The acquisition of Water Shed Piazza in Mahalapye from Josh Posh Investment in March last year has significantly boosted Letlole la Rona revenues for the financial year ended 30 June 2019, the Botswana Stock Exchange (BSE) listed real estate loan stock outfit reported last week.
Total Revenue for the year grew by 28 % from P82 million recorded at 2018 year end to close the year at over P102 million. Letlole la Rona says the increase was underpinned by a full years’ contribution of Watershed Mall which came into the portfolio at the tail end of the 2018 financial year. On the 7th of December 2017 Letlole La Rona announced that it has entered into an agreement with Jus Posh Investments (Proprietary) Limited to acquire Lot 29052, Mahalapye from the former.
The acquisition of the Property encompassed all land, buildings and improvements, under the real estate parameters of a fully developed retail center known as Watershed Mall located along the A1 road in Mahalapye. In late January 2018 Competition Authority released a circular to the market alerting any interested parties about the transaction. Two months later Letlole La Rona sealed the deal with sole owner of Josh Posh Investment, Seloma Tiro and paid P149 million for the property.
In several communiqués during the acquisition process Letlole La Rona observed that brining Watershed into its fold would add significant weight into their investments and broaden the company’s footprint reach. “This retail property will enhance LLR’s property value and diversify the portfolio in line with the strategic objectives of the Company. It also provides geographical spread opportunities,” noted the company in 2018.
Zooming into other financial highlights during the June 2019 year end shows that rental gatherings went up by 7.5 %. “This underscores the quality of our portfolio which was also enhanced by the purchase of newly developed, fully tenanted warehouses in Gaborone’s Block 3,” observed LLR Chief Executive Officer, Shenjere-Mutiswa. This increase in revenue pushed full year operating profits up by 22 % to plus P75 million from just over P61.4 million registered in the prior year while net cash from operating activities grew by 6 % with tighter working capital management.
The company also recorded improved cash collections resulting in core cash resources ending the year at P44.6 million, significantly higher that the P34.5 million at the end of the previous financial year , this was also bolstered by revenues year on year good. Following its acquisition of the positively performing Watershed Mall last year LLR this year took a decision to divest significantly from the hospitality sector. The company says this was a first decisive execution of LLR’s deliberate strategic shift. This entails sales of the four hotels to Cresta Marakanelo Limited, Botswana’s premier hospitality and hotels operator.
LLR says disposing all its hotel interest via a sale to the sitting tenant was in line with its diversification strategy. Chairperson of Letlole La Rona states in the financial results commentary that the move has seen LLR dramatically reduce its risk profile, removing exposure to a single tenant who occupied up to a third of its portfolio while at the same time unlocking capital to carry out its restructuring and growth path.
This has however led to a book loss of P27 million ,while on the other side there were two additions of properties in Gaborone’s key industrial nodes as the business consolidated its lead in this sought after sector of the market. The net result of this disposal combined with the absence of full year 2018’s significant one-off revaluation gain on a single property resulted in profit tax declining from P95 million recorded at 2018 year end to P65 million . This was also contributed to by taking into consideration of discontinued operations.
On the overall Letlole La Rona directors say the company’s strong performance above expectations continues despite the current subdued economic environment underscoring that a well –diversified growing portfolio has secured the business cash generation ability against macroeconomic headwinds with the company consistently delivering solid financial and operational results.
LLR says a well structured balance sheet and funding strategy has afforded the company the flexibility to swiftly seize opportunities as they arise. “Testimony to this is the fact that over the past two years we has been involved in four of the five largest property transactions in Botswana,” highlighted the company in the financial statements commentary.
The sale of the hospitality assets has seen the investment properties value decline from P970 million to P780 million. However the company says it maintains a very healthy pipeline locally and regionally and shall be deploying the sale proceeds during the course of the coming financial year. On the outlook LLR Board chairperson, B Magopa shared that the company is enthusiastic about the opportunities in Botswana and beyond the country‘s boarders.
“ We remain focused on the company’s vision of becoming the premier real estate company with a signigificant presence in selected regional markets and a well diversified portfolio underpinned by high occupancies and quality tenant covenant,” he said. He added that with its current low generating ratio, healthy pipeline and property investment management expertise, the company is in the prime position to deliver this strategy.
For shareholders take home the BSE listed real estate group declared final distribution of 10.75 thebe per linked unit on the 25th June 2019 for the June year end . This comprised of a dividend of 0.05 thebe and debenture interest of 10.70 thebe per linked unit. The payout included a final distribution of 7.15 thebe per linked unit amounting to 20 020 000 and a special distribution of 3.60 thebe per linked unit totaling to P10 080 00.
This brought total distribution got the 2019 financial year to P57 316 000 being a dividend of 10 thebe per share and interest of 20.37 thebe per linked unit Going forward the company will be looking to grow its distribution payout at a rate comfortably higher than Botswana’s inflation.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.