Barita carving out alternative investment ambitions
AS interest rates continue to rise, hammering traditional assets as recession fears creep in, Barita Investments Limited is focusing its ambitions on alternative investments to expand its product range and differentiate its $101 billion balance sheet.
The company seeded alternative investments platform MJR Real Estate Holdings Limited in 2021 and has been buying numerous properties across the country with a plan to develop them and earn lease income plus capital appreciation. Barita allocated $8 billion of the $10.78 billion it raised in its September 2021 additional public offering. Of the total $3.38 billion Barita earned in fees and management income in 2021, $1.3 billion was from corporate finance and management fees on MJR. Barita is the investment manager for MJR with its shares held in trust at the JCSD Trustee Services.
“We believe that opportunities still exist particularly in the area of real estate, private equity, private credit and infrastructure. We think that the current interest rate environment has really carved out a space to be filled by private equity and structured finance. We think the nature of these opportunities really transcend the parameters of the current environment and will provide important diversification to what would be our natural level of exposure to more traditional assets,” said interim CEO Dane Brodber at the company’s annual general meeting held virtually on Thursday. Brodber was appointed CEO on May 7 and is the chief risk officer of the Cornerstone Group.
MJR acquired Eden Gardens on 39 Lady Musgrave Road for US$3.2 million and 2 Argyle Road for US$2.5 million. Both properties will be combined to develop a 180,000-square-foot commercial complex with spaces designated for offices and retail stores. Each property is an acre and has a development timeline of three year, with Barita’s new headquarters set to be built on the property as investment in the firm continues to lease more property in the New Kingston area.
“Our plans for that location well exceeds a plan to erect a new headquarters. It’s going to be a state-of-the-art, world-class, multipurpose facility with commercial corporate office and other uses. We expect to complete that development within the next 18-36 months, but we will be starting demolition work on that site as of later this month,” said Chief Investment Officer Jason Chambers in response to shareholders queries. Chambers is also the managing director of Barita Unit Trust Management Company Limited.
Brodber explained that MJR will be the platform to establish a suite of real estate funds and vehicles with the company set to create greater participation for investors through securitisation, outright sale, joint venture and partnership agreements and public listings. MJR also acquired a property on Ferry, St Catherine, to develop a warehouse with Cornerstone president and CEO Paul Simpson present at the recent Caymanas Special Economic Zone launch in June.
MJR recently purchased the 258-acre Reggae Beach property, which includes the eight-acre beach, in Tower Isle, St Mary, for US$50 million. The development plan calls for the realignment of the main road which yields 70-80 acres of beach front property. North of the road, the vision is for a mixed use development resort type projects inclusive of hotels, luxury villas and requisite amenities. South of the road, MJR intends to develop commercial areas to compliment the growth in St Ann and St Mary with some residential options. The development plan for the property is for five to seven years with an estimated cost of US$1 billion.
While the Barita executives didn’t expound on the plans for private equity, infrastructure and private credit, they did say that they have increased their exposure to equity and energy to about 10 per cent. Cornerstone Financial Holdings and Cornerstone United Jamaica Holdings submitted their application in February to the Bank of Jamaica for the financial holding company which Barita will fall under. Brodber explained that they also submitted supplemental applications for their technology ambitions. Barita has implemented a new core system to future proof the business and intends to launch new investment management products.
Barita has faced an unrealised loss of $1.01 billion on its securities measured through other comprehensive income with interest expense rising due to increased cost of funding. The company expects this push to reduce the beta for the company to traditional assets and allow it to manage in the current environment as other firms continue to be pressured by rising interest rates. According to Investopedia, beta is a measure of the volatiltiy or systematic risk of a security or portfolio compared to the market as a whole. Thus, if a stock has a beta of 0.50, a ten per cent move in the market equates to a five per cent move in the stock price.
“We’ve seeded alternative investment strategies and that’s where MJR Real Estate Investments come in. Over the last 15 months, Barita through its seeding of these off-book real estate holdings has moved its indirect capital exposure to real estate from 0 per cent towards 25 per cent of capital. Those assets which we were able to buy in the middle of the crisis at favourable valuations have done well consistently while traditional assets have been falling in value. Barita is in a position based on its investments to perform very well in this environment,” Chambers closed.