The gold that glitters in the property market has quickly faded as REIZ reported an 88.8 % fall in profit after tax for the 2018 financial year.
The company reported the sharpest fall in revenue in over 5 years following a period that has seen it invest organically in premium real estate in Zambia. Investment properties appreciated in Kwacha value terms due to approximately 19% devaluation of Kwacha to K11.89/$ at end of 2018. This led to a net change in fair value of K 26.3m in 2018 compared to K 2.2m in 2017, according to a statement issued on SENS in Lusaka.
What this translated to in USD terms, was the fair value of the investment property portfolio declining by 17% due to vacancies and falling market rentals, according to the fair value determination of investment property by external independent and professional experts in property valuation, Knight Frank Zambia Limited, as at 31 December 2018.
During the financial year, REIZ was busy with acquisitions and real estate developments. The Group announced earlier in 2018 that they had acquired Southview Park, a housing complex situated in the Lilayi area which comprised of 22 upmarket residential homes and excess bulk land which the company has earmarked for further developments. Furthermore, they completed the refurbishment and redevelopment of the Arcades Shopping Mall which resulted in the transformation of the mall into a modern facility with increased lettable space and improved distribution of foot traffic. However, as at the time of this publication, a sizable portion of the lettable space was still due for occupancy, as observed by Financial Insights field reporter.
Financial Analysis of REIZ
Net cash generated from operating activities fell by 31% on a year on year basis. Capital outlay on investing activities increased by 253% indicative of works in progress and acquisitions. With financing predominately being organic, cash and cash equivalents at the end of 2018 had fallen substantially to K2 million from K79.4 million in the previous year.
Exchange losses multiplied 481 times from the previous financial year led to the erosion of value for the company, despite cost containment that led to a 27% increase in results from operations in a period that saw the company’s revenue fall.
Thus far, the REIZ stock has outperformed the LuSE All Share index for the most part of 2018. The lowest price of the stock during the year was K5 which was recorded following the fall of the share price in July 2018. This was the only time it performed below the index. The stock rebounded in August to K5.99 and has maintained this price as at the time of publishing this article.