May 15, 2020
Kingston Properties Limited, for the three months period, reported rental income of US$450,080, 1% less than the US$455,199 reported in the previous corresponding period. KPREIT stated that, ‘the lower year on year balance was mainly due to higher than expected vacancy in our Grenada Crescent property in Jamaica compared to the prior year. This was somewhat offset by the addition to the portfolio of the eight (8) warehouse units at Rosedale Warehouse in the Cayman Islands.”
Operating expenses increased by 6% to US$253,659 relative to the US$239,116 posted for the same period last year. Management noted that, “The increase is mainly as a function of higher year over year staff costs with the doubling of our staff complement, as well as higher accounting and audit expenses. Three (3) condos were sold in 2019 which resulted in direct property expenses such as homeowners’ association (HOA) dues and property taxes declining year on year.”
As such, results of operating activities before other gains amounted to US$196,421, a 9% decrease when compared to the US$216,083 posted last year.
Miscellaneous gain amounted to US$1,490 (2019: US$569). Management fees closed at US$15,770 (2019: US$11,852).
Profit before net finance charges amounted to US$216,163 (2019: US$183,581) for the three months ended March 31, 2020. Notably, KPREIT highlighted that, “The figure in the first quarter of 2019 includes a loss on disposal of investment properties in Florida of US$40,439, as well as an impairment loss on financial assets of US$4,484 due to the Group’s adoption of IFRS 9 accounting standard.”
Net finance costs closed at US$401,256 relative to US$116,602 recorded for the 2019 three months period. Of this, finance income amounted to US$88,721 (2019: US$8,106) while Finance cost totalled US$489,977 (2019: US$124,708). Management also noted that, “the year on year increase in finance costs primarily resulted from foreign exchange losses, including unrealized amounts of US$218,477 arising from the translation of local currency balances held at the end of the reporting period. The unrealized losses occurred due to our holding of higher than normal local cash balances raised from our rights issue in the fourth quarter of 2019. These sums are earmarked for future property acquisitions in Jamaica and the undertaking of capital improvement projects on certain of our local properties. The unrealized exchange losses were however partially offset by higher interest income from our investment of those funds.”
This led to loss before taxation of US$185,093 compared to profit of US$66,979 for the same period in 2019.
Tax charges for the period amounted to US$29,784 versus tax charge of US$6,999 in 2019, resulting in net loss of US$214,877 compared to profit of US$59,981 in the comparable period last year. Notably, “The Group did not record other comprehensive income consequent on the change in the functional currency of the Group to USD from JMD. This resulted in a total comprehensive loss of US$214,877 in 2020,” as per Management.
Total comprehensive loss closed at US$214,877 versus total comprehensive income of US$59,981 recorded twelve months earlier.
Loss per share amounted to US0.032 cents for the period relative to earnings per share of US0.009 in 2019. The twelve months trailing loss per share is US0.04 cents. The number of shares used in our calculations is 677,712,399 units. Notably, KPREIT stock price close the trading period on May 15, 2020 at US$6.10.
The Company highlighted that, “having raised approximately J$2.0 billion in a renounceable rights issue in the fourth quarter of 2019, the impact of the pandemic has resulted in the delay of the deployment of these funds as we continue to assess various deals as they come along. These funds, that were largely held in Jamaican dollars, resulted in unrealized foreign exchange losses reflected in our net finance charges.”
Management stated that, “The board held an emergency meeting in March to assess the impact on our operations of measures being used to curb the spread of the disease. It was agreed that while these measures persisted there will be a negative impact on a macro-level for both employment and GDP numbers globally which ultimately will affect our portfolio in terms of occupancy and rent collections. The sectors mainly affected by the measures are hospitality, manufacturing and retail trade. Approximately 23% of our rental income is derived from tenants in the hospitality sector mainly in the US and Cayman Islands, and approximately 6% is derived from tenants in the manufacturing sector. CBRE Econometric Advisors and Oxford Economics suggest that employment will begin to recover during the third quarter of 2020 with a return to pre-COVID levels by the end of 2021. In addition, the IMF projects that global economic growth will regress in 2020 to -3% with some measure of recovery in 2021.”
Moreover, Management noted that, “the Company will continue to prudently maintain higher than normal cash balances which will allow it to meet its working capital needs, it will also continue to prospect for attractive deals that meet our required risk adjusted returns. Our thrust to divest ourselves of more condos in the US will continue, even in the current market conditions, with the cash generated from the disposals going towards debt reduction and further geographic diversification of our property portfolio. Interest rates are expected to remain fairly low for an extended period and we will continue to use leverage prudently to increase our investment property asset base. Additionally, two of our variable rate facilities will reprice during the third quarter of 2020 to bring our average cost of borrowing to approximately 3.5% p.a., a reduction of approximately 150 basis points.”
Balance Sheet at a glance:-
As at March 31, 2020, total assets totalled US$39.45 million, 73% more than the US$22.79 million booked as at March 31, 2019. The growth was due to increases in ‘Cash and Cash Equivalents’ and ‘Investment properties’ which closed at US$13.86 million (2019: US$1.17 million) and US$23.94 million (2019: US$20.62 million), respectively. Notably, Management stated that the increases in ‘Investment Properties’ “were offset by declines in fair values and disposals from our Florida condo portfolio.” Moreover, the increase in ‘Cash and Cash Equivalents’ was due to “renounceable rights issue in the fourth quarter of 2019.”
Shareholders’ equity closed at US$30.09 million, up from last year’s US$14.23 million, resulting in book value per share of US$44.40 (2019: US$21.00).
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