• Property Fund ‘aggressively’ seeking acquisitions
• Targeting 90% occupancy at the Financial Centre
• Downtown parking solution ‘not simple transaction’
By NEIL HARTNELL
Tribune Business Editor
A BISX-listed fund is reviving ambitions to “more than double” total assets to over $100m by “looking more aggressively” for property acquisitions following its recent preference share refinancing.
Michael Anderson, RF Bank & Trust’s president, told Tribune Business the $8m recapitalisation has given the Bahamas Property Fund the “balance sheet strength” required to resume its growth strategy following a long period of inactivity.
The investment bank chief, who acts as the Fund’s administrator, said the elimination of long-term bank debt and growing rental income through improved occupancies at its flagship Bahamas Financial Centre property have provided the combination of borrowing space and cash flow to fund potential purchases if the right properties become available.
Besides the Bahamas Financial Centre, the Fund’s portfolio has remained three-strong for largely a decade with Paradise Island’s One Marina Drive and Providence House on East Hill Street comprising the other two. Total assets at end-September 2022 stood at $41.179m, and Mr Anderson said the Fund is now poised to dust-off long-held ambitions to expand this to $100m.
“I’m still looking to get to $100m,” he told this newspaper. “We’re looking to more than double the size of the fund if we can find suitable properties. We actually now have the capital to move forward with various transactions we’re looking at in terms of potential property acquisitions.
“We’re starting to look more aggressively; we’re not in actual negotiations, but we’re starting to look more aggressively at opportunities than we have been. One of the key benefits to getting the capital structure sorted out is the opportunity to acquire assets as well as the payment of dividends.”
The first dividend payment for more than a decade was made to the Fund’s “patient shareholders” during the 2022 third quarter, and Mr Anderson said its net equity of $31.413m - assets of $41.179m far exceeding liabilities of $8.369m - had left it well-positioned to take on greater debt financing for the funding of acquisitions.
“The truth is that the market has been fairly flat over the last couple of years with COVID,” he added. “There have not been a lot of opportunities coming to market. Everyone has been waiting. It’s possible we might see more activity in the property space with people looking to raise capital.
“Business activity is picking up. People were holding off on making decisions, and this year we’ve seen people start to move forward with things that they have put off for a while. We’re in good shape. That’s [the preference share refinancing] the piece that sets us up to borrow; a good equity stake and cash flows from existing buildings improving, which gives us the ability to take on more debt.”
Mr Anderson said commercial property acquisitions in the Bahamian market were often difficult to close because sellers typically seek too high a price. “We struggle in a space where most people trying to sell want unrealistic prices,” he explained. “We just have to wait and see what comes up. We’re optimistic in terms of the Fund and opportunities. It’s a matter of seeing what’s out there.
“We’re one of the few buyers of commercial properties in the market. Much depends on where people are. Interest rate increases are going to be problematic generally, as the cost of funds will go up if you are in the US dollar space. I think we can access capital at a reasonable price, so our opportunity to buy buildings might be different from how other people other see capital raising opportunities. We’ll see going forward whether people get impacted by rates or not.”
The Fund has previously mulled whether to diversify its real estate portfolio away from sole reliance on office space, and into other commercial property types such as shopping centres. It also remains interested in solving downtown Nassau’s parking woes by redeveloping the Registrar General’s former home in the Rodney Bain Building into a multi-storey facility, complete with residential apartments on top.
“We’re still waiting to hear back as to whether there’s any interest on behalf of the Government,” Mr Anderson disclosed on the parking proposal. “It’s not a simple transaction for sure. We’ll wait and see.” The Fund’s results for the nine months to end-September 2022 showed net income was flat year-over-year at $771,197, although revenues were ahead by 7.6 percent at $2.386m.
Total expenses, though, jumped by 26 percent to $1.482m compared to $1.176m the year before. This was driven largely by a 10.3 percent rise in landlord expenses to $1.065m, likely related to upgrades at the Bahamas Financial Centre, while legal and professional fees almost quadrupled to $210,345 due to the preference share refinancing.
“We had some new leases become effective in the third quarter that are not yet reflected in rental income,” Mr Anderson told Tribune Business, referring to a Central Bank unit that moved into the Bahamas Financial Centre in October. “That will start to be reflected in rental income going forward. I think the fourth quarter will be a better quarter that reflects the space rented at the Bahamas Financial Centre.
“The total space occupied is somewhere north of 80 percent; 81-82 percent. I thought we would be around 85 percent, but we lost 3,000 square feet as another tenant decreased the amount of space they are renting. We were going to be around 85 percent; now we’re closer to 82 percent. The Financial Centre is going well.”
Elevator renovations and window replacements are currently taking place at the 100,000 square foot property, located at the corner of Shirley and Charlotte Streets in downtown Nassau, and Mr Anderson added: “The building should be significantly improved by the first quarter of next year. It’s nice to see the building getting filled up.
“One Marina Drive, we struggle with that building trying to get new tenants. We’ve hired some help, and will see what we can do with it. We have a new employee, a broker, identifying rental prospects and new opportunities. I think we’re ready to try and move forward.
“Our balance sheet is much stronger and rental income close to where we anticipated. It’s taken us longer to get where we are, but it always take longer to get tenants in buildings. We’re looking to get the Financial Centre up to the low 90s, around 90 percent occupancy. The main opportunity is One Marina Drive. The building is only 30 percent occupied, so we have 15,000 square feet to rent.”