Cheyne Capital property debt fund posts growth in profits and value

Repayments of real estate bonds based on retail property in Germany has helped the Real Estate Credit Investments fund of Cheyne Capital post a significant increase in profit, and NAV growth in the quarter to 30 September.

Manager Shamez Alibhai (pictured) believes the markets he invests in remain dislocated, despite central bank stimulation and a risk-on approach among investors that have worked to tighten spreads. He plans to allocate 20% to 25% of the company’s gross asset value to real estate loans over the coming two quarters, leaving RECI “close to fully invested”.

Recent repayments have helped RECI boost its cash and cash equivalents from £1.3m in June to £5.6m by October, giving Alibhai a war chest for further buying.

His willingness to do so, and results posted by RECI this morning for the quarter to 30 September, both seem to vindicate growing interest in real estate debt by fixed income managers more broadly.

While enthusiasm in the German economy may have slowed overall this year, this did not stop RECI receiving repayments from two bonds based on shopping centres in the country, among other repayments.

In the six months to 30 September, RECI has received total bond repayments of about £16.7m, or 20% of the average bond portfolio value. Other significant repayments to RECI recently had UK property as underlying assets.

This, plus a write-up in the value of its holdings last quarter, helped the £87.1m fund announce net profits of £8.7m for the quarter to 30 September, significantly higher than the £700m recorded in the quarter to 30 June.

Instead of the £1.6m fair value loss RECI recorded in the quarter to June, it posted a £6.7m fair value gain in the period to September.

Last quarter, Alibhai was still able to buy positions at an average 22% discount to par. At an average weighted yield to maturity of 8.6%, these new holdings also showed a significant spread over Europe’s sovereign debt, and a 200bps spread over European high yield bonds.



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