The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FINCO’s planned consolidation has hit a BISX-listed fund’s ambitions of reducing the vacancy rate at its flagship property, its administrator conceding this would now increase to almost one-third of available space.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that FINCO’s planned May departure from the Bahamas Financial Centre would reverse the lease gains made for 2014 to-date.

He conceded that the mortgage lender’s departure from the Charlotte Street property, where it has been one of the ground floor ‘anchor tenants’, would negatively impact both the top and bottom lines for its landlord, the BISX-listed Bahamas Property Fund.

Mr Anderson said FINCO’s main branch currently accounted for around 5 per cent of the Bahamas Financial Centre’s 100,000 square feet of available space, meaning its departure would drive the vacancy rate from 27 per cent to around 32 per cent.

This, he added, would reverse an estimated three percentage point reduction in the Bahamas Financial Centre’s vacancy rate that the Bahamas Property Fund had managed to achieve in early 2014. The property, Mr Anderson said, had closed 2013 with a 30 per cent vacancy rate.

Still, sounding a bullish note, the RoyalFidelity president expressed optimism to Tribune Business that the improving economy would make the search for a replacement tenant much easier.

“I think they’re going to be closing it down in May, and the lease comes to an end in September, so come the end of September they will be out and stop paying rent,” Mr Anderson said of the impact FINCO’s departure would have for the Bahamas Property Fund.

“We have to find a tenant for that space. They’ve been one of the anchor tenants for a long time, and there will be an impact on both rental income and our Common Area Maintenance (CAM) costs in terms of what the landlord [the Bahamas Property Fund] will have to pick up until the space is re-rented.”

FINCO is moving its main branch out of the Bahamas Financial Centre, and consolidating it with the Bay Street branch of its 75 per cent majority shareholder, Royal Bank of Canada (RBC). The move is designed to better integrate the two companies’ operations, thereby achieving greater efficiencies, economies of scale and cost reductions.

Mr Anderson described the space being left by FINCO as “sizeable enough”, estimating it was around 5 per cent of the Bahamas Financial Centre’s total available space.

Admitting that FINCO’s departure was a setback for the progress made at the Bahamas Financial Centre in recent months, Mr Anderson told Tribune Business: “We were moving back up.

“We had, over the last few months, rented out two pieces of space - around 2,500 square feet - and that had put us back slightly better than where we were.”

While the year-over-year comparisons on Bahamas Financial Centre vacant space were “not terrible”, the RoyalFidelity president acknowledged that the FINCO branch’s loss “sets us back a bit”.

He added: “We have about 27 per cent vacancy, and if they [FINCO] leave it goes to 32 per cent. At the end of last year it was a 30 per cent vacancy rate, so it will increase 2 per cent.

“We were hopeful this year that we would get most of it rented. The mitigating thingt about is is the economy is picking up, and we’re getting more inquiries on rentals, so there’s a much better chance of renting it out in today’s market than a year ago.”

The Bahamas Financial Centre, though, is targeted at a specific market, namely high-end financial services firms that want extra built-in redundancy and other security features. That industry has been consolidating and contracting in recent times, so finding a FINCO replacement may be hard, especially as firms in the sector are increasingly attracted to western New Providence.

Mr Anderson, though, has repeatedly said that the Bahamas Property Fund has “a lot of upside” despite the short-term drag created by its inability to rent vacant space.

Of its other two properties, One Marina Drive on Paradise Island had 3,000 square feet - some 10-15 per cent of the total - empty last year, while Providence House, home to PricewaterhouseCoopers (PwC) Bahamas, is fully leased.

For the 2013 half-year, the Bahamas Property Fund’s top-line rental revenues were relatively flat, down 3.3 per cent at $1.937 million versus $2.002 million in 2012. It was a similar story with total revenues.

For the six months to end-June 2013, the Fund’s total expenses were also flat - standing at $1.322 million compared to $1.315 million the previous year.

With funds from operations standing at $621,5907, compared to $700,350 the previous year, the BISX-listed real estate investment trust saw its net income fall by 10 per cent year-over-year - to $573,078 from $636,350.

“There hasn’t been any fundamental change in CAM allocation or CAM costs, or rental income, which is not good,” Mr Anderson said last year, “but we’re still generating a lot of cash flow and earnings, and that leaves a lot of room for upside.

“I am confident, whether it happens this year or next year, we will see an increase in the level of our earnings. We’ve got at least three outstanding lease requests, and if some of them materialise, there should be a definite improvement over where we are this year.”