DESPITE reported losses in the third quarter (Q3) and over the nine months ending May 31, 2022, Sygnus Real Estate Finance Limited (SRF) remains bullish on its investments in development projects over the next few months.
In an earnings call on Monday, July 18, SRF co-founder and Chief Investment Officer Jason Morris pointed to the company's increase in its asset base as a sign of greater things to come.
"SRF is still in the very early innings of its investment life cycle and so what we would have committed to shareholders…was that we're moving to substantially increasing the [number] of assets that are generating income. We would have more than doubled those assets from $1.1 billion to $2.38 billion at the end of the reporting period, which is a substantial increase," he explained.
Total assets increased from $7.39 billion in Q3 2021 to $11.68 billion in the period under review. Of that amount $736.7 million is in assets held for sale and $7.29 billion in investment property, which increased by 27 per cent.
As at May 31, 2022, SRF had 65.9 per cent of its deployed capital in investment property with 21.5 per cent in real estate investment notes (REINs), 6.7 per cent in developments held for sale and the remainder in joint venture projects.
Morris outlined that the company's investment in REINS is a "unique investment strategy created to generate income" in a much different way than purchasing a completed building that would generate rental income.
For the three months ending May 31, 2022, SRF earned total investment income of $29.63 million when compared with $1.31 billion in the same period a year before. Earning in Q3 2021 were boosted by one-off gain on the acquisition of a subsidiary for $1.31 billion.
With operating expenses totalling $94.67 million in Q3 2022, SRF's net investment income crossed into the negative at $65 million. Moreover, the company reported a net loss attributable to shareholders of $72.7 million when compared with $1.28 billion in 2021. Earnings per share as at May 2022 was -$0.22 when compared with $6.79 a year ago.
Over the nine months up to May 2022, SRF earned $60.2 million in total investment income compared with $2.3 million in 2021. Again, with operating expenses increasing by 82 per cent to $272.4 million, the company reported negative net investment income of $212,227.
Net loss for the nine-month period amounted to $197.5 million compared to a profit attributable to shareholders of $2.3 billion. Earnings per share fell from $12.87 in 2021 to -$0.63.
Explaining the loss, Morris told listeners on the earning call that the SRFs has not "gone through a full investment cycle as yet. Our average investment horizon is three to five years, but we're coming up on the first investment horizon life cycle."
"We have at least $2 billion in investments that are at various stages of advanced execution and we'll be looking to exit those in the next few months," he added.
Another factor contributing to the losses, Morris explained, is that while SRF reports in Jamaican dollars, it holds a majority of its assets in US dollars. In this regard, he said the company would have to wait until year end to account for gains on assets as well as foreign exchange revaluation to reflect in the income statement.
Still, Morris shared that the company remains "bullish" on all of its project portfolios — industrial, hospitality, residential, and commercial/corporate.
So far, SRF's One Belmont project in New Kingston is 30 per cent complete and is on track for total completion by April/May 2023. Its industrial project at the corner of Spanish Town Road and Penwood Avenue is 48 per cent with construction expected to end in September/October this year.
With regard to its Hillcrest Avenue property in the Corporate Area, the company "continues working with partners to optimise strategy to extract the best value from the 3.2-acre property. The building on the property, which housed the former French embassy, was recently renovated to facilitate a short-term rental."
Over the next 60 days SRF will make a decision on its plans for its hospitality project in Mammee Bay, St Ann.
For the nine months, SRF increased cash and cash equivalents to $545.89 million compared to $49.97 million in May 2021.