REIZ releases the annual report & financial statements for the year ended 31 December 2018. Below is the Chairman’s Statement extract from the report:
The economic operating environment saw real gross domestic product growing at an estimated 4.0% in 2018, compared to 4.1% in 2017. Agricultural output contracted by more than 35% due to poor rain distribution in early 2018 while copper production continued to increase by an estimated 4% to 4.5% in 2018. Construction also contributed to growth, thanks to public infrastructure projects, investment in commercial buildings and residential housing. Fiscal deficit was estimated at 7.1% of GDP in 2018 compared to a target of 6.1% owing to high capital spending and rising debt servicing. Inflation increased to an average estimate of 7.6% in 2018 from 6.6% in 2017.
The past year was one that was not business as usual as it was faced with heightened competition in the real estate industry owing to slow-paced economic growth and significant release of new real estate stock on the market.
The real estate industry in Zambia continued to record remarkable increase in development of the real estate properties of different types during the year. New real estate property stock was released on the market and more were in the pipeline by the end of the year. This supply of real estate stock was not matched by increase in demand thereby negatively impacting the industry in fundamental areas of rental and vacancy rates. Existing A-grade office spaces particularly continued to receive pressure from newer stock and cheaper residential properties that are being converted to offices at a fast rate thereby driving down rentals in the core business districts.
While these developments impacted the Group’s operating results in 2018, the developments were anticipated from past years hence some of the mitigating measures that were put in place to defend the Group’s assets in the portfolio such as redevelopment and refurbishments, cost containment and staffing.
The business strategy and recent corporate restructuring has kept the Group resilient amid afore mentioned industry challenges. However, financial performance of the Group was down year on year mainly due to rental remissions granted to the Arcades tenants for the months of January and February 2018 during the redevelopment of the mall, portfolio vacancies and impairment of receivables. The rental remissions granted during the year were an extension to those granted in 2017 for the same cause.
In Kwacha terms, the negative impact of rental remissions, vacancies and impairment of receivables was lessened by exchange gains arising from Investment Property revaluation even though the USD value of the portfolio reduced by 17% year on year. Kwacha gains on investment property revaluation arose on account of the devaluation of Kwacha against US Dollar by nearly 20%. Further detail on financial performance is covered in the Chief Executive Officer’s report.
Last year, I reported that there were negotiations underway for acquisition of a property. This acquisition related to 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 full land size of this property is 11.4752 hectare (28.3552 acres) and therefore constitutes a significant land bank with immense future development potential. The acquisition further achieved the Group’s strategic pursuit of sectorial diversification being the first time that a residential property has been added to the portfolio. With this addition, the Group’s expansion of property portfolio gathered momentum as it happened in the same year that the redevelopment and refurbishment of the Arcades Shopping Mall was completed.
With acquisition of Southview Park, the Group is now invested into four real estate sectors namely, commercial office, retail, residential and warehousing.
The medium-term economic outlook remains positive, with growth projected at 4.2% in 2019 and 4.3% in 2020. Mining output is expected to increase by 4% to 5% in 2019, benefiting from improvements in electricity generation. The government has announced measures aimed at improving debt sustainability. The measures include postponement of new infrastructure projects and the cancellation of some contracted loans that are yet to disburse.
Looking forward to 2019 and beyond, the Group has taken decisive measures to steady the ship in the face of market suppressing headwinds facing the real estate industry so as not to merely survive the challenges ahead but also to ensure that the Group is competitive in the long run and entrench a leadership position in the industry. We do not anticipate a quick turnaround in the industry fundamentals but we are progressively shaping the Group to be equal to the task and respond to the current and future operating environments. This is in line with our current strategic plan theme of ingenious pursuit for efficient, effective and agile management of the Group focused on creation and protection of shareholder value. To this effect, notwithstanding the current 5-year growth strategy by lettable space, the group will in 2019 primarily seek to consolidate performance of the current portfolio to attain competitive yields. Expansion through developments and acquisitions will be approached with prudence while some assets in the portfolio would be divested from by selling them if not in conformity with the consolidation drive.
REIZ will remain resolutely focused on pursuing prudent approaches to driving the Group’s strategic agenda of maximizing returns and protecting shareholders value.
At the Annual General Meeting on March 29, 2018, Dr. David Chewe was not re-elected to the Board when he retired by rotation. With this development, the board size reduced from 9 to 8 members from April to December 2018. This contributed to further containment of administration expenses.
Notwithstanding the Group’s financial performance in 2018 particularly which is attributed in part to non-repetitive events, and subdued industry fundamentals generally, the Group remains confident in the future performance outlook owing to the solid foundation for sustainable business operation. Through our long-term vision, we understand that the industry requires thinking beyond the current smoke and current supposed industry over-supply. I therefore would like to thank shareholders for placing their trust in the Board and Management to steer the agenda of the Group.
My sincere appreciation and gratitude is extended to my fellow board members and staff for valued efforts during the year. I also thank our tenants, service providers and wider stakeholders for their continued support.
Kenny H. Makala