The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The BISX-listed Bahamas Property Fund yesterday said its $12.5 million debt refinancing had boosted annual profits by $200,000, as it a`dmitted filling vacant space at its two flagship properties will be “a long, hard slog”.

Michael Anderson, president of RoyalFidelity Merchant Bank & Trust, the Fund’s administrator, told Tribune Business that just 50-60 per cent of its Paradise Island-based One Marina Drive property was now occupied following Royal Bank of Canada’s (RBC) branch closure in April.

While occupancy rates at its Bahamas Financial Centre property, in downtown Nassau, had stabilised at “just north of 70 per cent” in 2015, Mr Anderson conceded there was a dearth of potential new tenants seeking large areas of space.

He disclosed that the Fund was now turning its attention to retail as the solution for filling space at both properties, where ground floors have been left largely vacant following RBC’s decision to consolidate its branch physical presence.

Speaking after the Fund revealed a 13.8 per cent year-over-year profits fall for the 2015 first half, Mr Anderson said: “What’s happened to us is this year, the Financial Centre has stabilised and started increasing occupancies, but then we lost RBC and one other tenant at the One Marina Drive property.

“The reduction in rental income is linked to One Marina Drive. RBC pulled out in March/April, as well as Harborside, the [Atlantis] timeshare entity, reducing its rental area. The loss of those two tenants has impacted rental income at that property.”

The Fund’s rental and parking income for the six months to end-June 2015 fell by 7 per cent year-over-year, from $1.913 million in 2014 to $1.78 million. This helped drop net income from $668,850 last year to $576,335.

Apart from the loss of rental income, increased vacancies also squeeze the Fund’s costs, as it has to pick up the Common Area Maintenance (CAM) expenses associated with the empty space. Its profits are thus exposed to pressure from both sides.

“The Financial Centre has stabilised and started to improve,” Mr Anderson added. “We’re just north of 70 per cent. We were down into the 60 per cents at some stage last year.

“I think at One Marina Drive, we’re down as low as 50-60 per cent, so we’ve got space we’re speaking to people about. There has been interest.”

The RoyalFidelity president described One Marina Drive as a “niche” property, targeted at companies needing corporate space on Paradise Island, since it is the only purpose-built office building ‘across the bridge’.

He revealed that to fill the vacant space, the Fund was targeting potential retail tenants rather than office clients - especially with the opening of the Margaritaville Bahamas restaurant at month’s end.

The eatery will be located in close proximity to One Marina Drive, giving retail tenants the opportunity to sell to a tourist customer base.

“I think the opportunity for One Marina Drive is the retail space downstairs where RBC vacated,” Mr Anderson told Tribune Business.

“Margaritaville Bahamas will be part of the ferry terminal building, so that creates an opportunity as well to get people from the tourism perspective. It creates an opportunity for people looking to serve the tourism market from downstairs space that lends itself to retail.”

The Fund also has retail possibilities at the Financial Centre, following BISX-listed Finance Corporation of the Bahamas (FINCO) decision to end its lease and cease branch operations there.

“We have some space we can make accessible to retail from the street side,” Mr Anderson added, noting that this faced on to both Shirley Street and Charlotte Street.

“We’ve had expressions of interest over time, but have never had it set up and ready to make best use of the space. Hopefully, we’ll be ready to put it out to market shortly.”

Offsetting the tough search for tenants, the Bahamas Property Fund refinanced its existing preference shares and bank debt in July, reducing its debt servicing (interest costs) by $200,000 per annum.

Mr Anderson explained that it wrapped its $3.5 million worth of preference shares, and around $9 million in initial bank debt, into one, single new loan carrying a 5 per cent interest coupon.

This cut the interest rate it was paying on its preference share debt by 50 per cent, as the former debt securities had a 10 per cent coupon that was paying investors a total $350,000 annually.

Mr Anderson said that would be cut to $175,000, while the 25 basis point saving on the previous 5.25 per cent rate attached to the bank debt will drop a further $20,000-$25,000 per annum to the bottom line.

“We just took the existing bank loan we had, added on the preference shares to the existing bank loan, and refinanced those two pieces under the new loan, extended the maturity and dropped the rate,” Mr Anderson told Tribune Business.

“With a bottom line like the Property Fund, it actually makes a big difference. Our debt-to-equity ratio has been dropping over the years, as we paid off the bank debt, and we’ve not taken on a new building for some time.”

Mr Anderson disclosed that the Fund wanted to diversify from central Nassau prime office space, via shopping centres or out-of-town corporate space, but such investment opportunities were relatively few.

“It’s been a long, hard slog,” he told Tribune Business of the Fund’s struggle to increase occupancies at its existing properties. “It’s not just the current financial situation, but people moving out of own and building their own buildings.

“The financial crisis put a lot of strain on buildings in and around town..... There haven’t been many new entrants into the market, and then you’re squabbling over existing properties.

“Depending on what you’re looking for, ours is not the cheapest building on the market, and people gravitate to ‘Class B’ office buildings if they’re looking to save on rent.”

J P Morgan, which together with Credit Suisse is the Financial Centre’s ‘anchor’ tenant is close to signing a new lease for a property that provides built-in redundancy protection for financial services clients.

“I think we’ll continue more or less where we are,” Mr Anderson said of the Fund’s prospects for 2015 and 2016. “It’s slow progress; there’s no big tenants there taking big space at the moment.

“It’s about finding a number of small tenants as opposed to large ones. That takes longer. Hopefully, as we move into the retail side, we will find some people looking to move into One Marina Drive and downtown.”