Fri | Dec 14, 2018

KWL pumps half-billion into property joint venture

Published:Friday | November 16, 2018 | 12:00 AM
Grantley Stephenson, CEO of Kingston Wharves Limited, explains the port company's logistics plans to the Financial Gleaner.

Port company Kingston Wharves Limited, KWL, has pumped a total of more than half-billion dollars into SSL REIT, the property investment vehicle of Stocks and Securities Limited, for an undisclosed stake in the company.

The port company made an investment of $61.6 million and "issue of short term loan" of $470 million under a joint-venture agreement in which it acquired a 50 per cent stake in SSL REIT. The property company is primarily in the business of rental of warehousing facilities. The acquisition is classified in KWL's third-quarter earnings report as an investment in associate.

Up to press time, officials of KWL were not immediately available to respond to a Financial Gleaner query about the structure and terms of the deal, and what board- or management-level representation KWL would have at SSL REIT.

KWL is also in the business of commercial space rental, from which it appears to have earned $282 million to September. Its category 'other operating income' saw a significant jump on the $62 million earned for the same period last year.

Its core port operations generated revenue of close to $4 billion, a 13 per cent increase over the corresponding period last year. This division's profits increased by 22 per cent from $1 billion to approximately $1.3 million year-on-year. The busiest period for the terminal is the current fourth quarter to year end.

In an interview with the Financial Gleaner earlier this month, KWL's Chief Executive Officer Grantley Stephenson was upbeat about the company's financial performance and operations.

After planning, investing and waiting for the past 10 years, Kingston Wharves just about has in hand the approval to operate as a special economic zone, or SEZ, giving it the green light to export directly from its trans-shipment and logistics hub at Newport West in Kingston.

KWL executives expect the development to put wings to its nascent logistics operations that are already buffing the company's bottom line, adding some $1.3 billion to its $5.3-billion nine-month revenues to September this year, and shoring up nine-month net profits to more than $1.4 billion. KWL's numbers were also helped by a $200.5-million foreign exchange gain, its financials released this week revealed.

Stephenson is projecting that with the SEZ approval having been recently gazetted, the terminal operator, which ventured into logistics in 2010, will be reaping even bigger contributions to revenues and profits from the logistics segment. This optimism is shared by company chairman Jeffery Hall in his comments accompanying the latest financials.

Stephenson reflected that planning for the new business segment, in which the company is investing another US$30 million to build its largest warehouse yet at nearby Ashenheim Road, started during the world recession in 2008.

"We needed to find additional ways to broaden our income base and to earn hard currency to protect us, and we came up with this idea of trans-shipping cars from Kingston," said Stephenson.

"A lot of people thought it was crazy. It has turned out to be extremely successful. Some people don't understand the scope and where it can get to," he said.

Kingston Wharves now serves as a trans-shipment hub for Hoegh Auto Line, one of the world's leading motor vehicle carriers, as well as other carriers NYK, Eukor, Glovis, K-Line, and Mitsui. They trans-ship from KWL Auto Logistics Centre at Tinson Pen, located a stone's throw from the port, across Marcus Garvey, to 30 countries in the Caribbean, Latin America and North America.

Last year, the port company handled 88,000 cars, about 55 per cent being for trans-shipment. Stephenson expects 2018 volumes to top that when all the numbers come in.

To build out it logistics operation, KWL has acquired some 20 acres of land portside near its main terminal operations. This includes an unused piece of land from the Petrojam oil refinery. In addition, it has leased 18 acres of the former Tinson Pen aerodrome from the Airports Authority of Jamaica for 15 years at what Stephenson described as market rates that were more affordable than the price other landowners in the area were asking.

The company's investments of over US$50 million in the past two and a half years included spending more than $1.6 billion on drainage works in an area known for flooding. Drainage for the Tinson Pen property alone has cost KWL more than $500 million.

As it plans the construction of its 300,000 square feet modular warehousing complex at Ashenheim Road, the company is prepared to foot the bill for the construction of an access road to connect the new facility to the Tinson Pen property.

Construction is planned to begin next year, with an 18-month timeline to completion.

The next frontier for Kingston Wharves is the value-added business of modifying cars at its facilities to fill orders from existing and new local and export markets, a prospect that excites the KWL chief executive.

"The potential there is enormous," said Stephenson. "The only other place it is done in any significant way is in Rotterdam. That is what we are trying to replicate here. But we are still working on it," he said.