KA Finance plc’s principal activity is to raise finance for KA Holdings Ltd, being the guarantor of the Group, whose business is to rent its investment property to third parties. The Group currently operates a business centre in Mrieħel (Centris I) and also generates rental income from a guest house and two apartments both located in Gżira.
KA also owns an office block in Mrieħel, adjacent to the existing Centris I property, covering approximately 5,500 sqm of office space and underground parking. Management explained that this development is currently in finishing stages, whereby the property is expected to be made available to prospective tenants at the start of Q2-2021.
The Group is also in the process of developing an apartment complex in Swieqi comprising of fifteen apartments and a communal pool. Management anticipate that three apartments will be made available for short lets by the end of FY20. The Group further anticipates to start generating rental income from the remaining apartments by end of Q1-2021.
During FY19, the Group, through KA Finance plc (the Issuer), issued an aggregate principal amount of €6m which was subscribed in full and admitted to the Prospects MTF. These bonds bear interest at the rate of 4.75 per cent per annum and are secured by a special hypothec on Centris II and a general hypothec on all of the Guarantor’s present and future assets.
COVID-19 impact on the Group’s operations and FY20 outlook
The COVID-19 pandemic has presented very challenging conditions to global markets and naturally it has also negatively impacted the local property market. Management reported that the outbreak has had minimal impact in terms of the Group’s Centris I operation, with this being in line with the majority of the Group’s tenants being of a sticky nature. In furtherance, management confirmed that up until October 2020, no tenant within the Centris I property has defaulted, and no tenant is expected to default moving forward. Nevertheless, the Group still had to provide several favourable credit terms to some specific tenants which were hit hard by the pandemic.
In the face of the COVID-19 pandemic, the Group is expected to register circa €0.8m in revenues for FY20 representing a decrease of €0.7m from what was forecasted in the Group’s Company Admission Document (CAD) prior the bond issue. This decline is mainly attributable to the fact that due to several pandemic related issues, the Group encountered numerous delays concerning the Centris II and Swieqi developments, whereby previously anticipated revenues attributed specifically to these properties, have been delayed to FY21.
Additionally, while Centris II is expected to be made available to prospective tenants at the start of Q2-2021, the Swieqi property will be partially completed by the end of the year and available for short lets. Management further reported that the Group is currently in the closing stages to secure its first tenant concerning Centris II. In terms of the Gzira project, management further reported that this project is being shelved for the time being whereby development works are expected to commence at the end of Q2-2021.
Upon discussions with management, the Group’s main COVID-19 implication stems from increased liquidity constraints, which is deemed to be attributable to the delays experienced concerning Centris II and the Swieqi apartment complex.
However, in an attempt to further combat such situation, management explained that KA already has a liquidity contingency plan in place if the Group finds itself under increased pressure due to the aforementioned delays concerning their ongoing projects. More importantly, management also confirmed that KA has the sufficient resources at its disposal to honour its existing bond interest payment obligations.
Disclaimer: This article was issued by Andrew Fenech, research analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.