Fortress Fund initiates major move to safeguard investors as property market sags
Fortress Caribbean Property Fund Limited has summoned shareholders in and out of Barbados to a special meeting on September 26 to get their permission to convert it to a segregated cell company — effectively splitting its $113.4 million “total assets” in two.
And the company’s board of directors, chaired by prominent businessman Geoffrey Cave, is warning that unless urgent action is taken the protracted recession and its negative impact on the real estate market here and in the Eastern Caribbean will continue to bleed the company and shareholders of value worth millions of dollars.
Barbados TODAY confirmed that in recent days shareholders of the company, which is listed on stock exchanges in Barbados and Trinidad and Tobago, have received an 88-page information memorandum dated August 29, 2013 and correspondence from Cave and Corporate Secretary Hanna Chrysostom.
The property fund was established in 1999 “for individual and institutional investors to gain access to the returns generated by a diversified portfolio of income producing and development properties”.
In recent years, however, property not generating income, the fund’s declining share price, the absence of grow in shareholder value and competing shareholder interests have been problematic, prompting the company split proposal.
Once shareholders give the nod the Fortress Property assets will be divided into two new segregated funds, with the Value Fund comprising the current Fund’s income producing assets and the Development Fund made up of the properties held for development and resale.
Fortress management told shareholders they have conducted a “careful evaluation” its corporate structure and concluded that “a corporate and capital restructuring of the Fund offers the best option of building and unlocking shareholder value within the constraints of the current economic environment”.
“The present structure creates a significant drag on the company’s ability to meet the needs of shareholders who wish to maximise their income … the income being generated from the fund’s income producing properties will be segregated from the portfolio of properties held for development and resale,” they explained.
“This means that such income will be spread over a smaller asset base which will result in higher returns on equity and higher dividends for the income producing fund. In short, the sum of the parts is expected to be greater than the whole.”
The fund currently has 55,652,768 Class “A” Common Property Fund shares outstanding, which will be cancelled and will be replaced by an allotment of 55,652,768 Value Fund Shares and 55,652,768 Development Fund Shares if shareholders give their approve.
Up to end of September last year Value Fund property investments were worth $74.4 million, a figure reduced to $43.7 million when total liabilities ($17.8 million) and minority interests ($15.2 million) were factored in.
This list was topped by the property known as the BET Building, located in Wildey and leased and occupied by Cable & Wireless, and included several properties occupied by Cave Shepherd & Co. Limited and Carter’s General Store ($15 million), Carlisle House ($12 million), No. 24 Broad Street, The Sunset Mall ($2.2 million), and The Chattel Village ($1.7 million).
The Development Fund on the other hand included properties with investment total $35.1 million, reduced to $34.4 million when $2.2 million total liabilities were added.
This included lands at Wotton, Christ Church ($6.8 million), property at Villas On The Green in St. Lucia (villas $6.7 million and lands $3. million), and property at a number of other upscale locations, including Canouan in the Grenadines ($3 million), Rockley ($2.5 million), Apes Hill land and polo villa ($2.8 million), Holders Cottage ($2.2 million), Limegrove ($1.3 million), and Lion Castle ($1 million).
It is the status of the Development Fund properties, however, that is causing the greater concern.
“The appraised valuations of many of these properties have continued to decline in recent years due to the recession and the fall in Caribbean real estate prices. The impact of this has been continuous appraisal losses in the annual accounts for the Fund, most of which have been non-cash charges,” the Fortress proposal noted.
“There are ongoing costs associated with the holding of real estate, including property taxes, insurance, maintenance and management. Many of these properties generate little or no annual income so when the annual holding costs are combined with the annual revaluation losses, the negative impact on the earnings of the Fund as a whole in recent years has been significant.” (SC)