We have extracted the financial summary from the 2018 Annual Report of Dawn Properties Limited, listed on the Zimbabwe Stock Exchange under the share code DAWN.zw. Dawn Properties has three real estate businesses in Zimbabwe; property holding, property development and property consulting.
The Group achieved revenue amounting to US$11.2m compared with US$5.1m for the same period in 2017, representing an in- crease of 117%. The increase was mainly attributable to recognition of the property development income coming from our first development in Marlborough and a stronger performance from the property investment portfolio. Operating expenses amounted to US$4.2m compared with US$2.9m for the same period last year, representing a 44% increase in costs. The significant increase came on the back of general increase in costs in line with inflationary pressures experienced in 2018 and renovation work in some of the property investments, with specific mention of Blue Swallow Lodges in Nyanga. The Group recorded a net profit after tax amounting to US$3.5m compared with US$3.0m recorded in 2017, representing an increase of 16%. The carrying value of the investment property increased to US$90.8m compared to US$88.2m as at 31 December 2017. The in- crease is primarily attributable to a purchase of additional land in Victoria Falls and fair value adjustments on the property portfolio.
OPERATIONS Property investments
Rental revenue earned for the 2018 financial period was at US$4.0m compared with US$3.0m for the prior year. While overall all the properties performed better than last year, the total increase of 36% was mainly attributable to increased rentals from Ele- phant Hills Resort and Conference up by 46%, Troutbeck Resort up by 40% and Holiday Inn Mutare up by 36%. Our rental yield improved from 4.2% recorded in 2017 to 5.4% in 2018. The management team, in conjunction with African Sun Limited (ASL), continue to work on a number of measures to ensure that this key performance indicator improves significantly. Our target remains a yield of 7.5% by 2020. It is the board’s strategy to ensure that our properties benefit from the resurgence in tourism and also increased business traffic coming to the major cities. We remain confident that the major driver of growth will be in Victoria Falls and Hwange, as such, particular attention is being paid to those key areas.
Timeshare lodges – Blue Swallow Lodges and Kingfisher
Cabanas 2018 represents the second full year under which Dawn has managed the timeshare resorts of Blue Swallow Lodges in Nyanga and Kingfisher Cabanas in Kariba. These assets represent an exciting new growth area for the Company. Revenue from timeshare rentals grew by 39% from US$195,519 in 2017 to US$270,820 in 2018. In addition, 25 contracts were sold for the total value of US$110,271 in 2018 compared to 57 contracts for a total value of US$219,318 in 2017. The board is convinced that the market for the timeshare contracts, which remains our key focus area, is yet to be fully exploited. Our focus remains renovating our lodges to world class standards and invariably increase the uptake of our timeshare contracts.
The business unit recorded an impressive growth for the year ended 31 December 2018. Revenues were up 27% to close at US$2.5m driven mainly by agency department, up by 118% and property management up by 19%. Profit after tax decreased by 20% from US$534,733 to US$428,125 as a result of an increase in operating expenses. The board took a decision to make some once off payments to staff to cushion them from the increase in the costs of living post October 2018. We believe going forward, the business will be able to re-align its pricing model to the costs structures prevailing in the market. Property management remains the main driver of revenue, with a contribution of US$1.4m. Valuation advisory services continued on a steady growth, with revenues of US$579,000, while the balance of US$423,000 came from agency commission and project management.
The business unit completed its first major project in June 2018. While we had hoped to have completed the project much earli- er, the delivery of the residential cluster units was significant for the business and our plans going forward. As at 31 December 2018, 36 Units had been sold for a total of US$4.4 million. A balance of 22 Units is still on the market and it is the intention of the Company to sell them all in 2019. The board has noted a number of lessons from the project and is confident that the next pipeline project will continue to add value to the Company. The goal remains to make property development a sustainable business for the Group going forward.
The Group’s new strategic initiatives from 2019 going forward is as follows:
- Investment Property Portfolio – focus remains on increasing our exposure to Victoria Falls and Hwange. To that end, the Company has purchased additional land in Victoria Falls (3.7 hectares). Exciting new projects are being planned for the two areas and will be announced as and when construction commences.
- Timeshare Assets – continued focus on driving contract sales and rentals.
- Property Development – continue to enhance internal capacity and execute a number of pipeline projects. Our land bank gives the Company the ability to create a sustainable business Unit going forward.
- Property Consultancy – enhance technology as a key enabler for delivering value to our clients.
We remain convinced, despite a turbulent 2018, that the Company is in a healthy state and is well positioned to execute its strategy in 2019.