Sygnus Real Estate Finance Limited (SRF) will be seeking to raise $3.45 billion through a debt instrument as it prepares for its second investment cycle while it awaits the proceeds of its current projects.

SRF launched the debt raise earlier this month as it looks to deploy some capital into new real estate investment notes (REINs) and monetise more of its real estate assets. The latest debt raise comes at a time when $1.68 billion in debt matures by June 30. REINS are simply debt instruments that allows SRF to ‘lend’ capital to other real estate projects which act as the security or collateral for the REIN.

“We would have launched over the past week to raise up to J$1.9 billion and US$10 million in a multi-tranche secured debt capital raise and this is effectively to fund those strategic projects we mentioned earlier and REINs. Where we have specific projects such as new JV’s [joint venture] coming on stream or any of those two strategic projects, we will seek to raise quasi-debt or equity capital at those specific subsidiary levels to ensure that those projects are executed,” said Jason Morris, co-founder and chief investment officer of Sygnus Capital Limited, at SRF’s earnings call on April 16.

SRF’s first lifecycle saw it do several REINs across Jamaica, but also work on completing its two strategic projects of Spanish Penwood on Spanish Town Road and One Belmont on Belmont Road. SRF had originally valued its Spanish Penwood property at $1.11 billion in August 2023 and sold 67 per cent of the project to two investors. However, Morris mentioned that SRF will now be keeping the remaining stake, which he stated will bring more value based on how its structured. As a result, SRF will benefit from lease income on the property which began in July 2023 to its current tenant IMCA Jamaica Limited, the exclusive local dealer of Caterpillar construction equipment.

“In terms of One Belmont, what we’re doing now is have the property tenants going through the designs of the interior build out with a view to then obviously starting the clock on lease payments. Simultaneously, we are structuring our exit in a way such that SRF at its option can maintain a stake in the asset and to allow institutional investors, primarily pensions funds and secondly, retail investors to participate in the cash flow generation capacity of One Belmont,” said Morris at SRF’s AGM on March 21.

Morris added, “We’re at the early stages and we have a pretty good idea of the vehicle we want to use, how the [investment] vehicle should be structured, and we’ve already canvassed our market read. The next step obviously would be to represent to the investing public the opportunity to participate in the cash flows of One Belmont. So, we would expect that would occur close to the late third quarter.”

Morris explained that the investment vehicle would be registered with the Financial Services Commission (FSC) which is somewhat indicative of the expected uptake that SRF plans to have through securitising the asset. SRF owns 70 per cent of Audere Holdings Limited, which is the joint venture which holds the One Belmont asset. The Belmont Road property was valued at $4.57 billion in August 2023 when it was 90 per cent completed. The project achieved practical completion in December and is currently undergoing final interior work.

The move by SRF to retain some interest in two of its projects is likely a signal of its plans to not only benefit from capital appreciation, but also from capitalisation rate expansion when the performance of the properties can be judged with market rate leases. SRF is also benefiting from market rates on its lease at Spanish Penwood, but not at the 1-3 Hillcrest Avenue and 58 Lady Musgrave Road properties which Morris mentioned as inherited leases.

The partial exit of One Belmont will be the key for SRF’s plan to pay its first dividend to shareholders. SRF listed in September 2021, but has not paid dividends as yet due to the need for its assets to be monetised which occurs at the end of a development project.

With its first and second lifecycle now overlapping, SRF investors will benefit from Sygnus Capital’s management fee being reduced to 1.0 per cent for the current financial year and 1.25 per cent for the next financial year before it returns to 2.0 per cent in September 2025.

SRF is now looking to begin construction later this year on its 55-acre Lakespen property in St Catherine which has been earmarked for industrial purposes. SRF is also nearing a decision regarding its 14-acre beachfront property in Mammee Bay, St Ann. SRF also plans to monetise different properties by year end such as 1-3 Hillcrest, 56-58 Lady Musgrave Road and 26 Seaview Avenue. SRF is still considering the value enhancement options for 16 Montrose Road, which is a joint venture that it holds a 51 per cent stake in. SRF has committed US$1.4 million (J$215.04 million) to Monadh Rois Limited which holds the Montrose Road property.

SRF’s second quarter saw it record a larger net loss of $187.15 million which is a result of SRF only revaluing its real estate assets at year end. Thus, for the overall six months, SRF’s net loss is $320.13 million with a loss per share of $0.98.

SRF’s total assets are marginally up over the six months to $15.22 billion with investment property valued at $10.47 billion and interest in joint venture at $1.54 billion. Total liabilities and shareholder’s equity were $7.74 billion and $7.48 billion, respectively.

SRF’s stock price closed April 19 at J$14/US$0.09, which leaves both securities up 37 and 29 per cent, respectively, in 2024. The USD stock price closed at US$0.1274 on March 21, which is the highest it has been since the listing price of J$19.30/US$0.127.

This increase in stock price comes weeks after SRF’s annual general meeting on March 21 where 32 shareholders voted in favour and 10 shareholders voted against the special resolution to convert a $377.91-million performance fee owed to Sygnus Capital into SRF ordinary shares. This resolution resulted in the fee being converted into 20,707,342 ordinary shares at a price of $18.25 per share. This will put Sygnus Capital as the second largest shareholder, squarely behind ATL Group Pension Fund Trustees Nominee Limited which has 42 million shares or a 12.9 per cent stake.

Warrants will also be issued at a later date to shareholders which give them the right to purchase new SRF shares at J$18.25/US$0.12. The warrants are to be issued at one warrant for every 15 ordinary shares and will have an exercise period of two years after Sygnus Capital’s new shares are issued.

“We are seeking to monetise and optimise the real estate investment mix. As we do that, you can expect there to be some shift in terms of the value that is being represented by investment property, perhaps going down a bit and then you can also expect the value in real estate investment notes going down a bit at first, and then ramping up substantially. We are also looking to ramp up substantially our deployment of capital via joint ventures by partnering with many other owners of real estate across Jamaica and the wider Caribbean,” Morris closed.