KLE to share Bessa profits in exchange for cash injection
KLE Group Limited has segued from food services to property management and development, marking its second major makeover in a decade as a listed stock market company that has found sustainable profit elusive. But the restructuring and adoption of...
KLE Group Limited has segued from food services to property management and development, marking its second major makeover in a decade as a listed stock market company that has found sustainable profit elusive.
But the restructuring and adoption of real estate as its new core business still leaves the company indebted to one of its directors, with whom it has now struck a profit-share deal.
Formerly known as Kingston Live Entertainment Limited, KLE went public in 2012 as a nightclub operator but soon found that there weren’t enough persons willing to party continuously to feed its operation.
At mid-decade, it switched its business model to restaurant operations, through casual dining outfit Usain Bolts Tracks & Records, UBTR, but again, KLE Group failed to thrive.
Its venture into real estate, which began as a non-core investment in a villa development in St Mary called Bessa, also dates back a decade.
But construction of the units only got under way in 2017.
The vacation residences, on which KLE has partnered with Sagicor Group since 2012, are said to be almost completed, with a summer launch date in mind.
So far, Bessa is the only real estate project known to be on KLE’s books, and it is a development in which it holds a minority stake of 25 per cent. The majority is held by Sagicor.
While on paper it still holds the 25 per cent interest in Bessa, KLE Group will have to split its share of profit from the project with Zuar Jarrett, one of its directors. Jarrett is also one of the top owners of KLE Group Limited with 4.2 per cent interest at last disclosure in September 2021.
The transaction gave KLE Group US$501,000 (around $77 million) in fresh capital, proceeds that are net of a long-standing obligation it had to Jarrett in connection with professional services provided by him at the inception of the Bessa project.
The deal, which was completed on December 24, 2021, guarantees that KLE pays over to Jarrett an agreed portion of its share of profit from the Bessa development.
“The money will go towards Bessa sales and marketing and the three-year property and rental management business opportunity,” said KLE Chairman David Shirley regarding the funds injected by Jarrett. “But it’s not limited to that,” he said in an interview with the Financial Gleaner.
KLE intends to use cash generated from sale of the vacation homes to fund future projects, including other potential development properties it says it has identified in St Mary.
“We are at concept and feasibility stages,” Shirley said.
KLE Group has not given up on its casual-dining investments. Instead, it executed a transaction that shifted the operations and assets to associate company FranJam in which it maintains a 49 per cent stake. FranJam is the trading name for T&R Restaurant Systems Limited.
KLE’s divorce from direct food operations follows its reorganisation during the early stage of the pandemic into two divisions, real estate and restaurant operations, that were overseen by separate committees.
It had also eliminated the position of CEO, which was held by Gary Matalon, to save on costs.
Shirley now says restoration of the CEO position is under consideration for KLE Group once the latest restructuring has been completed and the revenue streams have been solidified.
“Currently, the company benefits from the relationship with FranJam during the transition. However, KLE will keep our CFO [chief financial officer], and the real estate committee will have management oversight until Bessa is fully operational,” Shirley said. “We will utilise the very competent services of selected industry- specific consultants during the restructuring period. KLE plans to diversify its board in the near future as we believe women have a major part to play in the development of our country. A new CEO will be considered,” he added.
Since its market début in October 2012, KLE Group Limited has only had one woman on its board, bill payment pioneer Ambassador Audrey Marks, the founder of Paymaster, who was KLE’s chairman prior to her reappointment as Jamaica’s ambassador to the United States in 2016.
The restructuring of the group, which began in July 2021, allowed KLE to spin from losses of $104 million to net profit of $25.7 million on its continuing operations at year ending December 2021. Losses from the UBTR discontinued restaurant operation, amounting to $11.4 million, further compressed the company’s bottom line to $14 million.
Last month, FranJam’s board began considering a turnaround plan for UBTR restaurants, which are now being managed by hospitality expert Armando Pizzuti.
While the details of the divested restaurant operation and its potential for profitability are still being worked through, KLE’s outlook on the Bessa project remains positive, with the company expecting to realise a return from the sale of 86 vacation properties.
Shirley said Friday that as at June 2021, the budget for the Bessa development had climbed to US$27 million.
The units are being sold at US$230,000 to US$750,000.
KLE Group also expects to earn property-management fees from Bessa, which it will manage once the complex has been completed.