BPF's receivables spike 77 in Q1

Wed, Jul 25th 2012, 08:19 AM

High operating expenses and receivables approaching 80 percent hurt Bahamas Property Fund Limited's (BPF) profitability in the first quarter.
According to its financial statements up until March 31, the BISX-listed company saw its operating expenses spike 36.29 percent. "Other expenses" increased more than $170,000 after absorbing common area maintenance costs. The fund's flagship property, the Bahamas Financial Centre, has an estimated vacancy rate of 25 percent.
"The cost to maintain the building is shared by all of the tenants," said Jamaal Stubbs, senior analyst at CFAL. "Therefore, with fewer tenants, the cost is going up. You have to cover that cost."
The other culprit to profitability came in the form of receivables, which grew substantially in the first quarter. In fact, of all total revenues earned during this period, a concerning 77 percent represented unpaid rent.
The trend points to the tough financial times being felt around the world, as many of the tenants in the Bahamas Financial Centre are offshore banks. Meanwhile, with rent left unpaid, BPF must dip into its own reserves to meet its working capital requirements.
Stubbs noted that high receivables carry a variety of risks, including the danger that vacancy could increase as firms fail to cover liabilities.
In the first quarter BPF saw its earnings decline 36 percent, or $168,000, compared to the same period last year. Total revenues, however, did rise by $20,000 to $1.06 million through gains in the rental parking income.
In terms of the fund's other properties, Providence House remains fully leased with PricewaterhouseCoopers as its primary tenant. However, One Marina Drive on Paradise Island has a similar vacancy compared to the Bahamas Financial Centre.
BPF possesses more than $30 million in equity capital and only $16.1 million in long-term debt, placing the BISX-listed firm in a position for future acquisitions, should the right opportunity arise.
In a past interview with Guardian Business, Michael Anderson, the president of RoyalFidelity Merchant Bank & Trust, said the fund continues to target $100 million in assets "over a period of time".
"There is a glut of office space, particularly downtown," he noted. "Commercial real estate is not just about offices, but retail space as well. We have been looking at shopping malls and commercial office buildings. At the Bahamas Financial Centre, we have toyed with the idea of opening a retail space there on the ground floor and alternative uses for space."
Stubbs from CFAL confirmed that BPF "has the ability" to diversify its holdings.
"We would suggest that they pursue properties with a more diversified tenant mix. You don't want a situation where tenants are focused on one particular sector," he explained.
He agreed that a property with a strong retail component, such as a mall, would serve the fund well.

BPF is now trading at a discount of $3.16 per share.

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