In compliance with the requirements of the Securities Act No. 41 of 2016 and the listing rules of the Lusaka Securities Exchange, Real Estate Investments Zambia PLC announces the financial results of the Company and its subsidiaries (collectively referred to as the Group) for the six months ended 30 June 2020. These interim financial results are derived from the Group’s Management Accounts, which have been approved by the Directors, but have not been audited.
Group revenue for the six months to 30 June 2020 decreased by 10.67%, in comparison with same period in prior year, mainly due to higher vacancies and Covid-19 related non-invoicing and discounted invoicing for some tenants that were not operating during the second quarter after Government directives for closure of certain businesses such as restaurants, cinema, bars, casinos and hair-saloons. Overall portfolio vacancies increased from 25.72% to 31.27% between June 2019 and June 2020.
The ZMW/US$ exchange rate at an average of ZMW14.7/US$1 played in favour of the H1 2020 rentals revenue compared to H1 2019 when the average exchange rate was around ZMW12.5/US$1 but this was not sufficient to fully compensate for the reduction in revenue due to vacancies and Covid-19 restrictions. Group profit from operations before change in fair value of investment property declined by 31.87% from ZMW21.2 million for the half-year in 2019 to ZMW14.4 million for the same period in 2020 indicating weaker operational performance in line with a generally weak macro-economic environment that faced the country during the period. Notwithstanding the recorded decline in rental income and operational profit, the Group recorded a profit after tax of ZMW 46.9 million compared to a loss after tax of ZMW 10.8 million for the same period in 2019. The profit was primarily attributed to a ZMW114.8 million gain in the fair value of the Group’s investment property portfolio driven mainly by the impact on ZMW-equivalent of property values of a depreciation of the ZMW against the USD. In USD terms, the investment property value declined by $10.9 million.
The Company performance followed a somewhat different trend as both revenue and operating profit before investment property revaluation registered increases of close to 8%. Properties in the Company’s portfolio, being in other sectors not the retail sector, were less affected by the Covid-19 restrictions. The Company’s bottom-line at ZMW16.46 million further benefitted from the gain in ZMW property portfolio revaluation of ZMW97.9 million which more than compensated for the increased exchange losses and net finance costs of ZMW74.1 million and ZMW15.2 million respectively, up from ZMW16.9 million and ZMW11.5 million in 2019.
FAIR VALUE OF INVESTMENT PROPERTY PORTFOLIO
The fair value of the Group’s investment property portfolio increased to ZMW 1.147 billion, up from ZMW954 million at close of first half in 2019, mainly due to the significant depreciation of the ZMW against the USD from ZMW12.86/$1 at 30 June 2019 to close the current period at ZMW18.19/$1. The fair value of the Group’s investment property portfolio was determined as at 30 June 2020 by external independent and professional property valuation experts, Knight Frank Zambia Limited, who possess appropriate internationally recognised professional qualifications and have requisite experience in the location and category of the properties that were valued. Revaluation is done twice a year as at 30th June and at 31st December in order for the Group’s financial statements to provide reliable, relevant and up-to-date information about its financial position and performance.
The Group recorded a decrease in cash generated from operating activities to ZMW6.6 million, down from ZMW 12.7 million for the same period in prior year. This represents a 48% decline which is mainly attributable to lower revenue on account of higher vacancies and Covid-19 related restrictions. Overall, the Group experienced a net reduction in cash and cash equivalents during the period.
The Directors resolved not to pay an interim dividend for the year ending 31 December 2020.
The Directors will review the results for the full year and consider recommendation of a dividend for approval by Shareholders at the Annual General Meeting (AGM) that will be held before 31 March 2021.
The property industry is expected to remain challenging for the remainder of the year with the adverse market forces that characterized the first half of 2020 continuing to prevail in the second half particularly regarding occupancy levels and market rental rates. This notwithstanding, the Group’s focus will remain on rigorous leasing efforts and Covid-19 relief measures aimed at supporting sustainability of our business partners’ businesses.
BY ORDER OF THE BOARD Moses Vera
15 September 2020