REAL ESTATE CREDIT INVESTMENT PCC LIMITED Results Presentation: Year Ended 31 March 2014 Thursday 12 June 2014
RECI records strong financial results as new investment strategy takes shape • RECI posted operating income of £13.7 million for the year ended 31 March 2014, up from £12.9 million in the previous year • Investment portfolio of real estate bonds and loans delivering improved NAV • Loan portfolio has increased from £20 million at 31 March 2013 to £51 million by 31 March 2014 and is poised for further growth through a strong pipeline of new deals • Post year end RECI has made another £7 million of new loan investments and has pipeline opportunities totalling £30 million • Investment Manager Cheyne Capital provides origination for RECI with access to attractive new deals • The NAV per share of RECI LN increased to £1.54 at 31 March 2014 versus £1.50 as at 31 March 2013 • As at 31 May 2014 the pro forma NAV rose to £1.59 per share 2 Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.
Investment strategy delivers positive returns; continuous steady NAV growth • Net profit of £8.1 million in the year ended 31 March 2014 versus £19.0 million in the previous year • Operating income from investment portfolio rose to £13.7 million in year versus £12.9 million in the previous year • Net profits in the year ended 31 March 2014 included £1.0 million of gains on financial assets. Net profits in the previous year included £12.3 million exceptional gains from a strong rally in RMBS and CMBS markets • NAV per share rose to £1.54 as at 31 March 2014, up from £1.50 at the start of the financial year • RECI has now delivered continuous steady NAV growth since 31 March 2012, when NAV per share was £1.10 • As at 31 May 2014 the pro forma NAV per share has risen further to £1.59 per share • Board increased target annualised yield for future dividends to a minimum 7% of placing price, up from from 6% of NAV • Higher dividend target reflects confidence in RECI’s strategy to deliver both strong returns and cost savings 3 Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.
Year End financial highlights – Income Statement GBP GBP GBP 31 Mar 14 30 Sept 13 31 Mar 13 Income Statement Full Year Half Year Full Year Operating income 13.7 6.8 12.9 Interest Income on Investment Portfolio 13.7 6.8 12.9 Operating expenses Finance costs / Preference share dividend -3.6 -1.8 -3.7 Amortisation of preference share issuance costs, and gains on the repurchase of Preference Shares -0.1 -0.1 -0.1 Other operating expenses -2.9 -1.6 -2.4 Total operating expenses -6.6 -3.5 -6.2 Net operating income 7.1 3.3 6.7 Realised and unrealised gains and loss on financial assets and liabilities at fair value through profit and loss 1.0 0.5 12.3 Total asset value adjustments 1.0 0.5 12.3 Net loss/profit 8.1 3.9 19.0 The values for each column may not sum to the total due to rounding differences 4
Year End financial Highlights – Balance Sheet GBP GBP GBP 31 Mar 14 30 Sept 13 31 Mar 13 Balance Sheet (GBP) Full Year Half Year Full Year Assets Cash and Cash Equivalents 18.3 5.4 8.5 Assets at Fair Value 136.8 101.4 95.4 Other Assets 0.0 0.0 0.0 Derivative Financial Assets 1.9 1.8 2.7 Total Assets 157.0 108.5 106.7 Current Liabilities Dividend Payable 0.0 0.0 0.0 Derivative Financial Liabilities -0.5 -0.6 -1.2 Other Liabilities -2.7 -1.2 -1.0 Current Liabilities -3.2 -1.8 -2.2 Non-Current Liabilities -41.6 -44.5 -44.5 NET ASSETS 112.2 62.2 60.0 Ordinary Shares Outstanding 72,818,496 39,966,985 39,966,985 NAV per Share (GBP) 1.54 1.56 1.50 5 The values for each column may not sum to the total due to rounding differences
Combined loan and bond strategy delivering further growth • With a sizable pipeline, RECI is ideally positioned to continue building its real estate loan portfolio, while continuing to generate strong total returns from its bond portfolio. • - RECI has invested £50 million raised in November 2013’s equity placing in a combination of bonds and loans • RECI achieved a significant shift in asset allocation towards loans in the past financial year • The portfolio increased from £20.0 million as at 31 March 2013 to £51.0 million as at 31 March 2014 • The investment team expects to close several loan transactions in the coming months and RECI has allocated upward of £30 million to these deals, all of which are in advanced stages. • Bond portfolio offers both liquidity and attractive yields, achieving 11% gross portfolio return for the financial year ended 31 March 2014. A similar bond portfolio performance is expected throughout 2014. 6 Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.
Loan portfolio playing a greater role in delivering positive returns • RECI made 6 new loans during financial year • Further 2 loans signed and funded subsequent to 31 March 2014 • As at 31 March 2014, £51.0 million loan portfolio offered a weighted average yield of 12.9% pa • As at 31 May 2014 weighted average yield on the drawn loan balances of £46.8 million increased to 13.7% pa • The company has committed £7.9 million for an additional loan, where legal documentation is agreed and conditions precedent are in the process of being met. • Final due diligence is being undertaken on a further 4 loans where term sheets are agreed, with RECI commitments and participations totalling circa £22 million • Underwriting approach is to identify loans with an attractive yield and protection against a range of adverse scenarios • Mezzanine and whole loans make up the loan portfolio • RECI is concentrating efforts in lender-friendly jurisdictions, including the UK, Germany and Ireland • Targeting new loans with a participation in the range of £5 million-£15 million; at yields in excess of 10% 7 Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.
Cheyne Capital’s support is key to portfolio strategy success • RECI benefits from Cheyne Capital’s position as one of Europe’s largest real estate loan and bond investors with a team of 12 experienced investment professionals • Relationship with the Investment Manager provides RECI with access to Cheyne’s loan origination platform, allowing it to participate in loans ranging in total size from £20 million to £40 million • RECI able to participate in whole loans which is often a borrower’s favoured structure • Cheyne’s bond-trading platform allows the Company to boost bond portfolio returns via • Active trading and rotation of assets • Identifying undervalued investments with attractive potential capital returns 8 Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.
Bond and Loan Portfolio Review 9
Disciplined growth of the loan portfolio* 70,000,000 74.0% 60,000,000 72.0% 50,000,000 70.0% Loan Investments (£) 40,000,000 68.0% Undrawn 30,000,000 66.0% Drawn WA LTV 20,000,000 64.0% 10,000,000 62.0% 0 60.0% *Includes accrued interest. • In April 2014 RECI received a £10.8 million principal and “make whole” interest penalty payment on a loan secured against London commercial property, and also participated in a restructure of a loan secured against a retail park in South East England (leading to a net repayment of £2.6mn including look-back interest) • In May 2014 RECI invested £5 million secured on a boutique hotel in a London hotel in development and EUR 2.3 million in an investment loan secured against mixed use properties in the Netherlands 10 Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.
Loan portfolio as at 31 May – RECI’s participation in Cheyne -originated loan Market Value – Sector Type RECI LTV Expected Yield (GBP m) UK Retail Mezz/Inv 9.2 47% - 88% 12% German Multi-Family Whole Loan/Inv 6.9 60% 12.5% London Hotel Mezz/Inv 6.4 36% - 65% 14.1% UK Student Housing Whole Loan/Dev 1.1 60% 11.9% Refurbishment London Office Mezz/Inv 3.6 64% - 85% 15.5% German Multi-Family Mezz/Inv 5.3 88% 16.0% London Commercial Mezz/Inv 3.1 46% - 62% 12.6% Dutch Office Mezz/Inv 4.2 66% 17.6% Dutch Mixed Use Whole Loan/Inv 1.9 45% 11.2% London Hotel Mezz/Dev 5.1 80% 12.1% 11
Real Estate Bond Portfolio Top Positions and Current Yields • RECI recorded mark-to-market gains of £1.0 million in the financial year ended 31 March 2014 • Since financial year end RECI’s bond portfolio has recorded further gains of £1.9 million • As at 31 May 2014, bond portfolio comprised 78 bonds with a fair value of £86.1 million • Nominal face value of £105.6 million • As it continues its strategic investment into loans, RECI uses the proceeds from the recent capital raise, invested short term into liquid bonds, as well as from amortisations, to increase loan portfolio allocations 12 Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.
Outlook 13
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