Half Yearly Report

Real Estate Credit Investments PCC Limited

Financial Results Announcement for the Second Quarter and Half Year-Ended 30 September 2013,

Annual Report and Accounts

RECI[1] First-Half Highlights

· RECI reported a net profit of £3.9 million for the half-year ended 30 September 2013, including a profit of £2.7 million in the second quarter of the financial year

· £14.9 million of new bond investments and £27.8 million of new loan commitments made in the first half. Further £16.4 million of loan commitments made subsequent to the second quarter end

· RECI raised £50 million through a placing on 12 November 2013. The Company expects to invest the capital within six months predominantly in loans at double-digit yields

· RECI declared a dividend of 3.4p per share (equating to a 6% annualised yield on NAV) in respect of RECI Ordinary Shares up to the period up to 11 November

· The Directors intend to announce a full quarter's dividend for the quarter ended 31 December at 6 per cent of NAV, thereafter RECI will increase its target annualised dividend yield, to a minimum of 7 per cent of the placing price of the capital raise

*Audited financial statements are not prepared for 30 June quarter end and numbers are pro forma based on management accounts.

** Net profit takes hedging, operating and finance expenses into account.

RECI believes its blended loan and bond strategy will deliver NAV growth and increased dividend yield

RECI delivered a positive financial performance in the half year ended 30 September 2013 with £3.9 million of profits. The Company has also increased its target annualised yield for future dividends, commencing in 2014 from 6% of NAV to 7% of placing price. This change reflects confidence in RECI's ability to continue delivering both strong returns from real estate debt investments and costs savings, following the most recent share placing.

RECI has made a significant shift in asset allocation towards loans in the past six months. Loans accounted for 40% of GAV as at 30 September 2013, up from 26% as at 31 July 2013. The loan portfolio contributed 22.4% of income and fair value gains during the first half and offers a current average yield of 11.3%. During the financial year, the Company made three new loans and subsequent to the quarter end has made a further 2 loans. The investment manager sees scope to invest the net proceeds of the £50 million placing at a dynamic pace, and to expand the loan portfolio as a percentage of assets under management. The loan pipeline includes several financing opportunities with yields in excess of 10%.

RECI's bond portfolio has delivered strong returns in the first half of the year, outperforming the Itraxx Europe Main index in terms of fair value gains in five of the six months to 30 September, recording mark-to-market ("MTM") profit of £1.0 million in the quarter ended 30 September 2013, and £1.2 million in the first half of the financial year.

Tom Chandos, Chairman of RECI said: "The successful placing in November 2013 of £50 million of new RECI ordinary shares is an endorsement, by the market, of the investment manager's track record and ability to generate strong performance from investing along the spectrum of real estate debt markets."

Conference Call & Further Information

10.30 am BST Wednesday 27 November 2013.

+ 44 (0)20 3059 8125. Please reference Real Estate Credit Investments PCC Limited.

A results presentation will be available on the Company's website:

www.recreditinvest.com/investmentmanager

A webcast of the conference call will also be available on a listen-only basis at:

www.recreditinvest.com/investmentmanager

For further information please contact:

Public Relations: Henrietta Dehn +44 (0)20 3540 6455

Investor Relations: Nicole von Westenholz +44 (0)20 7968 7482

About the Company

Real Estate Credit Investments PCC Limited is a protected cell company (the "Company"), being a cellular company governed by the Companies (Guernsey) Law 2008, comprising a core segment (the "Core" or "RECI") and a cell segment (the "Cell" or "ERII") each of which has its own portfolio of assets, investment objective and sub-section of the Company's Investment Policy.

The RECI Ordinary Shares (ticker RECI LN) reflect the performance of the Company's Core real estate debt strategy. The RECI Ordinary Shares are currently listed on the premium segment of the Official List of the UK Listing Authority and trade on the Main Market of the London Stock Exchange plc. RECI Ordinary Shares offer investors a levered exposure to a portfolio of real estate credit investments and aim to pay a quarterly dividend. Such leverage is provided by the RECI Preference Shares (ticker RECP) which confer the right to a preferential cumulative preference dividend (which is an amount in Sterling equal to 8 per cent per annum of the Preference Share Notional Value) payable quarterly on each Payment Date. The RECP Preference Shares are currently listed on the standard segment of the Official List of the UK Listing Authority and trade on the Main Market of the London Stock Exchange plc.

The real estate debt strategy focuses on secured residential and commercial debt in the UK and Western Europe, seeking to exploit opportunities in publicly traded securities and real estate loans. In making these investments the Company uses the expertise and knowledge of its investment manager, Cheyne Capital Management (UK) LLP. The Company has adopted a long term strategic approach to investing and focuses on identifying value.

The cell within the Company is known as 'European Residual Income Investments Cell' or 'ERII' (ticker ERII LN). The Cell Shares trade on the Specialist Fund Market of the London Stock Exchange plc. Seven Residual Income Positions are attributed to ERII. Dividends or distributions will only be payable from ERII to the extent that the asset cover ratio (the Preference Share Cover Test) for the RECI Preference Shares is satisfied at the Company level. 

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "forecasts", "estimates", "anticipates", "expects", "intends", "considers", "may", "will" or "should". By their nature, forward-looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. The Company's actual results and performance may differ materially from the impression created by the forward-looking statements and should not be relied upon. The Company undertakes no obligation to publicly update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules). In this section, unless otherwise defined, capitalised terms have the meaning given to them in the Company's prospectus dated 11 July 2011.

Real Estate Credit Investments (RECI)

RECI Balance Sheet Summary as at 30 September 2013

Audited financial statements are not prepared for 30 June quarter end and numbers are pro forma based on management accounts.

Loans grow to 52% of investment portfolio as at 15 November 2013; yielding 11.3%

RECI has significantly expanded its loan portfolio during the second quarter and into the third quarter, while continuing to provide attractive risk adjusted returns. The average yield on the loan portfolio is currently 11.3%.

RECI has invested in the UK and German real estate loan markets which, even in a low growth environment, offer solid underlying tenant demand, a liquid investment market and a shortage of competing debt capital. In the first half the Company invested in two new loans backed by German multi-family property (one of these loans was disclosed in the 31 March 2013 Results Announcement) and another loan secured against commercial properties in London. The total loan commitments are for a maximum of £27.8 million. Subsequent to the quarter end RECI invested in a further 2 loans, which had total loan commitments of £16.4 million.

German multi-family loan

RECI made a €9.0 million senior loan commitment with an expected return in excess of 10%. The proceeds of the loan will be used by the sponsor to purchase and refurbish a portfolio of multi-family properties in West Germany. The first drawdown was for €3.0 million. The initial LTV on the loan is 42% increasing to 65% over the life of the loan as the borrower draws down on the loan to make the refurbishments. The loan is attractive given its high yield, low exit LTV and the extensive track record of the sponsor.

London serviced office property loan

In August, the Company made a £15 million loan secured against 10 West End and City serviced office properties managed by Executive Office Group. This is the first time Cheyne Capital has underwritten a whole loan. The loan has an LTV of 68% and a single digit return. Cheyne intends to syndicate the senior portion of the whole loan. Subsequent to the syndication, the Company will retain a mezzanine loan with a solid double digit return. The syndication process is well advanced and should be completed in the near term.

Underwriting a whole loan helps both RECI and the borrower. It significantly increases RECI's ability to win the mandate because some borrowers tend to prefer a whole loan solution to smooth a deal's progress. After syndication, the Company will retain the mezzanine loan with typically a higher yield than had the mezzanine loan been originated using a traditional senior / mezzanine loan structure.

£11.9 million of new loans since 30 September

Since the quarter end, the Company has made two new loan investments with total commitments of £16.4 million. The Company has advanced £11.9 million against these commitments. The average yield on the loans is 10%.

Whole loan for retail park

The largest loan of £10.8 million is a whole loan with 65% LTV against a popular retail park near London. The sponsor has successfully managed the property since 2003, and has a strong record of asset management. Over the next six months, RECI will syndicate the senior portion of the loan and retain a mezzanine loan with an expected double-digit return.

Student accommodation development

The second loan is a senior loan secured against a property in Bristol with a yield in excess of 10%. The initial drawdown on the loan is £1.1 million with a total commitment of £5.6 million. The loan to gross development value when the project is completed is approximately 60%. The borrower is using the proceeds of the loan to buy an existing office tower and convert this to a 400+ bed student accommodation. The sponsor has a strong track record of developing student housing portfolios and successfully manages several sites. Bristol is a long-standing university town with a significant demand for good quality student accommodation.

Loan Portfolio Summary as at 15 November 2013

Top 10 Investment Portfolio Exposures4 as at 15 November 2013

Market Value £78.0 millionWA Original LTV5 62.9%WA Cheyne Current LTV5 63.3%WA Effective Yield6 10.3%

Real estate bond portfolio outperforms market

RECI recorded mark to market ("MTM") gains of £1.0 million on the real estate bond portfolio for the quarter ended 30 September 2013. This compared with MTM gains of £0.2 million for the quarter ended 30 June 2013. The bond portfolio outperformed the Itraxx Europe Main index in terms of fair value gains in five of the six months to 30 September 2013.

In the past financial year the Company has not incurred any credit losses on any of its bond investments.

Bond repayments

The Company received bond repayments of approximately £6.8 million throughout the quarter, equal to approximately 10.1% of the average portfolio value over the period.

Reinvesting bond sale proceeds

RECI was a net seller of bonds during the quarter ended 30 September 2013, using proceeds to increase allocations to its loan portfolio. The Company made net sales of £12.1 million versus net sales of £2.5 million in the previous quarter.

Positive returns from new investments

RECI continues to make new bond investments. The weighted average expected yield to maturity of new investments in the quarter ended 30 September 2013 was 9.5% and RECI purchased the bonds at an average price of 92% of par. As at 15 November 2013, the weighted average price of these investments had increased to 98% of par.

Portfolio value

As at 30 September 2013, the portfolio of 67 bonds was valued at £58.3 million, with a nominal face value of £78.9 million7. The average purchase price across the portfolio was 78% of par and assets had an average expected yield to maturity of 13.9% based on the purchase price. Due to the increase in bond prices over the past year, the weighted average expected yield to maturity of the bond portfolio at market prices as at 30 September 2013 was 9.6% with a weighted average life of 5.4 years.

Bond purchases and sales since 30 September 2013 - minimising negative carry

The Company will continue to invest cash surpluses in bonds to minimise the negative carry from high cash deposits. To this end, between 1 October 2013 and 15 November 2013, the Company invested £0.6 million at an average price of 87% of par and a weighted average expected yield-to-maturity of 4.1%. RECI also sold £6.4 million of bonds during this period at an average price of 104% of par versus an average purchase price of 95% of par. As at 15 November 2013, the portfolio consisted of 64 bonds with a fair value of £51.1 million and a nominal face value of £71.2 million8. The weighted average expected yield to maturity of the bond portfolio at market prices as at 15 November was 9.1%.

Real Estate Bond Portfolio Breakdown

Breakdown of RECI's bond portfolio as at 30 June 2013 and 30 September 2013 by jurisdiction (by reference to underlying assets)

30 June 2013

30 September 2013

Values may not sum to 100% due to rounding differences

Monthly Bond Performance Summary as at 15 November 2013

Asset Class Distribution of Bond Portfolio by Fair Value as at 15 November 2013

Values may not sum to 100% due to rounding differences

Outlook for new investments

RECI is in a strong position to step up its pursuit of investment opportunities in real estate debt, with loans playing an increasing role in delivering results and improving NAV.

The investment management team expects to be able to invest the majority of the proceeds of its recent placing within six months. We expect loans to be contributing a majority of income by the end of that period. Subsequent to the deal announcement on 16 October 2013, the Company completed 2 loans with total commitments of £16.4 million. Given current market conditions, we expect 75% of the new capital will be allocated to loan investments.

Even at a time of low economic growth, RECI believes that the fundamentals of Western European real estate remain strong thanks to solid tenant demand, good liquidity and a shortage of debt capital.

The retreat of banks from real estate lending continues to fuel supply of new lending opportunities and RECI continues to benefit from Cheyne's position as one of Europe's largest real estate finance platforms. Cheyne has an attractive loan pipeline of which RECI is allocated a pro-rata portion of each loan. In loans, RECI believes that mezzanine debt offers the optimal combination of high returns and debt covenants.

While the managers seek out new loan investments, proceeds from the funds raised will be invested in the RMBS and CMBS markets. We will rotate out of these bonds as new investment opportunities arise.

We expect strong bond performance to continue for the remainder of 2013, driven by yield compression. The manager remains well placed to participate in new issue bonds at attractive yields.

European Residual Income Investments (ERII)

It is the Company's objective, to the extent practicable, to liquidate the ERII portfolio and return cash to shareholders. Dividends from ERII will be payable to ERII's shareholders when the asset coverage ratio (the Preference Share Cover Test) is satisfied. For the period ended 30 September 2013 the Preference Share Cover Test was 2.62, above the threshold of 2.39. As a result, the Company is declaring a dividend of 4.8 cents per ERII Ordinary Share, returning €0.7 million to investors. In September 2013 ERII returned €2.4 million to investors in return for 3.2 million shares via a mandatory redemption. The table below shows figures as at 30 September 2013 compared to 30 June 2012.

Investment Portfolio

Overview

ERII reported cash flows for the quarter ended 30 September 2013 of €0.9 million, compared to €0.7 million in the previous quarter and net write downs of €0.7 million. The majority of write downs were in the European Mortgage Portfolio.

European Mortgage Portfolio

The European Mortgage Portfolio generated €0.2 million of cash flows for the quarter ended 30 September 2013, compared to €0.1 million in the previous quarter. Net write-downs in the portfolio totalled €0.8 million.

SME Portfolio

The fair value of Smart 06-1 has remained at €1.1 million. Cash flows for Smart 06-1 in the quarter ended 30 September 2013 totalled €0.1 million, unchanged from the previous quarter.

UK Mortgage Portfolio

The UK Mortgage Portfolio recorded cash flows of £0.6 million in the quarter ended 30 September 2013 compared to £0.4 million in the previous quarter. Net write downs in the portfolio were less than £0.1 million.