Sygnus Real Estate completes first investment cycle
Management fees cut until 2025
Sygnus Real Estate Finance Limited (SRF) has commenced plans for the second investment cycle of its real estate projects following the successful completion of its One Belmont and Spanish Penwood developments in St Andrew, Jamaica.
Based on the impacts and delays that SRF would have experienced over that first investment cycle, its investment manager Sygnus Capital Limited (SCL) has reduced its management fees to 1.00 per cent for September 2023 to August 2024 and 1.25 per cent for September 2024 to August 2025. Sygnus Capital manages the operations of SRF subject to a management fee of 2.0 per cent of core assets under management with the potential to earn a performance fee if a certain target is surpassed.
“SRF started investing at the start of COVID, which in a sense would have disrupted the flow of when we would have timed the exiting of investments. The unfolding of this first exit phase had lots of delays in execution timelines driven primarily by availability of very important raw materials and supply chain issues. Based on how we’re winding down to the first exit and the start of the new investment cycle, we felt that it was necessary to make this adjustment in this case,” said Jason Morris, co-founder and chief investment officer of Sygnus Capital, at SRF’s January 16 earnings call.
While Morris didn’t delve into what lease rates look like or how many floors SRF would retain later, he had indicated at its November 1 earnings call that they were looking to create a unique vehicle to allow different investors to access the value in One Belmont.
“Yes, the tenant is still there and obviously, at the appropriate time, the tenant will move. In terms of the Hillcrest asset on a go forward basis, we’re evaluating all options to monetise the asset. At the end of the day, as far as I’m aware, there’s no more land that is being made at the location where the Hillcrest property is,” Morris added regarding its golden triangle property.
SRF is currently completing the exit of its Rein project in St James known as Surreal at Sugar Mill while it is in dialogue with the Real Estate Board regarding the Ocean’s Edge development in St Ann. Although SRF has refrained from giving additional commentary, Morris revealed that the financial exposure is about $700 million with the investment secured by the development.
With the company now winding down its first investment cycle, which included $4.21 billion in eight exits/sales, it is now looking to settle some of its liabilities incurred with its investment manager.
Thus, shareholders will vote at the upcoming annual general meeting (AGM) on March 21 on two special resolutions. The first special item will consider the conversion of a $377.91 million liability, payable in January 2022, to Sygnus Capital into 20,707,342 new ordinary shares based on a conversion price of $18.25 per share. These newly created shares would be issued to Sygnus Capital or its nominee and would result in the owner of those shares becoming the second-largest shareholder ahead of SIJML A/C 3119, but behind the ATL Group Pension Fund Trustees Nominee Limited. It would also result in dilution such that a shareholder owning 10 per cent in SRF owning 9.4 per cent afterwards, should the resolution be approved.
“Given the type of pipeline SRF has and where it is in its investment life cycle, it actually makes sense for the company to conserve its cash and to use that to redeploy into assets. Given that the investment manager will be even more aligned with execution and ensuring that we extract all the value that exists in the assets on the balance sheet,” Morris explained regarding the proposed issuance of the new shares which have been called PIK (payment in kind) shares.
The second major resolution would involve the issuance of subscription warrants to existing SRF shareholders on record as at a prescribed date with a reference price of J$18.25/US$0.12. These warrants would be allotted on a proportional basis to existing shareholders who would be able to exercise these warrants and be able to subscribe for new SRF shares over a two-year time frame.
SRF’s stock price closed Friday at $10.20/US$0.0809, which leaves it below its initial public offering (IPO) of $19.30/US$0.127. SRF’s sought $3.9 billion in its IPO but received $2.3 billion instead.
