IAS 40 Bites REIZ at Half Year
Real Estate, Real Estate investments Zambia (REIZ)

On nine eleven 2017, REIZ published its half year results. The company is enjoying pursing ubiquitous projects in some of the provincial capitals of Zambia. Although at half year in 2017 they are currently 53% less than where they were in the previous year (earnings wise), rental income only dropped by 5.85%. This was largely due to stabilizing of the USD against the ZMW (ironic isn’t it). Dollar hedging could never be more frustrating. However, in dollar terms, the firm increased rental income on the back of annual escalations (the annual rental increments). This is significant because coming out of a “Zambian recession”, they were able to hold on to premier tenants. Outstanding!

Dollars and hedging aside, there was one line on the interim income statement that had us curious. Change in fair value of investment property. This item only appears on the income statement when a premier firm creates value through investment properties. IAS 40 (the standard that governs Investment Property) requires that investment property is remeasured at fair value, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Investment properties are initially measured at cost and, with some exceptions, may be subsequently measured using a cost model or fair value model, with changes in the fair value under the fair value model being recognised in income statement.

Changes in fair value of REIZ were significant in their 2016 annual report. The fair value of investment property was reassessed as at 30th June 2017 by external independent property valuers Knight Frank Zambia Limited whom, according to REIZ, they trust because they possess appropriate recognised professional qualifications and have requisite experience in the location and category of the properties that were valued.

Despite the strengthening ZMW, the company declared an interim dividend for the year ending 31st December 2017 of K0.10. The company further stated that “the Directors will review the results for the full year and will recommend a final dividend that will take into account the interim dividend paid for approval by Shareholders at the Annual General Meeting (AGM) that will be held before 31st March 2018”. For now, the firm is fully focused on completing the Arcades mall project which they have declared will have a superior shopping experience.

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