ZIMBABWE Stock Exchange-listed property firm First Mutual Properties (FMP) is scouting for growth opportunities in the market despite indications the business will remain affected by the COVID-19 pandemic into the foreseeable future.
In its short form financial announcement for the six months to June 30 2021, FMP said there were concerns around the general economy due to an increase in COVID-19 cases, amid a slow vaccine rollout, and the potential impact on the economy if stricter lockdowns are enforced to curb the spread of the COVID-19 virus.
Restrictions on movements affect the property sector where customers prefer to see the properties up for sale or letting.
Despite this, the company said it continued to scout for opportunities within the market to further grow and differentiate the property portfolio, with additional strong emphasis on improving the performance of the existing property portfolio, and sustainably managing operating expenses.
“The group plans to maintain quarterly distribution to shareholders, and key to this initiative will be ensuring sustainable earnings, while securing competitively and sustainably priced and structured funding options to grow the property portfolio. Looking ahead, with new variants resulting in a surge of infections, business operations will be affected, with reduced working and trading hours as the government implements measures to curb the spread of the COVID-19 virus,” FMP noted in the results statement.
“This is expected to impact tenant cashflows, with possible negative impact on the collection rate. The vaccination programme remains critical to reach herd immunity, with the possible relaxing of lockdown restrictions premised on an increased vaccinated population and discipline in observing COVID-19 protocols,” the company added.
The group’s inflation adjusted net property income after administration expenses grew by 11% to $43,14 million driven by growth in inflation adjusted revenue of 45% to $204,23 million. Revenue predominantly comprises rental income.
The company said rental income growth had been sustained by a stable growth in the occupancy level, closing the period at 89,48%, up from 88,52% in the same period prior year.
“The COVID-19 pandemic continues to impact business performance as the various lockdowns during the period restricted our ability to complete all rent reviews, while some of our tenants continued to struggle to meet their current lease obligations. This resulted in the collection rate declining to 68% (HY 2020: 77%), but an improvement from 57% at Q1 2021,” said FMP.
FMP said space absorption remained subdued during the period with continued supply-demand imbalances, pending full recovery of the productive sectors to support demand for space.
“Despite the COVID-19 pandemic and a gradual shift to a hybrid of remote working and office presence, corporates have maintained leases. The excess supply of space is mainly historical space redundancy, with the sectors worst affected being the CBD offices, high-density suburban shopping centres and the specialised industrial sectors,” the company said.
Demand for retail warehousing, light industrial properties and office park properties remains strong, added FMP. Price discovery of rentals continues, with rentals predominantly indexed to foreign currency as landlords seek to preserve value of cashflows while transaction activity remains subdued, as property investors hold on to real estate to preserve value.
“There are limited options to recycle into new assets as the current stock in the market has relatively aged requiring significant capital to upgrade. Demand for quality real estate remains high, with investor appetite skewed towards real assets as high inflation expectations remain,” the group said.
Commercial development activity also remains limited due to the supply-demand imbalances. The majority of development activity remains in the industrial or retail warehousing sectors, while limited owner occupied office park style buildings are ongoing. The residential sector development activity remains strong, mainly supported by the informal sector of the economy and the diaspora community