The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The BISX-listed Bahamas Property Fund yesterday said 2015 will be “a far better year” for its shareholders, as it aims for a ‘double digit’ increase in occupancy levels at its flagship building in downtown Nassau by mid-year.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that the Fund was targeting a “mid-80 per cent” occupancy level at the Bahamas Financial Centre by early summer.

He added that this would represent a major improvement on the “high 60 per cent” occupancy level seen at the Bahamas Financial Centre last year, when it was impacted by FINCO’s branch closure.

Mr Anderson was speaking after a year in which the publicly-owned real estate investment trust (REIT) suffered a $173,147 net loss, due almost entirely to a $2.82 million negative ‘swing’ on the ‘fair value’ of its three investment properties.

The collective value assigned to the Fund’s three properties - the Bahamas Financial Centre, One Marina Drive and Providence House - increased by $1.251 million in 2013. Yet in 2014, their net value was appraised at $45.152 million - some $1.581 million lower year-over-year.

This resulted in the Fund’s bottom line declining by a similar amount to the ‘fair valuation’ reversal, falling from the $2.59 million net income recorded in 2013.

“I think 2015 will be a far better year for the Fund,” Mr Anderson told Tribune Business. “New tenants moved in [to the Financial Centre] at the end of last year.

“We rented 5,000 square feet in the last six months, and more tenants are coming. It’s changing. We are seeing more tenants, so it looks like it’s improving, but we’re not there yet.”

RoyalFidelity administers the Bahamas Property Fund, and Mr Anderson said recent rental trends at the Bahamas Financial Centre had been for tenants to rent small spaces of around 1,000 square feet each.

This, he explained, had boosted the 100,000 square foot Bahamas Financial Centre’s occupancy levels from the “high 60s” in the immediate aftermath of FINCO’s pullout to the current “low 70 per cents”.

“I think this year we’ll see our occupancies go into the 80 per cents again,” Mr Anderson told Tribune Business. “We’ve got one big tenant we’re trying to finalise now.

“At the moment, we’re in the low 70s. It was in the high 60s last year. I hope we will get into the mid-80s by mid-year. There’s much more interest, generally speaking. I don’t know how long the take-up will be, but we’re in a lot better position than we have been for a while.

“The problem is renting now to try and get more tenants in the building. I think the second half [of 2015] will be a lot better than the first, and hopefully the year-end will be a lot better.”

Mr Anderson, though, said One Marina Drive - the only office building on Paradise Island, nestled between the two bridges - was “the building we’re struggling with now”.

That, too, has been hit by Royal Bank of Canada’s (RBC) Bahamian branch consolidation, with the lease for its retail branch at One Marina Drive having ceased at end-April.

“One Marina Drive is a much smaller building, but we have a vacant space that we need to rent out,” Mr Anderson said. “Occupancies have now dropped into the 60 per cents, and we need to get more people in there.”

The Fund’s third property, Providence House, remains fully leased as the head office for PricewaterhouseCoopers (PwC) Bahamas.

Mr Anderson added that the real estate investment fund was looking at the potential acquisition of a fourth property, but had “not got far with it” and he declined to provide further details.

The RoyalFidelity chief, though, did confirm that the Fund will be refinancing its $3.5 million worth of preference share capital that matures at end-July 2015, although it has yet to determine how.

“They’ll be refinanced at the end of July,” Mr Anderson told Tribune Business. “We’re still trying to figure out whether we go with bank debt or do some preference shares as well.

“With $3.5 million in preference shares at 10 per cent, they cost $350,000 a year, so there will be a substantial drop in that cost.

“Bank debt is also fairly cheap at the moment, so it’s trying to figure out the best solution from a cash flow perspective as well.”

The Fund is thus planning to exploit the prevailing low interest rate environment to refinance its existing preference shares at much lower cost, thereby reducing its debt servicing burden and freeing up cash flow to drop to the bottom line.

If the ‘fair value’ property revaluations are set aside, the Fund’s 2014 net income performance would essentially have been flat against the year-before comparisons.

The top-line, too, was relatively flat at $4.3 million, but the relatively high vacancy rates at its two main properties continue to act as a drag on the Fund’s results, as its share of common area maintenance (CAM) expenses totalled more than $1.2 million for the second consecutive year.

The Fund’s 2014 financial statements reveal that the bulk of the negative ‘fair value’ revaluation was associated with the Bahamas Financial Centre, which was written down by $1.669 million compared to 2013.

While the other two properties were profitable, the Financial Centre generated a $11,795 net loss for the 12 months to end-December 2014.

Just two tenants generated 81 per cent of the rental revenues at the Bahamas Financial Centre, with three accounting for 87 per cent of top-line income at One Marina Drive.