The Tribune

THE BISX-listed Bahamas Property Fund is preparing for temporary vacancy at its last fully-occupied property, following a $2.206 million third quarter hit caused by a timing adjustment.

Michael Anderson, president of RoyalFidelity Merchant Bank & Trust, which is the Fund’s administrator, told Tribune Business that it decided to revalue its three properties on a quarterly basis rather than only at year-end. He explained that this, coupled with the persistent vacancy rates at its flagship Bahamas Financial Centre and One Marina Drive properties, was responsible for the negative $2.206 million revaluation in the 2017 third quarter, which plunged the Fund into a $1.9 million net loss for the first nine months. Mr Anderson also revealed that the Fund faces a likely vacancy “gap” of several months at its last 100 per cent-occupied property, Providence House, with its current tenant, the PricewaterhouseCoopers (PwC) accounting firm, set to move out before year-end.

He added, though, that the Fund expected to secure new tenants for Providence House “reasonably soon”. Seeking to provide shareholders with some holiday cheer, Mr Anderson said it was also in negotiations to acquire a fourth commercial property and develop its Downtown Nassau parking garage initiative, and locked in talks with prospective tenants at its two major properties.

“Historically we’ve used the end of year to do it as a one-off valuation exercise,” Mr Anderson explained of the third quarter revaluation. “We’re now trying to do it on a quarterly basis, so that there are no longer large adjustments at the end of the year.”

He expressed hope that the Fund would be able to recover, and write back, some of the loss taken on its property valuations before year-end given that it was in talks with potential tenants to fill vacant space at its Bahamas Financial Centre and One Marina Drive locations.

Disclosing that the occupancy rates for both properties were around 63-65 per cent, or close to two-thirds, Mr Anderson said: “We’re in detailed discussions with one particular party for a large amount of space and I’m hopeful that will actually work out. I’m reasonably confident, but don’t want to put it out there that it’s going to happen.

“Some of these initiatives really need to get finalised and completed so we can move forward from there. We’ve had a pretty rough period. It’s not that we’re not working on things; it’s just that they haven’t come to fruition yet.”

The Bahamas Property Fund’s properties are valued on an income or cash flow basis, meaning that increased or persistently high vacancy rates result in negative revaluations of their value.

The Fund, in a press statement, said a 5 per cent improvement in occupancy rates at its major properties - with nothing else changing - will result in a $2.733 million increase in their value compared to end-September 2017 levels.

“The vacancy rates in our main properties have been increasing over the last several years,” Mr Anderson said. “Can we reverse that and move it the other way? That depends on us securing large tenants for our properties.

“We’re looking at 2018 to recover and improve our occupancy rates, as we’ve got to go the other way. I know our leasing agents, Morley Realty, are continuing to speak to different people. It’s just really trying to find suitable arrangements for tenants and ourselves, particularly around rental rates.”

The RoyalFidelity chief said the significant amount of vacant commercial property on the market, and available for leasing, meant potential tenants were always trying to push down rental rates in talks with the Fund.

He explained that this was especially problematic for the Bahamas Financial Centre, which came with significant value-added features such as built-in redundancy and power back, meaning that it was more difficult for the Fund to compromise on rental rates and bridge the “gap” with tenants.

Mr Anderson said the Fund was now working to fill a significant vacancy at Providence House, with PwC set to move out before year-end. “Government is a party we’ve been speaking to about different properties, including Providence House,” he revealed to Tribune Business.

“Up until now Providence House has been fully occupied, but PwC have given notice that they’re moving out. We have other tenants lined up, but there will be a gap. We will have a vacancy at Providence House for a period of time, but expect that will get sorted out reasonably soon.

“We might have a few months of tidying up the property and refurbishing it. Providence House is a ‘Class B’ property, so the rental rates are better than the Bahamas Financial Centre and One Marina Drive, so it’s more attractive to a number of tenants. It has good parking and is located outside of town, so it’s a different property to rent.”

Mr Anderson declined to go into detail on the Fund’s potential acquisition, other than to say it was a commercial property that “will work well for us. The property is relatively attractive from a rental perspective at the right price points”.

He added: “Property acquisitions take ages in this market, and when you have an amount of space and need some tenants. Finding the right tenant does not happen overnight.”

The $2.206 million revaluation hit dropped the Fund to an $836,925 operating loss for the nine months to end-September 2017, with the net loss coming in at $1.222 million - a more than $2 million reversal on the prior year’s $794,192 net income.

The Fund said in a statement: “Excluding the net fair value loss on investment property, the Fund would have reported net income and total comprehensive income of $984,096 (2016: $794,192), representing a 24 per cent increase over the same financial period during 2016.

“Rental and parking revenue experienced a limited decline of 4 per cent. However, expenses declined by 17 per cent, with the most significant contributor being a decline in maintenance costs of vacant rental space.

“Such maintenance costs are influenced by the common area maintenance costs that must be absorbed by the Fund as landlord for vacant space, and such costs during 2017 continue to be managed for the benefit of tenants and the Fund. Further, as the Fund continues to reduce its borrowings, interest expense and related charges declined by 13 per cent.”

The Fund added that its financial position remained strong, with debt equivalent to 19 per cent of total available capital for acquisitions and operations.