By NEIL HARTNELL
Tribune Business Editor
The BISX-listed Bahamas Property Fund’s Board will within the next month receive a recommendation to resume investor dividend payments after a 15-year hiatus following completion of its $8m preference share financing.
Michael Anderson, RF Bank & Trust’s president, which acts as the fund’s administrator, told Tribune Business that paying out a Royal Bank of Canada (RBC) loan with the offering proceeds will provide the necessary flexibility to “put back on the table” the possibility of returning capital to shareholders.
With no dividend paid since around the time of the 2008-2009 financial crisis, he added that the Property Fund had received a further boost from its 2021 annual financial performance which produced a more than $4.2m positive reversal of the prior year’s $860,116 loss.
The full-year $4.348m profit, while largely driven by a revaluation that increased the worth of the Property Fund’s real estate holdings by $3.3m, also came from improved occupancy rates at its flagship Bahamas Financial Centre property on Charlotte Street in downtown Nassau.
Stripping out the revaluation, the Property Fund generated just some $1.048m in profit from its core operations. With vacancies down, and occupancies up at, rental income rose 14.5 percent year-over-year to $3.029m compared to $2.646m in the 12 months to end-2020.
And, besides the top-line boost, the Property Fund as landlord also saw its share of common area maintenance costs drop year-over-year by almost 25 percent to $1.318m as opposed to $1.752m the year before. The occupancy increase thus raised the BISX-listed real estate investment trust’s (REIT) revenues while at the same time cutting expenses - with both impacts directly hitting the bottom line.
Mr Anderson yesterday told this newspaper that, with rental rates expected to further improve to the mid-80 percent range at the Bahamas Financial Centre in 2022, the Property Fund is predicting that net income - stripped of any revaluation impacts - will be “quite a bit ahead” of that produced in 2021.
And, with tourism starting to rebound, he added that it is also targeting an occupancy increase at its One Marina Drive property on Paradise Island from the mid-30 percent range to 50 percent during the course of the 2022 calendar year.
Confirming that the $8m preference share issue had closed fully subscribed on Friday, Mr Anderson said the proceeds will provide long-term capital to repay the bank debt and eliminate the principal payments required by the latter, thus freeing-up cash flow for potential dividend returns. Some $600,000-$700,000 of the proceeds from the offering will also finance renovations at the Property Fund’s properties, with the outlay ultimately reclaimed by tenant CAM payments.
“It puts us in a position to recommend the commencement of dividends to shareholders,” he affirmed. “The impact in the first year is quite significant. The additional cash the company has, this gives us the flexibility to fund renovations and puts the dividend decision back on the table. The recommendation will be made to the Board in the next month, and that decision will be taken in a month or two.”
Mr Anderson said the last time that the Property Fund declared a dividend to shareholders would have been around 2007, some 15 years ago. That year, the Bahamas Financial Centre lost a major tenant when Banco Santander left, and then the 2008-2009 financial crisis and subsequent recession put a halt on any returns to investors as the company sought to conserve capital.
“We’ve had vacancies in that building, and development-related costs made it difficult to pay dividends,” the RF Bank & Trust chief added. “The building [Financial Centre] is over 80 percent occupied, which it has not been since 2007.” The 100,000 square building, which is equipped with generators and back-up redundancy targeted at ‘Class A’ office tenants, typically financial services clients, has seen occupancies dip into the low 60 percents during the following 15 years.
“Our occupancies will improve this year, certainly with the new tenants that have not yet started paying,” Mr Anderson explained. “Although we have signed off for 82 percent of the space, we only have 80 percent occupied and paying. The other 12 percent should come on stream in the next quarter, the second quarter, and will then start to be reflected in income and CAM costs for the second quarter. I think we should get the building up into the mid-80s occupancies.
“We’ve seen interest in our One Marina Drive property, which we haven’t seen for a while, as the tourism market recovers. Markets come and go, and the opportunities are coming back. We have to be ready when the market opportunities are there. We hope over the next year we will see more interest in the property as there’s been more activity on Paradise Island than we’ve seen in a long time.
“We’re hoping to get rentals in the One Marina Drive property this year. Even if we do not get up to full rental, we’d like to get it up to 50 percent occupancy and currently we’re in the mid-30s. If we get there it will be reflected in the CAM and rental income, and all that will go to the bottom line. I think for sure we expect to be quite a bit ahead of last year on profitability, without the revaluation, and cash flow will be improved through refinancing of then preference shares.”
Describing real estate as a long-term investment, Mr Anderson said signs of improvement in the Bahamian commercial office space market had helped drive the $3.3m revaluation which largely reflected the Bahamas Financial Centre’s performance. It has attracted several government tenants, including the Registrar General’s Department.
“The local rental market is coming back, and development is taking place locally, and opportunities to rent are improving,” Mr Anderson added. “The revaluation reflects the improved tenancies at the Bahamas Financial Centre as well as general market conditions improving. We benefited significantly from that revaluation this year. We’ve been struggling the past few years with negative valuations, so are happy to see the market returning and rentals improve.”