ZIMRE Property Investments (ZPI) MD Edson Muvingi (EM) is a man on a mission.His dream goes beyond steering ZPI in these volatile times.
He wants to reshape Harare’s central business district in a big way.But, as he tells our chief business reporter Taurai Mangudhla (TM), this milestone can only be achieved through collaborations.Here is how their discussion went.
TM: In your financial statements for the half-year ended June 30, you said sales declined due to Covid-19. Would you explain further?
EM: We have third party sales and project sales, which is our core business.
This is in terms of all the projects that we have been doing in Ruwa, Masvingo, Harare and Bulawayo.
If you look at our earlier numbers, project sales generated more income than rentals. But we have had a dip because of Covid-19 restrictions.
It is a major issue that has taken a toll on our cashflows and revenues.
TM: I am also tempted to say you held on to your inventory deliberately for other reasons.
EM: We wanted to make sure that we don’t dispose of our inventory in a currency that will depreciate immediately because we dispose in order to reinvest in other projects.
Our costs are in US dollars. All building materials are purchased in US dollars, yet our revenues have been coming in bond notes.
That mismatch, stemming from the movement in the exchange rate, distorts and dislocates your business operations.
That is where our problem has been.
Part of the decline has been deliberate and part of it has been due to Covid-19 restrictions.
People could not move around as we would have wanted.
People want to see what they are buying, it’s different from online shopping where you are buying fast-moving consumer goods.
Property is different because you are most likely to be staying there for life.
TM: Are you not worried about this 29% decline in sales in terms of its overall impact come year end?
EM: I wasn’t and I am not worried. So far, I can tell you that the situation has changed.
There has been significant movement in our project sales, in US dollars. We can cover those gaps.
Our worry is on value preservation.
It is not just getting cash. If you can preserve cash and then you move it to other projects where you generate more cash, that’s better.
You can have numbers that balance, but when you look at the quality of the numbers it doesn’t make sense.
TM: You spoke about your project sales now being mostly in the US dollar. What was the impact of the exchange rate volatility?
EM: Assuming we were selling in bond notes and the rate moved from US$1:$25 to US$1:$82, what do you do?
You have immediately lost and this is why we took off issues of instalments in Zimbabwe dollars.
It was like making a donation, which is not our core business.
Our core business is creating value for our shareholders and stakeholders who buy those stands.
If we are giving you security and we get nothing, then we are doing nothing. We must create value for the shareholders.
TM: Your report says the 75% jump in investment portfolios in Zimbabwe dollars told a completely different story from some decline in hard currency. Share the specific numbers in US dollars.
EM: We basically looked at a movement from US$1:$1 to US$1:$25 and then to US$1:$82.
The movements were not related to movements in rates per square metre in terms of rentals.
There is no one who can generate business at an exchange rate that moves so much within one year.
TM: How helpful would be adjusting rentals?
EM: Even if we adjust rentals quarterly, we cannot catch up. In US dollars the rentals have actually gone down per square metre.
The rate has also deteriorated very badly.
Imagine you have Zimbabwe dollar income, which you are converting to US dollars and the conversions have to relate to the official exchange rate, where the official exchange rate and the parallel market exchange rates are different.
TM: You have already indicated that you are considering converting your property in First Street to possibly a boutique hotel. What informs this decision?
EM: It is an exciting area, this I can assure you. It has got exciting concepts that we are going to bring to life very soon.
We are looking at shopping on one floor, boutique hotels and also accommodation.
It’s mixed use that we are trying to build in that area. We want to have a mixed use that deals with people who are very mobile.
We are not creating accommodation for people that are resident in Zimbabwe or Harare, but those that are on the move.
It is convenient, it is centrally located. We are moving towards a work, play and do business kind of environment.
TM: How much will this project cost?
EM: The numbers are not small, but it is the vision that we have. We have Nelson Mandela Avenue, First Street, George Silundika Avenue and Sam Nunjoma Street. In that block, we have been talking about Real Estate Investment Trusts (REITs) for a while.
Our view is that everyone who owns a property around that area can come together and do one big development.
That’s our approach in terms of how we want to develop.
If we can’t convince everyone to be part of that development, then we do our own because we have three properties there.
TM: What is the cost of improving your three properties, and how much does it cost for the whole square if you get the buy-in?
EM: We have done costing for our properties.
But we have gone further to say it would make a lot of sense to remodel that square to one big development that has new character having all those sorts of things that are there and this includes the removal of that parking space to create a mixed-use property.
I can’t give you numbers, but what I know is that for us we have three buildings that are there, which are quite old and we want to preserve the historical character of those buildings.
When we roll out, you will see the model.
They preserve what we have and create much more additional space.
But it’s an exciting project and we see it coming through.
TM: How far have you gone to get support from other landlords in the area?
EM: We are negotiating with owners and we think we should be able to succeed in terms of syndication and collaboration with existing owners of the various properties.
Our view is that going forward, property development is going to be collaborative, REITs-related, equity contribution-related and mega projects are going to make more sense than the smaller ones.
TM: Again what would it cost you to upgrade your own properties and the whole square?
EM: At the moment we are looking at more than US$40 million, this is not really upgrading, but redevelopment.
We haven’t gotten there so far in terms of the whole area, but we have an idea. I could give you numbers that may be misleading.
TM: You are at advanced stages for your new Victoria Falls hotel project. Tell us about it.
EM: We are just waiting for final council clearance in terms of the authorisation from the ministry and once that is done we are left with starting.
We have the designs and everything, the numbers make sense and we are just waiting for final permits to proceed.
TM: What’s the latest on your US$6 million Adylin project in Harare?
EM: I think when you look at that we are much more advanced in terms of our thinking around cluster developments.
You will see four more coming through.
It will be in fact four including Westgate.
We want to do something in Avondale, in Emerald Hill and in Greendale. We could be doing 24 units in Emerald Hill.
We are still debating on the model we want to do in Avondale, but we could do 10 to 12 units.
The Greendale one could do up to 24 units and the Adylin one we are looking at 80 units.
The Avondale and Greendale projects are both new.
Looking at these four projects, three of them we own except for Greendale which is collaborative, it’s equity-based. It’s more of a joint venture that we have worked out.
TM: Any other similar projects to watch out for?
EM: We are discussing with various property owners so that we can convert to cluster units in partnerships and we have signed some MoUs (Memoranda of Understanding).
It is going to be exciting as we go forward, you will see projects that we will build and dispose.
TM: How will you fund these new projects?
EM: It is a combination.
For me, funding is not the issue. It’s the quality of the product which we are bringing to the market. We can even presale to fund preliminary developments.
It is a combination of internal resources, borrowing and equity.