6 months ago
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Sygnus Real Estate Finance Limited, SRF, is looking to get more income flows through leases to smoothen the ‘lumpiness’ of investment flows and booking of capital gains, which generally materialise at the end of the company’s financial year, according to Chief Investment Officer Jason Morris.
Its accounting period terminates annually in August.
Morris says SRF’s capital is primarily allocated across three investment categories: property investments occupy the largest chunk at 77.5 per cent, while real estate investment notes, or REINs, account for 12.3 per cent, and joint ventures for 10.3 per cent. REINs are structured debt instruments that are issued by SRF as financing for its real estate projects.
The CIO is looking to change that mix by concentrating more on REINs and leases. It’s not a shift in strategy, per se, but moreso a change in emphasis, amid SRF’s migration from its first investment lifecycle to a second, he indicated. As an example, Morris said SRF will not be completely exiting its 70 per cent holdings in One Belmont, a nine-storey office complex it developed in New Kingston, but would rather be offering leases to the tenants. In addition, Morris expects that REINs “will be ramped up substantially”.
“The way you look at the mix now it will probably shift, where REINS will be a larger percentage of the overall balance sheet. Joint ventures may go down as we exit One Belmont, but it will ramp back up, and the property investments may be reduced as we go along through time,” Morris said during SRF’s second-quarter earnings call for the period ending February.
SRF will move to a position where it has a better mix by generating income through leases from commercial real estate the company conceptualised and developed, he said.
He added that the change in focus has become necessary, especially in light of the company’s current financial performance. Sygnus’s net losses have expanded from $302 million at half-year in 2023 to $320 million at half-year ending February 2024. For the current review period, more than half of those losses, $187 million, was racked up in the most recent quarter ending February.
The bottom line results flowed from net revenue that is itself negative because of the company’s heavy interest expense burden.
For the three months ended February, net investment income was negative $113 million, but slightly better that the showing of negative $124 million in the period ending February 2023. Over six months, net investment income was also negative at $228 million, marking a deterioration in performance relative to negative $206 million of investment income in the year-prior period.
Net investment income incorporates interest income, leases and other income, and is net of interest expense and operating expenses.
Morris says a change in the investment mix will allow the company to properly cover interest expense, which for the half-year amounted to $176 million.
SRF, a near six-year-old company and member of Sygnus Group, is presently preparing to develop its Mammee Bay, St Ann property and a 55-acre logistics park at Lakes Pen, St Catherine, as part of the second round of investments.
English (US) ·