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RECI pays investors a high (7.1%) dividend yield, covered by predictable income streams generated by an increasingly diversified portfolio of real-estate-backed debt. Its credit record has been exemplary. Our 28 August 2019 initiation report 7%+ yield from well-secured property debt portfolio detailed how this was achieved. In our 17 December note Delivering on its promises, we updated investors on the portfolio and looked, in detail, at why developments in the UK and France mean the pipeline is likely to see material completions in the next few months. Assuming this is correct, further equity issues may be expected. RECI now trades on a small premium to NAV.

  • RECI news flow: RECI’s end-November factsheet announced a monthly return of 0.5% (slightly below the long-run average as cash holdings are above average ‒October fund raise and there was material repayment in mid-November). As noted above, full deployment of existing cash resources is expected in the near term.
  • Peer news flow: ICG Longbow gave a portfolio update on 16 December noting the full deployment of cash, restoration of full dividend cover and the October NAV rising to 98.1p. SWEF’s November NAV was 102.33p and is fully invested.
  • Valuation: RECI trades at a 0.8% premium to NAV, broadly in line with its secured lending peers, while its yield, at 7.1%, is the highest of its peers and above average compared with debt investment companies. It is covered by largely predictable income streams and below-average downside risk from credit losses.
  • Risks: Any lender is exposed to the credit cycle and individual loans going wrong. We believe RECI has appropriate policies to reduce the probability of default and the loss in the event thereof. The book is relatively short, creating re-investment risk. Some assets are illiquid, and Repos financing has a short duration.
  • Investment summary: RECI generates an above-average, but sustainable, dividend yield from well-managed credit assets. It should deliver this return with a relatively modest correlation to equity and bond markets. For property investors, there is less downside risk than in direct real estate exposure. To debt/fixed-income investors, the presence of physical security (and excellent management controls) makes RECI lower-risk than the average debt investment.
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