New African Properties (NAP), a Botswana Stock Exchange (BSE) listed property group that owns amongst others one of Gaborone’s first urban shopping spaces River Walk mall, this week released their audited abridged financial results for the year ended 31st July 2019.
The company has distributed more to its unit holders despite an over 8 % decrease registered in profits for the year. The total distributions for the year amount to 25.80 thebe per linked unit adding to P155.9 million, mirroring a 5.2% increase when compared to 24.53 thebe, per linked unit from P148.3 million dispatched in the prior year.
Last year New African Properties reported that the impact of the prior period income included in the first half of the 2018 financial year increased the comparable distributable income by P1.5 million, adjusting for this the annual increase in distributions would have been 6.3%. The final distribution of 13.24 thebe per linked unit, based on the forecast distributable income of P156.0 million, was declared on 25th July and paid on 30th August and amounted to a 7.8% increase on the prior year's 12.28 thebe.
On the rental fronts, the company’s Net rental income has increased by 5.2% for the year, which would have been 6.2% without the P1.5 million prior period incomes included in the comparative. Property costs excluding tenant installations and letting commissions, which are expensed as incurred, increased by 4.6%.Other contributors to distributable income include portfolio costs which remained flat and net investment income and tax which both increased marginally.
Zooming into profits for the year BSE listed property closed the financial year ended 31st July 2019 at P198.7 million, lower than the P217.3 million recorded at 2018 year end. This year’s profits exceeds the distributable income by P42.7 million lower that the P69.4 million recorded in 2018 as a result of after-tax revaluation and other accounting adjustments that are non-cash flow items and do not impact distributions but add to the underlying net asset value of NAP.
T.LJ Mynhardt Managing Director of New African Properties Limited says the actual value of investment property has increased by 3.0% this year but the relative increase in valuations in the current year is lower than last year which has resulted in a decrease in profit. The company ‘s property portfolio has not changed the year which comprises predominantly Botswana based retail properties, weighted towards Gaborone but with a wide geographical footprint, as well as some exposure to Namibian retail properties.
The Managing Director says the quality and diversity of the tenant base is a key consideration and contributor to the company’s performance. At year end 96.6% against 96.2%, 2018 figure of the gross lettable area was let in terms of 478 leases compared to 474 in 2018 with 58% of rentals flowing from listed and multinational companies.
Mynhardt added that two vacancies arose in the upper level at Riverwalk in the second half of the year resulting in adverse impact for the second half explaining that this will spill over to impact the new financial year. “This space has not yet been re-let but Management is in discussions with prospective tenants” he said.
In Selibe Phikwe where the company owns a number of commercial spaces, which accounts for 2.4% of total property value and 2.7% of rental income, the portfolio has marginally exceeded expectations with vacancies decreasing from 2 094 m2 to 1 785 m2 during the year, albeit at reduced rentals, accounting for 41% of total vacancies in the portfolio at year end.
The lease expiry profile of existing leases in this area is 26%, 49%, 23% respectively in each of the next 3 years and 2% in the 2024 financial year with the tenant composition being 52% listed and multi-nationals, 3% nationals, 13% government and the remaining 32% smaller tenants. “Substantially all of the leases expiring during the year were either renegotiated or re-let.” Added the company MD.
Mynhardt further explained that renegotiations in Selebi Phikwe, an industrial property in Francistown and for certain smaller tenants in Kagiso reduced the average increases achieved across the remainder of the portfolio which achieved escalations in line with the portfolio rental growth for the year. New African Properties reports that net unprovided tenant arrears amount to P0.8 million compared to P0.3 million) in 2018, with an impairment charge of P0.2 million against 2018’s figure of P0.4 million after applying the new requirements in terms of IFRS 9. The change from IAS 39 to IFRS 9 did not result in any restatement to opening retained income.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”