We have extracted below the Chairman’s Statement from the 2018 annual report of Zimre Property Investments Limited (ZIMRE.zw), listed on the Zimbabwe Stock Exchange:
The year under review was characterised by liquidity challenges and foreign currency shortages. There was also a sharp increase in inflation which ended the year at 42.09% from 2.98% in February 2018. The property sector experienced multiple challenges during the year, amongst which were rising voids due to weak demand. Tenants continued to reduce occupied space in order to manage business costs. Some tenants scaled down operations while others closed due to the difficult economic environment. There was also rapid erosion of rental revenues due to inflation and the contractual nature of leases which made it difficult to immediately adjust rentals. Turnover-based leases performed comparatively better than the other sectors, managing to track the inflationary trends. Construction projects witnessed significant cost increases as suppliers of building materials and contractors adjusted prices. Most suppliers insisted on being paid in foreign currency for all imported building materials. In order to manage the risk of exchange rate induced cost escalations, the Company pre-purchased the majority of the required materials for the Swanga Shopping Mall and Nicoz House Bulawayo projects.
INVESTMENT PROPERTY PERFORMANCE
Rental performance tracked the performance of the economy and remained in line with budget, closing the year at $2.20 million. The average portfolio voids rose from 26% in December 2017 to end the year at 33%. The increase was due to evictions for non-payment and voluntary surrenders of leased space. Average collections for the year were 106% of total charges and compared well with prior year’s 107%, whilst debtors declined by 11% compared to prior year.
As reported in my statement accompanying the 2018 half-year results, your Board authorised the disposal of Zimre Centre in Harare to finance the construction of the Sawanga Shopping Mall in Victoria Falls and the conversion of Nicoz House building in Bulawayo to student accommodation. This was part of a broader portfolio restructuring and diversification strategy to enhance the portfolio’s future income earning capacity. The two buildings contributed more than a third of the rental income in prior years. The reduction in revenue was therefore anticipated in the short-term. The two projects are expected to start earning revenue by the end of the first quarter of 2019.
Total revenue for the year declined by 24% to $4.03 million from the $5.27 million achieved in 2017. Rental income declined by 21% to $2.20 million from $2.78 million achieved in 2017. In order to manage risk precipitated by market uncertainty, the Board took a deliberate decision to slow-down project sales during the year under review. As a result, stands sales were $1.72 million compared to $2.40 million achieved in 2017. The Company has significant stand stocks and stands sales performance is anticipated to be enhanced in future.
Total administration costs were $2.19 million compared to $2.29 million the previous year, a 4% decrease. As a result of the restructuring of the portfolio and reduction in stand sales, revenue performance was subdued. The Company recorded a loss of $1.42 million for the year under review compared to a profit of $2.49 million in 2017. Your Company continues to restructure its portfolio in order to improve profitability.
SAWANGA SHOPPING MALL – VICTORIA FALLS
Construction of the Sawanga Shopping Mall is nearing completion and the mall is scheduled to open for trading in May 2019. The mall will provide approximately 5 000 square metres of retail space. Letting of the space is 90% complete. The Company’s leasing strategy is to deliver a balanced mix of retailers some of whom include a retail supermarket, a restaurant, a pharmacy, banks and a fuel service station The expected total cost at completion of the mall is in the region of US$15 million.
NICOZ HOUSE REFURBISHMENT – BULAWAYO
The conversion and refurbishment of NICOZ House Bulawayo to student accommodation is complete and the facility has started accepting students. The facility is expected to be fully occupied by the second quarter of the year. The total cost of this refurbishment was US$1,8 million including furniture and fittings.
ZIMRE PARK EXTENSION – RUWA
This project was completed in 2017 and to date more than half of the units have been sold. Selling of the remaining stands is ongoing.
The Directors have resolved to pass the final dividend for the year in order to fund the ongoing portfolio restructuring and repositioning projects.
The Company continues to focus on restructuring its portfolio to maximise performance and returns and capitalise on opportunities created through the various reforms undertaken by Government.
I would like to thank all Shareholders, Stakeholders, fellow Board members for their support; Management and Staff for their hard work over the past year.