Sagicor offers shares in Real Estate X Fund

Sagicor Real Estate X Fund is offering shares in an initial public offering (IPO) which opens on September 24, 2013 and will close on October 18, 2013. The offer is subject to the right of the Company to close the Subscription List at any time without notice if subscriptions have been received for the full amount of the shares available for subscription and also subject to the right of the Company to extend the closing beyond that date. The shares are expected to be listed on the Jamaica Stock Exchange.

A maximum 500,000,000 shares are available for subscription in this IPO with a minimum of 100 shares and in multiples of 100 shares. In the event that subscriptions or applications are received for more shares than the number of shares available for subscription and sale in this IPO, X FUND reserves the full, unqualified and absolute right to increase the number of shares in the IPO in order to satisfy all or part of the applications in excess of the 500,000,000 shares, which are comprised in the IPO but not exceeding a further 750,000,000 shares. Sagicor Jamaica and PIF have indicated that they jointly intend to exercise their options to buy shares at the IPO price with a view of holding up to 80% of the issued shares of X FUND.

The fund will invest in Sagicor real estate unit trust which holds the following properties in the fund: The R. Danny Williams Building (formerly Sagicor Centre in New Kingston), • 63-67 Knutsford Boulevard (New Kingston) • 78a Hagley Park Road (Kingston) • Sagicor Industrial Park (Marcus Garvey Drive Kingston), • Sagicor Industrial Park (Freeport, Montego Bay) • Sagicor Montego Bay Commercial Centre (Montego Bay) • Sagicor Industrial Park (Norman Road Kingston) • Spanish Town Shopping Centre (St Catherine) • 23-25 Seymour Avenue (Kingston) • Jewel Dunn’s River (St Ann) • Jewel Runaway Bay (St Ann) • Jewel Paradise Cove (St Ann).

The authorised capital of the Company is US$5,000,001,000. There is a Special Share which is held by Sagicor Jamaica, which the company sates is to ensure that the structure of the investment is not subverted by investors who may acquire substantial interest in the Company.

Sagicor Real Estate X Fund Limited (“X FUND”) is an International Business Company incorporated in Saint Lucia. Since its incorporation on May 31, 2011 it has not conducted any business on its own account other than to enter into certain agreements in anticipation of this IPO. The fund proposes to apply the proceeds of the IPO (“the IPO Proceeds”) to acquire other units in the Sigma Real Estate Portfolio. Pending investment of excess cash in units in the Sigma Real Estate Portfolio, the X FUND may invest in other assets including marketable securities. Thereafter the Company will carry on business as a passive investment holding company.

X Fund intends to distribute by way of dividends up to 85% of its annual net realised income.

The Articles of Incorporation of X FUND specifically authorises X FUND, from time to time, by a resolution of its directors, to issue additional shares in exchange for units in the Sigma Real Estate Portfolio. This will allow X FUND to purchase additional units from Sagicor Jamaica and/or PIF or direct from Sigma Real Estate Portfolio, without securing the approval of the shareholders in general meeting.

IC Insider call | Return on real estate in the form of income is low and growth in the value of the share price is unlikely to be rapid and may not show any growth in the short run. The fund provides a means of diversifying into the real estate market as well as in the tourism sector, but the latter can be great for a few years and not so great for some years.

This IPO is a real estate play that will not give investors the best return for their money. Investors will be buying shares at 100 percent book value with roughly a 4 percent yield in Year One. Meanwhile, the Pan Jamaican Investment Trust, which has real estate assets amounting to around 25 percent of total assets and generating a third of gross income from real estate, is selling at a huge discount to book value of $51 versus book of $78. Additionally, Pan Jamaican’s decision to invest in the new Marriott Kingston hotel, and no doubt with low interest rates, as well as other ventures into real estate developments, is likely to enhance the real estate portfolio over time. More importantly, the share price of Pan Jam stands a much greater chance of appreciation than a pure real estate fund.

The fact is that real estate does best when leveraged. Specifically, the Kingston Properties REIT is an excellent real estate play that could outperform the Sagicor Real Estate X Fund over time.