond
assurance in audit opinion.
In order to maintain auditor independence, Deloitte LLP ensured the following
safeguards were in place:
• review and challenge of key decisions by the Quality Review Partner and
engagement quality review by a member of the Independent Professional Standard
Review Team.
The Committee reviews the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the external auditor,
with particular regard to the level of non-audit fees. During the year,
Deloitte charged non-audit fees of £45,000 for the 30 September 2024 interim
review.
Notwithstanding the provisions of such services, the Audit and Risk Committee
considers Deloitte LLP to be independent of the Company and that the provision
of such non-audit services is not a threat to the objectivity and independence
of the conduct of the audit as appropriate safeguards are in place.
Annual Report
To fulfil its responsibility regarding the independence of the auditor, the
Audit and Risk Committee considers:
• discussions with or reports from the auditor describing its arrangements to
identify, report and manage any conflicts of interests in light of the
requirements of the Crown Dependencies' Audit Rules and Guidance; and
• the extent of non-audit services provided by the auditor and arrangements for
ensuring the independence, objectivity and robustness and perceptiveness of
the external auditor and their handling of key accounting and audit
judgements.
To assess the effectiveness of the external auditor and the audit process, the
Committee reviews:
• the auditor's fulfilment of the agreed audit plan and variations from it;
• discussions or reports highlighting the major issues that arose during the
course of the audit;
• feedback from other service providers evaluating the performance of the audit
team;
• arrangements for ensuring independence and objectivity; and
• robustness of the external auditor in handling key accounting and audit
judgements.
The Audit and Risk Committee was satisfied with the audit process and Deloitte
LLP's effectiveness and independence as an auditor having considered the
degree of diligence and professional scepticism demonstrated by them.
The Audit and Risk Committee members have each reviewed the Annual Report and
earlier drafts in detail, comparing its content with their own knowledge of
the Company, reporting requirements and Shareholders' expectations. Formal
meetings of the Audit and Risk Committee have also reviewed reports and
explanations from its service providers about the details and the financial
results. The Audit and Risk Committee has concluded that the Annual Report
taken as a whole is fair balanced and understandable and that the Board can
reasonably and with justification make the Directors' Responsibility Statement
on page 58.
During the year ended 31 March 2025, the external auditor had three meetings
with the Audit and Risk Committee and met with the Chairman of the Audit and
Risk Committee on other occasions when necessary.
On behalf of the Audit and Risk Committee.
Susie Farnon
Audit and Risk Committee Chair
24 June 2025
GOVERNANCE
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
The Companies (Guernsey) Law, 2008 (as amended) requires the Directors to
prepare financial statements for each financial year. Under that law, the
Directors have elected to prepare the Company financial statements in
accordance with IFRS Accounting Standards. Under Companies Law, the Directors
must not approve the accounts unless they are satisfied that they give a true
and fair view of the state of affairs of the Company and of the profit or loss
of the Company for that year. In preparing these financial statements,
International Accounting Standard 1 ("IAS 1") requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements
in IFRS Accounting Standards are insufficient to enable users to understand
the impact of particular transactions, other events and conditions on the
entity's financial position and financial performance; and
• Make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
(Guernsey) Law, 2008 (as amended). They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
(i) The financial statements, prepared in accordance with IFRS Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company;
(ii) The Chairman's Statement, the Strategic Report and the Investment Manager's
Report include a fair review of the development and performance of the
business and the position of the Company together with a description of the
principal risks and uncertainties they face; and
(iii) So far as each Director is aware, there is no relevant audit information of
which the Company's auditor is unaware, and each Director has taken all the
steps that he/she ought to have taken as a Director in order to make
himself/herself aware of any relevant audit information and to establish that
the Company's external auditor is aware of that information. This confirmation
is given and should be interpreted in accordance with the provisions of
section 249 of the Companies (Guernsey) Law, 2008 (as amended).
Responsibility Statement of the Directors in Respect of the Annual Report
under the UK Corporate Governance Code
The Directors are responsible for preparing the Annual Report in accordance
with applicable law and regulations. Having taken advice from the Audit and
Risk Committee, the Directors consider the Annual Report and financial
statements, taken as a whole, is fair, balanced and understandable and that it
provides the information necessary for Shareholders to assess the Company's
performance, business model and strategy.
By order of the Board.
Andreas Tautscher Susie Farnon
Director Director
24 June 2025
Annual Report and Accounts 2025
Financial Statements
In this section
Independent Auditor's Report
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Appendix I - AIFM Remuneration Policy (Unaudited)
Appendix II - AIFM Leverage (Unaudited)
Directors and Advisers
Glossary
Independent Auditor's Report to the Members of Real Estate Credit Investments
Limited
Report on the audit of the financial statements
1 Opinion
In our opinion the financial statements of Real Estate Credit Investments
Limited (the 'Company'):
• give a true and fair view of the state of the Company's affairs as at 31 March
2025 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRS Accounting Standards as
issued by the International Accounting Standards Board (IASB); and
• have been prepared in accordance with the requirements of the Companies
(Guernsey) Law, 2008.
We have audited the financial statements which comprise:
• the statement of comprehensive income;
• the statement of financial position;
• the statement of changes in equity;
• the statement of cash flows; and
• the related notes 1 to 21.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRS Accounting Standards as issued by the IASB.
2 Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor's responsibilities for the
audit of the financial statements section of our report.
We are independent of the Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the Financial Reporting Council's (the 'FRC's') Ethical Standard as
applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. The non-audit
services provided to the Company for the year are disclosed in note 5 to the
financial statements. We confirm that we have not provided any non-audit
services prohibited by the FRC's Ethical Standard to the Company.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
3 Summary of our audit approach
Key audit matters The key audit matter that we identified in the current year was key Judgement
in the valuation of bilateral loan and bond portfolio.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality The materiality that we used in the current year was £6.4 million which was
determined on the basis of 2% of net assets (2024: 2% of net assets).
Scoping Audit work to respond to the risks of material misstatement was performed
directly by the audit engagement team.
Significant changes in our approach There have been no significant changes in our approach as compared to the
prior year.
4 Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting included:
• Evaluating the assumptions applied in the Company's going concern assessment
particularly the considerations of the current macroeconomic challenges and
testing the mechanical accuracy of the underlying forecasts;
• Performing stress testing on the key assumptions applied to understand those
that could potentially give rise to a material uncertainty in respect of the
use of the going concern basis;
• Checking consistency of the forecast assumptions applied in the going concern
assessment with other forecasts, including asset maturity and valuation
assumptions;
• Assessing the liquidity position of the Company including its ability to meet
its undrawn commitments by evaluating the impact of repayment of the Company's
financing agreements at maturity without renewal and considering the
mitigating actions identified by the directors as available responses to
liquidity risks;
• Evaluating the recommendation by the directors and their assertion of passing
the upcoming continuation vote scheduled in September 2025. We also considered
the current and historical performance of the Company and the Broker's
discussions with certain Shareholders; and
• Assessing the appropriateness of the going concern disclosure in the financial
statements.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In relation to the reporting on how the Company has applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in
relation to the directors' statement in the financial statements about whether
the directors considered it appropriate to adopt the going concern basis of
accounting.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
5 Key audit matter
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
5.1 Key judgement in the valuation of bilateral loan and
bond portfolio
Key audit matter description The bilateral loan and bond investments of £344.9million (2024: £305.0
million) make up 88% (2024: 87%) of total assets and are a key value driver
for the Company's Net Asset Value (NAV).
As the Company's investments are measured at fair value, the discount rate
used to calculate the present value of future cash flows should be the market
yield prevailing at the valuation date.
Management has made a judgement that for these instruments that are highly
bespoke and are not adequately comparable to other market positions, the
effective yield of investment is considered an appropriate representative of
the current market yield at the valuation date. This is the key judgement
made by management in the valuation of the investment portfolio.
This has contributed to a potential risk of fraud and error associated with
the valuation approach applied particularly around the fixed income
investments. This has become of more importance as a result of the changes in
the macroeconomic environment and the movement in market yield during the
year.
This judgement is described as one of the key sources of estimation
uncertainty in note 3 and further details are included in note 14 to the
financial statements. This is also described in the Audit and Risk Committee
Report on page 54.
How the scope of our audit responded to the key audit matter To respond to the key audit matter, we have performed the following audit
procedures:
• Obtained an understanding of and tested the relevant controls around the
valuation process;
• Challenged management's use of the bond or loan's effective yield as a
representative of market yield by assessing the assumptions used, including
considering contradictory evidence;
• Analysed the bilateral loans and bonds investment portfolio by comparing the
yield of each fixed interest rate loan or bond with the relevant range of
market yields at the valuation date using third-party data;
• Analysed the yields implicit in loans and bonds issued during the year and
compared with the yields of more seasoned loans to evaluate management's
assertion that the yield of the Company's assets is dislocated from the
movement in market yields;
• Searched for contradictory evidence by assessing the consistency of
management's judgements with a number of data points including the realisation
of loans and bonds during the year and the pricing of bonds and loans valued
using market comparables; and
• Assessed the financial statements related disclosures to evaluate whether they
appropriately explain judgements made by management, including the associated
assumptions, and highlight the sensitivity to changes in those assumptions.
Key observations We concluded that the judgement applied in arriving at the fair value of the
Company's self-originated bonds and loans investments is reasonable, and that
the resulting valuations are appropriate. We also concluded that the related
disclosures are appropriate.
Key observations
We concluded that the judgement applied in arriving at the fair value of the
Company's self-originated bonds and loans investments is reasonable, and that
the resulting valuations are appropriate. We also concluded that the related
disclosures are appropriate.
6 Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both
in planning the scope of our audit work and in evaluating the results of our
work.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Materiality £6.4 million (2024: £6.5 million)
Basis for determining materiality 2% (2024: 2%) of net assets as at 31 March 2025
Rationale for the benchmark applied Net asset value is the most appropriate benchmark as it is considered one of
the principal considerations for members of the Company in assessing financial
performance and represents total shareholders' interest.
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements as a whole. Performance
materiality was set at 70% of materiality for the 2025 audit (2024: 70%). In
determining performance materiality, we considered the following factors:
• our risk assessment, including our assessment of the Company's overall control
environment, including that of the administrator; and
• our past experience of the audit, including the nature and volume of corrected
and uncorrected misstatements.
6.3 Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the
Committee all audit differences in excess of £318,000 (2024: £326,000), as
well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit and Risk
Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
7 An overview of the scope of our audit
7.1 Scoping
Our audit was scoped by obtaining an understanding of the Company and its
environment, including internal control, and assessing the risks of material
misstatement. Audit work to respond to the risks of material misstatement was
performed directly by the audit engagement team.
7.2 Our consideration of the control environment
The accounting function for the Company is provided by a third-party
administrator. In performing our audit, we obtained an understanding of
relevant controls at the administrator that are relevant to the business
processes of the Company. We have tested the relevant controls at the
investment manager level around the key judgement used in the valuation but we
have chosen not to place reliance on those controls and instead adopted a
substantive approach in performing our audit.
7.3 Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate
change on the Company's business and its financial statements.
The Company continues to develop its assessment of the potential impacts of
environmental, social and governance ("ESG") related risks, including climate
change, as outlined on page 30.
We performed our own qualitative risk assessment of the potential impact of
climate change on the Company's account balances and classes of transactions.
We have also read the annual report to consider whether the climate related
disclosures are materially consistent with the financial statements, and our
knowledge obtained in the audit.
8 Other information
The other information comprises the information included in the annual report
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report.
Our opinion on the financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
9 Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, 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.
10 Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
11 Extent to which the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
• the nature of the industry and sector, control environment and business
performance including the design of the Company's remuneration policies, key
drivers for the investment manager and directors' remuneration, bonus levels
and performance targets;
• the Company's own assessment of the risks that irregularities may occur either
as a result of fraud or error that was approved by the board on 11 June 2025;
• results of our enquiries of management and the audit and risk committee about
their own identification and assessment of the risks of irregularities,
including those that are specific to the Company's sector;
• any matters we identified having obtained and reviewed the Company's
documentation of their policies and procedures relating to:
- identifying, evaluating and complying with laws and regulations and whether
they were aware of any instances of non-compliance;
- detecting and responding to the risks of fraud and whether they have knowledge
of any actual, suspected or alleged fraud;
- the internal controls established to mitigate risks of fraud or non-compliance
with laws and regulations;
• the matters discussed among the audit engagement team and relevant internal
specialists, including tax, valuations and industry specialists regarding how
and where fraud might occur in the financial statements and any potential
indicators of fraud.
- detecting and responding to the risks of fraud and whether they have knowledge
of any actual, suspected or alleged fraud;
- the internal controls established to mitigate risks of fraud or non-compliance
with laws and regulations;
•
the matters discussed among the audit engagement team and relevant internal
specialists, including tax, valuations and industry specialists regarding how
and where fraud might occur in the financial statements and any potential
indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in the following areas: key Judgement in the
valuation of bilateral loan and bond portfolio. In common with all audits
under ISAs (UK), we are also required to perform specific procedures to
respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that
the Company operates in, focusing on provisions of those laws and regulations
that had a direct effect on the determination of material amounts and
disclosures in the financial statements. The key laws and regulations we
considered in this context included the Companies (Guernsey) Law, 2008, the UK
Listing Rules and relevant tax legislation.
In addition, we considered provisions of other laws and regulations that do
not have a direct effect on the financial statements but compliance with which
may be fundamental to the Company's ability to operate or to avoid a material
penalty. These included the Company's regulatory licences under The Protection
of Investors (Bailiwick of Guernsey) Law, 2020.
11.2 Audit response to risks identified
As a result of performing the above, we identified the key judgement in the
valuation of bilateral loan and bond portfolio as a key audit matter related
to the potential risk of fraud. The key audit matters section of our report
explains the matter in more detail and also describes the specific procedures
we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified
included the following:
• reviewing the financial statement disclosures and testing to supporting
documentation to assess compliance with provisions of relevant laws and
regulations described as having a direct effect on the financial statements;
• enquiring of management and the audit and risk committee concerning actual and
potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected
relationships that may indicate risks of material misstatement due to fraud;
• reading minutes of meetings of those charged with governance and reviewing
correspondence with Guernsey Financial Services Commission; and
• in addressing the risk of fraud through management override of controls,
testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates are
indicative of a potential bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of
business.
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team members [including internal specialists and
remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and regulatory requirements
12 Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Company's compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements and our knowledge obtained during the
audit:
• the directors' statement with regards to the appropriateness of adopting the
going concern basis of accounting and any material uncertainties identified
set out on page 44;
• the directors' explanation as to its assessment of the Company's prospects,
the period this assessment covers and why the period is appropriate set out on
page 17;
• the directors' statement on fair, balanced and understandable set out on page
58;
• the board's confirmation that it has carried out a robust assessment of the
emerging and principal risks set out on page 52;
• the section of the annual report that describes the review of effectiveness of
risk management and internal control systems set out on page 50; and
• the section describing the work of the Audit and Risk Committee set out on
page 54- 57.
13 Matters on which we are required to report by exception
13.1 Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to report to you if,
in our opinion:
• we have not received all the information and explanations we require for our
audit; or
• proper accounting records have not been kept; or
• the financial statements are not in agreement with the accounting records.
We have nothing to report in respect of these matters.
14 Other matters which we are required to address
14.1 Auditor tenure
We were appointed by the Company upon inception on 6 September 2005 to audit
the financial statements of the Company for the period ending 31 March 2006
and subsequent financial periods. Following a competitive tender process, we
were reappointed by the Board of Directors on 13 June 2018 to audit the
financial statements for the year ending 31 March 2019 and subsequent
financial periods. The period of total uninterrupted engagement including
previous renewals and reappointments of the firm is 20 years, covering the
years ending 31 March 2006 to 31 March 2025.
14.2 Consistency of the audit report with the additional report
to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to the Audit and
Risk Committee we are required to provide in accordance with ISAs (UK).
15 Use of our report
This report is made solely to the company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the company's members those matters
we are required to state to them in an auditor's 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 and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.14R, these financial statements will form part of
the European Single Electronic Format (ESEF) prepared Annual Financial Report
filed on the National Storage Mechanism of the UK FCA in accordance with the
ESEF Regulatory Technical Standard ('ESEF RTS'). This auditor's report
provides no assurance over whether the annual financial report has been
prepared using the single electronic format specified in the ESEF RTS.
John Clacy, FCA
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
24 June 2025
Statement of Comprehensive Income
For the Year Ended 31 March 2025 Note 31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Interest income 6 29,520 30,341
Net gains on financial assets and liabilities at fair value through profit or 4 3,630 635
loss
Net gains on foreign currency translation 1,011 260
Other income 37 123
Operating income 34,198 31,359
Operating expenses 5 (6,599) (5,990)
Profit before finance costs 27,599 25,369
Finance costs 6 (4,782) (3,514)
Net profit 22,817 21,855
Earnings per share
Basic and diluted 8 10.2p 9.6p
Weighted average shares outstanding Number Number
Basic and diluted 8 222,881,212 228,777,629
There were no items of other comprehensive income in the comparative periods.
The accompanying notes form an integral part of the financial statements.
Statement of Financial Position
As at 31 March 2025 Note(s) 31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Non-current assets
Financial assets at fair value through profit or loss 9,14 369,478 329,369
369,478 329,369
Current assets
Cash and cash equivalents 9 19,295 18,290
Cash collateral held at broker 9,16 2,866 4,489
Other assets 9 72 104
22,233 22,883
Total assets 391,711 352,252
Equity and liabilities
Equity
Reserves 13 318,356 326,382
Total equity 318,356 326,382
Current liabilities
Financing agreements 9,12 70,850 23,790
Cash collateral due to broker 9,16 - 14
Derivative financial liabilities 9 213 88
Other liabilities 9,10 2,292 1,978
73,355 25,870
Total liabilities 73,355 25,870
Total equity and liabilities 391,711 352,252
Shares outstanding 13 221,894,004 225,237,478
Net asset value per share £1.43 £1.45
The accompanying notes form an integral part of the financial statements.
Signed on behalf of the Board of Directors by:
Andreas Tautscher Susie Farnon
Director Director
24 June 2025
Statement of Changes in Equity
For the Year Ended 31 March 2025 Note Total equity
GBP'000
Balance as at 31 March 2024 326,382
Total comprehensive income 22,817
Dividends 7 (26,673)
Treasury shares purchased 13 (4,170)
Balance as at 31 March 2025 318,356
Note Total equity GBP'000
Balance as at 31 March 2023 336,966
Total comprehensive income 21,855
Dividends 7 (27,416)
Treasury shares purchased 13 (5,023)
Balance as at 31 March 2024 326,382
The accompanying notes form an integral part of the financial statements.
Statement of Cash Flows
For the Year Ended 31 March 2025 Note 31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Net profit 22,817 21,855
Purchases of investment portfolio (127,280) (81,364)
Repayments/sales proceeds on investment portfolio 100,588 155,247
Net losses on investment portfolio 4 1,025 5,980
Net movement on derivative financial assets and liabilities 125 1,844
Foreign currency gain under financing agreements 12 (257) (326)
Interest income (29,520) (30,341)
Finance costs 12 4,782 3,514
Operating cash flows before movement in working capital (27,720) 76,409
Decrease/(increase) in cash collateral held at broker 1,623 (2,105)
Decrease/(increase) in other assets 32 (77)
(Decrease)/increase in cash collateral due to broker (14) 14
Increase in other liabilities 314 395
Movement in working capital 1,955 (1,773)
Interest received 15,078 21,851
Net cash (outflow)/inflow from operating activities (10,687) 96,487
Financing activities
Dividends paid to Shareholders 7 (26,673) (27,416)
Payments under financing agreements 12 (192,749) (295,841)
Proceeds under financing agreements 12 239,269 239,681
Finance costs paid 12 (3,985) (3,679)
Payments on treasury shares purchased 13 (4,170) (5,023)
Net cash inflow/(outflow) from financing activities 11,692 (92,278)
Net increase in cash and cash equivalents 1,005 4,209
Cash and cash equivalents at the start of the year 18,290 14,081
Cash and cash equivalents at the end of the year 19,295 18,290
The accompanying notes form an integral part of the financial statements.
Notes to the Financial Statements
For the Year Ended 31 March 2025
1 General Information
Real Estate Credit Investments Limited ("RECI" or the "Company") was
incorporated in Guernsey on 6 September 2005 with registered number CMP43634.
The Company commenced its operations on 8 December 2005.
The Company's shares are currently listed and traded on the Main Market of the
London Stock Exchange.
2 Material Accounting Policies
Statement of Compliance
The financial statements of the Company have been prepared in accordance with
IFRS Accounting Standards ("IFRS"), together with applicable legal and
regulatory requirements of Guernsey Law and the Listing Rules of the FCA. The
same accounting policies, presentation, and methods of computation have been
followed in these financial statements as were applied in the preparation of
the Company's audited financial statements for the year ended 31 March 2024.
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 reporting year 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
The following standards will become effective in future accounting periods and
have not been early adopted by the Company. Management do not believe that the
application of these standards will have a material impact on the Company's
financial statements:
• Amendments to IAS 21 - Lack of Exchangeability (1 January 2025)
• Amendments to the Classification and Measurement of Financial Instruments -
Amendments to IFRS 9 and IFRS 7 (1 January 2026)
• IFRS 19 Subsidiaries without Public Accountability: Disclosures (1 January
2027)
• IFRS 18 Presentation and Disclosure in Financial Statements (1 January 2027)
Basis of Preparation
The 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.
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. All amounts presented in tables are
rounded to the nearest thousand pounds, except for net asset value ("NAV") per
share and share information. Amounts in notes and detailed disclosures outside
of tables are expressed in million of pounds, as specified.
Going Concern
The Directors believe it is appropriate to adopt the going concern basis in
preparing the 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 12 months from the date of signing the audited
financial statements. In making this assessment, the Directors have taken
account of the matters set out below.
The Investment Manager undertakes the following measures when carrying out the
Company's strategy:
• 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.
The evaluation of each position, takes into account all relevant geopolitical
and macroeconomic risks, on its operating models and valuations, and includes
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). Stress testing is then performed on this cash flow forecast
against a number of adverse scenarios, such as the fair value write down of
the investments, or reduced cash flows from the investment portfolio. The fair
value stress test was considered relevant to factor in any potential events
affecting the underlying assets or credit concerns about the borrowers which
potentially could impact on the fair value.
The reduced cash flow stress test was considered relevant in the event of
potential defaults arising on the loan portfolio and the inability to recover
the interest or principal back in full.
Taking into account of the updated forecasting, the Directors consider that
the cash, cash equivalents and cash collateral held at brokers as at 31 March
2025 of £22.2 million, the liquidity of the market bond portfolio and the
financing available through activities such as repurchase agreements and
off-balance sheet financing are sufficient to cover normal operational costs,
the funding of borrower loan commitments and current liabilities as they fall
due for a period of at least 12 months from the date of signing the audited
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 31 March 2025 was 18.2%.
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.
As disclosed in Note 18, as at 31 March 2025, the Company had committed
£468.7 million into the loan and bond portfolio of which £387.2 million had
been funded. The Investment Manager models these expected commitments and only
funds if the borrowers meet specific business plan milestones.
A continuation vote is due in September 2025 and if any continuation
resolution is not passed, the Directors are required to put proposals for the
reconstruction or reorganisation of the Company to the Shareholders for their
approval within six months of the date of the vote. The Directors have no
reason to believe that the continuation vote will not be approved by
Shareholders and note:
• The previous vote was passed by an overwhelming majority;
• The Company's performance since then has been robust; and
• The current general market conditions are much improved from last year's
market and major investors have been commenting on the relevance and
attractiveness of RECI's proposition.
Financial Assets at Fair Value Through Profit or Loss
The Company classifies its investments based on both the Company's business
model for managing those financial assets and the contractual cash flow
characteristics of the financial assets. The portfolio of financial assets is
managed, and performance is evaluated on a fair value basis. The Company is
primarily focused on fair value information and uses that information to
assess the assets' performance and to make decisions. The Company has not
taken the option to irrevocably designate any equity securities at fair value
through other comprehensive income. The contractual cash flows of the
Company's debt securities are not solely principal and interest. The
collection of contractual cash flows is only incidental to achieving the
Company's business model's objective. Consequently, all investments are
measured at fair value through profit or loss. The gain or loss on
reassessment of fair value is recognised immediately in the Statement of
Comprehensive Income.
The interest receivable from loans and bonds are reported as part of financial
assets at fair value through profit or loss. The related interest income and
finance costs are included under interest income and finance costs accounts in
the Statement of Comprehensive Income.
Financial Liabilities at Fair Value Through Profit or Loss
Financing agreements entered into for the purpose of efficient portfolio
management are measured at fair value through profit or loss. The gain or loss
on reassessment of fair value is required to be split into the amount of
change in fair value attributable to changes in credit risk of the liability,
presented in other comprehensive income, and the remaining amount presented in
profit or loss. The Company's gain or loss on reassessment of fair value is
recognised immediately in the Statement of Comprehensive Income.
Financial Assets at Amortised Cost
A financial asset is measured at amortised cost if it is held within a
business model whose objective is to hold financial assets in order to collect
contractual cash flows and its contractual terms give rise on specified dates
to cash flows that are solely payments of principal and interest on the
principal amount outstanding. This includes cash and cash equivalents, cash
collateral held at broker and other assets.
Financial Liabilities at Amortised Cost
Financial liabilities at amortised cost include all other liabilities not
measured at fair value through profit or loss. This includes cash collateral
due to broker and other liabilities.
Initial Measurement
Financial assets and liabilities at fair value through profit or loss are
measured initially at fair value, with transaction costs for such financial
assets and liabilities being recognised directly in the Statement of
Comprehensive Income.
Financial assets and liabilities at amortised cost are measured initially at
their fair value plus any directly attributable incremental costs of
acquisition or issue.
Purchases and sales of financial assets and liabilities at fair value through
profit or loss are accounted for at trade date.
Subsequent Measurement
After initial measurement, the Company measures financial assets which are
classified as at fair value through profit or loss, at fair value.
Financial liabilities held for trading are measured at fair value through
profit or loss, and all other financial liabilities are measured at amortised
cost, unless the fair value option is applied. The Company classifies its
financing agreements as at fair value through profit or loss.
After initial measurement, the Company measures financial assets and
liabilities which are classified as at amortised cost, at amortised cost using
effective interest method less expected credit losses.
Recognition
All regular way purchases and sales of financial assets or liabilities are
recognised on the trade date, which is the date on which the Company commits
to purchase or sell the financial assets or liabilities. Regular way purchases
or sales are purchases or sales of financial assets or liabilities that
require delivery of assets within the period generally established by
regulation or convention in the marketplace.
Derecognition
The Company derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire or it transfers the financial
asset, and the transfer qualifies for derecognition in accordance with IFRS 9.
The Company derecognises a financial liability when the obligation specified
in the contract is discharged, cancelled or has expired.
Realised gain/(loss) on disposals of financial assets and liabilities is
calculated using the first-in, first-out ("FIFO") method.
Cash and Cash Equivalents
Cash and cash equivalents includes amounts held in interest bearing accounts
and overdraft facilities with original maturities of less than three months
and are used for cash management purposes.
Derivative Financial Instruments
Derivative financial instruments used by the Company to manage its exposure to
foreign exchange arising from operational, financing and investment activities
are accounted for as financial assets or liabilities at fair value through
profit or loss.
Subsequent to initial recognition, derivative financial instruments are stated
at fair value. The change in value is recorded in net gains/(losses) on
financial assets and liabilities through profit or loss in the Statement of
Comprehensive Income. Derivative financial assets and derivative financial
liabilities are offset and the net amount reported in the Statement of
Financial Position when there is a legally enforceable right to offset the
recognized amounts and there is an intention to settle on a net basis or
realise the asset and settle the liability simultaneously.
Fair Value
All financial assets carried at fair value are initially recognised at fair
value which is equivalent to cost and subsequently re-measured at fair value.
If independent prices are unavailable, the fair value of the financial asset
is estimated by reference to market information which includes, but is not
limited to, broker marks, prices of comparable assets and using pricing models
incorporating discounted cash flow techniques and valuation techniques such as
modelling.
These pricing models apply assumptions regarding asset specific factors and
economic conditions generally, including delinquency rates, severity rates,
prepayment rates, default rates, maturity profiles, interest rates and other
factors that may be relevant to each financial asset.
The objective of a fair value measurement is to determine the price at which
an orderly transaction would take place between market participants on the
measurement date, rather than the price arrived at in a forced liquidation or
distressed sale. Where the Company has considered all available information
and there is evidence that the transaction was forced, it will not use such a
transaction price as being determinative of fair value.
Note 3 provides specific information regarding the determination of fair value
for the Company's bonds and loans.
Foreign Currency Transactions
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the Statement of Financial Position date
are translated to GBP at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised in net
gains/(losses) on foreign currency translation in the Statement of
Comprehensive Income. Foreign currency denominated non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of transaction.
Non-monetary assets and liabilities denominated in foreign currencies that are
stated at fair value are translated to GBP at foreign exchange rates ruling at
the reporting date.
Differences arising on translation of these non-monetary assets and
liabilities between valuation points are recognised in the Statement of
Comprehensive Income.
Interest Income
Interest income from financial assets at fair value through profit or loss are
recognised within interest income in the Statement of Comprehensive Income
using the effective interest method.
Expenses
All expenses are included in the Statement of Comprehensive Income on an
accrual basis.
Taxation
The Company is a tax-exempt Guernsey limited company and accordingly, no
provision for tax is made.
Equity Instruments
An equity instrument is any contract that evidences a residual interest in the
assets of the Company after deducting all of its liabilities. Equity
instruments issued by the Company are recognised at the proceeds received, net
of direct issue costs.
Treasury Shares
Shares that are reacquired (treasury shares) are recognised at cost and
deducted from equity. No gain or loss is recognised in profit or loss on the
purchase, sale, issue, or cancellation of the Company's shares. Any difference
between the carrying amount and the consideration, if reissued, is recognised
in the share premium. Treasury shares are not entitled to dividends, and,
thus, they are also not included in the calculation of earnings per share.
Segment Information
The Company has three reportable segments, being the Market Bond Portfolio,
Bilateral Loan and Bond Portfolio and Equity Securities. The real estate debt
investment strategy of the Company focuses on secured commercial and
residential debt in the United Kingdom and Western Europe. Each segment
engages in separate business activities and the results of each segment are
regularly reviewed by the Board of Directors which fulfils the role of Chief
Operating Decision Maker for performance assessment purposes.
3 Critical Accounting Judgements and Key Sources of
Estimation Uncertainty
In the process of applying the Company's accounting policies (described in
Note 2), the Company has determined that the following judgements and
estimates have the most significant effect on the amounts recognised in the
financial statements:
Critical Accounting Judgements
Classification of Bilateral Loans and Bonds as Financial Assets at Fair Value
Through Profit or Loss
As described on page pages 74 to 75, classification and measurement of
financial assets under IFRS 9 are driven by the entity's business model for
managing financial assets and the contractual cash flow characteristics of
those financial assets.
In making the judgement regarding Stornoway Finance S.à r.l., European
Navigator IV ("ENIV") S.à r.l. and Real Estate Loan Funding ("RELF"), the
Directors have considered the power the Company has to influence the
investment decisions of the Special Purpose Vehicle ("SPV") housing the
underlying loans and where the Company holds the majority interest it has been
determined that the contractual cash flow characteristics for a basic lending
arrangement would be met. However, IFRS 9 also requires an assessment of the
business model within which assets are held. In the case of the Company's loan
investments the Directors have determined that they monitor and evaluate
business performance, manage risk and compensate the Investment Manager based
on fair value measures. The business model is therefore not solely for holding
and collecting contractual cash flows to maturity and requires all loan
investments to be measured at fair value through profit or loss.
The Company's bond investments are classified and measured at fair value
through profit or loss in accordance with the above fact pattern.
Were it to be determined that the business model for managing financial assets
and the contractual cash flow characteristics of those financial assets were
not as described above, these assets would be classified and measured at
amortised cost with provisions made for expected credit losses and changes to
expected credit losses at each reporting date.
As further described on page 74, the contractual cash flow characteristics for
loan investments are not solely payments of principal and interest. For the
loans held via Stornoway Finance S.à r.l., ENIV S.à r.l. and RELF, the
Company receives the return for each underlying loan net of expenses and so it
is not considered to be a basic lending arrangement under the standard. As
such, these loan investments are required to be measured at fair value through
profit or loss. The loans held via ENIV S.à r.l. are listed and considered
bonds.
Key Sources of Estimation Uncertainty
Valuation of Bilateral Loans and Bonds at Fair Value Through Profit or Loss
The Company has made loans and bonds into structures to gain exposure to real
estate secured debt in, but not limited to, 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. The fair values of financial
instruments that are not traded in an active market are determined using
valuation techniques such as discounted cash flows models. The rate used to
discount future cash flows represents key source of estimation uncertainty
that has material impact on the valuation of the investment portfolio. In the
absence of market observable inputs, this uncertainty translates into a wide
range of appropriate discount rates. The Investment Manager believes that the
loan or bond's own effective yield represents the most appropriate point
estimate within that range.
The Investment Manager has considered relevant geopolitical and macroeconomic
factors including the development of market interest rate and continues to
believe that this key judgement remains appropriate due to the bespoke nature
of the investment portfolio and the dislocation between the yield of these
assets and the market interest rate. The fair value of these loans is linked
directly to the value of the real estate loans in the underlying structure the
Company invests in, which are determined based on modelled expected cash flows
(drawdown principal and interest repayments, and maturity dates) with
effective yields ranging from 7.1% to 11.7% (31 March 2024: 6.2% to 13.2%).
Adjustments in the fair value of the real estate loans are considered in light
of changes in the credit quality of the borrower and underlying property
collateral. 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.
The valuation policy for contingent fees and potential profit participations
provided for in contractual arrangements is to mark them at fair value. The
profit participation features will initially be valued at cost, with
subsequent revaluations triggered by specific threshold or development events.
To determine the exit value, a third-party valuation of the underlying assets
will be typically used, or an accepted sale price if available.
The Company has been closely monitoring this and indeed all other material
macro sources of uncertainty-related developments, such as increased interest
rates, heightened inflation, supply chain disruption, and the effects of
climate change, and less direct impact factors such as the continuing impact
of conflicts around the world and cyber security, to ensure that these updated
assumptions and any potential impact have been reflected in the valuation of
financial assets at fair value through profit or loss as at 31 March 2025.
Future valuation might change significantly in the future.
Further details relating to the Company's valuation of bilateral loans and
bonds and sensitivity analysis is disclosed in Notes 14(a) and 14(d).
4 Net Gains on Financial Assets and Liabilities at Fair
Value Through Profit or Loss
31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Net gains/(losses)
Net gains on market bond portfolio 1,026 1,808
Net losses on bilateral loan and bond portfolio (5,511) (2,512)
Net gains/(losses) on equity securities 3,460 (5,276)
Net gains on forward foreign exchange contracts 4,655 6,615
Net gains on financial assets and liabilities at fair value through profit or 3,630 635
loss
5 Operating Expenses
Note 31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Investment management, administration and depositary fees
Investment management fees 17 4,096 4,205
Administration fees 17 286 279
Depositary fees 17 42 64
4,424 4,548
Other operating expenses
Deal and underwriting expenses 743(1) -
Directors' fees 260 232
Legal fees 195 221
Audit fees 167 155
Fees to auditor for non-audit services 45 43
Other expenses 765 791
2,175 1,442
Total operating expenses 6,599 5,990
1 The costs relate to the annual running costs of each securitisation
entity (ENIV) compartment along with any abortive costs on failed deals.
Whilst these were previously accounted for on a deal level, the Company now
reports the balance at a Fund level within Operating Expenses. As such, no
comparable figure form 2024 is provided.
The ongoing charges are calculated based on the most recent Association of
Investment Companies ("AIC") guidance issued in October 2024. For 31 March
2025, they are 2.24% and the restated costs, based on the most recent AIC
guidance, for 31 March 2024 are 2.33%. The costs exclude legal transaction
fees and financing.
6 Interest Income and Finance Costs
The following table details interest income and finance costs from financial
assets and liabilities for the year:
31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Interest income on financial assets at fair value through profit or loss
Real Estate Credit Investments - market bond portfolio 754 1,482
Real Estate Credit Investments - bilateral loan and bond portfolio 28,050 28,413
28,804 29,895
Interest income on financial assets at amortised cost
Cash and cash equivalents and cash collateral held at broker 716 446
Total interest income 29,520 30,341
Finance costs
Cost of financing agreements (4,782) (3,514)
Total finance costs (4,782) (3,514)
7 Dividends
31 Mar 2025 31 Mar 2024 GBP'000
GBP'000
Share dividends
Fourth dividend for the year ended 31 March 2024/31 March 2023 6,702 6,880
First dividend for the year ended 31 March 2025/31 March 2024 6,657 6,880
Second dividend for the year ended 31 March 2025/31 March 2024 6,657 6,880
Third dividend for the year ended 31 March 2025/31 March 2024 6,657 6,776
Dividends paid to Shareholders 26,673 27,416
The total dividends paid during the financial year ended 31 March 2025
amounted to 12.0 pence per share (31 March 2024: 12.0 pence per share).
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.
8 Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
31 Mar 2025 31 Mar 2024
Net earnings attributable to shares (GBP'000) 22,817 21,855
Weighted average number of shares for the purposes of basic and diluted 222,881,212 228,777,629
earnings per share(1)
Earnings per share
Basic and diluted (pence) 10.2 9.6
1 The weighted average number of shares takes into account the weighted
average effect of changes in treasury shares during the year.
9 Categories of Financial Instruments
The following table details the categories of financial assets and liabilities
held by the Company at the year end date.
31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Assets
Financial assets at fair value through profit or loss: 6,812 7,894
Real Estate Credit Investments - market bond portfolio
Real Estate Credit Investments - bilateral loan and bond portfolio 344,857 305,037
Real Estate Credit Investments - equity securities 17,809 16,438
Financial assets at fair value through profit or loss 369,478 329,369
Financial assets at amortised cost:
Cash and cash equivalents 19,295 18,290
Cash collateral held at broker 2,866 4,489
Other assets 72 104
Total assets 391,711 352,252
Liabilities
Financial liabilities at fair value through profit or loss: Financing 70,850 23,790
agreements
Derivative financial liabilities:
Forward foreign exchange contracts 213 88
Financial liabilities at amortised cost:
Cash collateral due to broker - 14
Other liabilities 2,292 1,978
Total liabilities 73,355 25,870
The value of the market bond was £6.7 million as at 31 March 2025, excluding
accrued interest of £0.1 million (31 March 2024: £7.8 million, excluding
accrued interest of £0.1 million); and the value of the bilateral loan and
bond portfolios were £ 334.0 million as at 31 March 2025, excluding accrued
interest of £ 10.9 million (31 March 2024: £296.0 million, excluding accrued
interest of £9.0 million).
See Note 15 for a summary of the movement in fair value in the Company's
investments for the year.
10 Other Liabilities
Note 31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Investment management fees payable 17 338 317
Deal and underwriting expenses payable 177(1) -
Administration fees payable 17 40 38
Depositary fees payable 17 20 67
Other operating payables 1,717 1,556
Total other liabilities 2,292 1,978
1 The costs relate to the annual running costs of each securitisation entity
(ENIV) compartment along with any abortive costs on failed deals.
11 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 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 the 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 the 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 presented in the following tables. 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 31 March 2025 and 31 March 2024.
31 March 2025
Name Fair value of loans(1) Undrawn commitment Carrying value Nature and purpose of the entity Location
GBP'000 GBP'000 GBP'000
RELF(2)
Fulton Road 30,036 2,689 15,754 To invest in Fulton Road real estate United Kingdom
Kensington 15,682 236 7,947 To invest in Kensington real estate United Kingdom
Sabina 19,688 8,142 9,935 To invest in Sabina real estate Luxembourg
Cheyne French Funding Sub-Fund 3 8,881 512 8,881 To invest in Cheyne French Funding Sub-Fund 3 real estate France
Cheyne 19,781 0 19,781 To invest in Cheyne French Funding Sub-Fund 8 real estate France
French Funding Sub-Fund 8
1 This amount excludes interest receivables.
2 The total loan exposure on the RELF will not equal the carrying value
disclosed above due to financing within the RELF structure.
The Company holds no equity in any of these entities and has no exposure to
other potential valuation uplift.
31 March 2024
Name Fair value of loans(1) Undrawn commitment Carrying value Nature and purpose of Location
GBP'000 GBP'000 GBP'000 the entity
RELF(2)
Fulton Road 15,262 17,463 7,888 To invest in Fulton Road real estate United Kingdom
Kensington 17,550 236 8,035 To invest in Kensington real estate United Kingdom
Lifestory 12,650 - 4,163 To invest in Lifestory real estate Luxembourg
Ruby 8,194 1,560 4,167 To invest in Ruby real estate Luxembourg
Sabina 15,869 6,562 8,865 To invest in Sabina real estate Luxembourg
Cheyne 10,372 3,299 10,372 To invest in Cheyne French France
Cheyne 24,477 5,202 24,709 To invest in Cheyne French France
French Funding Funding Sub-Fund 8 real estate
Sub-Fund 8
1 This amount excludes interest receivables.
2 The total loan exposure on the RELF will not equal the carrying value
disclosed above due to financing within the RELF structure.
The Company holds no equity in any of these entities and has no exposure to
other potential valuation uplift.
12 Financing Agreements
The Company engages in repurchase agreements ("repos") with bank lenders to
manage its portfolio efficiently. Securities financed through these repos are
valued at fair market value, with financing costs and advance rates varying
according to the lender's discretion. Under the terms of a repo agreement, the
lender takes custody of the purchased securities and values them daily to
safeguard against the Company's failure to repurchase. If the market value of
the underlying securities falls below the face value of the repos plus accrued
interest, the Company will provide additional collateral. In case of a default
on the repurchase obligation, the lender has the right to liquidate the
collateral to satisfy the debt. If the counterparty defaults or declares
bankruptcy, the realisation or retention of the collateral or proceeds may be
subject to legal proceedings.
The Company enters into repos with several banks. This financing is
collateralised against the Company's market bond and self-originated bond
portfolio with a fair value totalling £100.2 million (31 March 2024: £39.5
million) and has a weighted average cost of 7.50% (31 March 2024: 7.73%) per
annum. The contractual maturity period for repos is six months for market bond
positions. For self-originated bonds, the maturity period is the earlier of
the underlying loan's maturity or the maturity of any committed repo
facilities.
This short-term financing is shown as a current liability in the Statement of
Financial Position whereas the collateralised assets are shown as non-current.
The movement in financing agreements amounting to £46.3 million (31 March
2024: £56.5 million) and finance costs paid amounting to £4.0 million (31
March 2024: £3.7 million) are shown as financing activities in the Statement
of Cash Flows.
The following table summarises movements in financing agreements as at 31
March 2025 and 31 March 2024.
31 Mar 2025 31 Mar 2024 GBP'000
GBP'000
Balance as at 1 April 23,790 80,441
Payments under financing agreements (192,749) (295,841)
Proceeds under financing agreements 239,269 239,681
Foreign currency gain (257) (326)
Finance costs 4,782 3,514
Finance costs paid (3,985) (3,679)
70,850 23,790
During the financial year ended 31 March 2025, the Company maintained
off-balance sheet financing agreements. These facilities are structured using
off-balance sheet entities and are secured against specific loans. This
financing does not encumber other Company assets, except for a limited
recourse loss guarantee up to the borrowed amount. As at 31 March 2025, the
total off-balance sheet loans amounted to £31.2 million (31 March 2024:
£33.9 million). The partial recourse commitment was £9.3 million (31 March
2024: £3.9 million). No expected loss from this guarantee has been recognised
in the financial statements, and no additional collateralisation was required
as at year-end.
13 Share Capital
The issued share capital of the Company consists of shares, and its capital as
at the year 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 31 March 2025, the Company had
equity of £318.4 million (31 March 2024: £326.4 million).
31 Mar 2025 31 Mar 2024
Number of Number of Shares
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 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 year 221,894,004 225,237,478
Treasury Shares
Shares repurchased and held in treasury at the start of the 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 year 7,438,474 4,095,000
Pursuant to the share buyback authority approved by the Company's Shareholders
at the AGM 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 pre-agreed parameters. All shares purchased during the
year are held On 31 March 2025, the Company 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 which will run to 30 September 2025. The aggregate purchase price of
all shares acquired under the programme will be no greater than £10.0 million
and 200,000 shares have been repurchased to date.
The Company purchased 3.3 million (31 March 2024: 4.1 million) shares in the
market during the year. The total amount paid to purchase the shares was £4.2
million (31 March 2024: £5.0 million).
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 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 year ended 31
March 2025 with respect to the Company's approach to its share capital
management.
14 Financial Instruments and Associated Risks
The Company's investment activities expose it to various types of risk which
are associated with the financial instruments and markets in which it invests.
The Company's risk management policies seek to minimise the potential adverse
effects of these risks on the Company's financial performance.
The financial risks to which the Company is exposed include market risks
(including foreign currency risk and interest rate risk), credit risk,
liquidity risk and prepayment and re-investment risks. In certain instances,
as described more fully below, the Company enters into derivative transactions
in order to help mitigate particular types of risk.
(a) Market Risks
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 foreign currency risk, interest rate risk and other
price risk.
The Company's strategy on the management of market risk is driven by the
Company's investment objectives detailed in Note 1 which in respect of the
Company is to invest primarily in debt secured by commercial or residential
properties in the United Kingdom and Western Europe.
The Company's market risk is managed on a daily basis by the Investment
Manager in accordance with policies and procedures detailed below.
The sensitivity analysis below is based on a change in one variable while
holding all other variables constant. In practice, this is unlikely to occur,
and changes in some of the assumptions may be correlated - for example, change
in foreign currency rate and change in market values. In addition, as the
sensitivity analysis uses historical data as a basis for determining future
events, it does not encompass all possible scenarios, particularly those that
are of an extreme nature. The sensitivity analyses are based on the Investment
Manager's best estimate of reasonably possible changes in interest rates and
foreign currency rates. In practice the actual trading results may differ from
the sensitivity analyses in the following pages and the differences may be
material.
(i) Foreign Currency Risk
Foreign 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.
The primary purpose of the Company's foreign currency economic hedging
activities is to protect against the volatility associated with investments
denominated in foreign currencies and other financial assets and liabilities
created in the normal course of business.
The Company is exposed to risks that the exchange rate of its currency
relative to other foreign currencies may change in a manner that has an
adverse effect on the value of that portion of the Company's financial assets
or liabilities denominated in currencies other than GBP.
The Company may enter into spot currency transactions or utilise derivatives
such as forwards to hedge against currency fluctuations. The Company manages
its foreign exchange exposure with forward foreign exchange contracts.
The currency profile of the Company, including derivatives at fair value, at
the year end date was as follows:
As at 31 March 2025:
Currency Monetary Monetary Liabilities Forward Foreign Net currency
Assets GBP'000 Exchange Contracts exposure
GBP'000 GBP'000 GBP'000
GBP 277,508 (65,257) 110,467 322,718
EUR 114,196 (7,885) (110,680) (4,369)
USD 7 - - 7
391,711 (73,142) (213) 318,356
As at 31 March 2025:
Currency Monetary Monetary Forward Foreign Net
Assets Liabilities Exchange currency
GBP'000 GBP'000 Contracts exposure
GBP'000 GBP'000
GBP 195,177 (17,112) 153,070 331,135
EUR 157,069 (8,670) (153,158) (4,759)
USD 6 - - 6
352,252 (25,782) (88) 326,382
As at 31 March 2025, if the GBP strengthened by 5% or 10% in relation to all
currency exposures of the Company, with all other variables held constant, the
equity of the Company and the net profit/(loss) per the Statement of
Comprehensive Income would have changed by the amounts shown below. The
analysis was performed on the same basis for 2024.
By 5% 31 Mar 2025 31 Mar 2024 GBP'000
GBP'000
EUR (218) (238)
Total (218) (238)
By 10% 31 Mar 2025 31 Mar 2024 GBP'000
GBP'000
EUR (437) (476)
USD 1 1
Total (436) (475)
A 5% or 10% weakening of the GBP against the above currencies would have
resulted in an equal but opposite effect on the equity of the Company and net
profit/(loss) per the Statement of Comprehensive Income to the amounts shown
above, on the basis that all other variables remained constant.
The sensitivity analysis reflects how the equity of the Company would have
been affected by changes in the relevant risk variable that were reasonably
possible at the reporting date. Management has determined that a fluctuation
of 5% in foreign exchange rates is reasonably possible, considering the
environment in which the Company operates.
(ii) 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.
The Company's interest rate risk is managed by the Investment Manager in
accordance with policies and procedures detailed below.
The Company invests in fixed and floating rate real estate related debt assets
(which includes loans and bonds). Interest rate risk arises from the effects
of fluctuations in the prevailing levels of market interest rates on the fair
value of financial assets and liabilities and future cash flow.
A fundamental principle of bond investing is that market interest rates and
bond prices generally move in opposite directions. When market interest rates
rise, prices of fixed-rate bonds fall. However, as explained under the key
sources of estimation uncertainty in Note 3, the Investment Manager believes
that the loan or bond's own effective yield represents the most appropriate
rate to discount future cash flows. The use of this judgement limits the
impact of the fluctuations in market interest rates on the valuation of the
bilateral bonds and loans portfolio.
The Investment Manager has considered relevant geopolitical and macroeconomic
factors including the development of market interest rate during the year and
continues to believe that this key judgement remains appropriate due to the
bespoke nature of the investment portfolio and the dislocation between the
yield of these assets and the market interest rate.
Had movement in market interest rates been fully reflected in the valuation of
fixed-rate assets held by the Company, the estimated impact of a rise of 1%
(100 basis points) or 5% (500 basis points) (31 March 2024: 1% (100 basis
points) or 5% (500 basis points)) on the NAV of the Company would be a
decrease of £4.8 million or £24.0 million (31 March 2024: £4.4 million or
£22.1 million), respectively. A decrease in interest rates by 1% (100 basis
points) or 5% (500 basis points) is estimated to result in an increase in the
NAV of the Company by a similar amount. These estimates are calculated based
on the fair value of the fixed-rate securities, including accrued interest
held by the Company as at 31 March 2025 and 31 March 2024, and their weighted
average lives.
For the floating rate portion of the portfolio, which represents 27% of total
investments, a 1% (100 basis points) increase in interest rates would increase
annual income by approximately £1.9 million (31 March 2024: £0.5 million),
while a 1% (100 basis points) decrease would reduce annual income by
approximately £1.9 million (31 March 2024: £0.5 million). This analysis
assumes all other variables remain constant and is based on the floating rate
exposure at the reporting date.
The interest rate profile of the Company as at 31 March 2025 was as follows:
Fixed Floating Non-interest Total
GBP'000 GBP'000 bearing GBP'000
GBP'000
Financial assets at fair value through profit or loss 240,375 100,323 28,780(1) 369,478
Cash and cash equivalents - 19,295 - 19,295
Cash collateral held at broker - 2,866 - 2,866
Other assets - - 72 72
Financing agreements - (69,931) (919)(2) (70,850)
Derivative financial assets - forward foreign exchange contracts - - (213) (213)
Other liabilities - - (2,292) (2,292)
Total 240,375 52,553 25,428 318,356
1 Accrued interest and equity securities related to financial assets at fair
value through profit or loss.
2 Interest payable related to financing agreements.
The maturity profile of the Company as at 31 March 2025 was as follows:
Within One to Over Total
one year five years five years GBP'000
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit or loss 183,567 184,244 1,667 369,478
Cash and cash equivalents 19,295 - - 19,295
Cash collateral held at broker 2,866 - - 2,866
Other assets 72 - - 72
Financing agreements (70,850) - - (70,850)
Derivative financial assets - forward foreign exchange contracts (213) - - (213)
Other liabilities (2,292) - - (2,292)
Net assets 132,445 184,244 1,667 318,356
The interest rate profile of the Company as at 31 March 2024 was as follows:
Fixed Floating Non-interest Total
GBP'000 GBP'000 bearing GBP'000
GBP'000
Financial assets at fair value through profit or loss 195,849 108,202 25,318(1) 329,369
Cash and cash equivalents - 18,290 - 18,290
Cash collateral held at broker - 4,489 - 4,489
Other assets - - 104 104
Financing agreements - (23,668) (122)(2) (23,790)
Cash collateral due to broker - (14) - (14)
Derivative financial liabilities - forward foreign exchange contracts - - (88) (88)
Other liabilities - - (1,978) (1,978)
Total 195,849 107,299 23,234 326,382
1 Accrued interest and equity securities related to financial assets at fair
value through profit or loss.
2 Interest payable related to financing agreements.
The maturity profile of the Company as at 31 March 2024 was as follows:
Within One to Over Total
one year five years five years GBP'000
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit or loss 105,966 223,366 37 329,369
Cash and cash equivalents 18,290 - - 18,290
Cash collateral held at broker 4,489 - - 4,489
Other assets 104 - - 104
Financing agreements (23,790) - - (23,790)
Cash collateral due to broker (14) - - (14)
Derivative financial liabilities - forward foreign exchange contracts
(88) - - (88)
Other liabilities (1,978) - - (1,978)
Net assets 102,979 223,366 37 326,382
The value of the asset-backed securities will fluctuate as a result of changes
in market prices (other than those arising from foreign currency risk or
interest rate risk), whether caused by factors specific to an individual
investment, its issuer or all factors affecting all instruments traded in the
market. The loans in the Company are recorded at fair value on initial
recognition and subsequent measurement.
(b) 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.
The Company has credit exposure in relation to its 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. The Company's cash and cash equivalents are
held with The Bank of New York Mellon.
The Company also has credit exposure to JPMorgan Chase Bank N.A. in relation
to cash collateral held, which has a credit rating of AA- (31 March 2024: A+)
according to Standard and Poor's.
The Company's maximum exposure to credit risk for financial assets is as
follows:
31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Instrument
Real Estate Credit Investments - market bond portfolio 6,812 7,894
Real Estate Credit Investments - bilateral loan and bond portfolio 344,857 305,037
Cash and cash equivalents 19,295 18,290
Cash collateral held at broker 2,866 4,489
Total 373,830 335,710
Market Bond Portfolio
The Company is subject to the risk that issuers of asset-backed securities in
which it invests may default on their obligations and that certain events may
occur which have an immediate and significant adverse effect on the value of
such instruments. There can be no assurance that an issuer of an instrument in
which the Company invests will not default or that an event which has an
immediate and significant adverse effect on the value of such instruments will
not occur, and that the Company will not sustain a loss on the transaction as
a result. The Company seeks to mitigate this risk by monitoring its portfolio
of investments, reviewing the underlying credit quality of its counterparties,
on a monthly basis.
Bilateral Loan and Bond Portfolio
The Company is subject to the risk that the underlying borrowers to the loans
and bonds in which it invests may default on their obligations and that
certain events may occur which have an immediate and significant adverse
effect on the value of such instruments. Any loan and bond may become a
defaulted obligation for a variety of reasons, including non-payment of
principal or interest, as well as covenant violations by the borrower in
respect of the underlying loan and bond documents. In the event of any default
on the Company's investment in a loan and bond by the borrower, the Company
will bear a risk of loss of principal and accrued interest on the loan and
bond, which could have a material adverse effect on the Company's investment.
There can be no assurance that a borrower will not default, that there will
not be an issue with the underlying real estate security or that an event
which has an immediate and significant adverse effect on the value of these
loans and bonds will not occur, and that the Company will not sustain a loss
on the transaction as a result. The Company seeks to mitigate this risk by
performing due diligence and monitoring its portfolio of investments,
reviewing the underlying credit quality of its borrowers, performance of the
underlying asset, and loan and bond covenants compliance against financial
information received and the performance of the security, on a quarterly
basis.
The Company's total investment in bilateral loan and bond portfolio as at 31
March 2025 amounted to £344.9 million (31 March 2024: £305.0 million) which
includes accrued interest on loans and bonds of £10.9 million (31 March 2024:
£9.0 million) at this date.
The Company's total credit risk exposure includes an additional £9.3 million
relating to partial guarantee provided for off-balance sheet loan financing
arrangements. These contingent obligations, while not recognised on the
Statement of Financial Position, represent potential credit risk exposure that
supplements our reported risk position. No expected loss from this guarantee
has been recognised in the financial statements.
Derivative Contracts
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 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 Statement of Financial Position.
Below are the derivative liabilities by counterparty and details of the
collateral received and pledged by the Company as at 31 March 2025:
Derivative Type Counterparty Value of derivative Collateral Collateral Net (if greater
Liabilities Received pledged than zero)
GBP'000 GBP'000 GBP'000 GBP'000
Forward foreign exchange contracts The Bank of New York Mellon (213) - - -
Below are the derivative liabilities by counterparty and details of the
collateral received and pledged by the Company as at 31 March 2024:
Derivative Type Counterparty Value of derivative Collateral Collateral Net (if greater
Liabilities Received pledged(1) than zero)
GBP'000 GBP'000 GBP'000 GBP'000
Forward foreign exchange contracts The Bank of New York Mellon (88) - 88 -
1 Over-collateralisation is not presented in this table. The amount of
collateral reflected is limited to the amount of the derivative liabilities.
Custody
The Company monitors its credit risk by monitoring the credit quality of The
Bank of New York Mellon (International) Limited, as reported by Standard and
Poor's or Moody's.
If the credit quality or the financial position of The Bank of New York Mellon
(International) Limited were to deteriorate significantly, the Investment
Manager will seek to move the Company's assets to another bank. The Bank of
New York Mellon (International) Limited is a Trust Company with a credit
quality of Aa1 at the reporting date (31 March 2024: Aa2) according to
Moody's.
(c) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting obligations associated with its financial liabilities. The Company's
policy and the Investment Manager's approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient liquidity to
meet its liabilities when due, under both normal and stress conditions,
without incurring unacceptable losses or risking damage to the Company's
reputation.
In managing the Company's assets, therefore, the Investment Manager seeks to
ensure that the Company holds at all times a sufficient portfolio of assets
listed on recognised investment exchanges to enable it to discharge its
payment obligations. The Investment Manager monitors the Company's liquidity
position on a daily basis. Where needed, the Investment Manager will liquidate
positions to increase cash or reduce leverage.
The Company manages the liquidity risk for repurchase agreements and
off-balance sheet financing agreements by ensuring the tenor for these
arrangements are long term. The contractual maturity for repurchase
arrangements is agreed at six months for market bond positions, with the
expectation that this financing will be rolled over. For self-originated
positions, the maturity period is determined by the earlier of the underlying
loan's maturity or the maturity of any committed repo facilities.
The following tables detail the current and long-term financial liabilities of
the Company at the year end date:
As at 31 March 2025: Less than 1 month 1-3 months 3 months Greater than
GBP'000 GBP'000 to 1 year 1 year
GBP'000 GBP'000
Financial liabilities excluding derivatives
Financing agreements 51,376 18,655 819 -
Other liabilities - 2,292 - -
51,376 20,947 819 -
As at 31 March 2024: Less than 1 month 1-3 months 3 months Greater than
GBP'000 GBP'000 to 1 year 1 year
GBP'000 GBP'000
Financial liabilities excluding derivatives
Financing agreements - 22,433 1,357 -
Cash collateral due to broker - 14 - -
Other liabilities - 1,978 - -
- 24,425 1,357 -
The market for subordinated asset-backed securities including real estate
loans into which the Company is invested, is illiquid. In addition,
investments that the Company purchases in privately negotiated (also called
"over-the-counter" or "OTC") transactions may not be registered under relevant
securities laws or otherwise may not be freely tradable, resulting in
restrictions on their transfer, sale, pledge or other disposition except in a
transaction that is exempt from the registration requirements of, or is
otherwise in accordance with, those laws. As a result of this illiquidity, the
Company's ability to vary its portfolio in a timely fashion and to receive a
fair price in response to changes in economic and other conditions may be
limited.
Furthermore, where the Company acquires investments for which there is not a
readily available market, the Company's ability to deal in any such investment
or obtain reliable information about the value of such investment or risks to
which such investment is exposed may be limited.
(d) 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 financial assets and liabilities measured in the 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 as described in Note 2, Material accounting policies
and in Note 3, Critical accounting judgements and key sources of estimation
uncertainty. 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 year end date:
As at 31 March 2025: Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Real Estate Credit Investments - market bond portfolio - 66 6,746 6,812
Real Estate Credit Investments - bilateral loan and bond portfolio - - 344,857 344,857
Real Estate Credit Investments - equity securities - - 17,809 17,809
Total non-current assets - 66 369,412 369,478
Current liabilities
Real Estate Credit Investments - repurchase agreements - (70,850)(1) - (70,850)
Forward foreign exchange contracts - (213) - (213)
Total current liabilities - (71,063) - (71,063)
- (70,997) 369,412 298,415
1 Includes repurchase agreements related to Level 3 investments.
As at 31 March 2024 Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Real Estate Credit Investments - market bond portfolio - 101 7,793 7,894
Real Estate Credit Investments - bilateral loan and bond portfolio - - 305,037 305,037
Real Estate Credit Investments - equity securities - - 16,438 16,438
Total non-current assets - 101 329,268 329,369
Current liabilities
Real Estate Credit Investments - repurchase agreements - (23,790)(1) - (23,790)
Forward foreign exchange contracts - (88) - (88)
Total current liabilities - (23,878) - (23,878)
- (23,777) 329,268 305,491
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 value 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 7.1% to 11.7% (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 31 March 2025 and 31 March 2024 in measuring financial assets
categorised as Level 3:
As at 31 March 2025: Fair value Valuation technique Unobservable
GBP'000 input
Market bond portfolio 6,746 Priced via external pricing source Comparable set used
Bilateral loan and bond portfolio 344,857 Discounted cash flow Risk-adjusted discount rate and sector-based yields
Equity securities 17,809 Discounted cash flow Risk-adjusted discount rate and sector-based yields
As at 31 March 2024: Fair value Valuation Unobservable
GBP'000 technique input
Market bond portfolio 7,793 Priced via external pricing source Comparable set used
Bilateral loan and bond portfolio 305,037 Discounted cash flow Risk-adjusted discount rate and sector-based yields
Equity securities 16,438 Discounted cash flow Risk-adjusted discount rate and sector-based yields
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 while sensitivity around expected future cash flows
including collateral valuation is explained below. Sensitivities range from
10% to 15% for external valuations dated prior to the end of 30 September 2024
(31 March 2024: 10% to 15%). For valuations after 30 September 2024, the
sensitivities are set from 5% to 10% for external valuations (31 March 2024:
5% to 10%). This represents management's assessment of a reasonable possible
change and would have a negative impact of £ 3.6 million (31 March 2024:
£7.2 million) or positive impact of £3.8 million (31 March 2024: £2.4
million) on the fair value measurements for the Level 3 assets.
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. Since 2017, the majority of the Company's investments are now
made through Luxembourg-based entities, 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 31 March 2025, 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. Please refer to pages 85
to 86 for the effects of movement in market rates.
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 year:
Level 3 Level 3
31 Mar 2025 31 Mar 2024
GBP'000 GBP'000
Financial assets at fair value through profit or loss
Opening balance 329,268 370,979
Total losses recognised in the Statement of Comprehensive Income for the year (1,025) (6,381)
Purchases(1) 139,847 95,164
Sales (100,588) (125,399)
Increase/(decrease) in interest receivable 1,910 (5,095)
Closing balance 369,412 329,268
Unrealised gains/(losses) on investments classified as Level 3 at year end 187 (3,267)
1 Includes capitalised interest amounting to £12,567 (31 March 2024:
£13,800).
(e ) Prepayment and Re-Investment Risks
The Company's real estate loans have the facility for prepayment. The
Company's exposure to real estate debt securities also has exposure to
potential prepayment risk which may have an impact on the value of the
Company's portfolio. Prepayment rates are influenced by changes in interest
rates and a variety of economic, geographic, and other factors beyond the
Company's control and consequently cannot be predicted with certainty.
The level and timing of prepayments made by borrowers in respect of the
mortgage loans that collateralise certain of the Company's investments may
have an adverse impact on the income earned by the Company from those
investments.
Early prepayments also give rise to increased re-investment risk. If the
Company is unable to reinvest such cash in a new investment with an expected
rate of return at least equal to that of the loan repaid, the Company's net
income will be lower and, consequently, could have an adverse impact on the
Company's ability to pay dividends.
The Investment Manager reviews the prepayment assumptions each quarter and
will update as required. These assumptions are considered through a review of
the underlying loan performance information of the securitisations.
15 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 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.
Year ended 31 March 2025: Market Bilateral Equity Securities Total
Bond Portfolio Loan and GBP'000 GBP'000
GBP'000 Bond Portfolio
GBP'000
Interest income 754 28,050 - 28,804
Net gains/(losses) on financial assets and liabilities at fair value through
profit or loss
1,026 (5,511) 3,460 (1,025)
Reportable segment profit 1,780 22,539 3,460 27,779
Finance costs (262) (4,520) - (4,782)
Year ended 31 March 2024: Market Bilateral Equity Total
Bond Portfolio Loan and Securities GBP'000
GBP'000 Bond Portfolio GBP'000
GBP'000
Interest income 1,482 28,413 - 29,895
Net gains/(losses) on financial assets and liabilities
at fair value through profit or loss 1,808 (2,512) (5,276) (5,980)
Reportable segment profit/(loss) 3,290 25,901 (5,276) 23,915
Finance costs (989) (2,525) - (3,514)
As at 31 March 2025: Market Bond Bilateral Loan and Bond Portfolio Equity Securities Total
Portfolio GBP'000 GBP'000 GBP'000
GBP'000
Reportable segment assets 6,812 344,857 17,809 369,478
Non-segmental assets 22,233
Financing agreements (4,240) (66,610) - (70,850)
Non-segmental liabilities (2,505)
Net assets 318,356
As at 31 March 2024: Market Bond Bilateral Loan and Bond Portfolio Equity Securities Total
Portfolio GBP'000 GBP'000 GBP'000
GBP'000
Reportable segment assets 7,894 305,037 16,438 329,369
Non-segmental assets 22,883
Financing agreements (4,733) (19,057) - (23,790)
Non-segmental liabilities (2,080)
Net assets 326,382
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 year. Certain income
and expenditure is not considered part of the performance of either segment.
This includes net gains/(losses) on forward foreign exchange contracts, net
gains/(losses) on foreign currency translation, expenses and interest on
borrowings.
The following table provides a reconciliation between reportable segment
profit and net profit.
31 Mar 2025 31 Mar 2024 GBP'000
GBP'000
Reportable segment profit 27,779 23,915
Net gains on forward foreign exchange contracts 4,655 6,615
Net gains on foreign currency translation 1,011 260
Interest income on financial assets at amortised cost 716 446
Other income 37 123
34,198 31,359
Operating expenses (6,599) (5,990)
Finance costs (4,782) (3,514)
Net profit 22,817 21,855
Certain assets are not considered to be attributable to either segment. These
include cash and cash equivalents, cash collateral held at broker, derivative
financial assets and other assets.
The following table provides a reconciliation between reportable segment
assets and total assets.
31 Mar 2025 31 Mar 2024 GBP'000
GBP'000
Reportable segment assets 369,478 329,369
Cash and cash equivalents 19,295 18,290
Cash collateral held at broker 2,866 4,489
Other assets 72 104
Total assets 391,711 352,252
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 2025:
Year ended 31 March 2025: Market Bond Bilateral Equity
Portfolio Loan and Securities Total
GBP'000 Bond Portfolio GBP'000 GBP'000
GBP'000
Financial assets at fair value through profit or loss
Opening fair value 7,894 305,037 16,438 329,369
Transfer - 2,312 (2,312) -
Purchases(1) - 139,624 223 139,847
Repayments/sales proceeds (2,073) (98,515) - (100,588)
(Decrease)/increase in interest receivable (35) 1,910 - 1,875
Realised losses on sales (58) (861) (7) (926)
Net movement in unrealised gains/(losses) 1,084 (4,650) 3,467 (99)
Closing fair value 6,812 344,857 17,809 369,478
1 Includes capitalised interest amounting to £12,567.
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:
Year ended 31 March 2024: Market Bond Bilateral Loan and Equity
Portfolio Bond Portfolio Securities Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit or loss
Opening fair value 49,243 341,475 10,024 400,742
Transfer - (11,651) 11,651 -
Purchases1 - 94,866 298 95,164
Repayments/sales proceeds (42,942) (112,046) (259) (155,247)
Decrease in interest receivable (215) (5,095) - (5,310)
Realised (losses)/gains on sales (4,233) 1,338 (1) (2,896)
Net movement in unrealised gains/(losses) 6,041 (3,850) (5,275) (3,084)
Closing fair value 7,894 305,037 16,438 329,369
1 Includes capitalised interest amounting to £13,800.
16 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 31 March 2025 and 31 March 2024. The cash held by
brokers is restricted and is shown as Cash collateral held at/due to broker in
the Statement of Financial Position.
31 Mar 2025 GBP'000 31 Mar 2024 GBP'000
Cash collateral held at broker
JPMorgan Chase Bank, N.A. 2,866 916
The Bank of New York Mellon - 3,572
Deutsche Bank Securities Inc. - 1
2,866 4,489
Cash collateral due to broker
The Bank of New York Mellon - (14)
- (14)
17 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. Since 2017, the majority of the Company's investments are now
made through Luxembourgbased entities, 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 year ended 31 March 2025, the Management Fee totalled £4.1 million
(31 March 2024: £4.2 million), of which £0.3 million (31 March 2024: £0.3
million) was outstanding at the year 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 years ended 31 March 2025 and 31 March 2024, there were no
performance fees accrued.
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 of £10,000.
During the year ended 31 March 2025, the administration fee totalled £0.3
Million (31 March 2024: £0.3 million), of which £0.04 million (31 March
2024: £0.04 million) was outstanding at the year 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 year ended 31 March 2025, the
Depositary fee totalled
£0.04 million (31 March 2024: £0.06 million). The Company owed £0.02
million (31 March 2024: £0.07 million) to the Depositary at the year end.
18 Contingencies and Commitments
As at 31 March 2025, the Company had committed £468.7 million into bilateral
loans and bonds of which £387.2 million had been funded (31 March 2024:
£489.0 million into bilateral loans and bonds of which £352.1 million had
been funded).
19 Subsequent Events
The Directors declared a dividend of 3.0 pence per share on 24 June 2025.
Since 1 April 2025, RECI has bought back 200,000 shares at 120.0 pence per
share.
There have been no other significant events affecting the Company since the
year end date that require amendment to or disclosure in the financial
statements.
20 Foreign Exchange Rates Applied to Combined Totals Used in the
Preparation of the Financial Statements
The following foreign exchange rates relative to the GBP were used as at the
year end date:
Currency 31 Mar 2025 31 Mar 2024
GBP GBP
EUR 1.19 1.17
USD 1.29 1.26
21 Approval of the Financial Statements
The Annual Report and audited financial statements of the Company were
approved by the Directors on 24 June 2025.
Appendix I - AIFM Remuneration Policy (Unaudited)
Annual Remuneration Disclosure for the Year to 31 March 2025
Cheyne Capital Management (UK) LLP ("Cheyne"), the Alternative Investment Fund
Manager ("AIFM"), has implemented a Remuneration Policy ("the Policy") that is
applicable to all remuneration matters within the firm, with a particular
focus on those persons who have been identified as having a material impact on
the risk profile of the AIF ("Code Staff"). This includes senior management,
risk takers and control functions.
The Policy is in line with Cheyne's business strategy, objectives, values and
long-term interests. As an AIFM, Cheyne's overall objective is to achieve
attractive and controlled performance and capital growth for all funds under
management, including the AIF and to develop strong long-term relationships
with investors. Cheyne's income is dependent upon the funds for which it
serves as manager or AIFM, and therefore the profit available for distribution
under the Policy is dependent upon the performance of such funds including the
AIF. As such, the fulfilment of Cheyne's objectives is interlinked with the
best interests of Cheyne's clients, which in turn is in line with the Policy.
The Policy promotes effective risk management and does not tolerate breaches
of internal risk guidelines.
Cheyne has a Remuneration Committee (currently the COO and CFO) who report
into the Incentivisation Committee (currently the CEO and President) that
oversees the remuneration of individuals, including Code Staff, and approval
of the allocation of profits available for discretionary division among
members.
Cheyne was authorised as an AIFM on 22 July 2014. The quantitative disclosures
required under Article 22 of AIFMD in accordance with the European Securities
and Markets Authority ("ESMA") guidance for the year ended 31 March 2025, in
respect of remuneration derived from the AIF, are as follows:
AIFM Total Remuneration Remuneration derived Deferred Remuneration derived from the AIF
Business Area Number of Code Staff (all variable) Code Staff relevant from the AIF (all variable)
to the AIF
Portfolio Management 19 £22,014,889 6 £974,850 £210,481
Senior Management 7 £19,059,489 7 £798,434 £220,129
Total 26 £41,074,378 13 £1,773,284 £430,610
Remuneration Code information is provided as required under the FCA Rules.
Appendix II - AIFM Leverage (Unaudited)
For the purposes of this disclosure, leverage is any method by which a fund's
exposure is increased. A fund's exposure may be increased by using
derivatives, by reinvesting cash borrowings, through positions within
repurchase or reverse repurchase agreements, through securities lending or
securities borrowing arrangements, or by any other means (such increase
referred to herein as the "Incremental Exposure"). The AIFMD prescribes two
methodologies for calculating overall exposure of a fund: the "gross
methodology" and the "commitment methodology". These methodologies are briefly
summarised below.
The commitment methodology takes account of the hedging and netting
arrangements employed by a fund at any given time (purchased and sold
derivative positions will be netted where both relate to the same underlying
asset). This calculation of exposure includes all Incremental Exposure as well
as a fund's own physical holdings, and cash. By contrast, the gross
methodology does not take account of the netting or hedging arrangements
employed by a Company. This calculation of exposure includes all Incremental
Exposure as well as the Company's own physical holdings; cash is excluded.
The AIFMD requires that each leverage ratio be expressed as the ratio between
a fund's total exposure (including any Incremental Exposure) and its NAV.
Using the methodologies prescribed under the AIFMD and implementing
legislation, the Company has set a maximum level of leverage, taking into
account atypical and volatile market conditions. Leverage will not exceed the
ratio of 5:1 using the commitment methodology and 5:1 using the gross
methodology.
The use of leverage, including borrowings, may increase the volatility of the
Company's NAV per share and also amplify any loss in the value of the
Company's assets.
While the use of borrowing should enhance the total return on the shares where
the return on the Company's underlying assets is rising and exceeds the cost
of borrowing, it will have the opposite effect where the return on the
Company's underlying assets is falling or rising at a lower rate than the cost
of borrowing, reducing the total return on the shares. As a result, the use of
borrowing by the Company may increase the volatility of the NAV per share.
Any reduction in the value of the Company's investments may lead to a
correspondingly greater percentage reduction in its NAV (which is likely to
adversely affect the price of a share). Any reduction in the number of shares
in issue (for example, as a result of buybacks or tender offers) will, in the
absence of a corresponding reduction in borrowing, result in an increase in
the Company's level of gearing.
To the extent that a fall in the value of the Company's investments causes
gearing to rise to a level that is not consistent with the Company's gearing
policy or borrowing limits, the Company may have to sell investments in order
to reduce borrowing.
The Company will pay interest on its borrowing. As such, the Company is
exposed to interest rate risk due to fluctuations in the prevailing market
rates. The Company may employ hedging techniques designed to reduce the risk
of adverse movements in interest rates. However, such strategies may also
result in losses and overall poorer performance than if the Company had not
entered into such hedging transactions.
The risks associated with the derivatives used by the Company and that may
contribute to the leverage of the Company are set out earlier.
Leverage is limited to 500% of NAV of the Company under both the Gross and
Commitment approaches. Up to 31 March 2025, the maximum leverage calculated
has been 164.00% (31 March 2024: 146.87%) for the Gross Approach and 128.45%
(31 March 2024: 107.90%) for the Commitment Approach.
Directors and Advisers
Directors
Andreas Tautscher (appointed 7 May 2024 and Chairman from 1 November 2024)
Susie Farnon
Colleen McHugh
Mark Thompson (appointed 4 November 2024)
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 Limited Ropemaker Place, Level 12 25 Ropemaker Street London,
EC2Y 9LY
Registrar
MUFG Corporate Markets (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
MUFG Corporate Markets 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.
Weighted Average Life ("WAL") Represents the average time until principal is repaid, weighted by the size of
each principal payment. WAL is calculated by excluding all cash flows prior to
the reporting date and adjusting for accrued value in the current period, to
reflect only the expected future repayments.
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.
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 FR PKQBKDBKBCABRecent news on Real Estate Credit Investments
See all newsREG - Real Estate Credit - Annual Financial Report
AnnouncementREG - Real Estate Credit - Dividend Declaration
AnnouncementREG - Real Estate Credit - Fact Sheet Announcement
AnnouncementREG - Real Estate Credit - Director Declaration - Additional Directorship
AnnouncementREG - Real Estate Credit - Fact Sheet Announcement
Announcement