REIZ 2015 Net Profit Increases 953% Y/Y to K453M on Accounting Adjustment as it Mulls Offers for Majority Stake
Real Estate Investments Zambia (LuSE: REIZ) saw net profit rise by a multiple of 10 year-on-year (y/y) in 2015 to K453 million. Earnings per share came in at K8.02 (K0.75 in 2014):
The significant rise in net profit was primarily driven by a K446 million upward adjustment to the fair value of the group's investment property by the local subsidiary of global property consultancy Knight Frank. The increase was attributed to US$ growth in rentals, improvement in service charge costs recovery and the 72% devaluation of Kwacha during the year.
REIZ cut property management costs by 50% as a result of the bringing the function in-house. In addition, REIZ made a profit of K21.6 million on the sale of its stake in 'Burnet' to Stanbic Bank. This was despite 140% rise in net finance costs and a tough macro-economic environment.
REIZ's revenue increased by 38% y/y to K57 million:
Arcades Shopping Center accounted for 52% of group revenues. Property operating expenses increased by 29% to K13 million. The total vacancy rate for their entire portfolio stood at 7.9% as of December 2015.
Trade receivables past-due increased by a multiple of 3 to K3.5 million y/y:
76% of past-due receivables were above 30 days. The majority of receivables were from retail sector tenants. Based on historic default rates, the company believes that no impairment allowance is necessary in respect of trade receivables not past due or past due by up to 120 days, except for instances where specific bad debts have been identified.
REIZ has a $15 million corporate bond with interest pegged at 8.75 % per annum (payable semi-annually) which matures on 26 November 2022. The Kwacha carrying amount of the bond increased by 72% to K128 million in 2015:
This was in lock step with a y/y rise in the average US$/ZMW exchange rate to K8.1. REIZ paid K10.8 million in interest on the bond in 2015 (K6.6m in 2014). The company has some protection from currency risk because their tenants sign US$ leases. They closed the year with K69 million in cash.
Tradehold API Offer
REIZ received an offer from Tradehold API Limited to acquire a minimum of 51% of the group at K4.20 per share. The REIZ board is being advised by Imara Group on the offer(s) it has received. The company’s stock price is up 17% year-to-date to equal a record high of K3.98. Despite keeping their cards close to the chest as to which way they are leaning on a potential deal, the following from the CEO's statement in the annual report gives us a small hint:
On a net asset value (NAV) basis, the valuation of your Group at the reporting date is K15.17. The Group’s ordinary shares traded by the year end at a price of K3.40 per share which reflects a discount of 77.6%. The Directors are of the opinion that the current market price does not reflect either the operational results of the Group or its underlying value.
An extraordinary general meeting will be convened for shareholders to decide. At the Board Meeting held on 1 March 2016, the Directors recommended for Shareholders’ approval a final dividend of K0.09 per share ( K0.15 in 2014).
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *