REIZ to outperform expectations
Real Estate, Real Estate investments Zambia (REIZ)

CEO Sydney Popota is getting ready for an AGM to remember. According to SENS Announcement issued on 06 March 2018, for the year ended 31 December 2017, the basic earnings per share for REIZ are expected to be 219% higher than the basic earnings per share for the year ended 31 December 2016. In short, Sydney will be all about profit at the AGM, much to the delight of Chairman Kenny Makala’s board.

According to SENS Announcement, it stated that “The movement in earnings is primarily attributed to the effect of change in the fair value of investment properties. In 2017, there was a gain in fair value of investment property of K2.2 million compared to a loss of K61.6 million in 2016. The gain in 2017 was on account of development and refurbishment of some properties in the Group’s property portfolio and tenanting some vacant spaces which enhanced the property fair values.”

We believe Sydney has every reason to be delighted and so should be shareholders. This is because when we published “IAS 40 Bites REIZ at Half Year, the company was recovering from the effects of restatement of assets. This had the undesired consequences of affecting their interim income statement. Furthermore, at the time of publication of the interim results, their rental income had dropped by 5.85% at half year. Worse still, hedging complexities with a dollar and kwacha tango led to the reduction. However, the company still held on to its premium customers who we believe are crucial source of competitive advantage for the firm.

The annual report has not been published yet but we anticipate that there will be significant movement on certain assets which will be the reason for the 219% surge in profit. They are known to be pursing many projects (some expansionist in nature with few Greenfield ones). For example, at the epilogue of 2017, they closed the deal for premium property Southview Park on Kafue Road. This acquisition was in line with the REIZ Plc Group strategic focus meant to grow the group’s total Gross Living Area (GLA is premium real estate) and sectorial diversification of the investment properties portfolio whilst at the same time enhancing shareholder value.

The value preposition for many investors in REIZ is that the firm offers investors who are keen on property but don’t want to be involved in the day to day issues the come with maintaining it. Rather, they leave it to experts such as REIZ who remove the risks associated with managing a diverse portfolio of property. However, just as easily as value can be created, because the business deals with brick and mortar, it is susceptible to the effects of changes in fair value of their assets (hence the cautionary note when dealing with its stock). This can either grow or diminish shareholders’ value. Based on the current management type and the recent acquisitions made by the firm, they have shown a pattern that is indicative of a player in the game real estate that is very cautious of the acquisitions that they made. They are employing a strategy that achieves competitive advantage through diversification which allows for value to be created through higher than industry margins. Investors in REIZ shares can therefore be defined as those who are in it for the long term. That is that anatomy of a modern property owner.

 

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