The operations component of any entity that seeks to create and sustain value is the vital organ that can either allow a firm to succeed or fail. Real Estate Investments made the bold decision in 2015 to restructure the group’s operations and those changes according to its management are beginning to bear fruit. Interim results reported for 2016 show rental income increase by 61% with profit before other income, finance cost and tax (EBITDA) growing by 105%. However, earnings have fallen by 8% when compared to the same period last year owing to, in part, certain exceptional expenses on the balance sheet whose details will only be known when the final 2016 annual report is out (notes to the final audited accounts).
According to REIZ latest statement to LUSE, the movement in net operating earnings leading to higher headline earnings per share in 2016 compared to that of 2015 is primarily attributed to the following: a) Increase in rentals and on-going operating cost management. b) Impact of the annual rental escalation averaging 5% year on year. c) Impact of the US Dollar exchange rate which averaged K10.88/$ in 2016 compared to K7.10/$ for the same period in 2015. Some entities either gain or lose depending on how they position themselves (hedge) against exchange loses. Furthermore, the group has increased its total assets by 84% over the period whilst at the same time opting for a longer term debt strategy (increase by 29%) and marginally using short term financing (increase by 2%) which signals cash flow control.
Strong EBITDA seems to underscore this property giant. Revaluation of some of its investment property is partly key to this as the property market has been closely tied to the green-back. Furthermore, operating cash flows have also contributed as they increased by 63%. Bolstered this confidence, the Directors at REIZ resolved to pay an interim dividend for the year ending 31st December 2016 of K0.10 per share. This should keen investors happy and interested.
Exchange losses remains a credible threat to value creation. Thus far, the Kwacha has remained fairly stable through the electoral process that the market has been closely monitoring. However, with the current focus being operational efficiency, we envisage improved performances, all macro parameters permitting, during the remainder of the year.