Board of listed Zambian company aims to create country's first REIT
As part of a new strategy, Real Estate Investments Zambia is also seeking to raise $15 million via a rights issue
LUSAKA, ZAMBIA - The board of Real Estate Investments Zambia (REIZ) Plc, the sole real estate company listed on the Lusaka Securities Exchange, has shared its intention to convert the company into a real estate investment trust (or 'REIT'). If approved by the regulator, REIZ will become Zambia's first REIT.
The board also plans to raise US$15 million via a rights issue. Shareholders will be presented with both resolutions at an extraordinary general meeting in November. Both decisions are part of a series of sweeping changes that have been announced ever since it had a new majority owner.
Steady income
First created in 1960 in the United States, REITs are companies that own, operate, or finance income-producing properties. Typically, they are listed on a stock exchange where investors can invest into a pooled fund, as with mutual funds.
For investors, the main attraction of REITs is that they provide a steady income stream without the burden of having to buy or manage a physical property asset. For companies, they receive the capital they need to operate and invest. There is also a tax incentive. Corporation tax isn’t levied when 80% of the earnings, post operational expenses, are distributed to the unit holders. Although new to Zambia, the asset class already exists in other African countries such as South Africa, Ghana, Nigeria, and Kenya.
New owner, new direction
A rights issue in 2022 enabled the company to raise US$12 million to finance a 50% cash settlement of a restructured corporate bond. After a torrid 2021 when the company recorded a loss of 324.5 million Zambian kwacha, compared to a loss of 29.9 million Zambian kwacha the year before, 88% of shareholders agreed that the rights issue be underwritten by LM&C Properties Limited, a company owned by Diego Casilli, a Zambian real estate developer and shareholder in REIZ.
Through that process, LM&C Properties became the majority shareholder in REIZ with a 59.79% stake. Casilli and Dipak Patel, a former government minister, joined the REIZ board in January 2023. Kambeu Banda was appointed CEO in August 2023.
The board also announced its intention to dispose of various poorly performing assets and in their place, purchase three better performing ones. “The company has identified high-yielding properties which it intends to acquire via a share swap. The acquisition of these properties and the REIT status will bring [in] much-needed liquidity,” a company statement said. If approved by shareholders, the new assets — Acacia Park, Jacaranda Mall, and Lewanika Mall — will all join REIZ from other Casilli-owned companies.
Market outlook
According to Knight Frank, the real estate agency, “monthly rents for Grade A offices in Zambia are stable [...] while occupancy levels for prime offices stand at approximately 65%, suggesting any meaningful return to rental growth is unlikely in the short term”.
“In the retail market,” the report continues, “tenants have continued to renegotiate their lease terms” which includes a hybrid of both US dollar and Zambian Kwacha rates.
Key financials
REIZ reported a loss of 2.8 million Zambian kwacha for the first half of 2023, compared to a loss of 9.4 million Zambian kwacha for the same period last year. Today, the company has a market cap of about 241 million Zambian kwacha (about US$11 million).
Its share price, which has remained largely unchanged on the recent news, is down 31% on the year to date, and roughly down 80% since 2018. Its price-earnings ratio is 3.6x, about two percentage points below the Zambian average.
© Capital Markets Africa, 2023
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