The Board of Directors of Real Estate Credit Investments Limited (LON:RECI)
has announced the release of the Company’s Annual Report and Audited Financial
Statements for the year ended 31 March 2022.
An attractive sustainable dividend of 3 pence per quarter and
return to trading around NAV
Chairman’s statement
I am writing to you about
our financial year ended 31 March 2022, which continued to be impacted by
Covid-19 and the various Government measures taken to manage it. There has been
great progress made, with many countries returning to a degree of normality,
driven mostly by vaccination programmes. Nevertheless, the potential for
further mutations and the need for global vaccination success, means the
pandemic remains a disruptive threat overshadowing us.
As the last financial year
neared its close, the humanitarian disaster of Russia’s invasion of Ukraine
began and continues as I write, with its attendant economic and geopolitical
shockwaves. While our thoughts are first and foremost
with those affected, I can
report that there has been no direct impact on RECI’s portfolio of investments,
either because of location or the imposition of sanctions by Western
governments.
Late 2021 and this year
have seen the return of inflation and its adverse economic impacts on many
households, something which most people in developed countries have not seen
for over 40 years. Inflation has continued to rise year to date, fuelled by the
war in Ukraine further exacerbating commodity price increases and continuing
global supply chain constraints. The rise of inflation has led to central banks
increasing interest rates, with the prospect of further rises to come. RECI’s
portfolio composition and structure positions it well to withstand these
challenges, as further described in the Investment Manager’s Report.
Despite this challenging
environment, I am pleased to report that for the year ended 31 March 2022, RECI
delivered for our Shareholders a total net profit of £24.6 million; maintained
an unchanged dividend of 3 pence per quarter throughout the year; and saw
RECI’s share price return to trade around NAV.
On 16 September 2021, the
Company’s latest four-yearly continuation vote was passed by Shareholders at
our AGM, with 99.9% of votes cast in favour. Your Board and Investment Manager
are grateful for the support of our investors and remain committed to continue
to deliver sustainable attractive returns for them going forward.
Financial Performance
RECI reported a total net
profit for the financial year ended 31 March 2022 of £24.6 million on year end
total assets of £447.0 million, compared with a £37.2 million net profit in the
year ended 31 March 2021, on year end total assets of £426.2 million.
The NAV as at 31 March 2022
was £1.50 per share (£1.51 per share as at 31 March 2021) which, combined with
the 12 pence per share of dividends payable in respect of the year ended 31
March 2022, represents an annualised total return for Shareholders of 6.9% for
the year.
During the financial year
ended 31 March 2022, the Company’s shares traded at an average premium to NAV
of 0.7% (14.1% discount for the year ended 31 March 2021).
Total quarterly dividends
declared in respect of the financial year ended 31 March 2022 were an unchanged
12 pence per share, returning £27.5 million to our Shareholders.
In the course of the last
financial year, the Company utilised short-term leverage at an average cost of
borrowing of 1.84%, with average gross leverage of £100.5 million or 1.29x NAV.
Throughout the financial
year to 31 March 2022, the Company invested £113.1 million, of which £24.9
million was funded into real estate loan commitments, £56.7 million into
self-originated real estate bonds, and £31.5 million into market real estate
bonds. RECI also received cash repayments and interest of £132.2 million in this
year.
Financial Year Review
During the financial year,
while mindful of balancing prudent cash retention with utilisation, the
Investment Manager continued to invest into an attractive pipeline of
opportunities offering enhanced returns, which underpin RECI’s attractive
current dividend pay-out of 12 pence per annum, improve dividend cover and
provide the opportunity for NAV growth. The investment was funded by cash from
realisations and repayments and deploying leverage.
When the financial year began on 1 April 2021, Real Estate
Credit Investments had gross leverage of 1.22x and leverage net of cash of
1.16x. The Board and Cheyne
continued to consider the appropriate level of gearing for the Company while
weighing up the market outlook and the emergence of new investment
opportunities; and ended the financial year with gross leverage of 1.29x (1.14x
net of cash). RECI introduced non-recourse lending on the loan portfolio during
the last financial year and the Directors and Investment Manager continue to
consider potential leverage options at the Company and portfolio level.
RECI’s share price at the
start of the financial year was £1.37, representing a discount to NAV of 9.4%.
Throughout the year, RECI maintained its 3 pence per share quarterly dividend;
continued to receive realisation proceeds and repayments; and executed
attractive investment opportunities. This progress was reflected in its share
price which continued to strengthen. The share price had appreciated 10.2% by
the financial year end and the discount was replaced by a premium of 0.4% as at
31 March 2022. Since 1 April 2022, the Company’s shares have traded at an
average premium of 0.1%.
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 is working with its service providers to enhance the
Company’s website with the aim of making Shareholder information more
accessible.
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 Board remains grateful for the focus and expertise of Cheyne
and our team of advisers who, despite ongoing Covid-19 disruption to working
practices, continued to support RECI throughout the last financial year.
Board Update
As previously announced,
Graham Harrison retired from the Board at the September 2021 AGM after many
years of valued service.
Following his retirement
and Colleen McHugh’s appointment in March 2021, the Board comprises an equal
representation of male and female Directors.
Since the start of the last
financial year, members of the Board have purchased an aggregate of 42,000
shares in the Company.
Environmental, Social and
Governance Matters (“ESG”)
The Directors continue 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.
Reflecting this, the Board
has asked Colleen McHugh to take up the role of “ESG Lead” and work closely
with Cheyne in developing and implementing RECI’s ESG approach.
Pages 19-20 of the
Strategic Report and pages 26-28 of the Sustainability Report provide further
information about the Company’s and the Manager’s approach to ESG matters.
Outlook
Nobody can ignore or
predict with certainty, the outcome and impact of the continuing Covid-19
pandemic; the human tragedy unfolding in Ukraine; the rise of inflation and
interest rates; and the growing cost of living crisis.
Against this background,
your Board and Investment Manager will continue to focus on that which we can
exercise direct control over, namely: expert origination capability; highly
disciplined investment selection; modest levels of flexible gearing;
maintaining the payment of an attractive and consistent dividend; and
positioning the portfolio to enhance NAV.
In these challenging times,
the Directors believe that Real Estate Credit Investments remains soundly
positioned to continue to deliver an attractive stable dividend to investors seeking
a reliable long-term income stream
Lukasz Finance 