Hardman & Co Research: Real Estate Credit Investments (RECI): Why rising rates should not hurt RECI

Hardman & Co Research: Why rising rates should not hurt RECI

In this note, we explore RECI's low sensitivity to a rising rate environment by analysing i) borrower revenue sensitivity, ii) borrower debt sensitivity, iii) RECI's portfolio risk mitigation techniques, iv) the MTM on the bond portfolio, v) the impact of RECI's own funding mix, vi) international diversification), vii) previous share price experience, viii) sentiment to the stock, and ix) potential opportunities that may arise. This reinforces the message in our last two notes that RECI's business has shown limited downside during the COVID-19 crisis. We use a case study of a hotel exposure to illustrate how Cheyne's management of challenging relationships materially reduces the final loss.

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