The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE BISX-listed Bahamas Property Fund is losing "in excess of $1 million net " in annual profits due to a 22 per cent vacancy rate at its flagship Bahamas Financial Centre building, although its administrator yesterday said it remains "well positioned" to make further real estate acquisitions.

Speaking after the Bahamas Property Fund produced a positive $2.761 million swing to return to 'the black' for the 2011 full year, Michael Anderson, RoyalFidelity Merchant Bank & Trust's president, told Tribune Business that relatively stable vacancy rates across its three-property portfolio meant the company was not impacted by a major revaluation of its real estate holdings.

But, despite producing $1.219 million net income for the 12 months to-end December 2011, the overall story remained unchanged for the Bahamas Property Fund - its top-line being squeezed by a drop in rental income linked to those vacancies, with expenses rising due to picking up common area maintenance (CAM) costs associated with the vacant space.

Still, Mr Anderson told Tribune Business the Bahamas Property Fund was "not in a bad place" despite being in a "holding position", its strong cash flows and balance sheet leaving it well-placed to realise its ambition of building a $100 million real estate portfolio.

Acknowledging that it had "taken longer than anticipated" to reach that target, the Bahamas Property Fund's existing portfolio being valued at $46.39 million or close to half that threshold, Mr Anderson said it was not currently in talks over any potential acquisitions.

While small property owners had approached it, the RoyalFidelity president said their holdings did not fit with the Bahamas Property Fund's model, which was to focus on "high end" buildings and shopping centres.

The BISX-listed real estate investment trust's (REIT) 2011 performance was boosted by a revaluation of its properties that was "not as bad as last year". It suffered a $3.286 million loss on the fair value of its properties in 2010 due to the increased vacancy rates at the Bahamas Financial Centre and One Marina Drive, their worth being marked down by $2.245 million and $1.092 million, respectively.

For 2011, the Bahamas Property Fund suffered only a $218,000 fair value loss on the collective worth of its real estate portfolio, all of it - some $415,000 - related to One Marina Drive. The Bahamas Financial Centre's worth was valued upwards by $183,000.

"Our vacancy rates hadn't significantly deteriorated from the previous year," Mr Anderson explained, "so our revaluation reflected that. Even though the rental income from the Financial Centre dropped during the year, the previous valuation already took into account that the space was vacant. The valuation stayed basically where it was because the vacancy rate didn't change."

The Bahamas Property Fund's top-line rental and parking income dropped 4.4 per cent year-over-year to $4.327 million, compared to $4.527 million in 2010. Income from the Bahamas Financial Centre and One Marina Drive dropped by 3 per cent and 11.6 per cent, respectively.

Mr Anderson estimated the 100,000 square foot Bahamas Financial Centre was suffering from a 22 per cent vacancy rate, while One Marina Drive, located just over the bridge on Paradise Island, was experiencing vacancy rates of around 15-18 per cent.

Based on 22,000 square feet being vacant at the Bahamas Financial Centre, costing between $50$55 per square foot in lost revenue and extra CAM costs combined, Mr Anderson told Tribune Business of that property alone: "It's in excess of a $1 million net bottom line that we're losing in vacant space.

"The solution to the problem at both properties remains getting tenants to take up the space, not so much getting them to look at it, but coming to satisfactory agreements. The Financial Centre is the key. It's the largest building, so if we can sort out the Financial Centre it will be a big help to us.

"We'd like to be doing better. There's not enough good, solid leads out there. We don't have many new people in town looking for space, and ours are not the cheapest properties on the market. If people are looking to save rent, they're not the obvious properties to choose."

Acknowledging that Bahamian commercial real estate had been "a buyer's market for the past four-five years", and was unlikely to change in the near future, Mr Anderson said he suspected many potential tenant inquiries were "more negotiating [ploys] with existing landlords to get leverage to drop their rates".

And, with the Bahamas Property Fund's properties positioned at the higher end of the market when it came to rental rates, many companies were avoiding them in the search for cheaper accommodation.

In addition, much of the now-vacant space at One Marina Drive had been freed up when a major tenant, the Harborside timeshare complex, downsized because it did not need the space.

Despite the current difficulties created by the recession, the Bahamas Property Fund is continuing to look to the future. "The company's well positioned to do additional acquisitions," Mr Anderson confirmed to Tribune Business.

"The gearing ratios are great, and it's a matter of the economy improving and getting some tenants. We're not really speaking to anybody at the moment. We're always open to opportunities, but at this stage there are none at the present time.

"We've had people with smaller properties approach us, but they're not consistent with our 'A class' model. We want high-end buildings and shopping centres, so we don't want smaller shopping centres on the back roads. We're looking for high-end properties with strong rental income, great locations and nice-looking buildings.

"We're looking for desirable rental locations for business people. We have a good rental group. Our tenants are all high-end tenants that are reliable in terms of paying their rent."

Confirming that the assembly of a real estate portfolio valued at $100 million "would still be our aim", Mr Anderson told Tribune Business: "It's where we set out many years ago to get to. It's taking longer than anticipated. It's just finding the right ones."

The Bahamas Property Fund paid out two $0.20 per share dividends, at six-month intervals, over the past year, and the RoyalFidelity president said this was unlikely to change unless an acquisition presented itself.

"The general view remains that if we're not actively looking for an acquisition then we will continue to pay out the cash flow of the business," he told Tribune Business.

"We believe that $0.40 per share a year is sustainable even with the current vacancy rate, and unless other opportunities arise we will continue to pay that, as it fits well with the cash flow of the business."