• Property Fund’s raise likely fully subscribed
• Gives ‘patient capital’ for acquistions, dividend
• Targeting 80% Financial Centre occupancies
By NEIL HARTNELL
Tribune Business Editor
The BISX-listed Bahamas Property Fund has “stabilised” occupancies and rental rates at its flagship property “for the first time” in almost a decade amid expectations its current $8m capital raise will be fully subscribed.
Michael Anderson, RF Bank & Trust’s president, which acts as the fund’s administrator, told Tribune Business the preference share issue will give the Fund greater financial “flexibility” for both dividend payments and potential future acquisitions by replacing existing bank debt.
Priced at 5.5 percent, he added that the issue - which is expected to close in early May - has already obtained investor commitment to purchase the full $8m sum. While not cheaper than bank debt, Mr Anderson explained that the refinance will free up cash flow to permit the resumption of long-suspended dividend payments to shareholders by eliminating the lump-sum repayment of principal and replacing it with what he termed “patient capital”.
And the removal of bank debt, the RF Bank & Trust chief said, will also free-up the Bahamas Property Fund’s balance sheet to take on future borrowings to finance acquisitions that will add to its current three-building stable - the Bahamas Financial Centre on Charlotte Street in downtown Nassau; One Marina Drive on Paradise Island, and Providence House on East Hill Street.
“We hope to complete that by early May,” Mr Anderson told this newspaper of the preference share issue. “I think we already have commitments for the $8m. We have just put out an official document for it. The interest rate wouldn’t necessarily be lower [than existing debt]. The term has been extended out a bit further for the cash payment period.
“Part of the rationale for the cash flow around the Property Fund has always been based on the vacancy rate. Since late 2010 we’ve had higher vacancy rates at the Financial Centre and One Marina Drive, so as we look at our cash flow, while we have enough money to pay loans we’ve not really been able to grow the company and pay a dividend. We’re generating reasonable income, but don’t have the cash flow to pay dividends to investors.
“As a Board we’ve been talking about getting back to paying dividends. As we look at that, we’ve seen the vacancy rates improving. At the Financial Centre today, it’s over 70 percent occupied. We have a fairly good expectation to get occupancies over 80 percent in the next three-six months and get back to paying a dividend.”
Mr Anderson said Bahamian investors typically gravitate to dividend-paying stocks, focusing on the short-term as opposed to taking the longer view. Unable to recall when the Property Fund last paid a dividend, he added: “When the vacancies started increasing at the Financial Centre, we put the dividend on hold to get them back, and have not been able to get them back for the last 10-12 years.
“We’ve had them in the 60 percents, 50 percents, and have not got them up to 70 percent for the last ten years. We said we will not pay a dividend until we get there. Having addressed the occupancy levels, and getting investors to expect to receive a dividend, as a Board, that’s a very important step.
“Even though the occupancy will drop now and then, we’ll have sufficient cash flow to continue paying dividends. There will be no fixed repayment on an annual basis, so there will be cash to pay dividends.” Mr Anderson also explained that, by taking out existing bank debt with the $8m preference share proceeds, the Bahamas Property Fund will have freed up its balance sheet for new borrowings that will finance acquisitions.
“It’s creating a level of patient capital that will help create more certainty around an annual dividend flow to investors as well as provide more opportunity for us to go back to the banks in the event we want to acquire other assets or put bank debt back. It gives us flexibility,” he told Tribune Business.
“We’ve got significant equity in the company against which to borrow bank debt. It sets us up well for future financing opportunities if we find the right one. That’s the whole premise behind it. We’ll see how it goes. There’s likely to be opportunities for the Fund to grow. We have the flexibility to do what we need to do. It creates that starting point.”
Mr Anderson said the Bahamas Property Fund was not presently negotiating any acquisitions to expand its portfolio. He added that the BISX-listed real estate investment trust was “a good risk that justifies the lower rate on the preference shares” of 5.5 percent, compared to the typical 6-7 percent coupons sought by Bahamian investors.
“We had a very good year last year,” the RF Bank & Trust chief said. “We had one of our better years. Our buildings had been dropping in value. For the first time in a while, we stabilised occupancy, got the rental rates stabilised, so the valuation on the Financial Centre went up by $3m.”
Declining to give more details given that the Bahamas Property Fund’s 2021 year-end financials are due to be released imminently, he added: “We’ve managed to change the course from a fairly high vacancy rate that has been eating money, and been able to get it down to a more manageable level. We look forward to making further progress next year.”
However, occupancy rates at the One Marina Drive location on Paradise Island are presently hovering around 30 percent with its tourism-related tenants yet to recover significantly from the COVID-19 pandemic. “How do you change the focus at One Marina Drive? How do you get in short-term rentals, smaller spaces, attract daily rentals?” Mr Anderson asked.
“We’re busy looking at that, and trying to address rental rates and be competitive and understand what opportunities there are in the market to get tenants in that space. We’re currently at around 50 percent and it has not come back significantly since COVID. We think this year will be the first that the tourism-driven tenants come back and that will help the roll-out of our strategy. Who wants to rent offices there?”
Mr Anderson said a small portion of the $8m preference share raise will be deployed for operational purposes and capital upgrades, such as elevators and windows at the Bahamas Financial Centre, which the Bahamas Property Fund is having to finance itself until occupancy rates and common area maintenance (CAM) payments improve.