Real Estate Investment Zambia PLC – 2018 Performance Analysis
Real Estate, Real Estate investments Zambia (REIZ)

Performance overview

In 2018, the real estate market in Zambia was highly competitive with the development of real estate properties continuing to record steady remarkable increases. Despite the increase in the value of property in Zambia the market has continued to put pressure on existing properties as demand in the near term is lagging supply.

This means that an A-grade office space within Lusaka has continued to receive pressure from cheaper residential properties that are being converted to office space at an increasing pace hence driving down the rentals in the central business district (CBD). During the previous financial year the company approved a five (5) year strategic plan to run from 2017 to 2021 whose theme is” ingenious pursuit for efficient, effective and agile management of REIZ focused on creation, enhancement and protection of shareholder value” (Annual Report 2017). The strategic plan will save to ensure that the real estate group makes significance in its present operating markets as well as diversifying its portfolio both sectorial mix and geographically hence strengthening its market-leading positions.

Financial Performance

According to the audited financials the Group reported a profit after tax for 2018 of ZMW2.8 million compared to ZMW25.0 million for 2017. Revenue declined in 2018 by 22.4% to ZMW50.6 million from ZMW65.2 million in 2017 while profit from operations increased to K54.1 million in 2018 from K42.7 million in 2017. This positive outlook of operating results came from the consistent rightsizing measures and cost-control which saw administrative and operating costs reducing by 5.4%. In addition, the depreciation of the Kwacha during 2018 which accounted for approximately 10.8% favored the rental revenue arising from US Dollars based operating leases.

In Kwacha value investment properties appreciated by approximately 19% due to the devaluation of the kwacha from K10.01/$ at end of 2017 to K11.89/$ at end of 2018, leading to a net change in fair value of ZMW26.3m in 2018 compared to ZMW2.2m in 2017. It is significant to note that the fair value of investment property was determined as at 31 December 2018 by Knight Frank Zambia Limited (KFZ). KFZ are external independent and professional experts in property valuation who possess appropriate recognized professional qualifications and have requisite experience in the location and category of the properties valued.

About the Company

Real Estate Investments Zambia (“REIZ” – formerly Known as “Farmer’s House Plc”) is a property management and development company which mainly focuses on commercial property development in Zambia. The group’s portfolio owns prime commercial property in around Zambia such as Arcades Shopping Mall, Parkway Industrial Park and the Solwezi Business Park which house several blue chip tenants.

Struggling Property Portfolio For 2018

Despite the positive results obtained in the 2018 financial year REIZ saw some adverse impacts reported on their profit after tax which were attributed to several factors otherwise events. For instance, one of REIZ commercial property that significantly contributes to its share capital is Arcades shopping mall which has since 2017- 2019 being undergoing redevelopment. Since the redevelopment rental income had declined by 35% as a result of vacancies at the mall. However, the refurbished mall was re-launched in the fourth quarter of 2018 and trading began to normalize. Moreover, REIZ’s revenue was further adversely impacted by the rental remissions of ZMW3.1 million granted to deserving tenants at Arcades mall as a goodwill gesture during the redevelopment period which accounted for a 4.8% decline in revenue.

Through a close analysis of the statements it can be seen that they was a net increase of K6 million in interest expenses which was as a result of a combination of increased borrowings to fund the Arcades shopping mall redevelopment and the approximately 19% depreciation of the ZMW against the USD during 2018 (Annual Report, 2018).  Additionally the depreciation of the ZMW against the USD resulted in exchange losses of K28.3 million in translation of the Company’s foreign currency denominated liabilities in 2018 compared to only ZKM66 thousand exchange loss in 2017. Hence, this is evident that this asset under their portfolio did significantly affect REIZ 2018 financial performance by the 88.8% fall in profit after tax.

Acquisitions and Developments

According to the 2018 Annual Report REIZ acquired Southview Park a housing complex situated in the Lilayi area, along Kafue road presently developed with 22 upmarket residential homes and plenty of bulk land. The extent of the property is 11.4752 hectare (28.3552 acres) constituting a significant land bank with immense future development potential. This acquisition was in line with the Group’s strategic pursuit for sectorial diversification being the first time that a residential property has been added to the portfolio. Moreover, the refurbishment and redevelopment of the Arcades Shopping Mall was successfully completed in the four quarter of 2018. The project has resulted in the transformation of the mall into a modern one and has attracted a diverse range of shops and services. Redevelopment has increased rentable space and improved distribution of foot traffic across the mall. Moving forward, in order to cope with the volatile global and local economy REIZ will be focused on adhering to prudent business and strategic moves and will remain dedicated to maximizing returns to shareholders by exploring and grasping opportunities. For now, the Directors of the REIZ board proposed a final dividend of K0.13/share for shareholder approval at the Annual General Meeting that will be held at Southern Sun Ridgeway Hotel on Wednesday 27th March 2019.

 

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