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Jamaican Teas eyes modern warehouse complex development

Published:Wednesday | February 17, 2016 | 12:00 AM
John Mahfood, CEO of Jamaican Teas Limited.

Jamaican Teas Limited (JAMT) has bid on the Government's 42.9 per cent interest in KIW International, a warehouse facility at Spanish Town Road, Kingston.

The company plans to upgrade the complex into a modern warehouse in "two or three phases, for rental purposes", according to the tea company's latest annual report, but that: "Up to the time of publication, we had not yet received a response on the bid."

The Development Bank of Jamaica invited potential investors to make an offer on the Government's stake, which also includes 100 per cent of KIW's preference shares, last November.

Information on the warehouse and its operations was shared with interested entities under confidentiality, and bidders were given up to January 29 to place a bid.

The facility sits on 15,500 square metres (3.8 acres) of land, according to a Wednesday Business check on National Land Agency's iMap Jamaica website.

Up to now, JAMT has been primarily focused on real estate development - its first, a studio apartment complex on Kingsway in Kingston, and the second, a 71 two-bedroom house project located in Yallahs, St Thomas.

But the company also rents out a three-unit commercial building on Birdsucker Lane in Kingston and a two-bedroom apartment in Manor Park, up to when it was sold late last year.

Rental income rose from $500,000 in the year to September 30, 2010 - when JAMT became a commercial landlord - to $4.3 million four years later, before falling to $2.7 million in the year to September 30, 2015.

From a profit standpoint, rentals provided JAMT with 23 per cent to 34 per cent operating margin after accounting for depreciation of the properties. However, since 2013, when real estate development operations kicked in, the properties business segment has been up and down.

In 2013, the business segment realised $21 million operating profit from $185 million in sales, but it returned $2 million profit from $26 million in sales in 2014, and incurred a $9 million loss from $82 million in revenue the following year.

For the first quarter ending December 31, 2015, JAMT generated $42 million in revenue from rental and development, up from $2 million in the same quarter a year earlier, and saw an operating profit of $1.5 million, up from $230,000.

Should JAMT be successful in its bid for KIW, the upgrade of the facility will likely be financed from the proceeds of a planned rights issue.

The board decided on resolutions calling for a two-for-one stock split and a renounceable rights issue to be considered at the company's annual general meeting in March.

Currently, JAMT has 81.3 million shares which are authorised but not yet issued, given the company enough room to raise just over $650 million at the current trading price, after accounting for the existing 15.1 million shares set aside for stock options to directors or shares that can be purchased by staff members.

Stock splits tend to result in improved share prices given that increased liquidity stemming from additional units available for trading is generally accompanied by the psychological impact the lower share price has on investors.

Since notifying the Jamaica Stock Exchange of the decision two weeks ago, the stock price rose from $5.50 to $8 a share on Tuesday.

Last year, JAMT's share price moved from $2.51 below the 2010 listing price of $3.37 to $5.10 at the close of the year.