Hot beverage manufacturing company Jamaican Teas Limited is walking away from real estate. This as a softening of the real estate market, slow sales and construction delays have dimmed prospects on its Belvedere development in St Andrew, prompting a sell-off of the company’s real estate holdings, according to CEO John Mahfood.
Jamaican Teas has already offloaded one of three properties it owns along Harbour Street in downtown Kingston. All three together should bring in $200 million, Mahfood said.
“This will be good for the group to maintain our focus more on the remaining business, such as the expanding factory, QWI and our supermarket,” he told the Financial Gleaner following the release of the company’s September 2023 audited year-end financial results.
Mahfood says the 30-unit Belvedere development was financed entirely from internal resources to the tune of $800 million, but that as a small player, JamTeas has not been able to operate at scale in doing housing developments.
“Based on the cost and the current market, we’re not going to make any money on that project,” he said.
The 30 one-bedroom residences were put on the market at an average price of $28.5 million. Take-up, according to Mahfood, has been slow. So far nine units have been sold, with proceeds coming in over JamTeas’ first quarter, he said, as he outlined the reasons for the exit from real estate. The property holdings are parked under subsidiary H. Mahfood & Sons, a company that dates back to 1950 but began initially as a supplier of haberdashery items to retailers.
“We don’t have our own equipment and we just think that the amount of capital required to run these developments, the inconsistency of the profits (from real estate) and the results are probably a distraction. This will be the last development that we will do,” Mahfood said.
JamTeas also hit a bad patch with its first housing development, the Orchids in St Thomas. That project was beset by regulatory, construction and weather delays.
As for the Belvedere development, Mahfood said the demand for the units has fallen victim to rising mortgage rates. Homebuyers are currently skittish about taking out loans at a time when interest rates are on the rise.
Despite the challenges, Mahfood is looking to at least recoup the $800 million spent on the project. He says the cash generated from the housing sales along with the $200 million from the sale of the Harbour Street properties will be funnelled to other projects, including the company’s relocation from downtown Kingston to Temple Hall in the hills of St Andrew, where JamTeas’ factory operations are being consolidated and invested through investment arm QWI.
With the stock market in persistent decline, QWI Investments Limited, too, which invests in local and foreign equities, has not been delivering the results that would make investors happy, Mahfood noted. The JSE Main Market, on which QWI itself is listed, declined 8.48 per cent in 2023, while the JSE Junior Market, on which Jamaican Teas is listed, declined by 3.46 per cent.
Mahfood says while QWI is now doing better in terms of its performance, returns were still negative for shareholders of QWI Investments and Jamaican Teas. At year ending September 2023, QWI racked up net losses of $44 million, but it was a slight improvement from the $49.5 million that the company bled the previous year. The stock rallied in December and closed the month up by 1.67 per cent to shave some of the losses over the year, but still ended with an annual decline of 12.86 per cent.
“Late last year, we expected it to bottom out and to start seeing improvements. That hasn’t happened,” Mahfood said, while noting that the uptick in the Jamaican and US stock markets at year end may herald a better year ahead.
QWI dragged down the performance of JamTeas group, but now that inflation is moderating, it bodes well for interest rates decreasing, he added, while noting that if that were to happen, then the impact on stocks and bonds would likely be positive.
To this extent, and based on the first-quarter performance, 2024 should be a better year than 2023 as far as QWI is concerned, he said. QWI and JamTeas first quarter ended in December.
“At least for the first quarter, we don’t expect to see any major loss with QWI, and neither do we expect to see it for 2024,” Mahfood said.
Despite the drag from QWI, annual revenue for JamTeas group grew to record levels, having risen by nine per cent to $2.7 billion.
The improvement in sales followed the outsourcing of distribution to two big companies last year: Alston Marketing Company Limited, otherwise known as AMCO, in Trinidad & Tobago; and Wisynco Group in Jamaica.
The Trinidad arrangement, which happened close to mid-year, resulted in growth in export sales, but the company did not reveal those precise numbers. The arrangement with Wisynco came later, towards the end of the financial year, and should start showing positive results by around the second quarter, that is, by March 2024, Mahfood said.
Jamaican Teas is currently in the business of tea making and production of other food items, retail grocery and investments, as well as real estate development, which it will soon exit.
The JamTeas CEO is looking forward to a good year overall, saying the company is positioned to outperform expectations in 2024, given a US$700,000 investment in new equipment for both the dry-packaging and tea divisions to ramp up production levels amid growing demand.
Mahfood said evidence of the increasing demand can be seen in the company’s top-line performance. Over the past year, sales climbed by $228 million, or 9.2 per cent above the $2.47 billion of sales racked up in 2022, to deliver a new record turnover of $2.7 billion.
Concurrently, annual profit climbed by more than 14 per cent, from $162.58 million to $186.23 million.
Mahfood says revenues were also boosted by the performance at Shoppers Delight, a small neighbourhood supermarket at Chancery Street in Kingston that’s undergoing extensive renovations.
“The renovation seems to have paid off in terms of improved sales and increased customer traffic,” Mahfood said, adding that full renovations, complete with new equipment, should be finalised by February.
“My expectation for that supermarket is that it will continue to grow and perform well,” he said.
He also expects that savings from the consolidation of operations at Temple Hall, beginning late January, will accrue to the company’s bottom line and deliver higher profits in 2024.
The total cost of the relocation, including property acquisition and renovation, is around $400 million, an investment the company expects to lead to more efficient production as well as savings on security costs and utilities.