As Kingston Properties Limited (KPREIT) waits on subscriptions for its additional public offering (APO) to roll in, some brokers have published their research on the $7.50 price being offered relative to their valuations and expectations based on the underlying environment.

The APO opened on Tuesday and is set to close on May 10. KPREIT is seeking to raise $1.50 billion with an option to upsize to $2.25 billion. This is the company’s third secondary market offering since listing which will see it pay down a $700-million bridge loan to VM Investments and deploy capital to various projects across Jamaica, the Cayman Islands and the United States of America.

Scotia Investments Jamaica Limited (SIJL), a selling agent to the offer, determined that KPREIT’s fair value before the offer was $10.22 which is a 32.73 per cent implied upside from the closing price of $7.70 on Tuesday when the report was dated. The revised fair value after accounting for the proceeds of the offer came to $10.46, which is 39.47 per cent above the offer price. This was supported by the investment thesis which stated the geographically diverse portfolio, strategic growth, aquisition drive and attractive dividend payout.

“The construction sector is expected to overperform as development projects get underway over the medium to long term. Strong performance is expected in commercial real estate, which has been benefitting from the heightened growth within the BPO sector in recent years. In the Cayman Islands, economic activities remain robust with construction being one of the leading players in GDP growth for the country during the pandemic. With the tightening of monetary policy, the company could see higher cost of borrowing.

However, if KPREIT can continue leveraging its relationship with its financing partners to receive attractive rates, then this should augur well for revenue generation for the company given its ability to identify properties that have provided attractive return on their investments. This should assist in expanding its footprint in warehousing sub-asset classes, to not only create value by meeting the demand of players within the distribution and manufacturing sector, but also to its shareholders. Ultimately, this should support favourable improvements in and stability of rental income,” the SIJL report stated.

Barita Investments Limited’s report stated that, “the stock is best suited for investors looking for consistent and increasing dividend payouts, along with the potential for capital appreciation, over a long-term horizon.” The recommendation is for investors to participate in the offer after Barita got a valuation range between $7.54-$9.24 with an ultimate fair value price of $8.39, an 11.31 per cent implied capital appreciation. The investment rationale mirrored the SIJL report including the strong management team and stable and healthy tenancy. An investment negative highlighted was the market risk for the stock since the company is largely held by institutional funds totalling 87.90 per cent. The low volumes traded resulted in the stock price benefiting from an illiquidity premium as it remained above its book value in 2021 when it has historically traded below its book value. The Barita report also calculated the net capital available after fees and bridge loan to be $1.44 billion.

Lead arranger and broker VM Wealth Management arrived at a price target of $9.41 if the offer isn’t upsized and $8.45 if upsized. While highlighting the positives of KPREIT such as the United Stated dollar (USD) dividends plus restructuring to reduce associated property costs, it also highlighted the risk that the properties are located in countries afflicted by hurricanes and the timing of the recovery from the pandemic might impact commercial office and residential niche. VM Wealth has underwritten the offer to the tune of $500 million. JMMB Securities Limited, Sagicor Investments Jamaica Limited and JN Fund Managers Limited are the other selling agents to the offer.

“We hold a positive outlook for KPREIT, particularly given the resilience of its investment portfolio amid the pandemic. We also expect continued growth in rental income as well as revaluation gains on its investment properties. We anticipate that the business is likely to continue improving on its financial performance as the company continues to build out its property portfolio across various jurisdictions such as Cayman, US, and Jamaica. Additionally, the capital injection from the APO should give KPREIT the financial flexibility to expand its portfolio and increase shareholder value,” the VM report stated.