FRRE also acquired a residential property in Kingston 6 for US$500,000 and entered into a joint venture development agreement for luxury villas in St Thomas. It is also exploring another property acquisition in Costa Rica for development and acquired a US$1.35 million interest in Kailani (Hilton) Cayman from developer NCB Group Cayman. The company put down US$125,000 as a deposit for two units in the mixed use residential/hotel Grand Cayman project which is expected to be complete by December 2024.
“We have quite a bit of [financial] institutions who are in discussions with us around our pipeline of specific development projects both here [Jamaica] and elsewhere,” Reid added on the company’s planned developments.
When asked for an update on 5 Seaview Avenue, which was acquired for US$2.2 million in 2019, Reid responded, “We are receiving modifications to the land, and we are looking to either extract value through development or sell.”
FRRE sold its 12-14 Oxford Terrace property to NCB Insurance Agency and Fund Managers Limited on January 19 in a deal that Reid described as, “a pretty good offer that we could not refuse.”
The 13,303 square feet property was acquired in May 2021 from Advanced Integrated Systems Limited for US$1.50 million as an investment property for lease income. A vendor mortgage was registered against the property.
Its Torres de Heredia residential project in Costa Rica was completed in 2022 and recorded as an investment property. FRRE held five units on the 19-storey condominium building which are held in a three-year leaseback arrangement with developer Grupo Inmobiliario del Parque.
Its Hambani Estates project, which broke ground in June 2021 and had an expected completion timeline of Q4 2022, is expected to be completed in the second quarter (April to June) of this year according to notes from the audited financial statements. There are five four-bedroom villas valued at US$1.8 million each and seven five-bedroom villas at US$2 million each. Units were still being advertised as seen on 7th Heaven Properties, Century 21 Heave-Ho Properties and Sotheby’s Realty. US$9.55 million has been recorded as development costs for the 3.43-acre property.
FRRE’s net operating income increased 77 per cent from US$5.30 million to US$9.36 million for 2022 which was largely driven by US$6.2 million in fair value gains from its investment properties and fair value gains from its financial instruments. Despite operating expenses rising by 60 per cent to US$5.18 million due to increased management and performance fees to its management company, net profit grew 35 per cent to US$4.05 million.
FRRE invested US$702,318 for a 25 per cent associate stake in Caribbean Health Systems which recently acquired Medical Associates Limited. FirstRock Private Equity Limited was classified as a 15 per cent associate at US$1.75 million in the prior year but was reclassified to a fair value investment valued at US$4.41 million.
“We’re not a REIT [Real Estate Investment Trust]. We’re about making money from real estate with an entrepreneurial approach. In a rising interest rate environment, being solely dependent on rental income if you have a real estate focused business is not the way, at this time at least,” Reid added on the context surrounding rising interest rates with real estate.
FRRE’s asset base grew 33 per cent to US$60 million as its investment properties and developments in progress rose to US$25.64 million and US$18.05 million, respectively. Its total liabilities increased 89 per cent to US$23.96 million as the company secured more long-term financing for its projects which resulted in shareholders’ equity at US$36.04 million.
FRRE hit its desired US$60 million in asset target last year and is looking to hit US$100 million by 2024. The company received a US$1.9 million indexed loan facility on January 24.
“We’ve built a business where we’ve moved from $0 in assets four years ago to US$60 million in assets. To date, we’re diversified from a jurisdiction standpoint. Cap rates may be at one level in one jurisdiction versus the other. The cost per square foot to build may be much lower in another jurisdiction that we’re already in and we capitalise from those things,” Reid explained on the business strategy.
Although the company’s business continues to grow, its share prices of J$12.61 and US$0.06 trade below the initial public offering price of $16.17/US$0.12. The company repurchased 4.3 million units in 2022 with a target of 28,602,532 units as part of its share buy back programme.
“There’s no doubt that there are headwinds, and it transcends industries. The real estate industry will not be spared, but what you find is that diversification across jurisdictions, and then across different segments of real estate and within real estate, is the best thing for us. Jamaica is a material jurisdiction for us but it’s not the only jurisdiction,” Reid closed on the outlook for 2023.