138 Student Living breaks dividend drought prior to new capital raise

For the first time in over eight years since it entered the stock market as a start-up business in December 2014, 138 Student Living Jamaica Limited will pay a dividend, amounting to nearly $54 million at 13 cents per share.

The distribution of funds to shareholders, scheduled for February 23, is set a fortnight after a planned board meeting on February 7 regarding raising fresh cash.

The amount of funds targeted was not disclosed, while a decision on the option to be utilised for the offer to the market is pending.

In fact, 138 Student Living Chairman Ian Parsard said the board will consider the possibility of either a debt or equity raise, although the company’s market filing on the upcoming meeting referenced only the latter.

“The meeting is to consider the options. Emanating out of the meeting with the advisers and what is recommended, then at that point resolutions will have to be passed which then might trigger, or not, a whole series of events,” Parsard said.

“It is a regulatory requirement that once you’re meeting to look at that option [equity], you do have a responsibility to disclose it, but at this point no decision has been taken,” he added.

Parsard declined to comment on the plans ahead for the company, but signalled it was weighing the possibility of venturing into new projects.

“With 138, we’ve been able to survive the worst of the pandemic and rebound operations to normal, so we’re looking to strengthen the base of 138 and then look at potential growth,” Parsard said.

The equity options available to 138 Student Living include a rights issue or additional public offering of shares. But the company could also go the route of issuing preference shares, quasi-equity, which it has done in the past. Those prefs currently have a market value of $2.6 billion.

Alongside its hunt for fresh cash, 138 Student Living is also assessing the composition of its balance sheet, which currently includes $4.5 billion of equity and $4 billion of long-term debt.

In its eight years on the market, 138 Student Living has never broken through to $50 million in cash holdings in any one period, except for its initial market début when it was flush with funds from its IPO, Financial Gleaner records show. However, last year, amid a big jump in profit to a new record of $318.36 million, the company’s cash holdings shot to $170 million, more than four times larger than the year before and its best showing in any fiscal year.

The dividend to be paid would amount to a third of the cash held as of year ending September 2022.

138 Student Living operates a housing concession with The University of the West Indies, UWI, as its sole line of business, under which it designed, financed, constructed and currently operates 2,306 units.

But Parsard has indicated that 138 Student Living may also take on projects outside of its UWI partnership and beyond student housing.

Previously, the dorm operator had announced plans to do student housing at the nearby University of Technology, Jamaica campus, but they never materialised, said 138 Student Living CEO Cranston Ewan.

“What we have now is an arrangement where if UTech students are in need of accommodation that is not available through their sources, then they are referred to us so that they can be housed on our halls located at UWI,” Ewan said.

Under the concession agreement, UWI has guaranteed a minimum of 90 per cent occupancy of available rooms in any 51-week period over the life of the 2014 agreement, which runs for 30 years but is extendible to 65 years. Occupancy levels presently stand at 97 per cent, according to Parsard.

Last year, alongside changes in the interest rate environment, the student housing company’s debt servicing charges spiked to $363 million, from $242 million in 2021. But notwithstanding that, Parsard said 138 Student Living was in a better position, having changed some borrowing arrangements from variable to fixed rates.

“What we had done is that we changed the arrangement, and it worked out to our benefit; because we were on a floating basis, and now we’re on a fixed basis,” he said, adding that the interest charges would have been much higher if the transition hadn’t happened.

The company’s yearly financials for 2022 indicate that it still carries both variable and fixed-rate debt.

The chairman also said that, given the market dynamics, the company’s loan stock and balance sheet would be a part of the deliberations at the February 7 meeting.

“We’re not taking anything off the table, and that is a substantial part of what we’ll be discussing. Of course, we’ll have to take it to the shareholders as well,” he said.

As to which equity option might be utilised to raise capital and whether it would end up diluting the current ownership, Parsard said such a determination would have to await advice and discussions.

Dilution refers to a decline in percentage ownership, and typically results when the pool of investors in a stock expands.

“If it is in the form of a rights issue then it will not have a dilution effect on those that take it up; if it takes a different form, then it could have,” Parsard said.

The chosen financial adviser was not disclosed, but will be announced soon, he said.

neville.graham@gleanerjm.com