138 Student Living loses to Prime - Considers rights issue, fee guarantees from parents to boost performance
On Tuesday, Richard Byles, the chairman of real estate company 138 Student Living Jamaica Limited, assured shareholders that it was a good time to buy more shares, jokingly referring to the depressed price of the stock.
The company, which offers accommodation to students of The University of the West Indies, under a concession agreement with the institution, is now trading at about a fifth of the company’s book value. The 138SL stock closed at $1.63 on Monday, down 53 per cent in the past year, while the company’s book value is estimated at $8 per share.
Will bounce back
“I feel about Sagicor X Fund and Playa the same way I feel about Student Living,” said Byles, asserting that both companies would recover from a rocky experience.
Byles is also chairman of Sagicor Group Jamaica, which holds the largest block of shares in 138 Student Living with 40.47 per cent interest. And he is chairman of Sagicor Real Estate X Fund, whose resort holdings in Jamaica were sold to Playa Hotels, a Mexican-owned resort group in which Sagicor Group is now the second largest shareholder. A plunge in Playa stock last year derailed the financial performance of X Fund, which is one of the vehicles used to hold the Playa stake.
Byles said at 138 Student Living’s annual general meeting that he was bullish about the company’s future, despite prevailing challenges that include an adverse court judgment in favour of Prime Development Limited of about $100 million that the company will have to pay.
Prime built the Leslie Robinson Hall under contract, the first multi-storey high-rise for student accommodation delivered by 138 Student Living.
Initially, the contract administrator, along with the quantity surveyor, had concluded that Prime owed $32.2 million to Student Living after a dispute between them under the construction contract dated September 16, 2014.
Prime responded by filing a claim in court against Student Living in June 2016 for $118.9 million. The claim was subsequently revised downwards to $56 million under arbitration, but legal costs and interest charges pushed the figure back within the region of $100 million, Byles said.
The judgment, he noted, was a surprise. Student Living had only booked $33 million against the judgment.
Other challenges facing the company, the chairman said, include high receivables and high utility costs.
General Manager Rose Hamilton disclosed that water bills for the 1,464 rooms run by the company were higher than the electricity bill, a situation that bucks the norm for utility charges, and were being investigated to see how utility costs to Student Living could be reduced.
Water is supplied to Student Living’s buildings by the UWI, Mona, which owns and operates its own well. Byles noted, however, that the water rates are similar to those charged by the National Water Commission.
As to the general performance of the company, the chairman outlined five measures for recovery and cost containment, one of which was the consideration by the board of a rights issue. A committee of the board is to determine pricing and timing.
UWI Mona not been able to deliver the United States nationals, as a new source of students, who had been envisioned to occupy the new halls and pay the economic costs of the units. The Jamaican and regional students who rent the rooms are paying rates below the economic cost, and that situation is compounded by delinquent payments.
For year ending September 2018, the company’s receivables doubled from $163 million to $330 million. And the company made a loss of $91 million on revenue of$ 780.4 million. The annual report also hinted at a prospective negotiation with bondholders about that debt, but gave no clear indication when those talks would happen.
Byles said that if the UWI could find a way to honour its obligations to Student Living, the company might register a profit for the year ending September 2019. He did not specify how much was owed, but only noted that both company and school owed each other money.
“In discussions with UWI, it has been showing its willingness to be as accommodative as it can, (but) they too have significant financial challenges,” he said.
On the upside, Byles expects that the US federal agreement secured by UWI to facilitate aid for American students wishing to study on its campus may result in future tenants who could pay the economic cost of the rooms; and that both the medical and law faculties were expected to attract oversees clients.
In the meantime, the company plans to start seeking guarantees from parents for the room fees, and will also be moving to charge rental by the semester, in the same way that the UWI does. Monthly payments, it was stated, was having a negative effect on cash flow and encouraged delinquency.
Occupancy rates are projected to reach 90 per cent in 2019, up from last year’s 82 per cent, Byles said.