by Richard Coulson
NO one can tell how many investors hold, directly or indirectly, an equity position in this BISX-listed company, but they all must have a headache after a quick glance at its recently published financial statements for the year 2017.
Only 67 records appear on the shareholder register, representing a total of $2.4 million shares outstanding. But many of these 67 are pension funds holding for their beneficiaries, or broker-dealers holding as nominee for their customers. Royal Fidelity, for example, holds more than 1.3 million shares, 56 percent of the total, part of which is held for its own account but a larger portion for its many clients who invested in BPF. Thus there may be thousands of Bahamians who have money tied up in this enterprise.
The recent financials reveal the startling news that the auditors’ restatement of the 2016 accounts required an abrupt write-down of about $10 million from the property values, reducing equity by over 30 percent from $32 million to $22 million. The auditors’ letter, from the venerable firm of PWC-Price Waterhouse, uses careful accountants’ language in Note 13 to explain that “The fair values of investment properties recognised in prior years were misstated as a result of cash flow projections omitting cash outflows for maintenance cost of vacant rental space.” Hence the massive reduction in shareholders’00 equity.
That’s a pretty blunt indictment by PWC of the way BPC reported the financial condition of its three investment properties, Financial Centre, One Marina Drive, and Providence House all of which have serious vacancy issues.
When originally created and sold to investors by the Fidelity Group over ten years ago, BGF seemed a sound commercial venture. Bahamians had always liked real property investments; why not repackage them in small pieces for retail sale, similar to the hugely successful REITS (real investment trusts) marketed in the US? But REITS enjoy US tax advantages not available here, and always accumulate hundreds if not thousands of separate properties, giving true liquidity, while BPF never acquired more than three buildings.
Then we were hit by 2008 recession, combined with the steady shift in business property away from central Nassau to the available real estate in the Western District. In hindsight, perhaps BPF’s advisors Royal Fidelity and Morley Realty should have spotted this trend and adjusted BPF’s acquisition policy towards joint ventures with property developers active in these areas, as well as in eastern areas outside downtown.
In any event, BPF’s business model has left it with several recent years of both operating losses and valuation write-offs, capped by the recent downward restatement of the 2016/2017 financials. No dividends have been paid and no shares have traded on BISX since October 2016 at the now meaningless price of $9.09, against thousands of unfilled sell orders.
Shareholders are locked into an illiquid investment with no current return and no visible growth prospects.
BPF’s manager Royal Fidelity will soon produce the 2017 Annual Report that must address shareholder concerns. Unless it contains credible prospects of higher rental rates and reduced vacancy level - and possibly new investments properties - an attractive future for BPF seems doubtful. The present three properties will not vanish, but can they generate a reasonable rate of return while held in a fund structure?
Perhaps the solution will be to liquidate BPF and sell the separate properties in the open market, distributing the proceeds to BPF shareholders. This will mirror the thousands of US companies who have closed because of changing economic or regional conditions, but realised some value from liquidating their assets.
In an evolving world, not every business has the right formula for success.
First published in The Tribune and posted here with the permission of the author.
Mr. Coulson has had a long career in law, investment banking and private banking in New York, London, and Nassau, and now serves as director of several financial concerns and as a corporate financial consultant. He has recently released his autobiography, A Corkscrew Life: Adventures of a Travelling Financier.
