The decision by real estate investment company Kingston Properties (KPREIT) to further invest in the growing logistics industry will yield long-term benefits for them, in the opinion of THE ANALYSTS from the latest episode of Taking Stock with Kalilah Reynolds.
KPREIT recently announced that it signed a $700-million 13-month bridge loan with Victoria Mutual Investment Limited (VMIL) to continue the expansion of its property portfolio.
The facility follows the company's 2019 rights issue, which raised some J$2 billion. That offer was brokered by VM Wealth Management.
Research and strategy analyst at Sagicor Investments, Jodian Aris, said the new funding will help the company expand its footprint as well as earn more income over the long term.
KPREIT currently owns industrial, residential, office and retail properties in Jamaica, the United States (US) and the Cayman Islands.
In a statement on the Jamaica Stock Exchange's website, KPREIT CEO Kevin Richards noted that Kingston Properties plans to use the new funds to specifically increase its investment in industrial properties over the next few years, in line with the growing logistics and e-commerce industry globally. He said the company will also be broadening its reach in the US, particularly in states outside of the hurricane corridor.
“They have some exposure already [in that industrial space] but they're expanding based on expectations that logistics will be opening up and so [the loan] is just to fuel the expansion that they have planned,” said Aris.
As part of its expansion plans, the company's CEO said they're also looking to explore more value-added greenfield projects. Aris explained that greenfield projects relate to new buildings or structures being built from scratch, as opposed to brownfield initiatives where an existing property or lease gets acquired and the ownership gets transferred.
“So you could be seeing Kingston Properties doing some actual buildings from the ground up,” said Aris, noting that this activity will further drive growth in the local construction industry which continues to be a top performer throughout the COVID-19 crisis.
The sector was the only one to record growth between October and December 2020, according to the Statistical Institute of Jamaica (STATIN). Additionally in its latest quarterly report, the Planning Institute of Jamaica (PIOJ) projects that the construction sector will again grow by over 12 per cent between January and March this year. PIOJ estimates that construction will be one of two subsectors to experience growth for the first quarter in the overall goods producing industries.
“Construction has really been a big star for the economy during the pandemic and as we speak about Kingston Properties, you really see that the sector has great potential and it's really expanding during a period when you thought it wouldn't. Most of the indicators for construction have been up, mortgages, housing starts, cement production, all up,” reasoned Aris.
Meanwhile, senior wealth advisor at Ideal Portfolio Services, Orick Angus said the company stands to greatly benefit from the added investment in industrial properties based on the high demand for that type of real estate now in the local market.
“You find that a lot of companies are [now] trying to find warehouses, storage spaces that they can use to build out the industry more, so I think it's a good mix to add to the portfolio. They have been focusing on commercial and residential priorities over the past couple years,” reasoned Angus.
As part of its strategic objectives, KPREIT plans to increase its equity to $10 billion and to increase the footprint of properties under its ownership or management to one million square feet by 2023.
For the first quarter of 2021, KPREIT reported a 58 per cent year on year increase in rental revenue to US$709,695 with net operating income increasing by 123 per cent year on year to US$437,660.
Net profit after tax also increased to US$623,338 for the first quarter of 2021 compared to a loss of US$214,877 the prior year.