Real estate gains fizzle at Barita
PROFIT AT Barita Investments Limited halved to $480 million in the December first quarter from $1 billion a year earlier due to reduced gains from real estate. Still, Barita’s outlook sees the securities dealer continuing its focus on real estate and private credit, described as alternative investments that are distinct from traditionally derived interest and trading income.
“We had a reduction in the gains from alternative investment platforms,” Barita Deputy CEO Ramon Small-Ferguson affirmed on Wednesday.
Quarterly revenue also halved to $1.3 billion from $2.4 billion, due to a dramatic decline in gains on investments to $323 million from $1.47 billion a year earlier.
The company explained that this drop reflected the slowdown of the returns from Barita Real Estate Portfolio Fund, which holds over $9 billion in net assets.
Small-Ferguson indicated that there would be a “shift” in the portfolio from booking performance gains on the land it holds, to booking revenue generated from the actual commercial development of these lands. There was no immediate response to requests for comment on the timeline for getting those developments under way.
In the meantime, the company is focused on energising revenues.
“We will focus on our diversification efforts, giving the business various sources of revenue to weatherproof the business,” said Small-Ferguson on an earnings call on Wednesday. “Regardless of where we are in the investment cycle, there are several bright spots in our revenue base.”
He reflected that when the Cornerstone group acquired Barita in August 2018, the investment company’s revenue base was heavily reliant on interest income and other traditional areas of trading. But now, Barita is more diversified with alternative investment streams, he said.
Between January and August 2023, the Barita real estate fund racked up returns of 60 per cent, still generally outpacing market peers. In 2022, however, that real estate fund produced returns of 1,397 per cent. The fund is backed by a sizeable property portfolio comprising 1,900 acres, built up through an affiliated special-purpose vehicle called MJR. MJR is a real estate holding company whose ordinary shares are held by Barita Real Estate Portfolio, while Barita Investments Limited acts as the investment manager for Barita Real Estate Portfolio. Over the past two years, Barita Investments has leaned largely on its gains on investment holdings to offset the decline in core revenue from interest-earning instruments.
The bulk of the gains related to the real estate fund, which held net assets of $9.3 billion as of September 2023, up from $1.7 billion in 2022, according to Barita. The wider underlining value of the MJR lands and real estate was estimated at US$175 million, or $27 billion, in June 2023, according to valuation reports in documentation about Barita Real Estate Portfolio.
The inverse relationship between interest rate rises and falling bond and stock prices has continued to batter the securities dealer sector, starting from late 2021 when the central bank began raising interest rates to cool inflation. The rate hikes have ceased, but the policy rate has remained at 7 per cent for more than a year, having grown fourteenfold from a starting point of 0.5 per cent. Barita expects the Bank of Jamaica and the US Federal Reserve to “maintain policy rates” at current levels over the short to medium term, rather than enact more rate hikes.
“We are looking for a return of some of the traditional revenue sources. We expect improvements in net interest income, traditional trading outcomes,” Small-Ferguson said.