Real Estate Credit Investments : Annual Financial Report

AnnualReal Estate Credit I vestments Limited

Report and Accounts

2024

Annual Report and Accounts 2024

Attractive returns from credit exposure to UK and Western European real estate markets

Real Estate Credit Investments is a specialist investor in the United Kingdom and Western European real estate markets with a focus on fundamental credit and value

Annual Report and Accounts 2024

Real Estate Credit Investments Limited

01

In this Report

04

At a Glance

Providing compelling risk-adjusted returns

08

Chairman's Statement

RECI continues to deliver a robust Net Asset Value ("NAV") and attractive quarterly dividends of 3 pence per share

58

Financial Statements

Contents

Overview	02
Overview and Highlights	02
At a Glance	04
About the Company	06
Chairman's Statement	08
KPIs and Financial Highlights	11

Business and Strategy Review	12
Strategic Framework and Performance Highlights	14
Strategic Report	16
Investment Manager's Report	20
Stakeholder Engagement	24
Sustainability Report	28

Governance	34
Board of Directors	36
Management Team	38
Directors' Report	40
Remuneration Committee Report	44
Corporate Governance Statement	46
Audit and Risk Committee Report	52
Directors' Responsibility Statement	56

Financial Statements	58
Independent Auditor's Report	60
Statement of Comprehensive Income	67
Statement of Financial Position	68
Statement of Changes in Equity	69
Statement of Cash Flows	70
Notes to the Financial Statements	71
Appendix I - AIFM Remuneration Policy (Unaudited)	99
Appendix II - AIFM Leverage (Unaudited)	100
Directors and Advisers	101
Glossary	102

02	Real Estate Credit Investments Limited	Annual Report and Accounts 2024

OVERVIEW

OverviewAS AT 31 MARCH 2024and

Highlights

What Do We Offer

Defensive credit exposure to UK and Western European	• Stable and uninterrupted dividends delivered consistently
real estate markets		since October 2013
Granular portfolio with detailed disclosure	•	31 positions
	•	Diverse portfolio across sectors and geography

Attractive and stable income in a changing interest rate environment

• Consistent portfolio yield of 9%+ offering a buffer to risk-free rates
• A high-yielding portfolio, combined with a short weighted average life, ensures minimal exposure to yield widening and the ability to redeploy at higher rates quickly

Access to Cheyne's established real estate investment team and substantial origination pipeline

Key Figures

Net Assets

£326.4m

Residential Development in the United Kingdom

(31 March 2023: £337.0m)

NAV per Share

£1.45

(31 March 2023: £1.47)

Total Assets

£352.3m

(31 March 2023: £419.0m)

Net Profit

£21.9m

Commercial Development in Spain

(Full year ended 31 March 2023: £20.6m profit)

Annual Report and Accounts 2024	Real Estate Credit Investments Limited	03

RECI Offers:

Focus on senior secured	Strong governance
credit, with defensive	control over its
Loan-to-Values ("LTVs")	loan book

Management from Cheyne's Real Estate team

Dividend	Conservative
stability without	and diversified
compromising risk	leverage profile

Large,

experienced,

well capitalised

borrowers

Total NAV Return		Dividend Yield
7.0%		10.4%
(31 March 2023: 6.2%)		(31 March 2023: 9.0%)
Share Price		Dividends
£1.15		12.0 pence

(31 March 2023: £1.34)

(31 March 2023: 12.0 pence)

04	Real Estate Credit Investments Limited	Annual Report and Accounts 2024

OVERVIEW

At a Glance

Our investment strategy provides compelling risk-adjusted returns.

Real Estate Credit Investments ("RECI" or the "Company") is a closed-ended investment company which originates and invests in real estate debt secured by commercial or residential properties in Western Europe, focusing primarily on the United Kingdom, France and Spain.

The Company's aim is to deliver a stable quarterly dividend with minimal portfolio volatility, across economic and credit cycles, through a levered exposure to real estate credit investments.

RECI's investments are predominantly in Self-Originated Loans and Bonds. The Company also holds a small portfolio of Market Bonds (listed real estate debt securities such as Commercial Mortgage Backed Securities ("CMBS")).

Investment Portfolio Composition

RECI's investment portfolio, a diversified book of 31 positions in real estate bonds and loans, was valued at £329.4 million including accrued interest, as at 31 March 2024, down from £400.7 million as at 31 March 2023. The portfolio had a weighted average levered yield of 10.2% and a loan-to-value ratio of 64.9% as at 31 March 2024.

Entry LTV

Asset Type

Sector

Geography

WA Duration

Interest Type

	0-50%		50-65%				65-80%					>80%
	25%		39%				31%					5%
Core	Core+	Value Add			Development									Other
2%	15%	8%			72%										3%
		Living Assets		Hotel/Leisure		Mixed Use	Office			Other
		44%			20%			20%		10%		6%
			UK				France	Spain		Other
		58%					26%		6%		10%
	0-1 yr				1-2 yrs			2-3 yrs				3-4 yrs
	25%				54%					17%				4%
			Fixed						Floating
		79%							21%

Portfolio by Geography

by % of Total Committed Capital including PIK

						Allocation	Change since
						March 2024	March 2023
Country	%	%
United Kingdom						(0.5)
					57.8
France					2.6
				26.4
Spain				(1.6)
			5.9
Finland				0.4
		4.1
Ireland				0.4
	1.9
Italy		1.0	(0.2)
Germany		1.8
	2.9

icons denote Cheyne Real Estate Offices in Berlin, Dublin, London, Madrid and Paris.

Annual Report and Accounts 2024	Real Estate Credit Investments Limited	05

Share Price vs NAV per Share

Performance (Pence)	Share Price	NAV per Share
190
180
170
160
150
140
130
120
110
100
Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19 Sep 19 Oct 19 Nov 19 Dec 19 Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 Jan 22 Feb 22 Mar 22 Apr 22 May 22 Jun 22 Jul 22 Aug 22 Sep 22 Oct 22 Nov 22 Dec 22 Jan 23 Feb 23 Mar 23 Apr 23 May 23 Jun 23 Jul 23 Aug 23 Sep 23 Oct 23 Nov 23 Dec 23 Jan 24 Feb 24 Mar 24

NAV and Share Price	As at 31 March 2024
Net Assets	£326.4m
Shares Outstanding (net of treasury shares)	225.2m
NAV (per share)	£1.45
Share Price (per share)	£1.15
Discount	(20.7)%
Dividend Yield	10.4%
Market Capitalisation	£262.6m

Total NAV Return1

Financial Year Ended 31 March 2024	7.0%
Prior Financial Year Ended 31 March 2023	6.2%
Last Three Financial Years Ended 31 March 2024	21.8%
Last Five Financial Years Ended 31 March 2024	30.1%

1 The Total NAV Return measures the combined effect of any dividends paid, together with the rise or fall in the NAV per share. The Total NAV Return relates to past performance and takes into account both capital returns and dividends paid to Shareholders. Any dividends received by a Shareholder are assumed to have been reinvested in the assets of the Company at its NAV per share on the ex-dividend date. The Total NAV Return is considered an Alternative Performance Measure pursuant to ESMA Guidelines which is unaudited and outside of the scope of International Financial Reporting Standards ("IFRS").

06	Real Estate Credit Investments Limited	Annual Report and Accounts 2024

OVERVIEW

About the

Company

The Investment Objective of the Company is to provide Shareholders with attractive and stable returns, primarily in the form of quarterly dividends.

Real Estate Credit Investments Limited ("RECI" or the "Company") is incorporated in Guernsey, governed by the Companies (Guernsey) Law, 2008 (as amended) (the "Companies Law") and regulated as an authorised closed- ended investment scheme by the Guernsey Financial Services Commission. At the Annual General Meeting ("AGM") in September 2021, the continuation vote was passed and the next continuation resolution will be subject to Shareholder approval at the AGM to be held in September 2025.

The Company invests in real estate debt secured by commercial or residential properties in the United Kingdom and Western European countries focusing primarily on those countries where it sees the changing dynamics in the real estate debt market offering a sustainable deal flow for the foreseeable future. The Company has adopted a long-term strategic approach to investing and focuses on identifying value in real estate debt. In making these investments, the Company uses the expertise and knowledge of its Alternative Investment Fund Manager ("AIFM"), Cheyne Capital Management (UK) LLP ("Cheyne" or the "Investment Manager").

The shares are currently listed on the premium segment of the Official List of the UK Listing Authority and trade on the Main Market of the London Stock Exchange. The shares offer investors a leveraged exposure to a portfolio of real estate credit investments and pay a quarterly dividend.

Website and Share Price Information

The Company has a dedicated website, which can be found at www.realestatecreditinvestments.com that contains information, including regulatory announcements, share price information, financial reports, investment objectives and strategy, investor contacts, information on the Board and information on the Alternative Investment Fund Managers Directive ("AIFMD").

Investment Objective and Investment Policy

Investment Objective

The Investment Objective of the Company is to provide Shareholders with attractive and stable returns, primarily in the form of quarterly dividends, by exposure to a diversified portfolio of real estate credit investments, predominantly comprising real estate loans and bonds.

Investment Policy

To achieve the Investment Objective, the Company invests and will continue to invest in real estate debt secured by commercial or residential properties in the United Kingdom and Western Europe countries.

Annual Report and Accounts 2024

Real Estate Credit Investments Limited

07

The real estate credit investments may take different forms but are likely to be:

1. secured real estate loans, debentures or any other forms of debt instruments (together "Secured Debt"). Secured real estate loans are typically secured by mortgages over the property or charges over the shares of the property- owning vehicle. Individual Secured Debt investments will have a weighted average life profile ranging from six months to five years. Investments in Secured Debt will also be directly or indirectly secured by one or more commercial or residential properties, and shall not exceed a loan-to- value ("LTV") of 85% at the time of investment;
2. listed debt securities and securitised tranches of real estate related debt securities, for example, residential mortgage-backed securities and commercial mortgage- backed securities (together "MBS"). For the avoidance of doubt, this does not include equity residual positions in MBS; and
3. other direct or indirect opportunities, including equity participations in real estate, save that no more than 20% of the total assets will be invested in positions with an LTV in excess of 85% or in equity positions that are uncollateralised. On certain transactions, the Company may be granted equity positions as part of its loan terms. These positions will come as part of the Company's overall return on its investments and may or may not provide extra profit to the Company depending on market conditions and the performance of the loan. These positions are deemed collateralised equity positions.
   All other equity positions that the Company may invest in are deemed uncollateralised equity positions.

Hotel development in Spain

Dividend Policy

Subject to the applicable requirements and restrictions contained in the Companies Law, the Company may consider making interim dividend payments to Shareholders, having regard to the net income remaining after the potential reinvestment of cash or other uses of income, at a level the Directors deem appropriate, in their sole discretion, from time to time. There is no fixed date on which it is expected that dividends will be paid to Shareholders.

It is the intention of the Company to continue to pay a stable quarterly dividend with the potential for additional payments if investment returns permit

08	Real Estate Credit Investments Limited	Annual Report and Accounts 2024

OVERVIEW

Chairman's

Statement

RECI continues to deliver a robust NAV and attractive quarterly dividends of 3 pence per share.

Bob Cowdell Chairman

I am pleased to report that for the year ended 31 March 2024, RECI delivered a total net profit of £21.9 million and maintained an unchanged dividend of 3 pence per quarter, despite challenging times for the listed investment company sector.

The last financial year saw the war in Ukraine continuing and the events of 7 October 2023 and Israel's response in Gaza, have seen heightened tensions in the Middle East. Elsewhere, geopolitical tensions and concerns remain, in a year of record numbers of government elections worldwide.

While the rate of inflation has been reducing from its peak, strong labour markets and energy prices have caused Central Banks to delay in cutting interest rates for longer than was expected. The Bank of Canada and the European Central Bank have recently announced rate reductions and consensus remains that interest rates will reduce over the rest of 2024 and 2025 bringing benefits to households and corporate borrowers. The return to long-term lower interest rates, albeit not to the lows of the last decade, will see income seekers move away from cash and government bonds as they seek higher returns on their investment. A reduction in interest rates should also benefit and allay investor concerns about the credit and real estate markets.

The economic and geopolitical challenges of the last year, combined with discount, liquidity and some governance issues, have seen investor sentiment negatively impacted across the whole listed investment company sector. Concerns over credit and UK equity markets and real estate and private equity valuations have driven significant investor selling, allied to the need to sell investment company shares to provide liquidity to satisfy significant levels of redemptions in investors' underlying funds. This combination has seen investment companies' share price discounts widen to near record levels.

Against this challenging backdrop, the Board and Cheyne have continued to focus on RECI's core strengths and seek to deliver for our Shareholders. The Company's shares traded at an average discount to NAV of 14.7% during the financial year ended 31 March 2024. Reflecting market sentiment, the Real Estate Debt Sector traded at an average discount of 26.3% (excluding RECI) over the same 12 months1.

During the last financial year, the Company received interest and repayments on its portfolio to fund its existing investment commitments. Since the year end, the Company has received two further repayments totalling £16.7 million. The Board continues its practice of considering all options when assessing the levels of excess cash to be retained or deployed by the Company from time to time and how any such cash available for deployment should be allocated. Excess cash is regarded as the cash available following recognition of the obligation to ensure sufficient cash resources to pay, inter alia, the Company's expenses, borrowings, dividends, and fund its ongoing contractual loan commitments, from time to time ("Available Cash").

Mindful of the Company's prevailing discount and Available Cash, the Board launched an initial buyback programme in August 2023 and a successor buyback programme in March 2024.

The Directors and Cheyne remain committed to providing detail and transparency regarding the Company's portfolio and investment strategy, allowing all investors to focus on RECI and its merits and opportunities, notwithstanding the challenging broader market environment.

I am pleased to report that RECI won the Best Performance Award as the top performer over three years in the Specialist Debt Category at Citywire's annual awards ceremony in November 2023.

1 Source: Liberum, company data