Real estate investment group, REIZ, has reported an increase in earnings for the financial year-end 2019, according to a statement from the company.
“The Group reported profit after tax for 2019 of ZMW19.8 million compared to ZMW2.8 million for 2018, as revenue grew by 33% to ZMW67.4 million, up from ZMW50.6 million in 2018 while profit from operations increased to ZMW91.4 million from ZMW54.1 million”, read a statement on the group’s performance issued by Company Secretary Moses Vera on 13th March 2020 in Lusaka.
In a financial year that saw the exit of two directors (Dr. Elizabeth Nkumbula and Banja Kayumba) and a worrying half-year guidance forecast that saw the company estimate 186% lower earnings, the group has turned around its performance despite not being enough to pay dividends.
The group attributed the improved operating results to “growth in rentals income as a result of improved occupancy levels at the Group’s investment properties especially at Arcades after completion of the mall redevelopment project”.
Furthermore, currency volatility that led to “the depreciation of the Kwacha during the year accounting for approximately 20.8% favorable impact on US Dollars based operating leases”. The group currently hedges against currency fluctuation by pegging its rented properties against the greenback. “The Group’s rent roll is approximately 90% US Dollar based. The average exchange rate in 2019 was K12.93/$ compared to K10.70/$ in 2018”. Thanks to this type of capital structure, in US Dollar terms, rental income increased by 10.3% which when compared to US LIBOR is a handsome margin for the group.
Hedging on greenback does have its downside. “In USD terms, the fair value of the investment property portfolio declined by 10% mainly due to falling market rentals”. This is because there is currently oversupply on the market for premium property, an arena in which the group is a player.
As the group has grown, so has its asset base. Property and plant increased by 62.5%. Investment property increased by 9.4%. Its liquidity ratio showed a marginal reduction to 1.1 from 1.2 meaning it is still able to meet the demands of paying suppliers of goods and services.
The group’s capital structure has seen it take on more debt for the capital-intensive expansionary projects. The group’s debt has increased to K254 million from K197 million in the previous year. The led to a 68.7% increase in finance costs.
The group acknowledges that the business outlook in Zambia is very tough. “The real estate industry is expected to remain challenging in 2020 with heightened competition, falling rental rates and high vacancy rates owing to slow-paced economic growth and significant new real estate stock on the market.”
In order to protect shareholder value, the management team has signaled that it will seek out innovative ways of extracting value from what it has and taking on new opportunities. “The Group will remain resolutely focused on pursuing new breakthroughs and prudent approaches to achievement of better performance and competitive yields, so as to maximise returns and protect shareholder’ value”.