HARARE – Property development and management company Mashonaland Holdings Group’s operating profit rose 13 percent during the period starting October 2019 to May this year with the group assessing the impact of the COVID-19 global pandemic on its Charter House Hotel project.
However, increase in administrative expenses by 39 percent compared to prior year and decrease in other income by 42 percent saw a reduction in the operating profit margin.
The operating profit margin decreased from 85 percent in prior year to 64 percent in the period under review.
In its trading update for the eight months ended 31 May 2020 presented by managing director, Gibson Mapfidza, Mashonaland Holdings said the economic outlook remained highly uncertain while the overall impact of COVID-19 remained unknown.
“Management is currently assessing the impact of the Covid-19 virus pandemic on the tourism industry in general and specifically on the Charter House project,” the company said.
The change of use permit for Charter House, which is located in central Harare, to a boutique hotel was issued in November 2019.
A Chinese hotel operator had been identified for the project while the reconfiguration designs have been completed.
“We anticipate that the property market will experience a prolonged downturn in the short- to medium term pending macroeconomic correction.
“Rent reviews will continue lagging inflation and capital values will remain under pressure,” Mapfidza said.
The company’s operating profit for the period under review stood at ZWL$33.3m and was 13 percent higher than the same period last year (ZWL$29.4m).
Mapfidza also announced that all the pre-tender works for the 9 Natal Office Park development project were complete including securing a development permit.
“The company will keep assessing the market to ensure correct timing of the project,” he said.
“In light of the aforementioned headwinds, the group’s thrust going forward is on preservation of shareholder value, talent retention and ensuring that the company is ready to exploit future growth opportunities.
“The group will continue with its strategic focus areas which are on Portfolio and revenue stream diversification, Performance optimisation and a robust corporate governance system”.
The company has been issued with the compliance certificate for civil engineering works (roads, water and sewer) by the City of Harare for its 25 cluster housing unit construction project in Westgate.
The house construction tendering process is underway with target start date of 17 August 2020.
Building maintenance continues to be a priority for the company, Mapfidza said.
“Works carried out during the period include major refurbishments for the Reylands residential properties. The works were meant to add value to the assets, which led to the attraction of quality tenants.”
Collections closed the period under review at 91 percent up from 86 percent as at the same period in the prior year.
In light of the hyperinflation environment, Mashonaland Holdings has adopted a zero arrear policy.
“We however have a number of tenants whose businesses were directly affected by the Covid-19 virus pandemic. “We continue to engage those and come up with acceptable solutions on a case by case basis,” the managing director said.
The group, however, temporarily suspended rent reviews that were due on May 1 this year due to the COVID-19 induced lockdown as most tenants experienced a dip in their own revenues.
Occupancies slightly improved to 79 percent as at May 31, 2020 compared to 77 percent same period in the prior year. Growth in occupancies is mainly due to space up take within the central business district offices sector.
“The company’s strategic focus area on diversification of revenue streams is starting to show some green shoots as the company recorded a decent ZWL$255 717 for the period ended 31 May 2020, from Consultancy services offered to our 3rdy party customers,” Mapfidza said.
Year to date property expenses at ZWL$8.37m were 38 percent above prior year (ZWL$6.07m).
The major drivers include increases in maintenance costs of works carried out on the group’s investment properties. Contractors and suppliers are generally benchmarking their material cost against the exchange rate movements.
During the fourth quarter of the 2019 financial year electricity tariffs were increased by more than 300 percent.
Administration expenses at ZWL$13.7m were 39 percent above prior year (ZWL$9.87m) mainly as a result of increase in staff costs as the group continues to cushion staff.
Staff costs as a ratio of total revenue increased marginally by one percent to nine percent from prior year.
Other office expense accounted for 50 percent compared to 42 percent of the total administrative expenses in the preceding year.
These include repairs and maintenance costs, fuel costs, insurance and audit and valuation fees.
Administration expenses to income ratio was 26 percent compared to 29 percent for the same period last year as the group continues to manage costs.