The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sunshine Holdings’ $20 million preference share issue “worked out better than we thought”, its chairman said yesterday, unveiling plans to “reinvent” its Arawak Homes subsidiary.

Franklyn Wilson, confirming that the private placement had “successfully closed”, told Tribune Business that the conglomerate now planned to “leverage” Arawak Homes’ real estate assets and shed its ‘low cost housing only’ image.

While declining to specify exactly how much capital Sunshine Holdings raised, Mr Wilson’s comments indicate that the $20 million issue was fully placed or even oversubscribed. The offering documents allowed it to be “upsized” to $35 million depending on investor demand.

“We have successfully closed it,” he told Tribune Business. “We have achieved our objectives, and it has worked out better than we had thought. CIBC FirstCaribbean did a hell of a job for us.

“Things worked out better for us than we had anticipated. That was always the objective - to better align assets with liabilities, and we achieved that.”

Tribune Business exclusively revealed in January that Sunshine Holdings had launched the $20 million offering, in a bid to exploit the prevailing ‘low interest rate’ and high banking system liquidity environment to restructure its balance sheet by replacing existing ‘higher cost’ debt.

Mr Wilson said that rather than use the proceeds to embark on an acquisition spree, Sunshine Holdings intended to use them to “strengthen” its existing business interests.

Its main assets include 100 per cent equity stakes in Arawak Homes, and its Sunshine Insurance (Agents & Brokers) and Sunshine Finance affiliates. It also holds the greatest indirect stake in RoyalStar Assurance, the property and casualty underwriter, at 36 per cent, and is the largest shareholder in BISX-listed FOCOL Holdings with 23 per cent of the company.

“We have a lot of very exciting things going on in our corporate group,” Mr Wilson told Tribune Business. “We’re not interested in acquisitions. We just intend on making every one of our companies stronger.

“We’re in the process of essentially reinventing Arawak Homes. Arawak Homes is going to be a lot stronger in a few years from now.”

Explaining what this ‘reinvention’ involved, Mr Wilson said Sunshine Holdings intended to “leverage” Arawak Homes’ “land bank” and position as the leading developer of ‘first time buyer’ homes to stay with those clients as they move up the property chain.

In effect, it wants to be the developer of their ‘second primary residence’, and expand from being perceived as a ‘low cost housing’ company into middle and upper income homes.

Mr Wilson explained: “We have this massive land bank, so Arawak Homes is going to leverage the fact it pretty much dominates the first-time buyer market.

“There’s a lot of people selling their first time homes, and are desirous of moving up. We want to let people know we can build any house, any dream, with any size and with any feature, on this island, New Providence, and Paradise Island. That’s where we see the future of this company.”

Sunshine Holdings, in the offering documents for the $20 million preference share issue, said: “Arawak Homes has a strategic advantage with its substantial land holdings, which stretch from Eastern Road to Love Beach.

“Arawak Homes has widened its target market by lowering the cost of its product offering to as low as $135,000 for homes built on its lots. In addition, Arawak builds on customer lots with some homes exceeding $500,000.

“The company is seeking to leverage its skills and land options for commercial development. Arawak Homes is leveraging its resources by offering its services to financial institutions with distressed properties.”

The offering memorandum confirmed that Arawak Homes was “operating in areas beyond its historical target market” of home/lot packages, moving into project management and converting the zoning for some properties from ‘residential’ to commercial use, thus increasing sales prices.

“It might be that every so often a company has to look at its business model, and see to what effect it can look at doing things differently,” Mr Wilson told Tribune Business yesterday.

“That’s what all our companies are doing. The management at FOCOL have done that exceptionally well. We’re going to be doing the same thing with RoyalStar and Arawak Homes. The world is changing. We’ve got to keep doing things differently.”

FOCOL saw its net income for the six months to end-January 2015 jump by 60.2 per cent year-over-year, from $5.797 million to $9.285 million.

This was driven by a 1 per cent increase in top-line sales, which rose from $179.848 million to $181.864 million, combined with a 3.3 per cent decline in sales costs. These fell from $153.305 million to $148.238 million year-over-year.

As a result, gross profits rose by 26.7 per cent, from $26.543 million to $33.626 million.

“The good news is that we are confident it is sustainable,” Mr Wilson said of FOCOL Holdings’ improved performance.

FOCOL is vital to Sunshine Holdings’ projection that its net income will increase by 36 per cent over the next three years to more than $9 million.

It has forecast that the Shell operator’s contribution to its results will recover “to at least $2.67 million” in the year to end-July 2015, which will come from FOCOL’s “greater vertical integration resulting from elimination of a ‘middle man’ in the purchasing chain, and by further increases for all of fiscal 2016 and beyond as a result of the planned changes”.

“Sunshine Holdings’ revenues from FOCOL Holdings fell by some 43 per cent for the period ended July 2014,” the company said in its offering document.

“For fiscal year 2014, FOCOL paid more than $3 million in license fees compared to approximately $1.4 million for the fiscal year 2013.”