The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The BISX-listed Bahamas Property Fund says occupancy rates at its two flagship properties are “nowhere close to where we’d like to be”, after it incurred a $1.545 million net loss for 2015.

Michael Anderson, RoyalFidelity Merchant Bank and Trust’s president, told Tribune Business that higher vacancy rates drove a $3.238 million ‘write down’ on the value of the Fund’s One Marina Drive property.

That, combined with reduced rental income as a result of the vacancies there and at its Bahamas Financial Centre property, drove an almost nine-fold year-over-year increase in the net losses suffered by shareholders.

Mr Anderson, who acts as the Property Fund’s administrator, said the drag at One Marina Drive was caused by Royal Bank of Canada’s (RBC) decision to close its Paradise Island branch.

Atlantis’s Harborside timeshare development also vacated space at the property, which is the sole purpose-built office block on Paradise Island, dropping occupancy rates into the low-mid 60 per cent range.

“If you look at the rental income, the change is associated with the vacancy rates at that [One Marina Drive] property, rather than the Financial Centre,” Mr Anderson told Tribune Business.

“We’ve got the latter back from the mid-60s; we’ve got it up to just over 70 per cent now. It hasn’t gone anywhere close to where we would like it to be.”

For the 12 months to end-December 2015, the Fund’s total rental and parking revenues were down almost 7 per cent, standing at $4.003 million compared to $4.3 million the year before.

The near-$300,000 drop, though, was almost entirely due to One Marina Drive, where rental income fell year-over-year by 31 per cent, down from $856,613 to $591,261.

The Bahamas Property Fund’s audited financial statements were only published in early July, some three months later than the end-April (120 days) deadline stipulated by BISX for its listed firms to disclose their annual results.

No explanation was given for the late publication, and the financials made no mention of any adverse regulatory action being taken by the stock exchange or Securities Commission as a result.

However, the Fund’s results show it continues to be ‘squeezed’ on its top-line by the loss of rental income, and below by having to pick up increasing maintenance (CAM) costs associated with the greater vacant space at its two main properties.

CAM costs in 2015 rose by 6.5 per cent year-over-year to $1.303 million, but the biggest dent to the Fund’s performance was the revaluation hit taken on One Marina Drive.

Mr Anderson explained that the $3.238 million write-down was tied directly to One Marina Drive’s increased vacant space, as the Fund’s buildings were valued based on the rental streams they were generating.

“That’s what drives down the valuation,” he said, “because it’s valued as a real estate fund on rental streams, and these were cut for the lower vacancy rates. That’s where we saw the losses.”

One Marina Drive’s performance thus negated modest upward revisions to the values of the Bahamas Financial Centre and Providence House, the Fund’s third property, which is home to the PricewaterhouseCoopers (PwC) accounting firm.

As a result, the Fund’s ‘net fair value’ loss on its three properties jumped by 86.5 per cent year-over-year, from $1.581 million to $2.949 million.

This, in turn, cut its total income by 61.3 per cent, from $2.719 million the prior year to $1.054 million.

Despite a 14.6 per cent drop in total expenses to $1.715 million, which was aided by the ‘recovery’ of $749,575 in Business Licence fees, the Fund still saw a $1.372 million ‘swing’ into an operating loss of $661,388.

Once interest expenses and other adjustments were added in, the Fund’s net loss increased almost nine-fold year-over-year, jumping from $173,147 to $1.545 million.

Mr Anderson, meanwhile, attributed the Fund’s low occupancy/high vacancy rate problem to the soft market for prime commercial office space.

“It’s still a tough market,” he told Tribune Business. “We are seeing more interest potentially in retail space at One Marina Drive. “We have to figure out how best to split it, and have people looking at it for various reasons, but have not managed to get anyone to take it yet.”

One Marina Drive has long had ‘exclusivity’ as the only purpose-built office block on One Marina Drive, but its location by the ferry terminal, and now the Margaritaville franchise, has opened up possibilities for converting the former RBC branch space into retail use.

Similarly, FINCO’s decision to vacate its ground floor spot at the Bahamas Financial Centre has opened up potential retail opportunities there, although Mr Anderson said no decision had been reached there.

The 100,000 square foot Financial Centre, regarded as ‘Class A’ or top quality office space, with built-in redundancy and generators, is focused chiefly as its name implies - on financial services tenants.

However, that industry’s travails in recent years, coupled with the increasing trend of financial services firms to locate in western New Providence, means that replacements for FINCO and the Spanish bank, Santander, have been hard to find.

“We’ve been successful in terms of getting a number of small firms to take 1,000 square foot chunks; we’ve had four to five of those,” Mr Anderson said of the Financial Centre.

“It’s like a drop in the bucket for what we have. FINCO’s vacancy and Santander’s; between them, they vacated 21,000 square feet. We still have plenty of space available upstairs, and downstairs where FINCO was.

“We’ve seen the impact of the banking slowdown and cutting back, having lost two pieces of [RBC] space.”

Mr Anderson added that the addition of smaller tenants had helped the Financial Centre’s occupancy levels to rebound from a low of 65-66 per cent to the current 73-74 per cent.

While discussions with potential tenants for One Marina Drive and the Bahamas Financial Centre are continuing, Mr Anderson said there was “not that significant a demand for space”.

With the Financial Centre’s ‘base rate and CAM’ starting at $50 per square foot, he explained that many companies were instead seeking out “high $30-low $40” rates at ‘Class B’ and ‘Class C’ office buildings in the downtown Nassau area.

“Both properties will recover when this market for that space rebounds,” Mr Anderson told Tribune Business. “We’ve seen an offset in terms of reduced interest costs; that’s helped. But the bottom line is still being impacted by the loss of rental income and higher costs.”