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KPREIT stock price ‘hobbled by hoarders’, mulls stock split

Published:Friday | March 3, 2017 | 12:00 AMNeville Graham
Garfield Sinclair, chairman of Kingston Properties Limited.

Real estate investment company Kingston Properties Limited (KPREIT) is to take a decision on a stock split at its next board meeting, meant to drive trading in the stock that is mostly, and tightly, held by institutional investors.

KPREIT chairman Garfield Sinclair said at an investors' briefing Friday that the fact that investors are more inclined to hold on to the stock means price appreciation is hampered.

Around 85 per cent of the stock is held by institutional investors, he said.

Since January, the stock has gained only a dollar and is now trading at $11 per share.

"We think that the stock price has suffered a bit from illiquidity based on the fact that these investors just hoard," said Sinclair.

"The stock split will add to the portfolios of the 15 per cent small shareholders. We feel that it will generate a little more liquidity and, by extension, some more trading activity on the market," he told investors.

Sinclair is himself a top-ten owner of the stock through Platoon Limited.

The chairman also announced that KPREIT will explore a return to the market for more equity capital, funds that would be used to grow the company's portfolio of properties. The company last approached the market in August 2015, raising $650 million in a rights issue, according to Jamaica Stock Exchange records.

The announcements Friday are part of a four-pronged strategy meant to strengthen the position of the company in the real estate market.

Kingston Properties is the only REIT listed on the stock exchange, although other players have teased possible floats.

The other two elements of the strategy, said Sinclair, are to continue paying out consistently high dividends and lobby the government for the introduction of REIT legislation that will offer incentives to investors.

CEO Kevin Richards reported that dividend yield for stock in 2015 was 4.4 per cent while stock bought in December 2016 is so far yielding 3.2 per cent. The company pays dividends in US dollars.

Richards told investors that the strategy for the short to medium term is to increase borrowings to quickly react to property market opportunities.

Kingston Properties invests in both residential and commercial real estate. Most recently, the company extended its reach via property acquisition in Cayman Islands. Its holdings now span that market as well as Florida in the United States and its home market of Jamaica.

Some of its acquisitions have been backed by debt.

"We will continue to increase leverage in order to grow the portfolio, "said Richards at the briefing. "It is a way that we can act fairly quickly to do some transactions and sometimes bank financing is the most efficient way of doing it."

He was supported by Sinclair who cautioned that the move to approach banks is not an abandonment of the company's conservative stance but an expansion of activities that can be accommodated under the company's capital structure.

"We are at a 28 per cent debt to asset ratio, and that is pretty low relative to a lot of real estate-based entities out there and there is scope for growth," Sinclair said.

"We need to increase the values over time by making sure that the cost for that debt is as low as possible," he added.

In January Kingston Properties closed the transactions on two properties: a warehouse and office complex in Kingston; and a fully-tenanted complex comprising residential space, retail shops and offices in the West Bay Beach area of Cayman Islands. The latter transaction was executed through Carlton Savannah REIT St Lucia Limited.

Kingston Properties remains in acquisition mode, and is actively looking to expand the portfolio of properties over the medium term. Geographically, its portfolio is 64 per cent invested in the US market, Jamaica 32 per cent, and Cayman Islands 14 per cent.

However, it appears to have given up for now on plans to do its own development project. The land that was held in Westmoreland for a residential complex is being disposed of. A deal is expected to close by May, the company said in its newly released audited financials for year ending December 2016.

The company also reported improved profit for the year at $130 million, up from $105 million. The value of its holdings also grew, with the investment portfolio now estimated at more than $2 billion, inclusive of deposits, up from $1.55 billion the year before.

Sinclair told investors that KPREIT, assuming it has generated a more than adequate return on existing capital, is always inclined to pay a dividend.

"That is the bias as it has always been," he said.