An­other yield in dou­ble fig­ures, an­other prop­erty trust whose divi looks se­cure

Real Estate Credit In­vest­ments yields 10pc and has just re­it­er­ated its com­mit­ment to pay a ‘sta­ble’ div­i­dend. Its track record sug­gests it will

The Daily Telegraph - Business - - Business - RICHARD EVANS

AP­PRE­CI­A­TION in the share price of Real Estate Credit In­vest­ments has, we must ad­mit, been mod­est since we added the in­vest­ment trust to our In­come Port­fo­lio in late May: the price has crept up by a ha’penny to 120.5p. But there have been some en­cour­ag­ing noises from the fund’s man­agers since our tip. The port­fo­lio’s net as­set value in­creased, if only slightly, in both May and

June, re­cov­er­ing some of the losses suf­fered, on paper at least, as a re­sult of the pan­demic.

In its an­nual re­port, pub­lished a month ago, the trust re­it­er­ated its com­mit­ment to pay­ing a “sta­ble” div­i­dend and said it had done so “con­sis­tently” since Oc­to­ber 2013.

The as­set man­age­ment firm that runs the fund, Cheyne Cap­i­tal, said in the an­nual re­port: “Look­ing ahead, the com­pany should seek to cap­i­talise on the myr­iad of op­por­tu­ni­ties that the cri­sis will, and has al­ready be­gun to, of­fer. The com­pany has al­ready made large strides to­wards de­fend­ing its long-term suc­cess and de­liv­ery of sta­ble div­i­dends, which leaves it in a com­fort­able po­si­tion to start think­ing of the next phase in its evo­lu­tion.”

In what might be a recog­ni­tion that, while it is nowhere to be seen now, in­fla­tion could re­turn as a re­sult of un­prece­dented walls of cheap money from cen­tral banks and spend­ing from gov­ern­ments, the trust em­pha­sised its “ro­bust mit­i­ga­tion against a ris­ing rates en­vi­ron­ment”.

The first arm of its de­fence was its high yield: it aims to pay div­i­dends of 7pc-plus of its net as­set value, which it de­scribed as “of­fer­ing a sig­nif­i­cant buf­fer” to what you can get from “risk-free” govern­ment bonds (hardly an ex­ag­ger­a­tion at a time when such bonds of­ten charge in­vestors for the priv­i­lege of own­ing them). The other arm was a “short weighted aver­age” ma­tu­rity, which en­sures “min­i­mal ex­po­sure” to wider falls in bond prices and en­ables the man­agers to re­de­ploy the pro­ceeds of ma­tur­ing bonds and loans “at higher rates quickly”. While the board aims for a yield of 7pc rel­a­tive to the NAV, the cur­rent dis­count of about 20pc helps to make the yield rel­a­tive to the share price 10pc.

As we said in con­nec­tion with the trust we tipped yes­ter­day, AEW UK Reit, whose yield was also just into dou­ble fig­ures, that kind of num­ber nor­mally re­flects a se­vere risk of a div­i­dend cut.

But in RECI’s case, as in AEW’s, we be­lieve the mar­ket is over­stat­ing that risk. RECI’s man­agers have a record of mak­ing as­tute de­ci­sions in a va­ri­ety of mar­ket con­di­tions. We will hold.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.