The Economy
The business environment was characterised by liquidity challenges, high unemployment and general economic decline across most sectors of the economy. The economy continues to shrink as evidenced by low and declining capacity utilisation across the productive sectors and an increase in incidences of companies being liquidated or going into judicial management. Against a backdrop of a shrinking economy and tight liquidity, companies generally require recapitalisation. In the instances where the financial sector could advance loans to the productive sector, the interest rate was prohibitively high. These constraints remain major factors inhibiting meaningful economic growth.
The Property Market
The general economic decline characterised by liquidity challenges, limited mortgage finance and high unemployment will curtail any meaningful activity in the real estate sector. The property market continues to face challenges with nominal property transactions being recorded especially in the lower end of the market. Some limited property developments were undertaken during the year, especially in low income residential housing development schemes and other self-financing, cooperative-type residential developments.
In the absence of significant economic upturn, and in light of increasing costs of occupancy such as municipal rates, electricity and other property service charges, sustaining current rental rates and occupancy levels is going to be tough going forward. A number of companies continue to face viability challenges due to unfavourable business conditions characterised by high input costs such as labour, service charges and old equipment. Incidences of credit losses on tenant rental and operating cost balances are increasing while the slow legal process has hampered efforts to accelerate the collection measures. As a result, the business continues to face rising property expenses and stagnating occupancy levels.
Financial Results
Revenue for the year ended 31 December 2013 increased by 2.18% to $9.022 million (2012: $8.830 million) as a result of increases in rental income and other income from property services rendered to third parties. Rental income increased by 2.06% to $9.012 million (2012: $8.830 million) driven by an increase in the contribution of turnover-based rental income. The average rental per square metre increased by 1.22% to $8.28 (2012: $8.18) as planned rental reviews were deferred. Rental yield eased to 7.80% (2012: 8.60%) as a result of the slower growth in rental income relative to the increase in values of investment properties.
Property expenses grew by 3.38% to $1.683 million (2012: $1.628 million) due to higher property maintenance costs, specific and general provision for credit losses and landlord’s expenses on vacant space.
Net property income before administration costs increased by 1.91% to $7.339 million (2012: $7.202 million) while the 5.56% increase in administration expenses resulted in a 1.00% decline in net property income after administration expenses to $3.975 million (2012: $4.015 million). Administration expenses increased to $3.364 million (2012: $3.187 million) due to increases in staff costs and group shared services.
The Group will continue to explore opportunities to enhance internal efficiencies and accelerate cost containment in order to improve operating margins.
Operating profit before tax and fair value adjustment declined by 1.42% to $4.684 million (2012: $4.751 million) due to slower growth in fair value of investments properties.
Market Value of Investment Properties
The market value of investment properties grew by 6.55% to $128.142 million (2012: $120.266 million) underpinned by improving quality of the refurbished space and rezoning to commercial of land previously zoned for residential use.
Property Management
The occupancy level declined by 3.30% to 76.30% (2012: 78.90%) due to voluntary tenant space surrenders and evictions. Rent and operating cost arrears grew to 14.56% (2012: 9.06%) reflecting operational challenges some tenants are facing. Collection efforts aimed at reducing arrears to sustainable levels continue through tenant engagement for negotiated payment plans, eviction of defaulting tenants and rightsizing of space held to ensure sustainable rental levels. The Group also expects higher levels of rent default in view of the tight liquidity in the economy and the general economic downturn.
During the year, the Group committed a total of $0.309 million (2012: $0.204 million) towards property maintenance. Property maintenance is aimed at improving the quality of lettable space in order to retain existing tenants and also attract new tenants to improve occupancy levels.
The Mabvuku Supermarket commenced trading on the 27th of November 2013 with OK Zimbabwe as the tenant.
Property Development
The number of units at the Kamfinsa cluster housing scheme that are at roof level stand at thirteen. Focus is on bringing the remaining 25 units to slab level in order to pave way for external works. This housing project is expected to be completed by the first quarter of 2015.
Property Refurbishment
The Group embarked on the refurbishment of the air conditioning system at 99 Jason Moyo at a total cost of $0.700 million with commissioning scheduled for the first quarter of 2014.
Property Investment
The Group acquired holiday cottages and land located in Nyanga at a total cost of $0.285 million, and a property in the Harare Central business district for $0.220 million.
Acquisition of the Remainder of Lot 57, Mount Pleasant Land
In December 2013, the Group concluded negotiations for the acquisition of the remainder of Lot 57, Mount Pleasant land measuring 24.0664 hectares (approximately 59.47 acres) for a purchase price of $9.600 million. The acquisition was funded through a combination of internal resources and external borrowings. The current planned use of the land is for the development of housing units, a shopping complex and medical facilities. The acquisition is expected to form a major part of the Group’s property development initiatives in the medium term.
Human Capital Development
The Group embarked on an organisational transformation exercise aimed at realigning its human capital to revised operating structures to enhance operational effectiveness and efficiency. The Group continues to support permanent staff members pursuing relevant academic and professional studies with affordable study loans. Continued investment in human capital development is premised on the need to improve employee productivity.
Dividend
Your Board has deemed it prudent not to declare a dividend for the year ended 31 December 2013 in light of the significant cash outlay associated with the acquisition of the remainder of Lot 57, Mount Pleasant land as previously described. There is also need to allocate cash for the completion of the Kamfinsa housing project.
Directorate
Mr Munyaradzi Dube was appointed to the Board on the 5th of March 2013 while Mr Andreas Mlalazi resigned from the Board with effect from the 31st of December 2013.
Outlook
Your Board remains optimistic about Zimbabwe’s long term economic outlook. We believe that the economic challenges currently prevailing in the country are of a short term nature or at most, they should resolve in the medium term. We hope that all stakeholders will commit to the recent policy pronouncements made by the government aimed at tackling the macroeconomic framework. The successful implementation of the macroeconomic blueprint is expected to create opportunities for the productive sectors of the economy, including the real estate industry.
Acknowledgements
On behalf of your Board, I appreciate the invaluable support received from stakeholders including our tenants, employees and service providers.
God Bless,
E.K. Moyo
Chairman
24 March 2014
Related download
FMP.zw – 2013 Annual report.pdf
