138SL revises financial model for Irvine Hall concession, accepts lower returns

Student housing developer 138 Student Living Jamaica, 138SL, has settled on a revised financial model for its 2015 concession agreement with The University of the West Indies, which aims to end their disputes over shortfalls in occupancy and the monies owing to 138SL for the redeveloped Irwin Hall residence.

The parties have for years been at loggerheads over configuration of some double occupancy units in the Irvine Hall residence into single-occupancy units, and the estimate of the compensation owed.

The most recent variation claim made by 138SL amounted to $553 million for its financial year ended September 2021, but each year company has said the claim is only an estimate, and may be settled at a significantly different sum.

The new agreement clarifies how the variation claims should be structured.

“What it means is that going forward there shouldn’t be a dispute between ourselves and UWI,” said 138 Student Living Chairman Ian Parsard. “That was one of the pain points that we always had. We had a financial model that said one thing, but it wasn’t reflective of what was on the ground,” he said.

138 SL’s initial agreement with UWI Mona – the 2014 Concession Agreement – required the company to design, finance, construct, and operate 2,306 units for student accommodation for a minimum 90 per cent occupancy rate over 30 years. The student housing developer later expanded its arrangement with the UWI Mona, through subsidiary138 SL Restoration, with another 30-year concession agreement to finance, build, and operate an additional 72 student residences on Gerald Lalor flats as well as to operate the rebuilt Irwin Hall, which currently has 384 rooms.

Altogether, 138SL operates 1,464 rooms at four locations on the UWI Mona Campus, consisting of 1,692 beds.

“In the early days we agreed on a certain design for Irvine Hall, but when construction work started, UWI requested that the design be changed. However, that wasn’t properly documented and the financial model in the concession agreement was different from what was agreed up front,” Parsard said.

Rate of return

In addition to settling on a variation claim, the student housing developer in its first-quarter report ending December 2021, said the new financial model of Heads of Agreement relating to the 2015 Concession Agreement has been adjusted to allow 138 SL Restoration to achieve a 9 per cent rate of return, or IRR, down from the previous 12.5 per cent.

“In our history of working with the UWI, we always have to be looking at long-term success. We felt that given the changes that have been made to the financial model and cost of capital over recent times, that IRR would be sufficient for both parties to come out with a win,” Parsard said.

For the three-month period ending 31 December 2021, 138SL recorded earnings of $59 million, a 9.7 per cent dip when compared to the similar period of 2020. Revenue jumped eight per cent to $276 million.

During the period, occupancy recovered from below 30 per cent in the prior year to an average of 50 per cent, helped by UWI Mona’s decision to increase the number of face-to-face classes, in addition to variation claims relating to Irvine Hall and the UWI 90 per cent occupancy guarantee.

138SL continues to explore ways to minimise costs, while seeking opportunities to diversify its revenue stream, the latest of which has been a push to secure more bookings from business and conference groups, with limited success.

“We haven’t gotten far on the bookings because of the pandemic,” Parsard said.

karena.bennett@gleanerjm.com