Following the announcement that Sygnus Real Estate Fund (SRF) has moved into its second investment cycle, Sygnus Capital Investment Vice-President and Head of Real Estate & Project Finance David Cummings shared a detailed vision for the fund.

On Thursday, March 20, SRF held its annual general meeting at the AC Hotel Kingston where Syngus Capital Chief Investment Officer Jason Morris outlined snapshots of the company’s achievements over the first investment cycle from 2019 to 2024. He also pointed out new opportunities for the next investment cycle including a hospitality development project in Mammee Bay, St Ann, and an industrial project in Lakes Pen, St Catherine.

The company has also begun looking for opportunities beyond the shores of Jamaica, in about five Caribbean territories.

Commenting on this development, Cummings noted: “As I indicated during the meeting, there are actually five different segments that we look to invest in. Obviously, there’s residential, commercial, industrial, hospitality and infrastructure; and we are currently reviewing a number of other opportunities in all of those segments not just in Jamaica, but across the region.”

The Sygnus Group has offices in St Lucia, where the holding company and its subsidiaries are registered, and in Puerto Rico where Sygnus Credit Investment operates through Accrecent Financial Corporation. According to Cummings, these two overseas operations allow SRF to prospect for opportunities in their respective jurisdictions.

“The beauty about us having offices in multiple countries… is that we have a good chance to assess the market in multiple countries. And if we see where we can create value for the shareholders with a real estate investment in another country, that’s what we’ll do,” he told Our Today.

He added: “So clearly, we’re having team members on the ground there, employed on a full-time basis, but they’re not necessarily real estate persons. But it gives us insight into the market, but we are not constrained to those countries that we have offices in.”

When asked if there is a timeline for making inroads into those overseas markets, Cummings cautioned that in doing so, he would create “market expectations outside of our official reporting cycles. Moreover, he said there are many unknown variables including financial, regulatory and legal issues to address before making an announcement of an overseas acquisition, so making a “forward-looking statement” could bring SRF into trouble with its regulators.

Cummings, however, reiterated that there were teams in the five territories assessing real estate opportunities, which could materialise between the next quarter to over a year.

Infrastructure and residential opportunities

Here in Jamaica, in addition to the 14-acre beachfront property in Mammee Bay, SRF will be pursuing projects. When pressed to identify what segment classes those opportunities will be in, Cummings revealed to Our Today that the company was eyeing the infrastructural and residential asset classes.

“We do have some others in Jamaica that we hopefully in the near future will be able to give you some more colour on what those look like. But rest assured that our quest really is to go hunting for where we can create shareholder value,” the Sygnus Capital vice-president explained.

“Where we see an opportunity to create shareholder value, we would investigate that opportunity. We have in the past looked at doing a large multi-story car park as one of those infrastructure projects, and we are open to looking at those in the future, if the return metrics for the shareholders surpass our hurdle rate, because, obviously, every investment we do must surpass a minimum hurdle rate that is a set out in our investment policy,” he added.

Cummings added that infrastructure projects can also come in the form of highways and roads, and could be supported through a public-private partnership or joint venture arrangements.

“The idea is that we will sit and do the evaluation and due diligence to see is there an opportunity for us to create shareholder value. And if it surpasses that metric, then we will definitely consider investing in that particular asset class of infrastructure,” he further stated.

Responding to a question on residential projects, Cummings informed Our Today that the company completed two developments in its first investment cycle. At the time of the interview, he said SRF was evaluating other prospects for the second investment cycle.

While noting that each asset class has its unique metrics and that each performs differently from the other, Cummings emphasised that SRF team is committed to doing a thorough assessment of residential projects.

“And…whereas you may not see the opportunity in Kingston, it may rest elsewhere in Jamaica. Where you may not see the opportunity in Jamaica, it may exist in other parts of the region. So it’s where if persons think that, for example, the residential market may be cooling off in Jamaica, it may be heating up somewhere else,” he shared.

When asked if the SRF team anticipates any disruptions in the new investment cycle, Cummings pointed out that there are geopolitical factors to consider as well as the threat of supply chain challenges

“So, there are many of those sort of type of events that we have to be mindful of. We have to also bear in mind that there are some tariff discussions going on, as you are aware of, around the world. We’re not quite sure where those will settle and what impact, intended or otherwise, they will have on the construction industry and the inputs to construction, steel, lumber and just the movement of containers around the world,” he continued.

Still, the SRF head said the company will be assessing data – both present and historical – as it embarks on new projects.

Addressing earnings lumpiness

During the AGM, Morris disclosed that since SRF’s model was to develop properties for transfer to another buyer or sell properties for a better value when the opportunity arises, it could create lumpiness in the company’s quarterly earnings. To this end, the real estate entity has engaged in third-party development and raising funds through real estate investment notes (REINs) to finance property developments.

Our Today asked Cummings to elaborate and to indicate if SRF will be tapping the third-party development and REINs revenue lines more.  

“Within the framework of the policy, we are trying to balance equity versus debt investment instruments,” he replied.

“The investment manager stated that there’s a lumpiness to the nature of what we do because real estate investments have a long gestation period. When you invest in a project, it could be two or three years before you start to get cash in. As a part of the strategy, he explained, we have to report quarterly financials as a publicly listed company, and the idea is that because of that quarterly reporting cycle, you will get that lumpiness,” Cummings added.

“So part of the strategy to help to smooth out that is to look at the interest income from REINs and those third-party investments that we continually seek to invest in. The bottom line, of course, most importantly, is that they have to make sense for the shareholders… create value for the shareholders because they own the company and everything we have to do has to be with them in mind, first and foremost.”