The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed fund’s administrator yesterday said “the picture will be much changed” by year-end 2019 if it succeeds in slashing vacant space at its flagship property by 50 percent.

Michael Anderson, pictured, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that the Bahamas Property Fund would completely reverse last year’s negative net cash flow if it brings negotiations with two prospective Bahamas Financial Centre tenants to a positive conclusion.

With the duo lined up to take a minimum 20,000 square feet between them, Mr Anderson said this would halve vacant space at the Charlotte Street-based property and boost both the fund’s top and bottom lines.

Besides increasing rental income, he explained that increased occupancy would also slash the Common Area Maintenance (CAM) costs that the Fund is currently having to pick up as landlord, thereby cutting its expenses.

RoyalFidelity has already achieved this at the Fund’s third property, Providence House, by renting the 75 percent that was previously vacant itself. This has producing $450,000 in “cumulative value” for the fund, and resulted in Providence House’s value being revised upwards by $1m.

Mr Anderson yesterday voiced optimism that winds of improvement in the overall market for high-end commercial properties, dubbed ‘Class A’, would “blow into our buildings” over the course of 2019.

“We are in discussions with a couple of companies where hopefully we are getting closer to formal leases in the Financial Centre,” he told Tribune Business. “We hope to finalise that before the end of the second quarter and, if not, it will move into the third quarter.

“I was thinking [they will take] in the region of 20,000 square feet. If we succeed with both of those, it could be 30,000 square feet. We’re in the late stage of negotiations, but between 20,000 to 30,000 square feet would be the hope.

“If we get the rental of those properties sorted out, the second half of the year will be significantly better. I’m hopeful that by the end of 2019 the position will have changed quite a bit from where it was at the end of 2018.”

The Bahamas Property Fund enjoyed a near-$5m improvement to its bottom line for the 12 months to end-December 2018, with the prior year’s $699,384 net loss converted to a $4.232m profit.

However, this was entirely due to a positive $6.15m swing on the valuation of its three properties, which enjoyed a collective $4.3m “net fair value gain” compared to the prior year’s $1.85m loss. M

Mr Anderson conceded that the upward valuations, which were $2.3m at the Bahamas Financial Centre and $1m each at both its One Marina Drive and Providence House properties, had resulted from an overall improvement in ‘Class A’ property rental rates and occupancies rather than anything that happened at the Fund’s three properties.

“We’re trying to pick it back up and move forward,” he told Tribune Business of the Property Fund, “after it stalled since 2008. The recession came and we started losing tenants at both the Financial Centre and One Marina Drive, and it’s been a while before it started to pick up.

“We’ve seen an improvement in Class A properties, and the impact of that should start to blow into our buildings from a general market perspective, and if we close those tenants that will be a specific help to it. The market seems to be moving forward, and we’re starting to see more activity.”

Mr Anderson said RoyalFidelity’s lease of Providence House had already impacted the Fund’s 2019 first quarter results, boosting rental income while simultaneously cutting CAM costs that the latter previously had to pick up when the property was vacant.

This had generated $450,000 in “cumulative value” for the Fund, with the latest results also taking into account the $1.4m invested in the building by RoyalFidelity and its knock-on impact on the valuation.

“The disappointing part of 2018 was from a cash flow perspective because we had this building [Providence House] vacant for the entire year, and increased CAM costs were incurred to refurbish the building that were largely picked up by the Fund as only 25 percent was occupied,” Mr Anderson explained.

“We had 40 percent vacancies in the other two buildings, and the cumulative effect of the CAM costs was massive. Net cash flow to the company ended up being negative but with the rental of the Providence House space that will get addressed.

“If we’re able to rent more space at the Financial Centre that will improve the financial position, cash will be produced, and we’ll move forward positively from a cash flow perspective.”

Mr Anderson said the Property Fund was still hunting potential acquisitions, and had held recent discussions over its proposed downtown Nassau parking garage in a bid to obtain the necessary space.

He added that quotes were being supplied for the roof-top solar project earmarked for the Bahamas Financial Centre, with that initiative set to move forward in the 2019 second half.