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A silver lining for Calgro M3

New project expected to provide Calgro with up to 50 000 residential opportunities.
Property developer Calgro has secured a deal with Eris Property Group to develop an estimated 50 000 housing opportunities in Sandton. Image: Waldo Swiegers, Bloomberg

JSE-listed property and private memorial parks developer Calgro M3 Holdings, has secured a four-year option in partnership Eris Property Group for Frankenwald, the last remaining large-scale property in the greater Sandton area, from Wits University.

This is good news for a company in the construction sector, which has haemorrhaged jobs and seen a sharp drop off in projects. 

Wikus Lategan, CEO of Calgro M3, said on Monday it anticipates having between 40 000 and 50 000 housing opportunities on the site, which is situated next to Alexandra and the Marlboro Gautrain Station.

Lategan said that in terms of the equal partnership with Eris, Calgro would take all the residential- and Eris the commercial, retail and industrial opportunities.

But Lategan said no material financial commitments on this project are planned for the next four years while Calgro executes its current pipeline.

Lategan said the property has been secured through a small capital expenditure for the next four years, with R100 million in cash then becoming due as its portion of the purchase price and the balance a percentage of the revenue Calgro generates on transfer when it sells houses it develops on the site.

Shares in Calgro closed unchanged at 3.96c a share on Monday after earlier rising to 4.46c a share, despite the group reporting a loss in basic and headline earnings a share in the six months to August.

Listen: Lategan discusses Calgro’s interim results on SAfm Market Update with Moneyweb

Calgro reported a 204.2% decline in headline earnings a share to a loss of 3.24c for this reporting period, from 3.11c profit in the previous corresponding period.

The group’s intense focus on cash flow generation and cash preservation during the period, resulted in cash generated from operations increasing to R449.5 million from R3.6 million.

Lategan said it managed to stabilise Calgro’s cash flow during these difficult economic times through various debtor and progress draw recoveries, which enabled the company to support itself without having to sell off any of its assets outside of the ordinary course of business.

He said a decision was also taken to suspend work on various developments, which resulted in additional costs being incurred.

“As anticipated, reducing operations to an extremely low level impacted gross profit, but we believe these decisions will ensure the overall sustainability of the group and mitigate any risks associated with unplanned delays and stoppages on major projects,” he said.

Lategan said the group does not currently have any illegal site invasions, the suspension at all sites has been lifted and it is back at all development sites – although not all of them have returned to full capacity yet.

Insurance claims amounting to R16.4 million were recovered from Sasria related to illegal land invasions, with claims totalling R34.5 million still under assessment.

Lategan said the R16.4 million recovered from Sasria was the value it anticipated receiving and expressed confidence that the group will receive the R34.5 million outstanding, adding that some of it had already been approved after the reporting period.

He said it expects all of the outstanding insurance claims to come in during the next six months and, excluding the insurance claim income, the group to at least be at break-even for the next six-month reporting period.

Lategan anticipates this financial turnaround because of increased activity by the group and the large reduction in overhead costs.

He attributed the reduction in overhead costs to the group’s total staff complement, including labour and sub contractors, being reduced to under 200 from close to 1 000 through retrenchments and the closure of some offices.

Lategan confirmed the group is exploring the sale of all rental units as part of the normal operations of the development business, to generate cash flow to settle debt in the short term.

He said the value of the group’s rental portfolio is about R500 million and comprises about 400 occupied rental units and a further 400 rental units it’s currently tenanting.

“We intend still building a rental portfolio but are just saying not now. Our average cost of debt is 11% and we’d rather settle debt and reduce our operating cash flow pressure quite a bit.

“The idea is to put the capital we have to positive use and turn the business around,” he said.

Lategan was disappointed with the performance of the memorial park business in the reporting period, with declining customer affordability levels resulting in lower-than-expected sales.

A family estate in the Fourways Memorial Park.

He said the memorial park business still only makes a very small contribution to the profitability of the group but he expects it to pick up over about the next four years and its profit contribution to then equal that of the property development business.

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