Real Estate Credit Investments (RECI) is changing. When we originally tipped RECI it was a portfolio of distressed mortgage bonds. The opportunity was to buy, at a big discount to book, shares in a portfolio of bonds trading at a big discount to book - a double dose of value.
Over the past 18 months, the collateralised debt market has to a great extent normalised. RECI can no longer pick up bonds at double-digit discounts to par - the bonds it bought in November were trading at 94p in the pound. Management company Cheyne Capital has consequently shifted its focus towards lending money directly to property companies in the form of mortgages. RECI now holds eight such loans, accounting for 35 per cent of gross assets.
At the same time, the discount to book value that we originally identified has turned to a slight premium. The shares now trade at 153p, marginally above book value of 151p at the end of November.
