Investors in Praetorian Property Mutual Fund (PPMF) were disappointed to learn that no dividend was forthcoming for the fiscal period ending September 2012. This decision was primarily attributed to the sharp decline in the fund's rental income. This item fell to $9.28 million from the 2011 figure of $13.6 million.
A further explanation would be the sharp fall in the fund's cash position; this contracted from $31.8 million as at the end of 2011 to a more modest figure of $2.1 million as at September 2012.
Other items of income also showed varying results. Interest income improved to $755k from last year's $713k. On the other hand, service charges contracted to $810k from the 2011 level of $1.49 million. Meanwhile, net foreign exchange movements showed a gain of $$503k; this contrasts with the loss of $1.72 million shown for 2011. Fair value gains on mutual funds also recorded a positive figure of $103k. For 2011, this line item showed a loss of $33.8k.
For 2012, no investment properties were sold. However, in 2011, the fund realised a gain of $3.52 million on the sale of investment properties. This item helped boost total income for 2011 up to $17.53 million, which was significantly greater than the $11.45 million recorded for 2012.
In the expenses section, two line items recorded reasonable declines. Fees, commission and service charges fell to $10.86 million down by 11.7 per cent from the $12.3 million incurred in 2011. Meanwhile, other administrative expenses contracted by a healthy 62 per cent to $419k from $1.11 million last year.
Largely reflecting difficult conditions, the depreciation in the market value of investment properties showed a decline of $6.6 million for 2012; this item was $3.9 million in 2011. In total, the expenses came in at $17.9 million, which was almost $600k higher than the $17.3 million recorded for 2011.
The net result was a loss of $6.44 million for 2012. This contrasts with the after-tax profit of $205k for 2011.
The fund's accumulated surplus closed at $17.1 million. This reflected a decline of $10 million from the previous year's $27.5 million. The combination of the $4 million distribution paid in January 2012, together with the current year's loss of $6.44 million accounts for this change.
While the fund reports almost full occupancy in T&T, the same cannot be said for its properties in other jurisdictions. In The Cayman Islands, for example, Bermuda House has a vacancy rate of 52 per cent.
Most of the reason for this is the moving out of government tenants to the recently-completed Government Administration Building. Varied challenges exist in other islands.
Subsequent to the balance sheet date, the fund entered into agreements to sell three of its properties. When executed, the income and, hopefully, profit from these disposals would be shown in the current period's report.
Given the uncertain prospects for economic growth regionally, which has a significant impact on property prices and tenancy, the fund is signalling it might be prudent to extend it life for a few more years.
Class B unitholders, acting on the advice of the portfolio manager, may decide to extend the fund's life by a further three years. No decision has yet been made on this possible extension.
Although PPMF's share price has increased by $1.34 (41 per cent) over the past year to $4.60, it still represents a discount of more than 15 per cent to its net asset value of $5.43.
While not a property fund, the Clico Investment Fund (CIF) in its first week of trading seems to reflect some investors' urgent need for immediate funds.
During last week, 489,330 units of this closed-ended fund were traded with its price declining from an opening quote of $24.90 to end at $20.31; this reflects a fall of almost 19 per cent from the listed price of $25.00.
Some investors' extreme impatience (at least to wait for the payment of the first dividend in February) might be another investor's "golden opportunity?"
Such are the benefits of a free market.
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