This was the year Real Estate Credit Investments (RECI), a portfolio of mortgage-backed securities (MBS) leveraged by preference shares, turned the corner. After a tough 2011, resurgent risk appetite towards high-yield debt boosted its net asset value (NAV) up by 36.5 per cent over the year to 31 March. Add in dividend payments - the company is committed to paying out 6 per cent of NAV - and the total return was an astonishing 43.2 per cent.
RECI's strategy is to buy MBS from deleveraging banks at a discount to their face value. It then waits for their market value to rise or, failing that, holds them to maturity, when they can be redeemed at par. The discounts now on offer are not as generous as a year ago, but remain substantial for lower-grade bonds, reports fund manager Shamez Alibhai. At the end of May, the MBS portfolio had a trading value of £78.2m - 21 per cent below face value of £99.4m.
The fund also issues its own mortgages - a business it has been expanding as MBS discounts have diminished. The most recent deal was a €5.8m loan backed by German apartment blocks that is expected to return more than 15 per cent.
REAL ESTATE CREDIT INVESTMENTS (RECI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 142p | MARKET VALUE: | £56.8m | |
| TOUCH: | 141.5-142p | 12-MONTH HIGH: | 151p | LOW: 82p |
| DIVIDEND YIELD: | 5.6% | TRADING PROP: | nil | |
| DISCOUNT TO NAV: | 5% | |||
| INVESTMENTS: | £94.6m | NET DEBT: | 60%* | |
| Year to 31 Mar | Net asset value (¢) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2009 | 375 | -59.9 | -213.0 | 39.0 |
| 2010 | 373 | 2.30 | 9.00 | 32.0 |
| 2011 | 226 | 15.6 | 46.0 | 17.5 |
| (p) | (£m) | (p) | (p) | |
| 2012 | 110 | -0.73 | -2.00 | 4.64 |
| 2013 | 150 | 19.0 | 48.0 | 7.90 |
| % change | +36 | - | - | +70 |
Ex-div: 19 Jun Payment: 12 Jul *Includes preference shares | ||||
