Quarantine for cash - Student Living looks to earn more from COVID, asks bondholders for reprieve
Developer 138 Student Living Jamaica is considering another arrangement with the Ministry of Health to utilise the room it manages at The University of the West Indies (UWI) as a quarantine zone, as an alternative revenue generator to the business being lost from cancelled student bookings.
Chairman of the company Ian Parsard says going down that route again would require strict protocols and a nod from the university’s management and its long-term students.
138 Student Living had an initial projection for an occupancy rate of roughly 95 per cent in the run-up to the new school year in September, but rising COVID-19 cases have resulted in the university pushing many of its classes online. That resulted in students cancelling bookings for rooms.
The company manages more than 1,460 rooms at The UWI Mona campus in Kingston.
The uncertainties around cash flow have also seen the student accommodation provider bringing work on an incomplete unit to a halt, and it led to a review of the company’s capital mix given the heavy weight of more than $4 billion in debt that needs to be serviced.
“Everything had looked very positive until we had the latest spike in the COVID-19 outbreak and so that has created a lot of fluidity to the situation. A lot of the institutions – UWI, UTech – reverted in the initial stages to more online classes and as a result we have had folks who would have booked before, now cancelling or waiting to see what the outcomes might be for the second terms,” Parsard told the Financial Gleaner.
“I wouldn’t want to guess a figure right now, but it will be significantly less than the over 95 per cent that we thought we were going to achieve. But the vast majority of 138’s rooms are single occupants with Wi-Fi infrastructure and so maybe some who are doing online classes and don’t have good access to Wi-Fi will still look to come on stream with 138,” he said.
In the meantime, the company is looking to restructure its balance sheet and is negotiating with bondholders for up to a one-year reprieve on its debt.
It’s also looking at injecting additional equity as well as the restructuring of long-term borrowings, Parsard said.
138 Student Living, which held $47.5 million in cash at the end of the quarter, closed the period with loans at $4.5 billion, $290.8 million of which are due over the short term.
“Our cash flow has been impacted negatively and so we have engaged a number of bondholders to defer some interest and principal payments. For the interest payments we have asked for a deferral of about three months, and the principal payments we ask for a deferral of one year.
“We have been able to get some breathing room and we are still working with our lenders just to make sure that we are able to come through this period without having too much of a hiccup,” Parsard said.
The disruptions to 138 Student Living’s income and projections began in March when UWI Mona issued a notice for local students to return to their homes in keeping with social distancing protocols mandated by the Government.
Despite the fallout in rental revenues, 138 Student Living’s closed the quarter in a healthy financial position. Its earnings were intact, due to the decision to quickly consolidate the accommodation of students who remained on campus, while offering up space to the health ministry for the sequestering of potential COVID cases.
138 Student Living closed the June third quarter with net profit of $131 million on core revenue of $262 million. The performance came against losses of $16.6 million for the comparative period of 2019 and was partly attributable to fresh revenue from quarantining services.
“We had one such engagement with the MOH and that went very well. We were able to establish very good protocols for the folks who were in quarantine and we were paid on time and in full, so the partnership went very well,” Parsard said.
As for a continuation of the partnership, “I would say it is not impossible. What makes it possible is that 138 has separate housing units and to the extent that we have a number of empty rooms we would probably consolidate students in certain blocks and then have other blocks available for folks in quarantine,” the chairman noted.
“We would have to work this through carefully with UWI and our long-term rental students would have to feel comfortable with the protocols that are put in place. But I would say it’s certainly something that is possible,” he said.