The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The BISX-listed Bahamas Property Fund will not pay shareholder dividends until its overall occupancy rate improves into the 80 per cent range, its administrator has told Tribune Business.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, said the Fund’s Board “wants to see the market turn” before it will feel “comfortable” resuming regular dividends.

He added that the Fund wanted to see its average occupancy rate increase by around 10 percentage points, from the 70 per cent to 80 per cent range, following two years of consecutive losses.

The Bahamas Property Fund suffered a $1.216 million loss for the year to end-December 2016, adding to the $1.545 million in ‘red ink’ incurred the prior year, with both outcomes driven by the negative revaluations of its two flagship properties - the Bahamas Financial Centre in downtown Nassau, and One Marina Drive on Paradise Island.

Mr Anderson explained that with the Fund’s properties valued on a ‘cash flow’ basis, reduced occupancy rates and lower rental income inevitably affected their worth, depressing its financial performance.

“We had new rentals and people vacating rentals. Six of one and half a dozen of the other,” he told Tribune Business of 2016. “You think you’re making headway, until you have someone cancel a lease. It seems like your constantly fighting to keep vacancies low.”

Mr Anderson said the Fund had also been forced to make concessions on rental rates to either keep existing tenants or secure new ones. This, together with the present occupancy rates, was conspiring to keep rental income low.

“We lost another large tenant at One Marina Drive,” he added. “We got part of it back, but at a lower rental rate and that impacted our valuation.

“Even though the drop in value [of our properties] was less than in 2015, it was still over $2 million. It’s part of the business. You have these mixed swings on valuation from a property perspective that you can’t do much about.”

The Fund saw its rental and parking revenue decline year-over-year by 5.7 per cent, falling from $4.003 million in 2015 to $3.776 million.

The loss on valuation of its three properties was $2.161 million, which was less than the prior year’s $2.949 million, the bulk of the ‘hit’ - some $1.839 million - coming on the Bahamas Financial Centre.

“We continue to have talks, but we’re not comfortable paying out dividends given where occupancies are,” Mr Anderson told Tribune Business. “We want to get to 80 per cent on an overall basis.”

While the Fund’s third property, Providence House, home to the PricewaterhouseCoopers accounting firm, is 100 per cent leased, he explained that the Bahamas Financial Centre and One Marina Drive continued to drag the overall rate down.

“We’d really like to get into the 80 per cents before we start paying out dividends again, as we want to get more indication people are interested in renting properties,” Mr Anderson reiterated.

“We want to see the market turn before we get comfortable paying out dividends.”

The RoyalFidelity chief added that the Fund remained on the hunt for acquisition opportunities, and was eager to diversify away from office-based properties concentrated in or near downtown Nassau, but had been beaten out by the Government for UBS House.

“We’re still generating good cash flow and are well-positioned to take advantage of opportunities as they come up, but it’s tough to buy buildings,” Mr Anderson told Tribune Business.

“It’s hard to negotiate prices. We lost one to the Government, and we’re looking at at least one other opportunity at the moment, but we don’t know what’s going to happen and where the building’s going to end up. They’re not necessarily easy items to acquire.

“We’re still looking. We need to diversify and get out of town. We know we’ve got a concentration in office buildings, but have just not been able to find anything suitable.”

Mr Anderson said the Fund’s funds from operations (FFO), which measures its operating performance and cash flow, had dropped by 22 per cent year-over-year, going from 50 cents per share in 2015 to 39 cents per share.

However, he added: “We’re still well-positioned even though the economy over the past two years has not been great.”

He added that the Fund had benefited from the payout of its $10 million preference shares, and refinancing of its remaining $11.389 million bank debt, which had reduced its interest costs by “a couple hundred thousand”.

Mr Anderson said December’s 50 basis point cut in the Bahamian Prime interest rate had provided further help, slashing another $60,000 off the Fund’s annual cost of funds.