138 Student Living Jamaica Limited (138SL) said its additional public offering (APO) of stocks to the public as of today will set the company on a path to returning more dividends to shareholders while allowing it to target new projects it forecasts will boost revenues up to 50 per cent in the next five years.
The company opens the APO aiming to sell 513,972,784 new shares to raise at least $2.15 billion. It also has the option to upsize the offer 50 per cent to raise an overall $3.2 billion. The stocks are priced at $4.05 for its reserve pool which has 60 per cent of the issue. The other 40 per cent will be priced at $4.40 per share.
"The majority of the funds will be used to reduce the entity's debt," Douglas Robinson, vice-president of investment banking at GK Capital Management Limited, told the audience at the APO investor briefing held at the Terra Nova Hotel in St Andrew Thursday. GK Capital Management is the lead broker and arranger of the deal.
Robinson said the aim is to cut the company's debt in half from the almost $4 billion it now stands to save between $273 million and $467 million annually, giving the entity "breathing room" to redirect the funds to dividend payments and to help fund other projects it is now contemplating. 138SL's current debt payment hovers around $732 million annually covering interest and principal. The company projects that a decline in its finance costs will improve its profitability by $111 million to $181 million by the end of its 2025 financial year. 138SL's financial year runs from October 1 to September 30.
"We are projecting, based on the APO prices, a dividend yield of somewhere between 8.3 per cent and 10.2 per cent. That is significant. That will be one of the highest dividend yield stocks," Robinson continued. By comparison, the Jamaica Stock Exchange's (JSE) main market has an average dividend yield of 3.24 per cent. Real estate companies listed on the JSE have an average dividend yield of 3.11 per cent. The company targets paying out up to 90 per cent of distributable earnings as dividends each year. It said it wants to be one of the top five dividend-yielding companies on the JSE.
"We are bringing this company to the next stage of returning capital to shareholders," Robinson noted.
But, as the company seeks to woo additional shareholders to put their money and trust in its principals, it also outlines its vision, at least for the next five years.
The company which started operating in 2014 as a start-up, building student accommodation on the Mona campus of The University of the West Indies under a concession agreement which guarantees to take up 90 per cent of available rooms or pay any shortfall, said it is eyeing even greater opportunities between now and the end of the current decade. The entity currently operates four halls – Irvine Hall, Leslie Robinson Hall, George Alleyne Hall and Gerald Lalor Flats – with 1,464 rooms and 1,800 beds.
"As far as immediate, we have an opportunity... over the next 12 to 18 months to bring online another 144 rooms at The UWI (Mona) campus," Ian Persaud, chairman of 138SL, told the audience. That is in reference to expansion planned at the Leslie Robinson Hall at The UWI Mona. At The UWI, 138SL has the right of first refusal for construction of new student accommodation. Persaud said other opportunities for student housing exist in Jamaica at other universities which will also be pursued.
Still, it is not only focusing its gaze at Jamaica or student housing alone.
"I have been looking at at least one opportunity overseas," Persaud said, without elaborating. His fellow director, John Lee, went further. He said the company also has its eyes on building student accommodation in St Kitts and Grenada which have large concentrations of foreign students.
"They pose issues primarily political, but they are not insurmountable and we at 138 continue to explore the expansion of our brand in those countries," Lee said.
He added that there are other opportunities outside the Caribbean but hinted that the returns will be lower than the 15 per cent real return the company is now guaranteed in the concession agreement it has with the University of the West Indies, Mona.
"I would guesstimate that maybe over the next five years just in our core business, we could be looking at topline growth anywhere from a low of 25 per cent to as high as 50 per cent, just in terms of student housing," Persaud outlined. He said the company is also pursuing public-private partnerships (PPPs) with the Government of Jamaica and has been negotiating over the past two years to that end.
"We are looking at growth opportunities organically in terms of student housing, but, strategically as well, we have our eyes open in areas that we understand PPP type arrangements that could be significant for 138. We are looking at those opportunities as well," Persaud said.
"We are well-placed to venture into other areas using the concession agreement as our base. These areas can be what we refer to as user-pay, such as student housing where, literally, the user pays or we could go into availability pay, where the Government will pay us directly to provide services for hospitals, prisons and schools. The possibility for 138 is extremely endless because these areas such as hospitals, prisons and schools are literally untapped in the Jamaican market, in terms of the private sector stepping in," Lee said, adding that growth from PPPs alone could double 138SL's revenues in the next five years.