• Property Fund to tap markets ‘in next six months’
• Still targeting downtown after profits near double
• Bahamas Financial Centre set for $500k ‘facelift’
By NEIL HARTNELL
Tribune Business Editor
A BISX-listed real estate yesterday said it plans to raise up to $10m within the next six months to finance development of its Carmichael Road warehouse after profits near-doubled during the 2023 first-half.
Michael Anderson, president of RF Merchant Bank & Trust, which acts as the Bahamas Property Fund’s administrator, told Tribune Business it was likely to place a “debt instrument” with local capital markets investors to fund a venture that will likely take the total value of its property portfolio to around $50m.
Speaking after the Fund’s net income increased by 97.7 percent year-over-year, surging to $720,971 for the six months to end-June 2023 when compared to the year-before period’s $364,771, he added that construction of the warehouse and storage facility - located just east of Carmichael Road’s junction with Gladstone Road - will likely begin within the next six months of all required permits are obtained and be completed within 18 months.
Acknowledging the need to diversify the Fund’s holdings beyond its three office properties, which did not serve it well when COVID-19 hit and corporate tenants exited, Mr Anderson told this newspaper it is now seeking a new location to realise its long-held ambitions of developing a parking garage for downtown Nassau.
While it had initially targeted the Registrar General’s Department’s former home in the Rodney Bain building, located on Parliament Street, as a suitable site those plans have now been stymied after Ryan Pinder KC, the attorney general, recently disclosed that the Government has secured it for the new court complex.
Mr Anderson, though, said the Fund is also seeking to expand into retail real estate, either through acquisitions or development of its own shopping complexes, and is waiting to get a clearer sense of the direction the Government plans to take with downtown Nassau’s revival given its belief that such opportunities may be opened up as derelict buildings are demolished.
With the Fund’s ultimate objective still to increase the value of its assets to $100m, the RF Bank & Trust chief said completion of the warehouse and storage facility will put it in a position where it only needs to double the worth of its property portfolio to achieve this goal.
“What we’re now doing is getting into the warehouse business,” Mr Anderson affirmed. “We expect to invest between $10m-$12m into the warehouse project. We’re busy finalising the lay-out and then have to apply for the approvals. That’s in progress.
“We look to be going back to market within the next six months to raise capital to finish this warehouse development. I’m sure we’ll use some sort of debt instrument. I think it will be in the region of $6m-$8m, maybe a bit more. Maybe $10m. We expect to start within the next six months and that it will be an 18-month project.”
The 3.5 acre warehouse and storage facility site, which is vacant, was in the process of being acquired by the Bahamas Property Fund in a $1.403m deal according to its 2022 financial statements released earlier this year. The sales agreement was signed on February 15, 2023, with a deposit equivalent to 10 percent of the purchase price already paid at that time.
Mr Anderson, meanwhile, said the decision to refinance a Royal Bank of Canada (RBC) bank loan by replacing it with $8m in preference share debt was already paying off for the Fund and its shareholders. Besides freeing up the balance sheet to take on fresh bank debt, either to fund property acquisitions or developments, the move has enabled the BISX-listed fund to resume bi-annual dividend payments while also providing sufficient growth capital.
“We’ve paid two dividends now, and it’s enabled us to get into a six-month dividend pattern,” the RF Bank & Trust chief added. “When we refinanced, even though we were generating good cash profits sometimes you need capital for the business to grow.
“At the time we refinanced, we were looking to get into other development opportunities. We put in preference shares where we don’t have to pay principal over the 10-year term, and it freed up cash to pay dividends. The cash flows coming off the business are fairly sound at the moment.”
Rather than disrupt this, Mr Anderson said the Fund is electing to tap the capital markets for the warehouse financing rather than use cash flow for this purpose. “We don’t want to generate cash off that [warehouse] property during the development phase, which is expected to be 18 months,” he added. “We don’t have to take all the cash generated and put it into this property. We will use it as part of business operations and to pay the dividend.”
With the Fund’s strategy involving a combination of growth and acquisition, whether by growth or development, it has not lost its focus on downtown Nassau despite having to adjust its plans following the Government’s court move. “We’re still looking at opportunities to put a parking lot in downtown Nassau because we still believe there’s a huge requirement for it,” Mr Anderson told Tribune Business. “We want to look for a suitable location.
“We’re going to look at going into developing retail space if we feel there’s an opportunity, either through purchasing or developing it. There may be opportunities in downtown retail as buildings get knocked down and space is freed up. There will be opportunities downtown depending on what that looks like.
“The Property Fund is looking at potential partnerships in something down there. If it’s a development project it we could be part of that process. I think as it becomes clearer in the market how it [the Government] expects to move forward, we will get a better sense of where we can participate.”
Mr Anderson said the Fund’s share price, which closed at $6.93 on BISX last night, is more than ten times’ its earnings per share (EPS) which are on track to close the year at 60 cents per share if 2023 second-half performance matches the first six months. He also noted that the share price is the equivalent of “50 cents on the dollar” to the Fund’s $13.70 net asset value per share.
“To me, that gives you some idea of the upside if we can improve the performance and cash being generated from the business,” the RF Bank & Trust chief said. He added that rental deals struck for its flagship Bahamas Financial Centre property during the 2022 second half will boost year-over-year comparatives, generating income the Fund did not receive during 2023, thereby ensuring the last six months this year are better than the first.
“The Financial Centre occupancies continue to improve. This time compared to last year we have at least 12,000 more square feet leased. We’re now in the mid-80s on Financial Centre rentals. What you’ll see flowing into rental income is the improvement in income at the Financial Centre,” Mr Anderson said.
“We’re continuing to lease additional space and expect to see this feed into the second half of the year and see the benefits then. We have been improving the rental income coming out of the Financial Centre for the last couple of years. We anticipate the second half to be stronger than the first half.”
The Fund’s rental and parking income for the 2023 first half rose by 12 percent year-over-year, growing to $1.772m from $1.58m. Its expenses also dropped by 23.2 percent, falling from $1.083m in the 2022 first-half to $832,403, although much of the decline related to one-off legal and professional fees incurred last year associated with the preference share issue.
“Our expenses are dropping. As we rent space, we’re not paying as much of the CAM (common area maintenance) charge as before, and are getting more rental income. As we rent space, more is dropping to the bottom line,” Mr Anderson added. “The Property Fund is well-positioned, with the cash flow coming in and development opportunities. Some of the plans we’ve laid over the past couple of years are starting to bear fruit.
“There will be continuous demand for Financial Centre space, and we’re in the process of renovating it. We’ll be investing maybe in the region of $500,000 in the Financial Centre to give it a bit of a facelift in the next six months or so to get it back into one of the top ‘Class A’ buildings on the market.
“We have a sense that the Property Fund will have sufficient opportunities to get us to where we want to go. It’s a matter of being selective, strategising where we put things, and diversifying into different areas. We got caught with three office buildings as businesses retrenched and moved out of downtown, so we know we need to diversify.”
Mr Anderson said the Fund’s Paradise Island-based One Marina Drive property still has yet to be rebound from COVID-19, with just 30 percent of available space taken despite some small lease deals last year. “During COVID we lost quite a few tenants and it has not come back since,” he added. “We’re hopeful as Paradise Island develops further people may come across and use it for different purposes. We’re still unsure as to the best way forward to be honest.”