Medium term secured note being floated via a private placement

Durrant Pate/Contributor

Sygnus Real Estate Finance (SRF) is going to the local capital market with another multi-million dollar capital raise.

The real estate finance and development company is currently raising debt capital through the issuance of a medium term secured note facility of up to J$720 million via a private placement.

While SRF is seeking additional capital, the company is highly liquid with J$545.9 million in dry powder on the balance sheet at the end of May 2022 compared with J$50 million last year.

This dry powder does not include undrawn revolving credit facilities, available bridge facilities and J$2.50 billion in construction loans. Dry powder refers to cash or marketable securities that are low-risk, highly liquid and convertible to cash.

Funds held as dry powder are kept in reserve to be deployed in case of emergency.

Record real estate investment

Turning to the matter of real estate investment, SRF is reporting record real estate investment activity during the May 2022 third quarter. During the period, SRF’s investment in real estate investment assets grew by 52.6 per cent or J$3.81 billion to a record J$11.06 billion, spanning 14 investments vs. J$7.25 billion in 11 investments compared to May 2021.

SRF deployed J$2.42 billion in new investment commitments compared to J$619.2 million last year, driven by a combination of joint venture investments, acquisition of new investment assets and investments into Real Estate Investment Notes (REINs). Fair value in REINs rose by 115 per cent or J$1.27 billion to a record J$2.38 billion, primarily driven by additional capital deployment into projects with an average yield of 10.4 per cent, compared with J$1.11 billion at an average yield of 9.8 per cent as of last year.

However, some REINs are structured with a profit sharing component, thus unlocking additional upside upon exiting the investment. Additionally, due to the rising interest rate environment, SRF has entered new REINs at higher interest rates, which contributed to the higher weighted average yield on a comparative basis.

During the quarter under review, SRF exited J$300 million in REINs, which was redeployed into a new REIN at a higher interest rate. Over the next six months, SRF is expected to exit in excess of J$2.00 billion from real estate investments that are at advanced stages of completion.

Losses posted during Q3

For the third quarter, SRF generated a net loss of J$72.7 million, albeit with net interest income accelerating towards its normalised level. Total shareholders’ equity grew 29.4 per cent or J$1.52 billion to J$6.70 billion at the end of May 2022 compared to the similar period last year.

Net investment income for the quarter was negative J$65.0 million versus J$1.27 billion last year. The negative results reflected the “lumpiness” of SRF’s earnings during the early stages of its capital deployment, which have not yet reached the optimal steady state to offset its operating expenses.

SRF directors report that “this gap will continue to shrink as net investment income increases. More importantly, at each financial year end, the company is likely to benefit from the annual revaluation of its investment properties carried on the balance sheet, which are primarily denominated in US dollars”.

The net loss of J$197.5 million compared to a net profit of J$2.28 billion last year was driven by the negative net investment income of J$212.2 million, fair value gains on financial instruments of J$22.9 million and a net foreign exchange loss of J$8.1 million.