Interim Management Statement

RNS Number : 8461Z

Real Estate Credit Inv. PCC Ltd

12 February 2014

 



 

12 February 2014

Real Estate Credit Investments PCC Limited

Interim Management Statement for the Second Half of Financial Year Ending 31 March 2014  

RECI1 Highlights

·    RECI made a net profit of £0.5 million in the quarter ended 31 December 2013, compared with £2.7 million the previous quarter.  In the financial year to date the Company has made a profit of £4.4 million.

·    From 30 September 2013 to 31 December 2013, RECI's NAV decreased 2.6% from £1.56 per share to £1.52 per share2, following the capital raising in November.

·    Since year end NAV increased to £1.54 per share as at 31 January.

·    The Board has declared a dividend of 2.3p per share in respect of RECI Ordinary Shares for the quarter ended 31 December 2013.

Bonds

·    Since 30 September 2013 RECI has made £49.9 million of new bond investments, limiting cash drag.

·    As at 31 January 2014 the bond portfolio's market value was £94.9 million and nominal value was £119.7 million.

Loans

·    New loan commitments of £25.0 million were made in the quarter ending 31 December 2013, significant progress already made in investing the proceeds of the capital raise.

The loan portfolio has grown in absolute terms to a dirty fair value of £50.2 million as at 31 January 2014 from £43.1 million as at 30 September 2013. As at 31 December 2013, RECI's loan portfolio accounted for 32.3% of gross assets. As at 31 January 2014 RECI has undrawn loan commitments of £11.9 million.

RECI Key Quarter Financial Data3	30 September 2013	31 December 2013
Gross Assets	£108.5m	£154.8m
Investment Portfolio	£101.3m	£131.3m
Operating Income	£3.6m	£3.6m
Fair Value Gains / (Losses) on Investment Portfolio	£1.0m	(£1.2m)
Net Profit4	£2.7m	£0.5m
Net Asset Value per Ordinary Share	£1.56	£1.52

1Real Estate Credit Investment PCC Limited is a protected cell company, consisting of a Core and a Cell. RECI refers to the Company's Core segment. 

Figures for quarter ended 31 December 2013 are pro forma, as the Company will next produce financial statements for the year ended 31 March 2014.

2Based on 31 December 2013 pro forma figures.

³ The 31 December 2013 P&L figures are pro-forma, as next financial statements will be released for year ended 31 March 2014.

⁴ Net profit takes operating and finance expenses into account.

This interim management statement relates to the period from 30 September 2013 to 12 February 2014 and has been prepared solely in order to comply with the requirement (pursuant to the EU Transparency Directive as implemented by the Disclosure and Transparency Rules) for an interim management statement to be made by the Company no earlier than 9 December 2013 and no later than 17 February 2014. Unless otherwise noted herein, the financial information provided in this interim management statement (and the asset valuations underlying that financial information) are as at 30 September 2013 and such financial information (and underlying valuations) will be stated as at a more recent date in the Company's forthcoming half year report.  Terms set out in this interim management statement but not defined are as defined in the Company's most recent prospectus dated 11 July 2011.

Pro - forma Balance Sheet⁵

Figures for RECI for 30 September 2013 and 31 January 2014 (in £ million)

	30/09/201312	31/01/201412
Investment Portfolio6	99.2	143.0
Cash and Cash Equivalents	5.4	9.7
Derivative Assets	1.8	1.7
Other Assets 7,8	2.2	2.2
	108.5	156.6
Other Liabilities9	(1.2)	(0.5)
Derivative Liabilities	(0.6)	-
Preference Dividend10	-	(0.3)
Ordinary Dividend11	-	-
Preference Share Liability	(44.5)	(44.0)
	(46.3)	(44.7)
Net Assets (estimate)	62.2	111.8
Shares outstanding	39.97	72.82
Net Assets per Ordinary Share (estimate)	1.56	1.54

Pro Forma NAV Assumptions

5.        Unaudited figures produced by Cheyne for Investment Portfolio, Cash and Cash Equivalents and Derivative Assets, otherwise uses latest public financial statement figures.  Figures are estimates, and actual audited values may be materially different from the numbers shown.  6.        Investment portfolio includes bond portfolio and real estate loans. 7.        Other Assets includes accrued interest on the Investment Portfolio. 8.        Other than above, the Other Assets figure for 30 September 2013 is the figure used in the pro forma financial statements for 30 September 2013. The Other Assets figure for 31 January 2013 is the figure used in the pro forma accounts for 31 October 2013 9.        Other Liabilities for 30 September 2013 is the figure used in the pro forma financial statements for 30 September 2013. Other liabilities for 31 January 2013 is the figure used in the pro forma accounts for 31 October 2013 10.     Preference Dividend liability accrues over the quarter and is paid on each quarter end. 11.     Ordinary Dividend liability is either ex or cum the dividend at the valuation date. 12.     30 September figures use EURGBP FX rates at 30 September 2013 and 31 January figures use EURGBP FX rates as at 31 January 2014.

Source:  Cheyne Capital. Unaudited. The NAV at the next reporting date may be materially different from the valuations implied above.

Top 10 Exposures¹³ as at 31 January 2014
Market Value                                    £73.8 million
WA Original LTV¹⁴                            59.1%
WA Cheyne Current LTV¹⁴            63.4%
WA Effective Yield¹⁵                      9.9%     

Type	Class		Collateral Description
Commercial		B	Bond secured against government housing portfolio in the UK
Commercial		Loan	Loan secured against retail park near London
Commercial		Loan	Loan secured against commercial office property in London
Commercial		E	Portfolio of commercial loans secured by properties in Germany
Commercial		A	Portfolio of nursing homes operated by Four Seasons Health Care Group
Commercial		Loan	Loan secured against a London Hotel
Commercial		Loan	Loan secured against German multi-family properties
Commercial		Loan	Loan secured against German multi-family properties
Commercial		A	Portfolio of UK commercial loans secured against office and retail properties
Commercial		A	UK commercial loan secured against a property in London

Source:  Cheyne Capital. Unaudited. 13. Based on fair value of bonds and loans.  14. The Weighted Average Original Loan to Value has been calculated by reference to the original acquisition value of the relevant collateral as disclosed at the time of issue of the relevant bond or loan. The Original LTV is weighted by the market value of the bonds and loans.   The Weighted Average Cheyne Current LTV has been calculated by Cheyne by reference to the current value ascribed to the collateral by Cheyne.  In determining these values, Cheyne has undertaken its own internal valuation of the underlying collateral.  Such valuations have not been subject to independent verification or review.   15.  WA effective yield is based on the effective yield using prices as at 31 January 2014 and is based on Cheyne's pricing assumptions and actual returns may differ materially from those expressed or implied herein.

Bond Portfolio Summary (as at 31 January 2014)
Number of bonds	82
Dirty Fair Value of Bond Portfolio as at 31 January 2014 Nominal Face Value of Bond Portfolio as at 31 January 2014	94,933,090 119,667,192
Bond Purchases 1 January to 31 January 2014 (cost)	18,251,862
Average Purchase Price between 1 January and 31 January 2014	0.93
Average Effective Yield of Purchases between 1 January and 31 January 201416	4.37%
Bond Sales 1 January to 31 January 2014 (cost)	-
Average Sale Price between 1 January and 31 January 2014	-
Average Purchase Price of Bonds Sold Between 1 January and 31 January 2014	-

16.     The weighted average effective yield is based on Cheyne's pricing assumptions and actual returns may differ materially from those expressed or implied herein. Figures quoted include accrued interest.

Monthly Bond Performance Summary

	August	September	October	November	December	January
% Fair Value Change17	1.08%	2.61%	1.21%	-0.71%	0.57%	1.11%
WA Purchase Price18	0.91	0.88	0.87	0.94	0.86	0.93
WA Purchase Yield18	9.17%	8.00%	4.09%	4.46%	5.23%	4.37%

17.     % Fair Value Change is based on MTM P&L for the month.

18.     WA Purchase Price and WA Purchase Yield are based on purchases in the period. 

Bond Breakdown as at 31 January 2014

Asset Class	UK CMBS	UK RMBS	Euro CMBS	Euro RMBS	Total (31 Dec)
CLASS A	18.2%	4.9%	4.5%	0.2%	27.8% (18.6%)
CLASS B	21.2%	6.7%	2.1%	0.0%	30.0% (30.9%)
CLASS C	1.8%	4.8%	4.3%	0.0%	10.9% (15.5%)
CLASS D	0.8%	2.7%	8.4%	0.2%	12.1% (12.2%)
CLASS E and below	2.0%	8.3%	8.9%	0.0%	19.1% (22.7%)
Grand Total	44.0%	27.5%	28.2%	0.4%	100.0%

A breakdown of RECI's bond investment portfolio as at 30 September 2013 and 31 January 2014 by jurisdiction (by reference to underlying asset originator) is set out below.

30 September 2013

UK	65.5%
Germany	31.7%
Italy	1.6%
Holland	0.5%
Ireland	0.4%
Portugal	0.2%
Total (£mm)	£58.3mm

31 January 2014

UK	70.9%
Germany	27.3%
Italy	1.2%
Holland	0.4%
Ireland	0.3%
Portugal	0.1%
Total (£mm)	£94.9mm

Values may not sum to 100% due to rounding differences

Loan Portfolio Summary

(as at 31 January 2014)

Number of loans	9
Drawn Dirty Fair Value (£ millions) Total Loan Commitments (£ millions)	50.2 62.2
Loans as % of GAV (drawn loan balance)	32.1%
Weighted average yield of loan portfolio19	12.9%
Weighted average LTV of portfolio20	64.8%

19.  Weighted average effective yield is based on the effective yield using prices as at 31 January 2014 and is based on Cheyne's pricing assumptions and actual returns may differ materially from those expressed or implied herein.

20. Weighted average LTV has been calculated by Cheyne by reference to the current value ascribed to the collateral by Cheyne.  In determining these values, Cheyne has undertaken its own internal valuation of the underlying collateral.  Such valuations have not been subject to independent verification or review.  

Outlook

RECI's investment strategy has been proceeding according to plan during the third quarter, with a focus on sourcing new loan opportunities while also investing new capital in the bond markets to limit any cash drag from the capital raise.

RECI expects to see continued relatively strong value strong value propositions from its bond investment portfolio.  In addition, the Company intends to rotate out of lower yielding liquid bonds, into newly-originated mezzanine and whole loans as new opportunities reach closing.

New loan commitments of £25.0 million were made in the quarter ending 31 December 2013.

RECI continues to benefit from Cheyne Capital's strong loan pipeline, and expects RECI to fund a number of new loans before the financial year end of 31 March 2014. As one of Europe's largest real estate finance platforms Cheyne has access to a regular flow of attractive loan financings and RECI is allocated a pro-rata portion of each loan. The pipeline includes several loans secured against commercial property in central London, UK regional loans, and a Dutch commercial loan.

The Investment Manager is confident that it will be able to increase loans as a percentage of GAV over the remainder of the financial year and that loans will be contributing a significant part of income by the end of that period.

European Residual Income Investments (ERII)  ERII Cell Position Summary (in € million)
Number of Positions as at 31 January 2014	5
Residual Income Portfolio Valuation (31 December 2013)21	€9.9m

ERII Cell Cash Summary (in € million)
Cash as at 31 January 2014	€1.0m

Source:  Cheyne Capital. Unaudited.  Valuation of the Residual Income Portfolio may change, possibly materially, on the next reporting date.  The NAV at the next reporting date may be materially different from the valuation implied above.

21.   This figure contains the Residual Income Positions remaining as at 31 January 2013, but at the pro forma dirty fair value per 31 December 2013.

Overview

ERII reported cash flows for the quarter ended 31 December 2013 of €0.7 million, compared to €0.9 million in the previous quarter and net write downs of €0.1 million. Write downs in the European and SME mortgage portfolios were partially offset by gains in the UK mortgage portfolio.

The Company has today announced a dividend of 3.2 cents per share to Cell shareholders.

European Mortgage Portfolio

The European Mortgage Portfolio generated €0.1 million of cash flows for the quarter ended 31 December 2013, compared to €0.2 million in the previous quarter. Write downs in the portfolio totalled €0.3 million. 

SME Portfolio

The Company has decreased the fair value of Smart 06-1 to €1.0 million versus a fair value of €1.1 million in the previous quarter. Cash flows for Smart 06-1 in the quarter ended 31 December 2013 totalled €0.1 million, unchanged from the previous quarter.

UK Mortgage Portfolio

The UK Mortgage Portfolio recorded interest cash flows of £0.4 million in the quarter ended 31 December 2013, down from £0.6 million in the previous quarter.  As at 31 December 2013 the portfolio totalled £1.6 million, with net write ups of £0.5 million.

Disclaimer:

This document is issued by Cheyne Capital Management (UK) LLP ("Cheyne Capital").  Cheyne is authorised and regulated by the Financial Conduct Authority of the United Kingdom (the "FCA").

This document is being issued inside and outside the United Kingdom by Cheyne only to and/or is directed only at persons who are professional clients or eligible counterparties for the purposes of the FCA's Conduct of Business Sourcebook.  This document must not be relied or acted upon by any other persons. Cheyne Capital neither provides investment advice to, nor receives and transmits orders from, investors in Real Estate Credit Investments PCC Limited ("Company") nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FCA Rules.

The information contained herein is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any dissemination or other unauthorised use of this information by any person or entity is strictly prohibited. The distribution of this document may be further restricted by law. No action has been or will be taken by either Cheyne Capital or the Company, to permit the possession or distribution of this document in any jurisdiction (other than as expressly described herein) where action for that purpose may be required. Accordingly, this document may not be given or used in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons to whom this document is communicated should inform themselves about and observe any such restrictions.

This document is not intended to constitute, and should not be construed as, investment advice. Potential investors in the Company should seek their own independent financial advice. This document has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein. This document is not intended as and is not to be taken as an offer or solicitation with respect to the purchase or sale of any security or interest, nor does it constitute an offer or solicitation in any jurisdiction, including those in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such a solicitation or offer. Any person subscribing for an investment must be able to bear the risks involved and must meet the suitability requirements relating to such investments. Some or all alternative investment programs may not be suitable for certain investors.

Although the information in this document is believed to be materially correct, no representation or warranty is given as to the accuracy of any of the information provided. Certain information included in this document is based on information obtained from sources considered to be reliable.  We have not verified any such information and assume no responsibility for the accuracy or completeness thereof.  Any projections or analysis provided to assist the recipient of this document in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any projections or analysis are subject to change without prior notification and should not be viewed as factual and should not be relied upon as an accurate prediction of future results. Furthermore, to the extent permitted by law, neither the Company nor Cheyne Capital nor any of their respective directors, agents, service providers or professional advisers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this document or for any decision based on it.

Past performance is not a reliable indicator of future results.

Among the risks we wish to call to the particular attention of recipients are the following: (1) The Company's investment program is speculative in nature and entails substantial risks; (2) the investments of the Company may be subject to sudden and large falls in price or value and there could be a large loss upon realisation of a holder's investment, which could equal the total amount invested; (3) as there is no recognised market for many of the investments of the Company, it may be difficult or impossible for the Company to obtain complete and/or reliable information about the value of such investments or the extent of the risks to which such investments are exposed; (4) the use of a single investment manager could mean a lack of diversification and, consequently, higher risk, and may depend upon the services of key personnel, and if certain or all of them become unavailable, the Company may suffer losses; (5) Cheyne Capital will receive performance-based remuneration; (6) the market price of shares in the Company do not necessarily reflect its underlying net asset value; and (7) the price of shares (and the income from them) can go down as well as up and may be affected by changes in rates of exchange.

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