Kingston Properties Limited, KPREIT, is investing US$16 million in properties that are under construction in Jamaica and The Cayman Islands, projects that underscore its diversification into ground-up real estate development.
The structures are due for completion within two years.
“The development in Cayman will cost US$3.1 million. That’s expected to be completed in December of this year. In terms of two projects in Jamaica, they are US$8 million and US$5 million,” CEO Kevin Richards told the Financial Gleaner.
The investments in the three commercial real estate projects translate to about $2.4 billion in local currency.
“There has been a huge demand for small warehouse units, and there is very little inventory in that space so we are going to build to satisfy that demand,” Richards said.
Kingston Properties, a 14-year-old real estate investment trust, acquires properties for income-generating purposes through rentals. But it has long been keen on doing real estate development. Its first major local attempt was in 2015 when it partnered with Cemex Jamaica to do a residential project in the parish of Westmoreland. However, that development failed to get off the ground.
Richards said that its properties in Jamaica generally target a double-digit return on investment while its properties in The Cayman Islands target a return of around 8.0 per cent. It means that the payback period for the local buildings, when factoring rental and capital appreciation, should be less than a decade for Jamaica and slightly longer for Cayman.
Kingston Properties wants to confine its foray into property development to the commercial real estate segment for now. The development in Grand Cayman will be a modern sleek blacked-out commercial complex. In Jamaica, one building will be a warehouse and the other a multi-storey office complex.
Richards said that there is a view that REITs underperform property developers. He, however, cited an instance where KPREIT earned a 75 per cent return on a US$3.6 million property acquisition in its REIT that would easily rival that of greenfield developments and that there are other properties in KPREIT’s US$50 million asset pool with similar returns.
Kingston Properties will partially fund the ongoing projects from an offer of shares now on the market, from April 19 to May 10, that aims to raise at least $1.5 billion. The share offer at $7.50 per share remains a bit cheaper than the KPREIT stock’s closing price of $7.80 on Friday.
Market investors briefed on the additional share offer on Thursday were concerned that rising interests globally would push the real estate market into decline.
Richards responded that the company was focusing on real estate segments where demand is resilient.
“We are trying to stay ahead of the game,” he said. “There is strong growth in the industrial space and multifamily space. So I am not too concerned.”