Property developer 138 Student Living Jamaica Ltd prices IPO at $4
To pay out 95% of unallocated profit in dividend
The initial public offering (IPO) of real-estate company 138 Student Living Jamaica Limited aims to raise $562.9 million from a float of ordinary and redeemable preference shares on the stock market, starting Thursday.
The offer includes 98.6 million ordinary shares priced at $4 and 33.68 million floating rate preference shares for $5 each. Both classes of shares are to be listed on the main market of the Jamaica Stock Exchange.
Some $500 million of the offer proceeds will flow to the company, while the other $62.9 million will go to existing shareholders of 138 Student Living, who are giving up 15.7 million of their shares to facilitate the IPO.
The majority of the offer shares have been reserved for special groups and "strategic investors" - the latter comprising Barita Investments Limited, JMMB Fund Managers Limited, Sagicor Investments Jamaica Limited and Wisynco Group Limited or their nominees - leaving just 14,866,667 ordinary shares and 3,680,000 preference shares available for general subscription.
The company has said it may increase the offer of prefs by 60 million shares depending on demand.
The IPO is expected to unlock debt financing from Jamaica Mortgage Bank (JMB) for the development of 1,584 dormitory units spanning 11 high-rise blocks for students of the University of the West Indies, a project launched in September.
At least $325m of the offer proceeds to the company will be used as cash collateral for the JMB-National Commercial Bank Jamaica (NCB) loan, another $40 million to pay the expenses of the IPO, and the rest as working capital.
The development is to be completed in three phases extending to August 2017, at a cost of $4 billion, under a 30-year concession agreement to build and operate the units. The parties to the concession are UWI Mona and K Limited, the founding company and parent for 138 Student Living, to which it has transferred its rights.
138 Student Living will pay no dividend to shareholders until the student housing project is complete, but as of 2018, the company expects to start paying annual dividend on its ordinary shares equivalent to 95 per cent of net profit after debt servicing and funds for routine maintenance have been set aside.
Dividends on the prefs will be paid at the six-month Treasury bill rate plus three per cent (WATBY+3%) until maturity in 30 years. The dividend on the prefs will begin to accrue at issue or listing of the shares, but the first payout will be delayed to the fourth anniversary of the issue date. Thereafter, dividends on the prefs will be paid every six months.
The floating of 138 Student Living shares is to satisfy arrangements with primary lender JMB, which is backing a portion of the $1.3-billion construction cost for the first phase of the project contracted to Prime Development Limited, which will deliver 576 units by August 2015. The second set of 576 dorms will be finished a year later, and the remaining 432 units by August 2017.
Specific Terms Confidential
JMB General Manager Courtney Wynter said last week that the mortgage bank was lead arranger of syndicated financing with NCB Jamaica to lend $1.3 billion to 138 Student Living for the first phase of the project, but that the specific terms were confidential.
UWI has guaranteed 90 per cent occupancy of the constructed units in any 51-week period for as long as the concession agreement is in place. The parties have the option to extend the concession from its initial 30 years to 65 years.
The concession allows 138 Student Living a 15 per cent real rate of return by the end of the concession period, calculated on the cash equity amounts to be invested by shareholders - about $767.17 million based on a successful IPO.
The real-estate company was incorporated in August 2014 and is currently capitalised at $435 million. Its board comprises John Lee as chairman, and Marrynette Lee, Douglas Stiebel, Kingsley Thomas, Sharon Donaldson, Debbie-Ann Gordon and Angela Lee Loy as non-executive directors.
While the company itself has no track record, parent K Limited has been involved in construction for more than 10 years and has done apartment complexes in Kingston, Lee said earlier this month. He chairs both companies.
K Limited currently owns 70.39 per cent of 138 Student Living, but its stake will be diluted to 55.23 per cent under the IPO. Second-largest shareholder Douglas Stiebel will own 7.26 per cent of the company, down from 9.83 per cent, while Kingsley Thomas' stake will fall from 6.79 per cent to 3.92 per cent.
138 Student Living expects to start earning revenue in 2016, projected at an annual $346 million and based on estimated starting rental of US$395 per month per unit plus investment income. It projects that top-line income will be north of $1 billion by 2018 and be sustained above that level to reach $1.9 billion by 2025.
The company is projected to make a loss in year one of operation, 2016, but start turning a profit the year after. Within a decade, the company projects to grow annual profit to $698 million.
The IPO is brokered by JMMB Securities and underwritten up to $400m by Jamaica Money Market Brokers Limited. The offer opens November 28 and closes in one week on December 4.