Funding an operation with low interest rate foreign currency loans while the home based currency is weak can prove costly, and the way the accounting profession treats the changes in currency movement can mean profit or loss at least in the short term. That is what’s happening to Kingston Properties Real Estate Investment Trust (KPREIT) in the latest results to March this year. Revenue was up 13 percent but profit plummeted to a loss, thanks to a foreign exchange loss of $14.5 million incurred in the quarter. The company recorded a net loss of $7.2 million after a tax credit of $3.56 million, but total group comprehensive income was $15.2 million, an increase of 144.8% versus $6.2 million reported for the quarter ended March, 2012.
Revenues | Revenues climbed to $23.5 million in the 2013 quarter up from $20.8 million in 2012. This reflects primarily rental increase for existing tenants and a stronger rental market for new tenants especially at the Loft II in Miami, the company’s management reported.
Group operating expenses, consisting of direct property expenses and administrative costs, were $14.8 million, versus $10.3 million for the similar period a year ago. Direct property expenses include insurance, property taxes, homeowners’ association (HOA) fees, broker fees and repairs & maintenance. These represented 60.4% of operating expenses for the March 2013 quarter versus 58.4% for the similar period last year. Increase in direct property expenses accounted for approximately $2.9 million of the $4.5 million increase in overall operating expenses. The major contributors were repairs & maintenance, HOA fees and property taxes.
Group finance costs were $19.6 million for the quarter compared with $7.4 million for the similar period in 2012. These amounts include unrealized losses of $14.3 million and $2.5 million respectively, due to foreign currency translation losses resulting from the devaluation of the Jamaican dollar.
Balance Sheet | Significant balance sheet assets are Investment Properties of $850 million at the end of the quarter versus $641.4 million at March, 2012 and cash & cash equivalent of $195 million compared with $185.3 million for the similar period last year.
The primary drivers of the increase in the investment properties were fair value gains of $166.3 million on the Red Hills Road property and positive currency impact of $30.3 million on the Miami residential condominiums. Included in cash and cash equivalent is restricted amounts of $168.1 million.
Total group liabilities were $350.3 million at March, 2013 versus $331.5 million at March 31, 2012. These amounts include current and non-current loans payable at the end of the quarter of $325.1 million and $305.2 respectively. The liabilities are primarily mortgage loans. The devaluation of the Jamaican dollar resulted in an increase in the loans which are quoted in the United States dollar and amounted to US$3.4 million at end of March 2013 versus US$3.6 million at end of March 2012.
Cash flow | Net cash provided by operations was $23.9 million for the quarter versus $22.7 million for the similar period last year. A dividend was paid in the March 2013 quarter amounting to $9.9 million, a 63.1% increase over the $6.1 million paid in the March 2012 quarter.
Long term pay-off | Real estate investment is not a good cash generator at least not in the early stage of the investment. By its very nature, the level of income to be made in the short term will be limited. One strategy the company has is the investment in the apartments in Florida that could be disposed of when that market fully recovers and therefore provide cash flow for distribution or capital for expansion. Investors in the stock are likely to have to wait for a while for a big pay day. Nevertheless the stock provides a option to diversify ones investments.
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