REAL estate developer Stanley Motta Limited (SML) is looking to complete the expansion of its 126,000 square feet building known as Unit 1 in Kingston by April 2024, which is set to significantly improve its earnings.

The company, which derives the majority of its income from real estate at 58 Half-Way-Tree Road (58HWT), is well advanced on the completion of the building which is set to undergo the next phase of interior completion. The property, which is being developed at a cost of US$12 million ($1.83 billion), will have 10 floors with 84,000 sq ft of rentable space.

SML currently rents the existing buildings (Units 2 to 5) to firms such as Alorica Jamaica, Symptai Consulting Limited, Eppley Limited and General Accident Insurance Company Jamaica Limited (GENAC) which have resulted in 95 per cent occupancy of the 58HWT property. The only company to have publicly indicated that they will take up residence in the expanded Unit 1 is Productive Business Solutions Limited (PBS), which will be on the seventh and eighth floors. PBS and GENAC are both controlled by Musson (Jamaica) Limited, which also owns the great house at 58HWT.

“The building will be fully tenanted. It’s not fully built out, so the rental rates will accommodate that and because all the leases are not signed, it wouldn’t be the right time to discuss that. It’s obviously profitable, it’s going to grow our revenue and it’s obviously going to increase the value of our assets when it is fully occupied,” said SML chairman and Chief Executive Officer Melanie Subratie on queries about the types of potential tenants at the company’s annual general meeting on October 13.

SML has already expended $611.36 million in the first six months of 2023 which has been funded by a $258.34-million drawdown from First Global Bank Limited (FGB) and the company’s own cash flow. She noted that as the company receives payment certificates and other verification measures are complete, additional funds are made available for the development.

SML had refinanced a United States dollar (USD) loan in 2022 with a Jamaican dollar (JMD) loan at FGB.

When asked by an audience member about the potential impact of higher interest rates in slowing down the development, Subratie responded, “It hasn’t necessarily slowed us down, but it did change how we looked at it. I’m sure people might have noticed that we had to use some of our cash flow for the building that we’re building. We initially had a loan that was in Jamaican dollars and Jamaican dollar loans have a much higher interest rate. So, at the last minute, it made sense to switch to a US dollar loan with a lower interest rate in order to make sure that there would be more free cash flow, and free cash flow is what you all want because it helps you get a dividend.”

SML collects its rent in USD but reports its financial statements in JMD. One tenant in the business processing outsourcing sector currently makes up 78 per cent of the $499.37 million in rental income earned in 2022. Subratie noted that while the company has received some new tenants recently at remaining spaces on the property, she is fielding calls from a wide range of potential tenants for the new development in a variety of sectors.

SML’s 2022 capitalisation rate was 4.83 per cent in 2022 relative to the 5.44 per cent rate in 2019. The capitalisation rate is calculated as the net operating income divided by the value of the investment property. The CEO highlighted that the value of the buildings goes up in value every year along with leases being renegotiated every couple of years. She noted that the going market rates when Unit 1 is complete, and value of the completed development will dictate the company’s cap rate going forward.

“My thing is that I’m interested in whether people need more space. So, what I look at is the available space, the amount of rental income you can drive from that. Therefore, as you can see, we’re putting up a new building to take advantage of that and we can fill it, which is a positive indication of economic activity in Jamaica as a whole,” Subratie responded on the company’s direction and focus.

The CEO highlighted that they turned off the billboard at the front of the property at the beginning of COVID-19 and haven’t turned it back on as yet. She noted that they were working with an advertising agency to place enough advertisements to turn it back on. Subratie also noted that the existing buildings have rainwater collection and that solar power on the roof of Unit 1 could be a consideration.

When asked by Sunday Finance about exploring other real estate opportunities beyond 58HWT, Subratie stated, “We are always open to opportunities. We are definitely open to opportunities anywhere in the neighbouring vicinity. We don’t currently have any deals in the pipeline for that, but I’d say that we’re a competent developer, we’re good at what we do, we get a good return on the buildings that we build. I think we’re interesting and decent possible partner for anyone that obviously is interested. If there’s an opportunity, it looks good and it’s going to pay our shareholders a decent dividend, we will obviously take it.”

PBS’ six months revenue was up five per cent to $261.90 million with its net profit jumping 31 per cent to $144.73 million because of higher other operating income and lower expenses. Total assets grew seven per cent to $7.69 billion with its cash declining from $143.31 million to $17.21 million. Total liabilities and shareholders equity closed June at $1.46 billion and $6.23 billion, respectively.

SML’s share price closed on Friday at $6.05 which leaves it up 18 per cent year to date with a market capitalisation of $4.58 billion. SML declared its first dividend of $0.135 per share or $102.31 million to be paid on November 3 to shareholders on record as of October 20.