Kingston Properties Ltd (KPREIT) has reported an almost 200 per cent increase in profit before net finance charges for the first half of 2021, compared to the same period last year, a boon it attributed to signs of market recovery amid the ongoing COVID-19 pandemic.

In its unaudited group financial statements for the six-month period ended June 30, 2021, KPREIT stated that, for the first six months of the year, there was a 198.2 per cent rise in profit before net finance charges to US$1.2 million from US$389,393. The figure in the first half of 2021 included a fair value gain of US$201,038 from the Group’s investment in a real estate fund as well as higher fee income earned year to date.

For the second quarter of 2021, the Group recorded profit before net finance charges of US$487,578 compared with US$168,855 in the same quarter in 2020, an increase of 189.4 per cent.

In the first half of 2021, the Group recorded a profit before income tax amounting to US$953,023 compared to a loss of US$290,088 for the same period in 2020. The loss in 2020 resulted from higher net finance costs amounting to US$679,481 compared to US$207,987 in 2021.

For the second quarter of 2021, profit after tax amounted to US$302,703 compared to a loss of US$132,143 for the second quarter of 2020, while, for the six months period, the profit stood at US$927,202 compared to a loss in 2020 amounting to US$343,397.

The Group said the figure in 2020 was primarily comprised of realised and unrealised foreign exchange losses arising from the translation of local currency balances as KPREIT held higher than normal local cash balances.

In an overview of the results, Kevin Richards, CEO of KPREIT, said the Group continues to see improved operating results for the second quarter of financial year 2021, as markets begin on a path towards economic recovery despite the continuing effects of the COVID-19 global pandemic.

“Favourable vaccine rollout programmes in major global economies have resulted in the reopening of those economies with a push towards a return to offices and increased global travel,” Richards said.

“The logistics and distribution industry continues to be strong, which has helped to bolster our financial performance for the year to date.”

Group rental income increased by 62.0 per cent year on year for the three months ended June 30, 2021 to US$727,420 compared to US$448,890 for the same period in 2020. The higher year on year figure was attributed mainly to the acquisition of two properties in the second half of 2020 and one in the first quarter of 2021, as well as the recovery in occupancy at some of KPREIT’s properties in the US and Cayman Islands that were affected in 2020 by early lockdown measures in those jurisdictions.

For the first six months of the financial year, group rental income increased by 59.1 per cent to US$1.4 million. Direct property and administrative expenses, which are reflected in group operating expenses, increased by a modest 1.5 per cent during the second quarter from US$295,348 in 2020 to US$299,785 in 2021. For the half year, the increase was 4.1 per cent to US$571,820.

Said Richards: “The increase is mainly due to higher broker fees and staff costs in 2021. However, this was offset by lower homeowners association dues and property taxes in the US consequent on the disposal of six condo units in Florida in 2020.”

KPREIT indicated that its net operating results saw a 178.5 per cent increase year on year for the second quarter of 2021, moving to US$427,635, while results of operating activities before gains (NOI) for the half year increased by 144.2 per cent, moving to US$865,295 in 2021 from US$354,337 in 2020. In addition, net operating margin increased from 39.2 per cent in 2020 to 60.2 per cent in 2021 while EBITDA increased from US$395,056 to US$1,168,647 over the same period.

Following the acquisition of a warehouse property and an office building in Jamaica, as well as a multi-storey office building in the Cayman Islands over the last 12 months, and higher fair value on a property in Jamaica, investment properties increased by 67.3 per cent year on year to US$40.1 million. The year-on-year increase was however offset by declines in fair values and disposals from KPREIT’s Florida condo portfolio.

Total assets stood at US$45.0 million as at June 30, 2021 compared to US$39.4 million the previous year, an increase of 14.4 per cent. This included cash and near cash holdings of US$2.7 million. Total loans payable were approximately US$8.9 million at June 30, 2020 compared with US$13.6 million at June 30, 2021, representing a 52.7 per cent year-on-year increase in borrowings.

“These are collateralized bank financing to facilitate the expansion of our property portfolio and are denominated both in US and Jamaican dollars from our financial partners in Jamaica and the Cayman Islands,” Richards said.

“Our average cost of borrowing remains firmly below 4.0 per cent per annum. We continue to maintain fairly conservative debt ratios as part of our risk management strategy.”

Total equity increased marginally by 3.4 per cent year on year to US$31.0 million from US$30.0 million in 2020. Book value per stock unit improved from US$0.04421 at June 30, 2020 to US$0.04574 at June 30, 2021.

In its consideration of the COVID-19 pandemic, Richards said the board and management have been continually assessing the impact on the Group’s operations of the measures being used to curb the spread of COVID-19.

“Being more than a year since the declaration of the global pandemic, we conduct periodic evaluation of the impact containment measures are having on our tenant base and devise mitigation strategies if needed,” he noted.

“Occupancy levels and collections from our properties remain solid with greater than 95 per cent of our tenants being current. With this prolonged period of economic distress, the board approved a plan that required the company to maintain sufficient cash resources to weather any shocks to our income, the need to meet debt service obligations and take advantage of any opportunistic deals that may arise.”

Richards boasted that the diverse nature of KPREIT’s tenant base and geographic dispersion was continuing to provide a level of resilience to the company’s operating income and that the deployment of funds raised over the last two years continued to ensure solid results through acquisition of higher yielding assets and improved efficiency in our operations.

“This is demonstrated by our five-year compound annual growth rate for rental income and net operating income being 15 per cent and 32 per cent respectively,” he outlined.

“Our divestment of the Florida condo portfolio will continue and this will result in a shift into multi-family properties to reduce valuation volatility and generate higher yields.”

The KPREIT CEO noted that the Group recently acquired an approximately 40 per cent interest in a 155-unit multi-family property in Atlanta, Georgia and was in various stages of completion on three value add and greenfield transactions in the Cayman Islands and Jamaica.

“The acquisitions to date have adjusted our entire portfolio exposure (including investments in a real estate fund) in the US to 15 per cent, while Jamaica and the Cayman Islands account for 48 per cent and 38 per cent respectively.”

He said the Group was continuing its fundraising efforts to “build a portfolio of solid assets consistent with our required risk-return metrics”.

With that said, the Group secured financing in the form of a 13-month bridge loan from Victoria Mutual Investments Limited and also received approval from its shareholders last February to increase the company’s share capital and to raise funds via an additional public offering.

“We believe that while the pandemic persists, more distressed assets will become available and the Group expects to be in a position to take advantage of those opportunities,” Richards said.

“Interest rates are expected to remain fairly low for some time, even with inflation pressures in many global economies. While this obtains, we will continue to use leverage prudently to increase our investment property portfolio. A second interim dividend of US$0.000664 was declared in July to be paid to shareholders on August 23, 2021.”