JKH gets more bullish on property sector

 Cinnamon Life – Pic by Shehan Gunasekara

• Commits Rs. 9 b additional investment
• Pays Rs. 5.98 b to buy 26.7% stake in subsidiary Vauxhall Land Development; to buy balance 13.3% for Rs. 2.99 b by Sept. 2021 to make it 100% subsidiary
• Original JV entity with Finlays owns 9.38 acre plot of prime land in Vauxhall Street and one of the largest privately held land banks in central Colombo
• Plot within a proposed zoning area identified under the Beira Lake development plan of UDA
• JKH says with latest acquisition existing land bank is adequate to sustain a steady pipeline of projects in the long term
• JKH's property sector assets as at end FY20 were worth Rs. 160.3 b up 41% from Rs. 113 b in FY19
• Points to encouraging presales at the Tri-Zen residential development project in Union Place despite prevailing challenging market conditions as a result of the COVID-19 pandemic

Premier blue chip John Keells Holdings (JKH) is showing greater bullishness on the property sector committing Rs. 9 billion more to consolidate its dominant industry position in Colombo.

JKH announced yesterday that its fully owned subsidiary JK Land Limited, acquired a 26.7% stake in Vauxhall Land Developments Limited (VLDL), an existing subsidiary cum joint venture with Finlays Colombo Limited (FCL) for Rs. 5.98 billion. Hitherto, JKH controlled 60.28% stake in VLDL, which owns a 9.38-acre plot of prime land on Vauxhall Street, Colombo. 

The acquisition is consequent to FCL exercising its option to divest its holding as provided under the joint development agreement entered into in 2018. 

JKH, through JK Land, has committed to acquire the balance 13.3% equity stake from FCL for Rs. 2.99 billion on or before 24 September 2021; post which VLDL would become a fully owned subsidiary of JKH.

The number of shares in issue at VLDL is 2.175 billion shares. A perch of the land owned by VLDL is valued at Rs. 15.5 million according to JKH’s FY20 Annual Report. 

In 2017/18, the Group originally acquired a 2.09 acre plot of land on Vauxhall Street for

Rs. 4.37 billion. This asset was consolidated with an existing land plot of 3.56 acres, transferred from Whittall Boustead Limited (WBL) and 3.73 acres of land owned by FCL through a joint venture agreement signed in March 2018. 

The resulting contiguous 9.38-acre property is one of the largest privately held land banks in central Colombo and is within a proposed zoning area identified under the Beira Lake development plan of the Urban Development Authority (UDA).

The strategic location in the heart of Colombo city has approximately 450 meters of street frontage, a majority of which faces the planned waterfront recreation zone in the Beira Lake Intervention Area Development Plan; which allows for a large-scale development with views over the Beira Lake. This site is classified as a residential and mixed-use development hub.

“This property is a part of the Group's land banking strategy, where strategic land parcels were identified in order to capitalize on opportunities arising in the real estate and property development industry. With the acquisition of VLDL, the Group is of the view that the existing land bank is adequate to sustain a steady pipeline of projects in the long term,” JKH Deputy Chairman/Group Finance Director Gihan Cooray said in a disclosure to the Colombo Stock Exchange yesterday.

In the 2019/20 Annual Report, JKH said the master plan and development strategy for the contiguous 9.38 acre property, one of the largest privately held land banks in central Colombo, was substantially developed during the year. The Group aims to develop this primarily for metropolitan housing, complemented by other supporting commercial uses. The Group will follow a wait-and-see approach and launch the project based on market demand and supply dynamics. 

JKH’s disclosure to the CSE yesterday also revealed that despite the prevailing challenging market conditions as a result of the COVID-19 pandemic, presales at the Tri-Zen residential development project in Union Place, Colombo, continue to remain encouraging. 

“A development project at the land owned by VLDL has been earmarked, subject to market conditions, once the Tri-Zen project reaches a certain level of completion. This will ensure a steady cycle of revenue recognition through the planned monetization of the Group's land bank,” JKH added.

Property sector of JKH includes the sprawling Cinnamon Life Waterfront integrated mixed development project with an investment of $ 1 billion. 

JKH's property sector assets as at end FY20 were worth Rs. 160.3 billion up 41% from Rs. 113 billion in FY19. Total equity was Rs. 95.5 billion up by 17% from last year whilst total debt was Rs. 42 billion, up 140% from FY19. Capital employed was Rs. 137.5 billion (40% of Group), up 38% from the previous year. 

The sector posted a revenue of Rs. 1.4 billion (1% of Group's total) in FY20, up by 96% from the previous year. Pre-tax proof was Rs. 462 million, up by 143% and profit after tax improved by 265% to Rs. 326 million.