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Kingston Properties eyes US$25m rights issue

Published:Friday | May 15, 2015 | 12:00 AM
Garfield 'Garry' Sinclair, chairman of Kingston Properties Limited.

Kingston Properties Limited (KPL) is planning to raise up to US$25 million ($2.9 billion) through a rights issue this summer.

The management of the real estate investment trust (REIT) wants to acquire more properties overseas, but they say that they have done all they can with the capital they raised in 2008.

"We began with $406 million and grew it to $851 million," said KPL Chairman Garry Sinclair at the company's annual general meeting on Thursday. "We believe we need to expand our capital base now."

The funds being targeted may be seen as ambitious, especially given the REIT's beginnings. Back in 2008, the company fell woefully short of its US$17.4 million target for its initial public offering. It raised $406 million - the equivalent of US$5.7 million then - having managed to sell just shy of a third of the stock put up for sale.

It's the remaining shares which have not yet been issued - 431.6 million units - that give KPL the ability to raise the sought-after funds now. At the current trading price of $7, issuing all of those shares would raise $3 billion, or approximately US$26 million.

But Sinclair believes the current environment and the company's financial history puts it in a much better place now than seven years ago.

"We think that there is increased pension fund demand for relatively liquid investments in real estate, which also provides a foreign exchange hedge," he said to shareholders during the annual session at Courtleigh Hotel in Kingston.

What's more, following two government debt exchanges and the commencement of a successful International Monetary Fund arrangement, which is now in its third year of implementation, private sector capital has been moving towards investments not steeped in government paper.

"Another public company managed to raise that and more in recent history ... without specific purpose for the proceeds of those funds, I might add," he said, alluding to last month's rights issue conducted by Proven Investment Limited, in which Sinclair is a shareholder.

Financially, the company has, on average, seen 22 per cent annual sales growth over the past four years. KPL's revenues totalled $108 million in 2014. The company also managed to reduce its property expenses from 44.3 per cent of revenue in 2010 to 30.9 per cent last year, while cutting administrative expense as a proportion of sales in half during that period - it stood at 21.7 per cent in 2014.

As a result, the REIT accumulated $250 million in retained earnings up to the end of last year, having paid out over US$450,000 in dividends over the life of its operations so far. Put another way, last year's dividend payment represented a 4.5 per cent yield on the stock, while the share price nearly doubled.

On the other hand, the market price movement on the stock in 2014 was largely influenced by the company's share buyback. KPL paid out $3.2 million to take 428,500 shares off the market last December, which means that the company paid $7.48 on average for the stock. Before the announcement of the buyback last May, the stock traded at $4 a share on the Jamaica Stock Exchange. The share price now stands at $7 per unit.

KPL is on the verge of finalising its broker and is preparing for a road show in the coming months, but it doesn't need to raise the full amount targeted. Just like in 2008, the REIT can deploy smaller sums of capital by scaling down investment plans.

"We say up to US$25 million, but if we go to the market and get five, 10 or 15 million dollars, we believe we can deploy it profitably," Sinclair told the Financial Gleaner.

The company is looking at using proceeds from the rights issue to get into the Park Place luxury condominiums in the Cayman Islands and the Miramar town house and apartment complex in Miami, among other properties that it is eyeballing.

The REIT already has 15 units in the Miami Loft II apartment complex and, more recently, it bought a 19-unit complex in 'Little Havana', which is also located in South Florida. KPL plans to convert those units into condominiums.

"We have applied for zoning to convert what is now a multi-unit dwelling into single condominiums, which will increase the value of the property significantly," said Sinclair.

Robust demand for condos in the South Florida market has been driven by investments from South and Central America. Also, the average sale price of a condos in the area moved up by nine per cent last year, which was almost double the price movement in the rest of the US, according to the chair of the REIT.

"This is why we have concentrated on the South Florida market," he said.