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Sagicor X Fund eyes rights issue to fund Orlando hotel purchase

Published:Wednesday | July 29, 2015 | 7:00 AMCamilo Thame
Rohan Miller, CEO of Sagicor Real Estate X Fund and chief investment officer for Sagicor Jamaica.

Sagicor Real Estate X Fund has alerted the market to an upcoming rights issue, which it will use to raise equity capital for its first foray into overseas markets - a convention hotel that the company is in the process of acquiring in Florida.

The real estate company also plans to tap debt financing for the purchase, but has not said what form that would take. The structure is still being finalised, according to Sagicor X Fund CEO Rohan Miller. The deal with Blackstone Group for the Doubletree hotel in Orlando is to be wrapped up in September. The acquisition of the 742- room property with more than 60,000 square feet of conference and meeting space marks Sagicor X Fund's entry into markets outside of Jamaica, while deepening investment in its core business of tourism.

But perhaps more important, the deal provides affirmation of X Fund's business model towards directly owning and operating its hotel assets rather than units in Sigma's unit trust which previously held all the gems - or at least the three Jewel hotels - and to expand its geographic markets beyond Jamaica.

When the company added Hilton Rose Hall to its books at the end of March, having finalised the acquisition of the hotel for US$85 million in January, it increased the fund's asset base by $7

billion, or around 50 per cent.

What's more, the resort's contribution to the bottom line in the single quarter appeared more substantial than earnings from Sigma. Hotel operating profit, or the reported revenue minus expenses, totalled more than $520 million for the three months to March 2015, compared with $360 million in net capital gains on financial assets and liabilities.

Financing the Hilton acquisition, which involved the issuance of a US$42-million investment note in December and a further US$47-million fixed-rate mortgage note the following month, did, however, add a sizeable debt to the balance sheet.

Whereas the company's entire $8.7 billion in assets represented equity a little over a year ago, its $9.9 billion capital base at the end of March 2015 was leveraged against $11.2 billion in liabilities.

raise additional equity

That's likely why the board plans to meet next week Monday to consider a non-renounceable rights issue to raise the additional equity required, among other things.

In its market filing on the pending acquisition, Sagicor X Fund said the hotel was affiliated with a major franchise, which it did not name, but was later identified as Doubletree. The purchase price was not disclosed.

"The company proposes to finance the acquisition by debt and equity, and to this end, its board of directors will convene a meeting on August 3, 2015, to consider, inter alia, a non-renounceable rights issue to raise the additional equity required," the notice said.

Sagicor X Fund has other plans this year to break ground on a US$10-million, 50,000-square foot property which will be rented to business process outsourcing companies.

X Fund is considering tapping the local capital markets right after the other publicly listed real estate investment company - Kingston Properties Limited - closes its $1-billion rights issue, provided that the offer is not upsized or extended from the July 30 scheduled close date. Incidentally, those funds are also targeting property acquisitions in overseas markets, primarily in the US and Cayman Islands.

Another major player in real estate, Pan-Jamaican Investment Trust, also mopped up $3 billion through its corporate note issued the week before last. On the other hand, it left $1.5 billion on the table when it avoided taking the full $4.5 billion, which went after the bond, suggesting there might still be sufficient appetite and liquidity to take on the upcoming X Fund rights issue.

The real estate company has 1,495,336,750 in issue. The stock traded down 35 cents to $7.65 on Tuesday.

camilo.thame@gleanerjm.com