138 Student Living Jamaica received a lukewarm reception to its recent additional public offering (APO) forcing it to shelve expansion plans for now. The company went to market on September 8 to raise $2.15 billion with the offer originally set to close on October 6, but the closing date was extended to October 23 due to poor uptake. The company was also hoping that significant investor interest would have allowed it to upsize the offer to $3.225 billion.
"I do know it has been a challenging environment for us to raise additional capital in," Ian Parsard, chairman of 138 Student Living Jamaica, told the Jamaica Observer on Tuesday during a short phone call. Parsard said he did not have "any final numbers as yet" on how much was eventually raised, but said he knew it was "below, and maybe significantly so, our original expectations". The Business Observer understands the capital raise was just above $500 million which was the minimum that was being sought.
Had 138 Student Living managed to raise the $2.15 billion it wanted, it would have dedicated $1.5 billion to reducing a portion of its $4.2 billion debt stock, which it calculated would have freed up $255 million annually to distribute to shareholders. The amount freed up could have risen to as high as $420 million if the offer was oversubscribed enough for the company to upsize it to $3.225 billion, since it was planning to increase the debt repayment to $2 billion. Other sums were also earmarked for constructing additional rooms at The University of the West Indies, Mona (The UWI, Mona) but the final figure for this was not settled on. The APO prospectus said the investment could have been between $547.5 million and $1.01 billion to immediately build out 144 rooms. Parsard said it depended on the cost of construction material at the time the project was to take place. It also has a deal to build an additional 842 rooms at The UWI, Mona and was flirting with the idea of building rooms outside of Jamaica.
"It is very unlikely that we would have sufficient funds from the raise to expand at the pace that we want to, but of course, the board will get together again and we will evaluate the option. It is not impossible for us to look at a partner in terms of the build-out and who to tell, maybe there are other options that we can explore in terms of how to get it done," Parsard said. 138 Student Living currently operates long-term student accommodation in 1,464 rooms and short-term accommodation in 72 rooms at four locations on the UWI Mona Campus, under two Concession Agreements.
But having failed to realise its target and only attaining the minimum, it has instead focused on just paying down the debt. For sure, how much is left over after paying brokers to execute will go towards paying down some debt, though not nearly as much as the company would have liked.
Parsard admits that the current environment with high interest rates and inflation affected the appetite of investors to back the APO, but said the company had to go to market at this time given the obligations it had to its lenders to repay loans coming due in the near future.
"Clearly if we had an option, we would [have] most likely deferred until the environment was somewhat more conducive, but the fact is that we have obligations to the noteholders who have worked very well with us in the past to restructure the notes during covid etc., and we think we want to honour their good way of cooperating with us so we try to make sure that going forward we can meet all the obligations on time, and so, not withstanding the difficult market, we decided to press ahead," he noted.
"I would say we would only be partially successful in achieving the goal of the APO and we will then relook at what the next steps are and how we continue to move the business forward. We might have to grow a little more slowly than we would have originally hoped, but that is fine, sometimes its not a bad thing to generate your own cash to grow the business from," he added.
The rooms it operates at The UWI, Mona are almost all occupied. The 138 Student Living chairman said that provides enough revenues for settling its obligations along with the funds that were raised.
"We should have a fair amount of cash to be able to settle some of those obligations ourselves, but, clearly we wouldn't be able to do all of it and so this is where the fund raise, although somewhat limited in its success, will allow us breathing room to be able to meet those obligations very, very comfortable."
For him, the exercice has been good in terms of making 138 Student Living more visible to the investor community.
"Again it is not a huge surprise that we were not hugely successful in the APO, but I think we have started on a PR [public relations] campaign that will serve us well in the future and once we can deliver the results, I am sure the investors will come when the time is right and things look better," Parsard said.
He thanked those who participated. Most, he said, were either lenders or existing shareholders.
According to Parsard, in future 138 Student Living expects to be able to pay semi-annual dividends of up to 90 per cent of its distributable profits, providing a dividend yield of 8 per cent to 10 per cent at the proposed offer price. This will build on the company's first dividend payment of 13 cents per share in February, 2023.
For the nine-month period ending June 30, 2023, 138 Student Living realised revenues of over $1 billion, a 17 per cent increase over the prior year. The improved revenue performance reflected a return to normality from the COVID-19 restrictions and face-to-face classes. Also, during that period, the company realised net profit of $270 million, an increase of 13.16 per cent over the corresponding period in the previous year. The company achieved net profit margins of 26 per cent during that period.