University accommodations provider, 138 Student Living (138SL), has extended its additional public offering (APO) of up to 513,972,784 new ordinary shares with an option to upsize by an additional 256,986,392 shares.
The APO, which should have closed last week, has been extended by over two weeks and is now slated to close on October 23. The extension is due to the fact that potential investors with eight-digit Jamaica Central Securities Depository (JCSD) numbers have been unable to subscribe to the APO using the online subscription portal.
A second addendum to the APO prospectus, which was published on September 1, adds the fillable APO application form as Appendix 6 (exhibited hereto). This was done to allow those investors to participate in the APO, which is seeking to raise J$3.2 billion from the equity offer of J$4.40 per share for the public and J$4.05 for the reserve pool.
NCB Capital Markets has given the thumbs down to 138SL’s additional public offer, pointing out that the share price as at September 27 was J$4.33, lower than the APO price with the return on equity being assessed at 7.5 per cent.
In its analysis, NCB Cap Market notes that the trailing twelve month (TTM) dividend yield, which is a measure of the percentage of income that a security has returned to investors in dividends over the past 12 months has been assessed at a low 3.0 per cent.
Reasons for APO
The APO is expected to broaden the shareholder base while giving existing shareholders an opportunity to further invest in the company via preferential price. The increase in the investor base is also expected to aid in price discovery and additional liquidity of the 138SL stock.
The proceeds of the APO will be used to deleverage 138SL’s balance sheet and to take advantage of investment opportunities, including the expansion of 138SL’s room capacity. The real estate outfit currently operates 1,464 rooms at four locations on the University of the West Indies, Mona campus: George Alleyne, Leslie Robinson, Irvine Halls, and the Gerald Lalor Flats, through two concession agreements with university.
During the current 2023/2024 academic year, the demand for accommodation has significantly surpassed available capacity. Under the concession agreements, 138SL has the capacity to expand its room capacity by another 842 rooms, representing a 60 per cent increase in its current room capacity.
Latest financial highlights
For the nine-month period ending June 30, 2023, 138SL realised revenues of over J$1 billion, a 17 per cent increase over the prior corresponding period. The improved revenue performance reflects a return to normality due to the end of COVID-19 restrictions and the return of face-to-face classes.
Demand for accommodations from students has increased significantly. This was bolstered by the execution of several strategies aimed at increasing income from short-term rentals, which have proven to be successful.
For the nine-month period to June 30, 2023, the company realised net profit of J$270.1 million; an increase of 13.16 per cent over the prior year. The company enjoyed net profit margins of 26 per cent during the period.