JSE-listed property developer Calgro M3 has embarked on a series of actions to ensure the group’s ongoing sustainability.
This includes having sold a $49-million noncore project in February.
The company also completed a specific share repurchase programme, having repurchased 4.6% of its shares at a price of R2.10 apiece.
Calgro M3 CEO Wikus Lategan explains in a statement that the sale of noncore projects is in line with capital allocation priorities, where the proceeds of such transactions will be applied to projects that can be further progressed and where a better return can be achieved.
Proceeds are also used to reduce debt and possibly for future share buyback programmes.
“Calgro M3 was able to sell its only Free State project in Vista Park for R49-million and retain a R40-million profit. This aligns with strategic goals to be involved in fewer but more profitable projects in selected provinces,” Lategan points out.
He adds that the group is working hard to ensure that there is sufficient capital to put in place the necessary infrastructure at development projects, and not rely on government for this.
Lategan points out that this ends up being a win-win situation for all concerned − those buying homes, for the company and for government, as Calgro M3 assists in reducing the housing backlog.
“We have also been able to substantially de-risk the business with long-term infrastructure funding options from development finance institutions (DFIs), which make it their core business to fully understand long-term housing projects.
"The DFIs that Calgro M3 has partnered with understand that they too are doing their part in helping South Africa where critical housing shortages are prevalent.”
With respect to the share repurchase, Lategan says the share price of the company is currently undervalued, given that Calgro M3 has an established history in South Africa, having been founded in 1995, and services a critical and high-demand sector of the local market, being affordable housing.
“We have been saying this for a while now and, given the net asset value on the balance sheet of R781-million, this equates to a share price closer to R6.43 apiece, excluding treasury shares. We believe that by repurchasing shares at a material discount to Calgro M3’s intrinsic value presents a good opportunity to create value for our shareholders,” Lategan notes.
Meanwhile, Calgro M3 has been able to settle and restructure debt with a net decrease of R111-million, and with minimal short-term maturities remaining. The group has also been successful in securing additional long-term facilities, which adds to its cash reserves.
The group recently secured a funding facility to the value of $20-million from US-based International Development Finance Corporation. This is Calgro M3’s second international funding facility to date.
The facility has been made available on an unsecured basis, with a capital and interest rate swap to hedge the foreign exchange movements for the duration of the loan period, which is seven years. Calgro M3 has 30 months to fully draw on the facility, with the first disbursement having to be made within the first 12 months.
“Capital repayments will be made in seven equal instalments starting in the fourth year of the loan,” Lategan explains.
The capital will contribute to the company’s funding requirements to deliver low-income housing units on its secured pipeline in priority urban development areas, with the current pipeline standing at more than R20-billion, as well as provide a cash flow buffer against any future challenges and economic conditions, adds Lategan.
He further acknowledges that 2020 had been a difficult operating year for Calgro M3, given the impact of Covid-19. “This was in addition to other problems related to doing business in South Africa such as invasions of partially-built blocks at some developments and a longer-than-expected lead-time to get a transformer in place at Fleurhof.”
He says that, although these obstacles were extremely frustrating and took up a huge amount of management’s time, Calgro M3 now has early warning systems in place to counteract and to react and manage these problems timeously should they arise in the future.
Calgro M3 continues to have an excellent asset base of large, popular development projects in staggered stages of development, including a pipeline of 36 127 available stands.
Of these, 2 920 were under construction at the end of August, with many more started since then, and 6 596 are serviced opportunities.
Similarly, across the five Memorial Parks that Calgro M3 administers and runs, growth has come through strongly.
“Our parks have been busier owing to the Covid-19 pandemic and we have gone above and beyond to support grieving families in these unusual times,” concludes Lategan.