Sagicor investment bonanza - Playa Hotels share sale to net $14b for real estate acquisitions
Insurance giant, Sagicor Group Jamaica, SGJ, is set to stanch multibillion-dollar losses on its investment hotel portfolio of 20 million shares in international hotel chain Playa Hotels and Resorts, held through several of its associated companies Sagicor Real Estate X Fund and Jamziv MoBay Jamaica Portfolio Limited. Sagicor announced this past week, the sale of its entire block of Playa stocks at US$5 per share for roughly US$100 million or more than J$14 billion.
Ten million shares are being disposed of as part of a Playa public offer, 8.5 million will be sold directly to parent company Sagicor Financial Corporation and confirmation reached the Financial Gleaner on Friday that the remaining nearly 1.5 million shares will be taken up by the underwriters of the Playa offer.
Playa trades on the Nasdaq exchange and has put up 25 million of its ordinary shares in the offering, which is being underwritten by Deutsche Bank Securities, Bank of America Securities, Citigroup and Nomura, which are acting as joint book-running managers for the offering. The proceeds to Playa will be used to pay off debt and for corporate purposes, Playa informed the market on January 6. The transactions are expected to close on Monday, January 11.
The share sale money, SGJ president and CEO Christopher Zacca says, will be deployed almost entirely into new property investments. A total of US$91 million will come from the public offer and over US$7 million more will come from the portion to be taken up by the underwriters. They will pay the general offer price. The price to Sagicor Financial is US$5 less commission expenses associated with the offer.
“That’s nearly US$100 million to spend on real estate for Jamaica’s benefit. We are going to deploy that in commercial real estate investments over the next year to 18 months,” Zacca told the Financial Gleaner in an interview.
Explaining the reasoning behind the asset disposal at this time, Zacca pointed to Sagicor seeking less risky investments, given the profile of the clients who have bought into its real estate products, the current depressed state of the hotel sector from the COVID-19 impact, and the uncertainty of the timeline for recovery.
“Sagicor is invested in Playa along with our client pension funds and unit holders. Given the nature of these investors, we have a mandate to balance their risk appetite against the possible rewards of each investment. Prior to COVID-19, the Playa investment represented a well-diversified hotel group with strong growth prospects. Since the pandemic, the volatility in this sector has increased significantly and the timetable for recovery is uncertain,” Zacca said.
“As dynamic investment managers, we have had to adjust to this new environment and in doing so, we took the opportunity to sell our stake in Playa at what we believe is a fair market price. We now have the opportunity to use those proceeds of nearly US$100 million to invest in a broader range of real estate assets, primarily, which have good growth prospects in the medium term,” he added.
He noted that with what he termed the “war chest” of cash from the share sale, the company would be actively in the market looking for real estate investment opportunities.
“We want to see all deals out there. Wherever they may be. As long as it’s a good deal and will create returns for our investors and create employment,” Zacca pointed out.
The fallout from Sagicor’s hotel investments has been a big drag on group earnings and profits. In 2018, the conglomerate combined most of its hotel assets with Playa for US$100 million in cash and roughly 15 per cent equity in the hotel chain at US$10.77 per share, through an arrangement involving its Sagicor Real Estate X Fund Limited and Jamziv. Since then, Playa’s share value has plunged and was trading around US$4 in recent months before rallying above US$5.70 this past week. Its lowest price in 2020 was US$1.30 in April and highest US$7.95 in January.
“We think there is greater underlying value in there other than the over US$4 on the stock exchange. We did independent valuations of Playa using Ernst & Young. That is the number we carry on our balance sheet. It’s higher than that share price,” Zacca told the Financial Gleaner in November 2020.
Playa has since sold two of the properties – Jewel Dunn’s River Beach Resort & Spa and Jewel Runaway Bay Beach Resort & Waterpark – to unnamed investors for US$60 million, which was below their fair value of US$85 million.
In September 2020, Sagicor Real Estate X Fund sold its remaining Jewel resort, the 217-room Jewel Grande Montego Bay and Spa, at a loss to its related entity, Sagicor Pooled Investment Fund Limited, which is managed by Sagicor Life Jamaica Limited. Sagicor X Fund still holds one hotel asset – DoubleTree by Hilton in Florida in the United States.
The company’s third quarter financials to September 2020 showed a $1.5-billion “share of loss from associate” for the quarter and a cumulative loss of $3.4 billion year to date, referencing the Sagicor Real Estate X Fund holdings. A $2.8-billion write-down in goodwill and the value of X Fund investments was primarily attributable to Playa, Zacca confirmed at the time.
“It is of great concern,” Zacca said of the Playa losses in November.
A January 7 statement from Sagicor pointed to the group’s continued investments in the tourism sector including the Bessa luxury property in St Mary and the financing of tourism-related businesses through the investment and banking arms of the group. It also pointed to the maintenance of its interest in the Jewel Grande property in Montego Bay Jamaica through its pooled pension funds.
“We have land beside the Hilton hotel in Montego Bay. We have 13 acres there. Once the industry turns around, that land would be suited for leisure investment,” Zacca added.
Quizzed whether a previous consideration for hotel construction was likely to still be on the cards, he responded that it was possible but not likely given the current economic environment.
The Playa share sale, Zacca maintains, does not reflect a change of his previously expressed optimistic long-term outlook for the international resort chain or the long-term positive expectation for a bounce-back in tourism.
Does Sagicor harbour any regrets about the earlier disposal of most of its tourism assets through the asset combination with Playa?
“We regret that the world has faced a pandemic which has devastated tourism for sure. Between the cash we are getting now and the US$100 million cash tranche (at the time of the asset combination) could we have gotten US$200 million in these circumstances today for everything. Probably not. At the time it was the right decision,” Zacca told the Financial Gleaner this past week.