Durrant Pate/ Contributor

Having paid out its first dividend last December, Sygnus Real Estate Finance (SRF) has started 2025 in the red with shareholders’ loss for the first quarter almost doubling to J$235.69 million coming from J$132.98 million in the corresponding period last year. 

All earning matrices for the quarter ended November 30, 2024, headed south, indicative of the difficult first quarter experienced by the real estate development subsidiary of the Sygnus group. Basic earnings per share (EPS) is negative J$0.72 relative to negative J$0.41 last year, while diluted EPS is identical during the quarter under review compared to negative J$0.38 last year. 

Similarly, basic core earnings or net investment income per share (NIIPS) is negative J$0.70 compared with negative J$0.35 last year. However, return on equity (ROE) since inception closed at 19.1 per cent over the past five years, which is also reflective of the first investment cycle.

Net investment income or core earnings for the first quarter came out at negative J$226.96 million almost doubling the negative J$114.89 million recorded in the previous year. The reduction was mainly attributable to a negative total investment income of J$125.65 million relative to negative total investment income of J$30.96 million in 2024. 

SRF has explained that due to the nature of its business model, it may experience fluctuations or “lumpiness” in total investment income and net profits during interim reporting periods, which usually stabilises by the end of each financial year, as evidenced by the full financial year results of August 2024, relative to the interim quarterly performance. 

Marginal rise in SRF’s book value

For the August 2024 financial year, SRF generated J$508.50 million in net investment income. On the positive side, SFR’s book value inched up to J$23.93 compared to J$23.48 last year. 

During the period under review, SRF recorded exits valued at J$1.65 billion comprising of proceeds received from the successful sale of the Hillcrest asset, as well as the exit of a real estate investment note (REIN). 

The capital received was used for deployment into new investments, including the acquisition of shares in a newly formed joint venture, investing in a third-party REIN and the redemption of preference shares issued by Charlemagne Holdings Limited, the subsidiary that held the Hillcrest property. 

While in this transitionary period, SRF continued to unlock value from its major real estate investment assets (REIAs) by achieving another set of key milestones. These include advancing the ongoing execution of interior build-out works for some tenants of the One Belmont property, advancing the monetisation and exit of the property; and advancing the value creation process for the Mammee Bay hospitality asset in St. Ann and the Lakespen industrial asset in St. Catherine. 

Capital and earnings raised

SRF raised a record amount of capital totalling J$4.11 billion after successfully closing its dual currency multi-tranche debt raise during the quarter, achieving record inflows of approximately US$15 million and J$1.76 billion through a private placement of four-year senior secured debt. The capital raised was earmarked for deploying into additional REIAs and refinancing existing debt.

The share of gain on joint ventures amounted to J$23.63 million compared to a nominal loss of J$0.30 million last year, and was driven by SRF’s 71.0 per cent ownership in the newly formed joint venture company referred to as 5658 LMR Limited, whose underlying assets are two resort villa properties located in Ocho Rios, Saint Ann.

Management fees temporarily reduced

Management fees have been temporarily reduced from 2.0 per cent and were computed for FY 2024 as 1.0 per cent of the core assets under management, namely total assets less project finance-related debt of subsidiary companies and less any minority interests. Management fees are being computed for FY 2025 as 1.25 per cent of the core assets under management. 

SRF’s management expense ratio (MER) computed as total operating expenses as a percentage of total core assets under management is 2.7 per cent (annualised) and was within the target threshold level of 3.5 per cent. This ratio is assessed at the end of each financial year but annualised and tracked during interim quarterly reports.