Zimbabwe Stock Exchange listed property investment group, First Mutual Properties limited weathered headwinds from the COVID-19 pandemic to record a 50 percent profit growth and an asset value gain during one of the worst economic periods, the company’s latest annual report has revealed.
During 2020, the property sector was massively depressed on the back of two COVID-19 induced hard lockdowns that restricted business activity and weakened tenants ‘capacity to meet lease obligations.
Furthermore, rising administrative expenses weighed heavily on the Group revenue but could not offset profitability.
The Group’s inflation adjusted profit before tax grew by 50 percent to ZWL 3,288 billion (FY 2019: ZWL 2,189 billion) driven by growth in inflation adjusted revenue of 2 percent to ZWL 265.74 million (FY 2019: ZWL 260.67 million) and fair value adjustments on investment properties.
The occupancy level during the year strengthened to 88.67 percent in FY2020 compared to 85.70 percent driven by improved lettings in the CBD Office sector.
“This was driven mainly by net lettings in the CBD Office space, as the business restructured its space offering to cater for SMEs, providing space adequate for the rising informal sector. In addition, space was also leased to some Government related entities within the CBD,” the company said in its 2020 Annual Report.
The growth in revenue was driven by rental income generated from foreign currency denominated leases, increase in turnover rentals and rise in occupancy levels during the year.
“The Group registered positive earnings, with pre and post-tax profitability. Net property income after administrative expenses and before tax stood at ZWL 70.75 million, down 30% from prior year,”
“This was driven by employee related costs increasing during the year in line with inflationary trends and the need to retain key talent despite depressed business activity during a financial year, which was negatively affected by the COVID-19 pandemic,” said the company.
However, rising inflationary and exchange rate pressures negatively affected real rental yields, cost of doing business, property development and maintenance costs, and overall macroeconomic stability, particularly in the first half of the year.
Tenant receivables worsened to ZWL 44.97 million (FY2019: ZWL 29.29 million) as tenants struggled to meet lease obligations in light of constrained business operating environment.
An independent property valuation conducted by Knight Frank Zimbabwe as at 31 December 2020 valued the property portfolio at ZWL 9.40 billion, being a 50 percent gain on the prior year on inflation adjusted terms.
The gain was driven by fair value gains realized across the sectors with the highest gains realized in the land bank, retail sector and industrial sectors.
“The gains realized on the land bank are driven by re-zoning of a land bank from residential to commercial, while value appreciation in the industrial and retail sectors are due to improved rental potential and demand,” said the company.
Nevertheless, the retail and industrial segments remained resilient. The Office Park sector was stable with steady demand for space driven by product quality, location and supporting infrastructure.
The Board resolved that a final dividend of ZWL 14,229,408 being 1.1505 ZWL cents per share be declared from the profits for the quarter ended 31 December 2020.