REAL ESTATE CREDIT INVESTMENTS LIMITED Results Presentation February - - PowerPoint PPT Presentation

REAL ESTATE CREDIT INVESTMENTS LIMITED Results Presentation

February 2018

www.recreditinvest.com Ticker: RECI LN

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Company Overview

Real Estate Credit Investments (RECI) is a closed-ended investment company which

• riginates and invests in real estate debt secured by commercial or residential properties in

Western Europe, focusing primarily in the United Kingdom, France and Germany. The Company’s aim is to deliver a stable quarterly dividend with minimal volatility, through economic and credit cycles through a levered exposure to real estate credit investments. Investments may take different forms but are predominantly in:

– Loans: real estate loans (senior and mezzanine) – Bonds: listed real estate debt securities such as Commercial Mortgage Backed Securities

(CMBS) bonds.

Summary as at 31 December 2017

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57.8%

Loan-to-Value

7.3%

Total NAV Return

£0.03

Q3 Dividend

7.1%1

Dividend Yield

$6.6 bn

AUM

141

Employees Established in 2000

$2.9bn

• f AUM in Real Estate

Credit Funds

UK

Domiciled

RECI Cheyne

Compelling Risk Adjusted Returns Stable Dividend

Cheyne Capital (the Investment Manager) is one of the largest and most successful providers of capital to the European real estate debt markets. RECI continues to benefit from Cheyne’s significant expertise and platform in the origination and trading

• f real estate loans and liquid mortgage backed securities. The

platform’s skill sets include origination, execution, valuation, asset management, risk management and workouts.

Established Innovative Focused Expert

For avoidance of doubt, “Q3” refers to the quarter ended 31 December 2017, to align with the Company’s financial year which ends 31 March. Information included in this presentation is as of or for the period ended 31 December 2017, unless otherwise indicated.

Investment Portfolio £238.6m2 NAV £227.6m NAV per share £1.633 Market Cap £234.2m Share Price £1.680

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

1Based on share price of £1.680 as at 31 December 2017 2Fair value excluding accrued interest

Q3 Highlights (Quarter ended 31 December 2017)

• Q3 NAV Total Return of 3p per share (7.3% annualised)
• Q3 dividend of £0.03 per share equates to a 7.1% dividend yield (on share price)
• NAV per share £1.633

4 Earnings & Dividends Originations & Investments Portfolio Composition Financing

• Originated £26.3 million of new loan commitments over two deals in the quarter, taking total

loan commitments to £196.7m as at 31 December 2017

• Funded £15.5 of existing loan commitments
• Invested over £29m across 10 new listed bonds
• £238.6m investment portfolio comprised of real estate loans (43.6% of GAV) and bonds

(43.8% of GAV) with a weighted average LTV of 62.6%

• UK, France and Germany focused
• Leverage capacity of 40% of NAV
• Total actual borrowings of £43.2m (19.0% of NAV) at end of Q3 at a weighted average cost
• f 1.51%

Realisations

• £7.4m of realisations in Q3

– 2 loans fully repaid

• All realisations achieved or exceeded expected returns

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

Earnings and Dividends Reconciliation

• Gross to Net reconciliation for the quarter ended 31 December 2017
• Dividend Coverage

– Dividends of 3p per quarter covered by net profits

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Absolute £m Per Share % Perf Annualised Bond coupon income

1.39

0.01 2.7% Loan interest income

2.97

0.02 5.7% Other income (cash etc)

0.05

0.00 0.1% Gross interest income

4.41

0.03 8.4% Finance costs

• 0.14
• 0.00
• 0.3%

Expenses (inc Management Fee)

• 0.92
• 0.01
• 1.8%
• 1.06
• 0.01
• 2.0%

Fair Value Adjustments (inc realised and unrealised profit and loss on investments) 0.49 0.00 0.9% Net loss/profit 3.84 0.03 7.3%

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein. The values for each column may not sum to the total due to rounding differences. Percentage returns based on annualised figures (taking quarter end figures multiplied by four) over the NAV per share as at 30 September 2017. The breakdown is based

• n estimates which have been internally calculated by Cheyne Capital and which have not been externally verified. Actual

returns may be different. This is not a profit forecast.

Portfolio Composition

• RECI’s investment portfolio was valued at £238.6m as at 31 December 2017
• The loan portfolio of £119.1m comprises 19 loans, with an average LTV of 66.1%, an average yield of 10.3% and a

weighted average life of 2.4 years

• The bond portfolio, valued at £119.5m has the potential for strong defensive returns:

– Face value as at 31 December 2017 of £124.1m – The portfolio is characterised by a short duration (3.0 years) and high coupon, providing resilience in turbulent markets

• Strong cash balance of £34.8m to invest in transaction pipeline, following receipt of £20.5m from the placing in

December 2017.

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31 Dec 2017 30 Sep 2017 Loans £119.1m £109.8m Bonds £119.5m £90.3m Financing

• £43.2m
• £31.2m

Cash, Cash Equivs & Cash held at Brokers £34.8m £42.1m Other Assets & Liabilities

• £2.6m
• £3.5m

Net Assets £227.6m £207.6m

Geographic Breakdown Portfolio by Investment Strategy

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

Balance Sheet Updated to 31 Dec

0% 20% 40% 60% Core Core+ Value Add / Transitional Development Loans Bonds Excludes 1.2% of the portfolio which is Pan- European.

(Funded Fair Value) (Funded Fair Value)

£164.2m

Total Commitment

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63.1%

WA LTV1

10.6%

WA Yield2

1. The Weighted Average Loan to Value has been calculated by reference to the value of the relevant collateral of the relevant bond or loan. 2. WA based on commitment. WA effective yield is based on i) for the bonds the effective yield is based on the current levered yield on the bonds using prices as at 31 December 2017, ii) for the loans the yield stated is the effective accounting yield based on the funded loan balances, which includes interest and fees.

Description Commitment LTV Sector Investment Strategy Loan Type 1 London Mixed Use Development £34.8m 45% Mixed-Use Senior Loan Development 2 London Office to Residential £18.2m 39% Residential Senior Loan Value Add / Transitional 3 Regional UK Housebuilder £16.4m 79% Residential Senior Loan Development 4 London Office Building £15.5m 78% Office CMBS Core 5 London Mixed Use Development £15.6m 58% Mixed-Use Mezzanine Loan Development 6 Regional UK Housebuilder* £15.1m 69% Residential Mezzanine Loan Value Add 7 Regional UK Housebuilder* £14.4m 88% Residential Mezzanine Loan Value Add 8 UK Logistics* £12.9m 73% Logistics Mezzanine Loan Core+ 9 UK Leisure £11.6m 67% Leisure CMBS Core 10 UK Leisure £9.8m 67% Leisure CMBS Core

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein. *These are profit participating loans

Top 10 Positions by Commitment

Portfolio Composition - Loans

• £119.1m portfolio comprising 19 loans, predominantly senior and mezzanine loans
• 98% of loans secured by assets located in the UK and Germany
• £26.3m of new commitments in the quarter over two new deals, taking total loan commitments to £196.7m as at 31

December 2017

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19

Loans

£119.1m

FV of Portfolio

66.1%

WA LTV

10.3%

WA Yield1

1 Yield stated is the effective accounting yield based on the funded loan balances, which includes interest and fees. Some loans also benefit from equity upside participation, which is

• nly recognised following evidenced delivery, and can result in significant incremental gains in excess of the effective accounting yield. 2LTV by commitment (see page 15 for

definition)

Geographical Breakdown UK Breakdown By LTV2 Asset Class Breakdown

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

Loan Type Breakdown

2.4 yrs

WA Life

54.2% 5.8% 40.0% Central London Greater London Regional

0% 5% 10% 15% 20% 25% 30% 35% 0% - 50% 50% - 60% 60% - 70% 70% - 80% 80% - 100%

37.4% 58.9% 3.8% Mezzanine Loan Senior Loan Special Situations 0% 10% 20% 30% 40% Retail Logistics Student Accommodation Hotel Office Mixed-Use Residential 0% 20% 40% 60% 80% 100% UK Germany Netherlands Ireland

Portfolio Composition - Bonds

• Portfolio comprises CMBS, RMBS and other fixed income securities, all collateralised by real estate in the UK and

Western Europe

• Bond purchases in quarter: £29.6m

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Bonds

£119.5m

Fair Value

£124.1m

Nominal Face Value

9.2%

WA Yield1

1. WA effective yield is based on the current levered yield on the bonds using prices as at 31 December 2017 and is based on Cheyne’s pricing assumptions and actual returns may differ materially from those expressed or implied herein.

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

3.0 yrs

WA Life

Top 5 Bonds

Description Fair Value LTV Current Unlevered Yield Sector London Office Building £15.5m 78% 8.1% Office UK’s largest and foremost operator of holiday villages £11.6m 67% 4.4% Leisure UK’s largest and foremost operator of holiday villages £9.8m 67% 3.6% Leisure UK Student Housing £9.6m 70% 7.7% Student Housing French Student Housing £9.1m 54% 8.0% Student Housing

By Geography

71% 19% 3% 2% 2% 2% 1% UK France Italy Pan-European Czech Germany Netherlands

Activity in Quarter

Originations

• 2 new loans originated in the quarter, with a total notional value of £26.3m

– £9.2m of which drawn down in the quarter – Expected unlevered IRR on senior loans below are commensurate with target returns of the Company

Funding of Existing Loan Commitments

• A further £15.5m drawn in the quarter to fund RECI’s ongoing loan book commitments (in addition to the £9.2m drawn

for new loans)

Realisations

• £7.4m of realisations in the quarter

– 2 loans fully repaid

• Senior loan for a French prime hotel of £2.6m, with a realised IRR of 23.4%
• Mezzanine loan for a UK Regional Student Housing Development of £4.8m, with a realised IRR of 20.7%.

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Senior Loan Regional UK Student Housing Development Development £9.9m commitment Senior Loan Regional UK Housebuilder Development £16.4m commitment

1 2

Security Location Loan Type Size

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

LTV

58% 79%

Sample Deals

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Investment Atlas Scott Deal Description London Mixed-Use Development Instrument Mezzanine Loan Total RECI Commitment £15.4m Location Central London, UK Collateral 40 storey residential tower (302 units), 10-storey office (83,000 sqft) and retail unit (4,500 sqft) Project Type Development LTV LTGDV: 38-58% Investment Harcourt House ID Deal Description Prime London Office to Residential Instrument Senior Loan Total RECI Commitment £20.0m Location Central London, UK Collateral 25 high end residential apartments (66,675 sqft) and a medical unit of 19,257 sqft Project Type Value Add/Transitional LTV LTGDV: 39% Investment STMF 1 MEZZ Rohan Deal Description Student Housing Instrument CMBS Total RECI Commitment £9.6m Location UK Collateral 13 student accommodation assets with c. 5,681 beds located across university towns in the UK Project Type Core LTV 70%

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

Sample Deals

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Investment York Hotel ID Investment GTO (ENVIV 2017) Aymen/Rohan Deal Description UK Hotel Deal Description French Retail Instrument Senior Loan Instrument Mezzanine Bond Total RECI Commitment £8.5m Total RECI Commitment £7.6m Location Regional, UK Location France Collateral 143 room regional hotel Collateral Prime retail assets and development sites in France Project Type Core+ Project Type Core+ LTV LTGDV: 69% LTV 50-70%

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

Financing

• RECI has leverage capacity of up to 40% of NAV
• RECI has several agreements in place with banks to facilitate much cheaper

borrowing secured against its liquid bond portfolio

• As at 31 December, RECI had borrowed £43.2m at a weighted average cost of

1.51%, representing leverage of 19.0% against its NAV.

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0.19x

Debt-to-Equity Ratio

1.16x

Total Leverage Ratio

Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein.

1.51%

Weighted Average Cost of Financing

Appendix

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Definitions

Asset types:

• Core – assets that benefit from having long term income
• Core + – assets that benefit from having strong current income, but do require some measure of asset management to
• ptimise its income profile and term
• Value add / transitional – assets that require asset management (typically refurbishment) and re-letting to secure a

core income profile

• Development – assets that are either to be built from the ground up or are in need of substantial refurbishment works.

These typically already benefit from the requisite consent to develop

• LTV (Loan to Value): The outstanding balance on a loan divided by the current value of an asset. In the case of

mezzanine loans, the LTV will represent the highest leverage exposure of the loan.

• LTGDV (Loan to Gross Development Value): The expected loan balance at the conclusion of a development or value-

add project (which will include all amounts advanced towards the development loan facility as well as accrued interest, divided by the expected value of the asset once the project is complete

• Fair Value: The current carrying value of an investment on RECI’s books as recognised under IFRS
• Nominal Face Value: The nominal face value of a bond is the par amount due on that bond
• FVTPL: fair value through profit and loss. This represents the net gains or losses recorded on a loan or bond investment

in the period which are other than interest income. These may be from trading gains and losses on bonds, fee income

• r recognition of gains from profit participating loans.

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This document, which has been issued by Cheyne Capital Management (UK) LLP (“CCM”), comprises the written materials/slides for a presentation concerning Real Estate Credit Investments Limited (the “Company”). This presentation does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company or securities in any other entity nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision in relation thereto. This document contains forward-looking statements that involve substantial risks and uncertainties and actual results and developments may differ materially from those expressed or implied by these statements or a variety of factors. Past performance is no guide to performance in the future, the value of investments can go down as well as

• up. No reliance may be placed for any purposes whatsoever on the information contained in this document or on its completeness. No representation or warranty, express
• r implied, is given by or on behalf of the Company, CCM or any of such persons' directors, officers or employees or any other person as to (a) the accuracy or completeness
• f the information or (b) the opinions contained in this document and no liability is accepted for any such information or opinions.

The information and any opinions contained in this document are provided as at the date of this presentation and are subject to updating, revision, verification, and amendment and such information may change without notice. This communication is directed only at (i) persons outside the United Kingdom to whom it is lawful to communicate to, or (ii) persons having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended), or (iii) high net worth companies, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) provided that in the case of persons falling into categories (ii) or (iii), the communication is only directed at persons who are also "qualified investors" as defined in section 86 of the Financial Services and Markets Act 2000 (each a "Relevant Person"). Any investment or investment activity to which this communication relates is available only to and will be engaged in only with such Relevant Persons. Persons within the United Kingdom who receive this communication (other than persons falling within (ii) and (iii) above) should not rely on or act upon this communication. You represent and agree that you are a Relevant Person. Notwithstanding the otherwise confidential nature of this document and its contents, the Company and each recipient (and each of their employees, representatives or

• ther agents) may disclose to any and all persons, without limitation of any kind, the US federal income tax treatment and tax structure of the transaction and all materials of

any kind (including opinions or other tax analyses) relating to such tax treatment and tax structure. This authorization to disclose the tax treatment and tax structure does not permit disclosure of information identifying the Company or this particular offering. You are not our client or customer and we do not owe you any contractual or fiduciary responsibilities and you are not relying on CCM or any of its affiliates for information, advice or recommendations of any sort. Nothing in this document should be construed as a recommendation to invest in any securities or funds, or as legal, accounting or tax advice. This document is being issued inside and outside the United Kingdom by CCM only to and/or is directed only at persons who are professional clients or eligible counterparties for the purposes of the Financial Conduct Authority's ("FCA") Conduct of Business Sourcebook. This document must not be relied or acted upon by any other

• persons. CCM neither provides investment advice to, nor receives and transmits orders from, investors in RECI 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. Neither this document nor any copy of it may be taken or transmitted into the United States of America, its territories or possessions, or distributed, directly or indirectly, in the United States of America, its territories or possessions, or to any US person (as defined in Rule 902 of Regulation S under the US Securities Act of 1933 (the “Securities Act”)). This document does not constitute an offer to sell or the solicitation of an offer to buy the securities discussed herein. Neither this document nor any copy of it may be taken or transmitted into Australia, Canada or Japan or to Canadian persons or to any securities analyst or other person in any of those jurisdictions. Any failure to comply with these restrictions may constitute a violation of United States, Australian, Canadian or Japanese securities law. The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. The securities referred to herein have not been and will not be registered under the applicable securities laws of Canada, Australia or Japan and, subject to certain exceptions, may not be offered

• r sold within Canada, Australia or Japan or to any national, resident or citizen of Canada, Australia or Japan. The securities mentioned herein have not been, and will not

be, registered under the Securities Act, and may not be offered or sold in the United States, or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) unless they are registered under the Securities Act or pursuant to an exemption from registration. No public offer of the Shares is being made in the United States. In addition, the Company has not been and will not be registered under the US Investment Company Act of 1940 and investors will not be entitled to the benefits of that Act.

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Cheyne Capital Management (UK) LLP is a limited liability partnership registered in England (Registered no. OC321484) Registered Office: Stornoway House, 13 Cleveland Row London SW1A 1DH Authorised and Regulated by The Financial Conduct Authority

Important Information