Durrant Pate/Contributor

Sygnus Real Estate Finance is expecting a slow-down of investment deployment activity through the first part of this financial year.

Thereafter, the 15-year-old Jamaica-based real estate investment and development company, registered in St Lucia, expects a substantial increase in capital redeployment during the latter half of the 2024 financial year through to 2025.

The current slow-down is due to the fact that SRF is entering into the final stages of its first investment life cycle, while simultaneously moving into its second investment life cycle, primarily focused on its two largest strategic investment assets. 

The overlap of these two investment cycles is likely to result in the expected initial slowdown of investment deployment activity.  For the first quarter of the 2024 financial year ended November 30, 2023, total investment income or core revenues came out at negative J$30.96 million compared to J$21.33 million for the three months comparable period in 2022. 

This was primarily driven by higher interest expense relative to the comparable period last year, as well as reduced interest income from a lower real estate investment notes (REIN) balance after exiting high yielding REINs during the previous financial year. 

Core earnings in the negative

Net investment income or core earnings for the quarter under review was negative J$114.89 million versus negative J$82.36 million in November 2022. The reduction was mainly attributable to the negative total investment income of J$30.96 million relative to positive total investment income of J$21.33 million in November 2022. For the financial year ended August 2023, SRF generated J$312.58 million in net investment income. 

Net loss attributable to shareholders for the current first quarter of the 2024 financial year amounted to J$132.98 million, representing an improvement of J$39.52 million versus a net loss of J$172.50 million last year. Basic earnings per share (EPS) was negative J$0.41 for Q1 2024 relative to negative J$0.53 last year, while diluted EPS was negative J$0.38 for Q1 2024 compared to negative J$0.49 last year. 

SRF is reporting total operating expenses for the review quarter of J$83.93 million, down 19.1 per cent or J$19.77 million, relative to J$103.70 million last year, driven primarily lower management fees. 

Containment of management fees

Management fees for the review quarter totalled J$32.59 million, down 52.5 per cent or J$36.03 million relative to J$68.63 million last fiscal year, while corporate services fees were J$11.14 million, down 3.5% or J$410 thousand relative to J$11.55 million last fiscal. 

As SRF enters the end of its first investment life cycle while simultaneously ramping up activities to begin its second investment life cycle, management fees have been temporarily reduced through to financial year 2025. Effective September 1, 2023 through August 31, 2024, management fees were reduced to 1.00 per cent and from September 1, 2024 through August 31, 2025, management fees will be reduced to 1.25 per cent. 

Management fees are typically computed as 2.00 per cent of core assets under management (CAUM). Management fees will revert to the 2.00 per cent effective September 1, 2025. CAUM is generally defined as total assets less project finance related debt of subsidiary companies and less any minority interests.

At a meeting of the SRF board on December 27, 2023, the Directors approved the issuance of payment-in-kind ordinary shares (PIK shares) at a price of J$18.25 to the investment manager, Sygnus Capital valued at J$377.91 million and the issuance of subscription warrants worth J$377.91 million to ordinary shareholders at a price of J$18.25 per J$ ordinary share and US$0.12 per US$ ordinary share. 

The PIK shares represent a debt-for-equity conversion for J$377.91 million. The PIK shares and warrants are subject to final approval at SRF’s annual general meeting to be held on March 21, 2024.