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RECI pays investors a high (7.0%) dividend yield, covered by predictable income streams generated by an increasingly diversified portfolio of real-estate-backed debt. In our 17 December note, Delivering on its promises, we updated investors on why developments in the UK and France meant the pipeline was likely to see material completions in the next few months. In February, we saw RECI successfully complete a £33.5m equity raising by placing 19.9m shares. It has also announced a new placing programme for the issue of up to 150m shares over the next 12 months. Further economies of scale and diversification will be generated from this growth.

  • RECI news flow: RECI’s end-January factsheet showed a monthly return of 0.5%. In the month, RECI funded £38m to a deal backed by a portfolio of 17 properties located across the UK, and a further £2.1m was drawn in the month for existing loans. End-January (i.e. pre-equity raise) cash was £35.8m (10% NAV).
  • 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. It now has 10 investments at an average coupon of 7.1% and 67% LTV. SWEF’s December NAV was 103.24p, and it is also now fully invested.
  • Valuation: RECI trades at a 3.3% premium to NAV, broadly in line with its secured lending peers, while its yield, at 7.0%, 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 control) makes RECI lower-risk than the average debt investment.
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