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Bahamas Property Fund eyes income growth

Increased interest from foreign companies in rental space
Guardian Business Editor

Published: Oct 02, 2013

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The Bahamas Property Fund has recorded a 10 percent net profit fall in its 2013 second quarter, as it struggled to fill around 28,000 square feet in vacant property within its three commercial investment properties.

However, the BISX-listed fund is now hopeful of leasing an additional 3,000 to 4,000 square feet of property by the end of the 2013 fiscal year, improving profitability as it not only gains rental income but also reduces its own responsibility for maintenance costs as tenants provide fees to cover these costs.

RoyalFidelity Merchant Bank & Trust’s President Mike Anderson administrator for the Real Estate Investment Trust (REIT), said that despite a slow 18 months in which an overhang of vacant commercial properties have been driving down rental rates in competitor properties, the BPF has seen a renewed level of interest in its vacant spaces in recent months.

The BPF portfolio includes the Bahamas Financial Center (BFC), its flagship property; One Marina drive, located on Paradise Island; and Providence House on East Hill Street.

“I think we were a bit disappointed that we couldn’t rent out the additional space, we had a number of people showing interest in the property, which is in good condition, and I thought we’d be able to rent more space in the first half of year.

“We have interested parties who have been negotiating leases with people but they’re being dragged out. But I do think we will get at least two new spaces rented in the second half, and so that will start to move us towards improved bottom line for the company.”

With rental space going in the properties for an average of $55 a square foot, this could equate to an additional $165,000 to $220,000 in additional monthly income for the fund.

Anderson said that much of the interest in renting some of the vacant space available in the portfolio properties is coming from companies who do not have a presence in The Bahamas at present, a development which he described as “promising for The Bahamas and ourselves.”

Anderson said the fund has essentially seen the “same level of tenancy” in these properties – around 72 to 73 percent – for the past 18 months.

While discussions have taken place with potential lessees, many of these have been fruitless, said Anderson.

“We’ve had a lot of interest in last year from existing people who may be using us as a negotiating arrangement with their existing landlords so when I get a new tenant I have a sense we can compete, whereas with existing companies in The Bahamas, I don’t always know if it’s real.”

As for concerns raised by CFAL Senior Analyst Jamaal Stubbs that the BPF could be impacted by future write-downs in the values of its investment properties, Anderson said this should not be an issue.

“We value our buildings on an income basis, so based on future cash flows discounting back to today’s value, and we’ve been doing that since we’ve started. With lower occupancy rates, we’ve been marking down the values of buildings each year.

“We believe our valuations are fairly consistent from cash flows over the year. As vacancy rates improve that will impact cash flows positively,” said the administrator.

In its second quarter, the fund earned net profits of $573,000, a 9.94 percent decline for the six-month period.

Operating expenses rose marginally by half a percentage point, to $1.32 million, and total assets expanded to $50.97 million, or 2.11 percent.

Liabilities rose by 2.76 percent or $1.07 million led by a 57.61 percent rise in “other payables,” indicating that the company is now taking more time to cover payables, a development which analysts are monitoring.

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