Wrap Text
Acquisition of the remaining thirty percent interest in Fleurhof
CALGRO M3 HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 2005/027663/06)
Share code: CGR ISIN: ZAE000109203
(“Calgro M3” or “the company” or the “group”)
ACQUISITION OF THE REMAINING THIRTY PERCENT INTEREST IN FLEURHOF
1. Introduction
Shareholders are advised that Calgro M3 Land Proprietary Limited, a wholly owned subsidiary
of Calgro M3, entered into a share sale and claims purchase agreement with the South African
Workforce Housing Fund SA I, represented by its general partner, the South Africa Workforce
Housing (SA GP) Proprietary Limited (a private limited liability company duly incorporated
according to the company law of South Africa) (the “Fund”), and International Housing
Solutions (RF) Proprietary Limited (a private limited liability company duly incorporated
according to the company law of South Africa) (“I H S”) (collectively the “Sellers”), through
which Calgro M3 acquired the remaining 30% (in the form of 30 class A ordinary shares and
one class C share in the issued share capital) of Fleurhof Extension 2 Proprietary Limited
(“Fleurhof Ext 2”) currently owned by the Sellers, for a total purchase consideration of R243
million (the “Transaction”). Fleurhof Ext 2 owns the Fleurhof integrated residential
development (“the Fleurhof Project”). Subsequent to the Transaction, Fleurhof Ext 2 will be a
wholly owned subsidiary of the group.
2. Nature of Calgro M3 business
Calgro M3 is a residential property developer specialising in integrated developments aimed at
the entry level consumer.
The typical integrated residential development would consist of Fully Subsidised BNG,
Community Residential Units, Social Housing, Subsidised Rental, FLISP and Fully Bonded
Residential Units. These units will be integrated in a harmonious urban environment that
caters for free-standing and multi-storey residential buildings. Integration is not only aimed at
achieving economic integration through the different market and tenure options, but also
social integration through the shared urban amenities that are associated with the scale of the
projects developed by Calgro M3. The integrated residential development approach enables
the group to spread its development risk through limiting its exposure to government and/or
the open market according to prevailing economic conditions and market trends.
Calgro M3 adopts a turnkey approach as land owner, developer and contractor with internal
town planning, quantity surveying, architecture, marketing and project management capacity.
With this turnkey approach, the group’s dependence on external parties is reduced, as is the
number of role players in the value chain profiting from the development. This enables the
group to enter the market with a well-priced product without compromising quality. This
approach has the added benefit of de-risking the group by providing the flexibility to control
the pace of its developments to meet changing market needs.
3. Rationale for the Transaction
The group has taken a strategic decision to capitalise 100% on human capital efforts in projects.
The Fleurhof Joint venture (“JV”) was a typical finance JV, where the finance partner had final
control over all major decisions, plus a 30% equity stake to cover its initial risk determination,
but with the group taking responsibility, and accepting liability, for all operational matters and
project management. This resulted in 100% human capital dedication and effort for only 70%
of the profit.
As the Fleurhof Project is widely regarded as one of the premier integrated residential projects
in South Africa, the group anticipates that various further synergetic opportunities will arise
from this acquisition. Synergy also exits where there are projects in the surrounding areas, and
in which Calgro M3 has already expressed interest in. Calgro M3 is already involved in one
further project in the surrounding area where strategic relationships that were forged during
the undertaking of the Fleurhof Project are being capitalised on.
Where sole control can be exercised over developments, the flexibility of Calgro M3’s business
model in which it participates in both the government and private sectors, and the
implementation of associated risk mitigating factors that are required to ensure the continued
successful implementation of the business model, can be managed in a more efficient and
effective manner.
4. Nature of the Fleurhof Project
The Fleurhof Project is a 440 hectare privately owned property in the process of being
developed in partnership with the private sector and the City of Johannesburg. The Project is
situated 14km south west of the Johannesburg CBD, linking the more affluent northern
suburbs of Florida (Roodepoort) and previously disadvantaged suburb of Meadowlands
(SOWETO) in the south. It is set to be one of the largest integrated housing developments in
Gauteng and has been included in the Premier's Mega projects initiative announced during
April 2015.
The 440 hectare land parcel is being developed to accommodate various types of residential
units and forms of tenure that have specific economic target markets: Fully subsidized BNG
housing, GAP (Social, FLISP & open market rental) and open market bonded housing. In
addition to this, 4 crèche’s, 5 schools, 3 places of worship, 2 filling stations and a shopping
centre measuring approximately 46 000m² in size, will be established within the Fleurhof
Project. The project yield will be increased when the mine dump located on the property has
been reclaimed successfully and all environmental challenges have been resolved. The first
phase of the reclamation process is well underway and nearing completion. An estimated 5
000 additional residential opportunities will be unlocked when this process has been
completed.
5. Salient features of the Transaction
a. The effective date of the Transaction is 25 February 2016.
b. Payment of the purchase price of R243 million is being funded through a combination of
operational cash flow and debt raised through the Calgro M3 bond exchange
programme.
c. All conditions precedent to the transaction have been met.
d. Limited guarantees, indemnities and warranties were provided by the Fund and I H S
which are customary for a transaction of this nature.
e. The net asset value and net after tax profit of the Fleurhof Project amounted to R 321
million and R 123 million respectively, based on the audited results for the 12 months
ended 28 February 2015.
6. Categorisation of the Transaction
The Transaction constitutes a category 2 disposal for Calgro M3, under the provisions of
section 9 of the Listings Requirements of the JSE Limited.
Fleurhof Ext 2 will be a wholly owned subsidiary of Calgro M3 post the Transaction. Calgro M3
confirms that the provisions of the Fleuhof Ext 2 Memorandum of Incorporation, does not
frustrate or prohibit the group, in any way, from complying with its obligations in terms of the
Listings Requirements of the JSE Limited.
Johannesburg
26 February 2016
Sponsor
Grindrod Bank Limited
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