Drop-in profit driven by unrealised losses in portfolio of local, overseas securities

Shareholders in Jamaican real estate development and private equity outfit, PanJam Investment experienced a big drop of $5 billion in net profits attributable to them, arising from the negative impact on the business caused by the COVID-19 pandemic.

In its just released 2020 report to shareholders, PanJam recorded net profit attributable to shareholders of $3.5 billion, down from the $8.3 billion reported in 2019, which represents a 57 per cent decline. In its report to shareholders, the board of PanJam made known that, “this year’s results (2020) have fallen due to unrealised losses in our securities portfolio and the pandemic’s impact on our tourism and hospitality-related investments”.

Investment losses of $0.5 billion (2019: income of $2.2 billion) were driven by unrealised losses in the portfolio of local and overseas securities, despite higher interest income, dividend income and foreign exchange gains. Property income decreased by four per cent to $2.1 billion (2019: $2.2 billion), reflecting improved rental income of $1.8 billion (2019: $1.7 billion), but reduced property revaluation gains of $0.3 billion (2019: $0.5 billion). 

Higher other income of $0.4 billion (2019: $0.1 billion) was driven principally by gains from the sale of PanJam’s Bamboo Avenue property in Kingston. Total operating expenses amounted to $1.7 billion (2019: $1.8 billion), a decrease of four per cent, resulting primarily from deliberate cost containment measures implemented during the year.

Higher debt balances on downtown Kingston development project

Finance costs increased to $0.8 billion (2019: $0.7 billion) as a result of higher average debt balances supporting PanJam’s downtown Kingston development project. PanJam suffered a $1.1 billion, or 22 per cent, drop in the value of its holdings in associated companies including its 30.2 per cent investment in Sagicor Group  Jamaica. 

This decline in equity value was driven by lower results from Sagicor Group Jamaica (across the combined businesses) as well as the Courtyard by Marriott Kingston and Chukka Caribbean Adventures, both of which continue to see diminished business activity due to the pandemic. PanJam reports that its associated companies saw varying levels of impact from the pandemic. 

International travel was significantly curtailed after March 2020, which had a corresponding impact on our tourism related investments such as Chukka Caribbean Adventures and the Courtyard by Marriott Kingston. The performance of associated company, Outsourcing Management (trading as itelbpo) and New Castle (Walkerswood) exceeded expectations, with both companies increasing profits in 2020. 

On a more positive note, the profitability of Sagicor Group Jamaica (Sagicor)’s core insurance business lines exceeded their 2019 performance, despite lower overall results, and PanJam’s share of profit from Walkerswood increased by 34 per cent. PanJam’s liquid resources have remained strong in 2020. 

Cash flow impacted by Bank of Jamaica recommendation

However, its cash flow was impacted by the recommendation from the Bank of Jamaica to all financial holding companies not to pay dividends to shareholders owning more than 1 per cent of ordinary shares. PanJam’s share of Sagicor’s 2020 dividends has been converted into short-term, interest-bearing promissory notes. 

This strategy ensures that there is balance in times of crisis. Of note, the company’s real estate assets have continued to demonstrate real resilience. 

The property segment’s operating profit showed a 20 per cent improvement year on year, driven by a gain on the disposal of our property located on Bamboo Avenue, Kingston. Total assets at December 31, 2020 amounted to $62.6 billion (2019: $54.4 billion).

The board noted that in recent years PanJam’s strategy of increasing its exposure to Jamaican assets has  paid off handsomely in 2019 and prior years. However, the pandemic caused by COVID-19 has had an adverse impact on the Jamaican economy and asset prices, including securities and businesses which are heavily reliant on travel and tourism.

 “In the first quarter, our investment income was hit hard by unrealized losses as a result of the market downturn. Our securities portfolio retained its value thereafter and we recorded investment income of more than $600 million in the second half of 2020,” the board advised shareholders. 

PanJam well positioned to withstand the continued impact of this uncertainty 

In its outlook, the board mentioned that, “while there is still no clear end in sight for the pandemic, we believe that our current challenges are temporary, and that successful vaccination programmes both domestically and in our major tourist markets will have profound effects on confidence and tourism. In the interim, PanJam is well positioned to withstand the continued impact of this uncertainty.”

In concluding the board advised that, “We have spent decades building a robust balance sheet, specifically for difficult times such as these. As at the end of December 2020, PanJam held cash and cash equivalents of $1.6 billion and maintains conservative leverage which, when combined, would enable us to raise financing in order to capitalise on attractively priced investment opportunities that may arise”.