The Tribune

By NEIL HARTNELL

Tribune Business Editor

VACANCY rates of more than 20 per cent at its two main properties have left the BISX-listed Bahamas Property Fund in "a waiting game", its administrator said yesterday, with its bottom line "not going to change much" until new tenants were attracted.

Michael Anderson, RoyalFidelity Merchant Bank & Trust's president, speaking after the Property Fund unveiled a 36 per cent net income decline to $299,237 for the 2012 first quarter, said it had reached "a bottomed out kind of level" where profits and vacancy rates were unlikely to fall further.

The real estate investment trust (REIT), which owns downtown Nassau's Bahamas Financial Centre and Paradise Island's One Marina Drive, plus Providence House, home to the PricewaterhouseCoopers (PwC) accounting firm, also saw its financials for the three months to end-March 2012 impacted by adjustments and revenue/expense carry overs from 2011.

Emphasising that the net result from this was "not significantly different", Mr Anderson explained: "You'd find the financial statements this quarter kind of caught up the revenue shortfalls and expenditure shortfalls from last year, which produced the basis for both those to go up this quarter.

"It's adjustments from the prior quarter. We recorded some expenses shortfalls from last year this year, and revenue shortfalls from last year in this year."

Mr Anderson added that "going forward", the Bahamas Property Fund's revenues and expenses were both likely to be lower. For the three months to end-March 2012, its rental income rose by a modest $26,000 to $1.051 million, with its total income ahead $20,000 year-over-year at $1.059 million.

However, the 36 per cent net income drop resulted from the squeeze imposed by a 36.3 per cent increase in total expenses to $330,987, compared to $505,098 the previous year. Leading the way here were 'other expenses', which grew by 93.2 per cent to $462,079, compared to $239,173 last year.

The latter increase is due to the Property Fund having to pick up the common area maintenance (CAM) costs associated with the vacant space at its Bahamas Financial Centre and One Marina Drive properties. Mr Anderson said vacancy rates at the former were between 22-25 per cent, while that for the latter was "around" 20 per cent.

"The actual results are not going to change much until we get new tenants into the buildings," he told Tribune Business. "We're effectively in a waiting game now, not doing badly but waiting for something good to take place.

"We're at a bottomed out kind of level in terms of cash flows going into the bank account and the bottom line. We've reached a point where we will not go much lower than that...... We've been at this level for 18 months, and it's been fairly consistent, so what we need to do is find tenants to improve the revenue line. It's not a terrible position, but it's not a great position."

On the positive side, the Property Fund's costs were unlikely to "change much", while its bank interest costs would continue to fall as the total debt principal reduced.

In addition, given that current vacancy rates had persisted for more than a year, especially at the Bahamas Financial Centre, the Property Fund's financial year-over-year comparatives will be up against like figures.

"But, fundamentally, our biggest problem is occupancy, as we have to cover CAM on the vacant space," Mr Anderson said. "Any increase in rental income will have a significant impact on the bottom line. Until we get those vacancies rented, we will not see any significant change. We've not seen a significant change in occupancy for 18 months."

Tenants seeking to lease large areas of space were what the Property Fund needed, Mr Anderson added, given that small tenants were frequently 'coming and going' from its properties.

He conceded, though, that much depended on business confidence and the state of the overall Bahamian and world economies.

"It depends on people's perceptions of the economy and how comfortable they are taking on new premises and fitting it out," Mr Anderson added of the Fund's prospects on filling its vacant space.

"People are reluctant to commit to expansion. Absent new people coming to market, or businesses obviously needing to expand, it's difficult to see most people stepping outside their current business model to take on new lease space."