Higher rental income, unit sales lift profit for Kingston Properties
Kingston Properties is moving more into the multi-family property market in the United States and away from single units such as these loft residences in Fort Lauderdale.

DESPITE foreign exchange pressures, higher financing costs and administrative expenses, Kingston Properties Limited (KPREIT) reported profit after tax in the second quarter of 2022 totalling US$367,924 compared to US$302,703 for the second quarter of 2021, representing an increase of 21.5 per cent.

For the six-month period ended June 30, profit increased by 16.9 per cent to US$1.1 million, compared to US$927,202.

The company indicates that it will continue to raise funds on the market as it adjusts its portfolio into more profitable segments. These include "value-added opportunities" says CEO Kevin Richards who defines this as "opportunities that are below their full potential, usually tenanted at rent less than the market average, or in need of renovations to attract higher rent".

"The two most significant matters in the second quarter were, one, completing our equity fund-raising via an APO — which was successful and oversubscribed — and two, addressing rising interest rates so we negotiated fixed rate terms on some of our facilities and paid out one," Richards told the Jamaica Observer.

New acquisitions are in the pipeline while divestments continue.

In the reporting period the company disposed of a unit at West Fort Lauderdale and at Opera Tower in Miami and reported a gain of US$225,794.

"Favourable signs of recovery, including jobs growth in the US and the elimination of travel restrictions globally, have left us cautiously optimistic about our ability to maintain our current growth trajectory," the CEO said in a statement attached to the company's latest financials.

Richards said that the company will continue the divestment of the condo portfolio in Florida as it shifts to multi-family properties "to reduce valuation volatility and generate higher yields".

"The last two condos in our portfolio held in South Florida are on the market for sale, along with expressions of interest received on certain properties in Jamaica. I would not want to discuss further until deals are closed," he told the Business Observer.

"We have an acquisition in the Cayman Islands, that is pending receipt of certain approvals, which we hope to close before the end of the third quarter, and we continue to assess other deals in light of the current global economic environment," he said.

Rentals improve

Richards noted that the group achieved near 100 per cent occupancy by the end of the reporting period and continues to benefit from a tenant base comprised primarily of financial, warehousing and logistics, manufacturing, and government service providers.

Group rental income increased by 12.5 per cent year on year, for the three months ended June 30, 2022, to US$818,526 compared to US$727,420 for the same period in 2021. There were increases in rent at some properties and higher occupancy levels at properties in Jamaica.

For the first six months of the financial year, group rental income increased by 12.5 per cent to US$81.6 million. Direct property and administrative expenses increased by 37.0 per cent during the second quarter from US$299,785 in 2021 to US$$410,783 in 2022.

For the half-year, the increase was 28.2 per cent — US$733,056 due mainly to higher staff costs linked to an increase in staff complement and higher broker and professional fees, which were both one-off expenses recorded during the period.

However, this was offset by lower homeowners' association dues and property taxes in the US consequent on the continued disposal of condo units in Florida.

Net operating margin moved from 60.2 per cent in 2021 to 54.6 per cent in 2022 while earning before interest, taxes, depreciation, and amortisation (EBITDA) increased from US$1.2 million to US$1.4 million over the same period.

In the first half of 2022 the group recorded a profit before income tax amounting to US$1.1 million compared to US$953,024 for the same period in 2021.

The growth in profit before income tax in the first half of 2022 was tempered by higher net finance costs of US$263,741 compared to US$207,988 for the same period in 2021. The increase was primarily driven by higher interest expense and foreign exchange losses associated with the $700-million bridge loan facility which was secured in July 2021.

Following the acquisition of several properties over the last 12 months and the disposal of seven condo units over the same period, investment properties — excluding properties held for sale — remained relatively flat year on year at US$40 million. Two condo units totalling a carrying amount of US$1.8 million were held for sale in South Florida during the first half of 2022. During the current period the group also invested US$1.8 million in Polaris at East Point.

Recently, KPREIT acquired approximately 45 per cent interest in a 118-unit multi-family property in Atlanta, Georgia. It is now in various stages of completion on value-added transactions in the Cayman Islands and Jamaica, Richards said.

"The acquisitions to date have adjusted our exposure, including investments in real estate partnerships in the US to 14 per cent of the entire portfolio, while Jamaica and the Cayman Islands account for 49 per cent and 36 per cent, respectively," Richards said.

Total assets

Total assets stood at $57.4 million as at June 30, 2022 compared to US$45 million the previous year, an increase of 27.6 per cent. This included cash and near cash holdings of US$7.6 million.

The increase in cash balance was mainly due to the net proceeds received from the recently concluded additional public offering (APO). Total equity increased by 38.3 per cent year on year to $42.8 million from $31.0 million in 2021, due primarily to additional share capital and improved retained earnings.

Book value per stock unit has improved from US$0.04574 at June 30, 2021 to US$0.04843 at June 30, 2022.

Total loans payable was approximately US$14.1 million at June 30, 2022 compared with US$13.6 million at June 30, 2021, representing a 3.6 per cent year-on-year increase in borrowings.

"These are collateralised bank financing to facilitate the expansion of our property portfolio, and are denominated both in US and Jamaican dollars from our financial partners in Jamaica and the Cayman Islands," Richards explained.

"We continue to maintain fairly conservative debt ratios as part of our risk management strategy. Our debt to equity has improved significantly due to our recent successful APO from 43.8 per cent to 32.9 per cent in the current period."

Richards said KPREIT will continue fund-raising efforts, noting that the successful equity raise, via an APO, was partially applied to repaying a 13-month bridge loan from Victoria Mutual Investments Limited. The balance will be used on real estate investment opportunities in the company's pipeline.

Avia Collinder

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