KPREIT pulls back from Dumfries Road expansion

Kingston Properties Limited is pulling back from a prime acquisition in the heart of the New Kingston business district.

The real estate investor, also known as KPREIT, bought the 7 Dumfries Road property in early 2021 for just over US$1.25 million, and announced it would be expanding the complex that houses music and sound equipment suppliers Audiophon Limited.

The thinking then was that Dumfries could accommodate any spillover demand for office space that Kingston Properties’s nearby property, the former Caldon building, could not satisfy.

But since then Kingston Properties’ priorities have changed.

With the pullback, the property was reclassified as held for sale during the period, with fair value gains of US$382,184, putting a possible sale price at just under US$1.63 million, according to notes accompanying the company’s latest earnings report.

Defending the move, Kingston Properties CEO Kevin Richards says there is more money to be made from other types of commercial property at this time.

“We’re just going to be building warehouses, that is really our focus; that is to say industrial and mixed-use property,” Richards said in an interview with the Financial Gleaner.

The company’s next project is the construction of a mini-warehouse complex at Rousseau Road in the Cross Roads area of Kingston.

In total, Kingston Properties reclassified two investment properties as held for sale – Dumfries and another holding in Florida – with a total carrying value of US$3.9 million.

Richards says the company is presently negotiating with a buyer for the Dumfries Road property.

Kingston Properties declared a net profit of US$836,255 in the January-March quarter, outperforming the US$716,279 of earnings in the comparative 2022 period by nearly 17 per cent.

Rental income for the quarter rose nearly eight per cent to US$859,924.

“This was mainly due to higher occupancy levels at our properties in Jamaica and the Cayman Islands, as well as rate increases based on select property improvements,” the company said in its earnings report.

Richards said Kingston Properties was wedded to the strategy of targeting immediate cash-generating opportunities. In the March quarter, cash flow from operations improved 28 per cent to US$376,707, putting the company in a position to pay and maintain its current dividend yields, he said.

Last year’s yield was estimated at 3.5 per cent.

“From our research, this was about the eighth-highest-ranked of all listed companies in the market,” Richards said.

Richards says that the business model at Kingston Properties is one of keeping administrative costs low and stable, rather than charging a management fee that is aligned to asset growth. He says this is better for shareholders, in that administrative costs do not eat into profits that should be available to investors.

“As our asset base grows, there isn’t a linear growth in our expenses, so having more assets for shareholders is a good thing, because it still leads to a much bigger bottom line,” he said.

With just under US$10 million in cash, the company is on the lookout for more acquisitions, saying there are emergent opportunities to snap up office space, as the level of exposure to commercial real estate that some financial institutions have is starting to create some level of distress and they might be looking to sell.

“This could be an opportunity to acquire attractive assets in coming months,” Richards said.

He adds that in addition to its own cash, Kingston Properties has access to another US$10 million to US$15 million, which would allow the company to “actually expand its portfolio by another 50 per cent, since the company’s ratios remain fairly conservative,” he reasoned.

“We are nowhere near what our max levels are, and it really is just being patient,” he said.

Referring to the acquisition of the Harbour Centre warehousing complexes in the Cayman Island and at Ashenheim Road in Kingston three years ago at the start of the COVID-19 pandemic, those assets have been performing well, said the Kingston Properties CEO.

The mini-warehouse complex at Rousseau Road is still in the planning phase, with the project yet to be submitted for planning approval.

But construction is expected to begin in August, with a projected spend of about US$2.5 million and completion within 10 to 12 months.

neville.graham@gleanerjm.com