Bar set high for REITs to follow!

REITs in Zimbabwe are obliged to dish out to their unit holders a minimum of 80% of their distributable income,

THE first-ever Real Estate Investment Trust (REIT) to list on the Zimbabwe Stock Exchange (ZSE) released its half-year results last week.

Tigere REIT, which is essentially an income-generating property-owning vehicle, reported its half-year financial results in USD, albeit being listed on the Zimbabwean dollar denominated exchange.

REITs in Zimbabwe are obliged to dish out to their unit holders a minimum of 80% of their distributable income, and Tigere circulated its third dividend distribution notice together with the half-year results.

Although other REITs are expected to list on our capital markets very soon, Tigere remains the only REIT and its bold decision to publish its financial numbers in US dollar has set precedence for others to follow. The dividend Nostro portion somewhat mimics the fund’s revenue mix as well.

The REIT, which expects its property portfolio to at least double in the next three years outlined the strategy of attracting stronger tenants through its quality assets.

It is currently leveraging its newly built assets with lower maintenance costs to achieve its competitive advantage.

The tenant mix augments each other, with line shops fetching US$22,64 and US$20,57 per square metre for Highland Park and Chinamano, respectively.

However, the overall number is US$17,64, weighed down by the anchor tenant, TM Pick n Pay.

The two current assets in the REIT are Highland Park Phase 1 and Chinamano, which are both operating at full occupancy and plans to squeeze that capacity via adding ATMs and utilising the rooftop are underway.

Morning and weekend hangouts at Highland Park were described as important in growing the customer footprint of the mall.

With fairly new assets, Highland Park has a Weighted Average Lease Expiry (WALE) term of 5,78years whilst the number is 4,69 years for Chinamano, putting 65% of the Gross Leasable Area (GLA) expiring after 2028.

Although turnovers for line shops, which trade mostly in USD were fairly constant, the anchor tenant was affected by the currency depreciation and high inflation in the period under review.

The Zimdollar liquidity challenges in the second quarter have also hindered the anchor tenant’s operations.

The property fund collected rentals to the tune of US$791 000 and a net utilities income of US$71 000 taking the net income to US$862 000.

Operating expenses, which comprise property rates and insurance, property management systems and cleaning and security amongst others came to US$244 000  for the half year.

Exchange rate losses amounted to US$51 000 as management admitted that they had considerable Zimbabwean dollars when the monetary authorities started the exchange rate liberalisation.

The fund reported that its ability to negotiate longer-term contracts, strong supplier relations, and adherence to maintenance schedules were key to propelling the company’s competitiveness.

At the beginning of the reporting period, the fund had US$465 000 and generated US$476 000 from its core operations whilst investing activities generated an additional US$84 000. 

Before distributing the third dividend the fund had 394 000 in the bank and the total of the three dividends will amount to US$719 000.

The third dividend of US0,03c and ZWL0,23 per share will be paid to unit holders on August 31 and the units will trade cum dividend up to the 21st of the same month.

Reporting at an analyst briefing last Friday, the management of the REIT outlined an exciting pipeline of projects.

Highland Park Phase 2 is next to Phase 1 is being developed by Terrace Africa and is scheduled to be complete before the end of the year and Greenfields Retail Centre another project, which is also in Harare is in the early stages.

The fund has the pre-emptive right to purchase Phase 2 of Highland Park after completion. An accretive rights issue was thrown as an option that the REIT would explore to raise funds for the acquisition and the exercise is likely to be carried out next year.

The fund will set up the Tigere Educational Trust, which will provide bursaries and scholarships to students studying Real Estate and Property related programs at our local tertiary institutions.

The fund will also increase its solar energy efficiency and increase its greenery around all projects, which includes maintaining the existing trees.

Analyst comment

With an IPO price of ZW$28, the REIT has done very well on the ZSE in nominal terms.

Since inception, the unit price has appreciated by 800% and a 388% gain since the beginning of the year.

However, the other Real Estate Operating Companies (REOC) on the bourse, First Mutual Properties and Mashonaland Holdings are up. It is, however, important to realise 578% and 1 252%, respectively since the year started.

It is, however, important to remember that the REIT’s other component is dividend distribution, which complements unit price increase in terms of providing value to the unit holders.

Due to their asset-heavy nature, Real Estate investments are also judged based on their selling price versus the book value of assets (P/B).

Using a rate of ZW$/USD — 6000, the REIT’s market capitalisation is US$24 million translating to a P/B ratio of 1.1 which means the REIT is trading very close to its book values. However, other REITs in the region are trading below the book value.

With the three dividends declared so far averaging US$240 000, we can assume an annual pay-out of US$960 000 and a dividend yield on NAV of 4%.

However, research by Knight Frank outlined that Retail and Office rental yield in Zimbabwe fetched anything between 6-8% whilst in the Sub Saharan Region a region a little higher.

Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.


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