Property wrap up 2015

Botswana’s overall property market remains relatively strong amidst a challenging economic climate.

Property giants listed at Botswana Stock Exchange (BSE) have realised a significant change of property investment landscape at least in the last 12 months. Economic growth in Botswana was also meagre in comparison to its historic long-term average, which has been evidenced by weaker demand from tenants.

In addition the liquidity constraints that hit the market in late 2014, coupled with the depressed economic conditions have checked the pace of growth of some of the companies’ portfolio capital values.
Below is how the BSE listed giants fared in their 2015 results;

Letlole La Rona
A subsidiary of Botswana Development Corporation (BDC) Letlole la Rona, posted a profit before tax amounting to P97.3m compared to P92.6m in the previous year. The company’s net assets grew by nine percent and its property portfolio value grew by eight percent in the financial year ended 30 June 2015.

LLR property portfolio comprises 47 percent industrial, 38 percent leisure and 15 percent commercial. Its major properties include Cresta President Hotel, Cresta Bosele Hotels and Moedi House. LLR operates in the Industrial, Leisure, Retail and Commercial Office property space, with most of the property investments based in industrial property followed by leisure.

The hotel space continues to be let to one stable operator, with leases that accommodate annual compound escalation of rental. This has contributed to contractual revenue growing at an inflation-beating rate of close to 10 percent relative to prior year.
Letlole La Rona chief executive, Paul More said the company will consider investing in new acquisitions and developments in order to diversify and grow its portfolio and as part of its strategic intent, targeting increased market capitalisation.

LLR is now considering the acquisition of residential property situated in prime locations with potential for income and capital growth. The company also seeks investment opportunities in East and Western African countries to grow their portfolio.
“The new vision of LLR is to be the premier real estate company in Botswana and selected markets in Africa.

As LLR considers the option of offshore investments, it is important to consider what real estate markets in Africa have to offer, For the next financial year, LLR will gather market intelligence on markets demonstrating potential for growth in property investment and will piggyback on strategic partners with an established foothold in these markets,” said More.

Primetime Projects
The group’s Managing Director, Alexander Lees Kelly says that despite no acquisitions, the portfolio stood at P759 million at the end of August 2015, an increase of just over 4 percent from the prior year. “This means that real growth has been achieved in a period where inflation has been running at close to 3 percent. The value of our portfolio is underpinned by the strength of our occupier base and the relationships we have established with our tenants,” he said.

At the end of August 2015, PrimeTime vacancies stood at just 1 percent across the portfolio, a phenomenal achievement considering the current conditions in the occupier market. As part of the company’s intended strategy to grow and diversify PrimeTime’s asset base, PrimeTime is busy with a number of projects. The company’s statement indicates that the sales of Blue Jacket Square and Barclays Plaza in Francistown are close to completion.

PrimeTime remains hopeful that there are still opportunities to be found in Botswana, but hard work is the only solution to reach those opportunities. In the CBD office market, with the company’s Prime Plaza fully let, the anticipation is that there may be appetite for more commercial space. “We believe there is still demand for the type of niche property which is PrimeTime’s signature. This works well for a variety of occupiers as has been proved with Prime Plaza,” says Kelly.

The company’s expressed intention of expanding footprint in Zambia, and potentially elsewhere in the region, is gaining traction; as it recently agreed terms to acquire a substantial property in Lusaka. Despite some current negativity surrounding the Zambian economy, with the downward trajectory of the copper price in mid to late 2015 and the subsequent depreciation of the Kwacha, PrimeTime’s long-term view remains positive as it offers an opportunity to cultivate a US$ based income stream for the Group.

Further investments, both in terms of standing assets and developments, continue to be analysed. With its increased understanding of the market there and strengthening relationships with the local market stakeholders Kelly indicates that they are now in a position to proceed with greater speed than has previously been the case.

The company also continues to invest in the refurbishment and maintenance of its portfolio, which is one of the reasons it has managed to maintain such healthy rates of tenant retention.

New African Properties
Unlike other property giants New African Properties recorded a decrease in profits to P199 million in the year ended 31 July 2015 from P211 million recorded in 2014.  However, the property portfolio performed well with contractual net rental income increasing by 9.6 percent as a result of increased rentals, contained expenditure and a significant reduction in debtors’ impairments. Property valuations increased to P91.5 million fair value gains, before straight line adjustments translating to an 8.1 percent increase on the opening value of P119.2 million in 2014.

Managing Director, Tobias Mynhardt said the performance to date demonstrates that the current New African Properties (NAP) property portfolio is capable of producing growing returns to investors in line with the primary objective of growing distribution on a sustainable basis. Said Mynhardt, “the board remains confident that this will be achieved in the year ahead.”

NAP seeks investment opportunities in other towns as the market for the Gaborone office is oversupplied. Mynhardt said NAP management continues to look at opportunities that meet their business objectives in other Botswana towns. “New retail development opportunities in Gaborone are considered limited at this time in view of the significant development that has taken place in recent years, while the Gaborone office market is considered to be oversupplied. There are however opportunities in other Botswana towns,” he said.

He states that the current demand for assets in Botswana has had an impact on the pricing and availability of assets and that although the fund has access to a pipeline of potential developments, the planning and regulatory environment are affecting the timeframes and ability to bring the projects to fruition.

The board has remained confident that this will be achieved in the year ahead. The NAP management continues to explore opportunities to add to existing assets and the Riverwalk food court, which has undergone significant changes during the year and now offers the most diverse and quality management.

RDC Properties

RDC Properties posted a 4 percent revenue growth of P39.6million in 2015 from P38.0million in 2014 in the half year results for the period ended 30th June 2015. The investment and property portfolio increased by 11 percent to P963.2million from P868.8million in 2014. In the company’s financial statement, the group’s chairman Guido Giachetti noted that the company directors are positive for the years to come as the effect of the Masa Centre and new developments will underpin the growth of the group.

Masa Centre continued to perform very well with revenue increasing 12 percent to P18.4 million in 2015 from P16.5million in 2014. This is due to rental escalations, the growth of the Lansmore Masa Square Hotel turnover rental and reduced vacancies at the centre. The statement says that the new Masa Suites will be opened in 2016 as the project has now received approval from all authorities and that work has started.

Turnstar Holdings
Property developer Turnstar Holdings has maintained a positive outlook on the local property market despite the challenging market conditions. The group revenue income increased by six percent from P235.7 million recorded in 2014 and profit from operations has increased by eight percent. The group managed to maintain high occupancy rates in all its properties.

Turnstar total rental income recorded from Botswana portfolio increased by 3.2 percent while the Tanzania portfolio increased by 9.1 percent. The property sector in Botswana is currently experiencing depressed prices in rentals with office space over-supplied as rentals have softened from an average of about P95, 00 per square metre to P75, 00 per square metre.

During the year the property market ranked the industrial sector the strongest followed by residential retail and commercial office space. Gulaam Abdoola, Turnstar Holdings Managing Director, indicates that, “As predicted in the previous year, the commercial office sector experienced an oversupply, with vacancies increasing to 5.9 percent. The retail sector was also relatively stagnant, due to additional retail space entering the market. Despite the challenging market factors both demand and property values have continued to rise.”

He said Tanzania continues to be one of the fastest growing economies in Sub-Saharan Africa. “The real estate outlook is strong across all sectors with a number of significant new developments being recently completed to meet the existing demand. Currently the strongest demand is in quality office space, followed by residential and retail,” said Abdoola.

He said the group’s property portfolio shows attractive future prospects supported by strong underlying contractual cash flows, escalations and a healthy lease expiry profile. The group is currently refurbishing Game City mall and extending the Mlimani City mall and conference centre in Tanzania. Construction of both projects has commenced and significant progress has been made.

Going forward the company considers investigating other sources of funding in order to continue growing whilst keeping debt at a manageable level. According to the recent market outlook research for 2015, Stockbrokers Botswana indicated that the property counters still offer good yields and still remain attractive from an income point of view. “Historically, property counters have served as a good vehicle to park in low interest rate environment as the benefit attained from decreased debt service charges flows straight to the bottom line. Naturally, we expect further price appreciation for all property counters,” reads the research.