PanJam to take on more debt for hotel projects
Property and investment conglomerate PanJam Investment Limited needs new cash to finance the build-out of two big construction projects.
These are the second phase of its ROK Kingston hotel and its still-unnamed business hotel and condominiums at Freeport in Montego Bay.
The $2.4 billion the property investor is estimated to have raised from the sale of 32 million of its shares in Sagicor Group – representing a tiny fraction of its then 31.6 per cent stake in the insurance and financial services giant – will not be enough to cover its immediate cash needs. So PanJam will be going to the market next year for a major round of borrowing.
“We have used it to fund the ongoing renovation of the ROK hotel and residences downtown, to fund the early stages of our development in Montego Bay, general business purposes and to refinance some debt,” said Joanna Banks, PanJam’s senior vice-president for new business development and strategy.
PanJam’s holdings in Sagicor is down by more than a point, at 30.21 per cent, as of September. Chairman and CEO Stephen Facey said the share sale represented a “rebalancing of resources” to ensure the availability of cash to devote to priority projects.
The rebalancing, however, requires more resources, but company officials say the source of the new debt and the precise amount to be raised, adding to its current debt stock of $9.5 billion, have not yet been decided.
A year ago, PanJam raised $2.7 billion from a private placement which it used to purchase one million shares, or a 6.1 per cent stake, in JMMB Group Limited.
Last year, too, the company issued $1 billion of secured debt, taken in two equal tranches in May and September to refinance existing debt and fund ongoing investment activities.
In 2012, PanJam borrowed US$17.5 million from the World Bank private lending arm, IFC, to fund acquisitions and construction, including the Courtyard Marriott hotel in New Kingston.
The management of the conglomerate believes the company has the capacity to take on debt, pointing to a healthy stockholders’ equity of $41.3 billion and assets of $52.9 billion at third-quarter reporting. That puts its borrowings at less than a quarter of equity.
“Interest rates in the upper-middle single digits provide an opportunity for people to borrow in a positive way, and the Government not competing with the private sector for funding makes it possible now for the private sector to invest and reinvest in the economy,” Facey said in an interview with the Financial Gleaner.
Stephen Phillibert, the senior vice-president for finance and chief financial officer, speaking in the same interview, explained that the company’s debt levels fluctuate based on the particular investment posture at given points in time. He adds that PanJam does not hold any debts denominated in hard currency, thereby avoiding any negative impact of the depreciation of the Jamaican dollar.
“Debt financing can be more flexible, so when you have an opportunity, it is often the fastest way to put yourself in a position to take advantage of the opportunity,” he rationalised the planned additional borrowing.
Just how much more debt PanJam will need to take on for the current opportunities will depend on the final costs of the two big property developments. Banks said that costs are still being tabulated for the Montego Bay project, located on five acres of land adjacent the Montego Freeport cruise ship pier.
Construction of the hotel, which is still in the design phase, is expected to begin late next year with a potential completion date of late 2021. The development is expected to incorporate a mix of 150-room business hotel, residences, and retail and commercial space.
PanJam initially estimated the development of ROK Kingston in the capital’s downtown business district would cost $6 billion. However, the company declined to provide an updated estimate for the project during the interview. Its spending there, however, would have been spiked by its December 2017 buy-out of Canadian joint venture partner Downing Street Caribbean Place Limited for $403 million, giving PanJam full ownership of the project.
“They had a shorter time horizon. We are long-term investors,” said Facey, in explanation of the acquisition.
“After the completion of the first phase, they, being a Canadian company, had concerns about currency fluctuations and issues like that, which they felt they were not prepared to deal with. And so we bought them out,” he said.
The ROK Hotel and residences, which will be managed by hotel management firm, Trust Hospitality, is expected to open in late 2020 under the Hilton-owned ROK brand. Trust Hospitality is based in Florida in the United States and its website lists hotels it manages in the US, Panama, Mexico, Colombia and Aruba with new properties to open soon in Jamaica, Dominica and Trinidad & Tobago.
The money being spent on the Kingston and Montego Bay hotels is justified by the results the investment company is said to be now reaping from its other hotel holdings including the Courtyard Marriott in New Kingston in which it has a 35 per cent stake.
“It has done very well. We are very pleased with it. It continues to perform at high levels of occupancy with good rates,” Facey said of the Courtyard hotel.
The Courtyard Marriott, which opened in New Kingston in 2015, was a joint venture involving PanJam, Caribe Hospitality of Costa Rica – which has the rights to build out Courtyard Marriott hotels in the Caribbean and Central America – Promerica Group also of Costa Rica, and Moutte Capital of Trinidad & Tobago.
PanJam is also a minority shareholder in the Aloft Miami Airport hotel.