Monday, 29 August 2016 - In a bid to alleviate the current shortfall of housing units in the low to mid segment of the residential market, Calgro M3 Holdings Limited (Calgro M3) and SA Corporate Real Estate Limited (SA Corporate) have announced the establishment of a joint initiative, in the form of a controlled company of a Real Estate Investment Trust (REIT).
SA Corporate and Calgro M3 will be the joint shareholders in the new company AFHCO Calgro M3 Consortium Proprietary Limited (AFHCO Calgro M3). AFHCO, an existing 100% subsidiary of SA Corporate, will be the majority and controlling shareholder in the new company with a share of 51%. Calgro M3's share of 49% will be held by Calgro M3 Real Estate (Pty) Ltd, a new company registered and 100% owned by Calgro M3 Holdings.
AFHCO is the brand with which the market will engage. It is also the entity which will be marketing the portfolio to the public, be responsible for the management of facilities, assets, finance and corporate governance.
Calgro M3's Managing Director, Wikus Lategan, says the goal is to build a substantial residential portfolio in the next few years that will give South Africans access to rental options within the Metro's.
"The current housing shortfall in metropolitan areas is estimated at a mammoth 2 million units. Despite Government's commitment to closing the gap, spending on infrastructure for housing development is under pressure, and this joint initiative will assist Government in improving living conditions for ordinary South Africans," Lategan went on to explain.
Rory Mackey, Managing Director at SA Corporate, says the expertise of both companies in their respective fields will complement one another. SA Corporate will bring years of experience as a property asset manager, and Calgro years of residential development experience, to ensure a successful roll out of a mass residential portfolio. "In order to safeguard the sustainability of the process, we are committed to enhancing the quality of life for all our residents and creating homes that they can take pride in," says Mackey.
All attempts will be made to ensure that the portfolio will be environmentally sound with a focus on energy conservation. Insulation across all homes, gas and solar for heating and cooking with all northern and western windows fitted with sun diffusers, these properties will not only be environmentally friendly, but also ease the strain on the energy grid and the pockets of residents. A conscious awareness of the scarcity of water means that rain water will be collected and harvested for external use and all internal taps and showers will be fitted with water saving mechanisms. Excellence in Design for Greater Efficiency (EDGE) certification will be applied for on all units. EDGE is an innovation of the International Finance Corporation, aimed at the promotion of sustainable architecture in 125 countries.
In the medium to long term it is the intention of Calgro M3 and SA Corporate to ensure that long-term value and sustainability is created from a substantial portfolio, that will set new standards in terms of rental accommodation in the lower end of the market. The developments will create affordable lifestyle estates incorporating private crèches, running and walking trails and other amenities contributing to the well-being of residents.
For Calgro M3 an added benefit of the partnership is that it will strengthen its annuity income drive, which was started with their now established memorial park business. The annuity income and expected dividend stream will enhance the group's ability to gear its projects into the future. Additional funding will, in turn, accelerate the group's growth in both the residential and memorial park markets, all focussed on Calgro M3's goal of making a difference in the lives of South Africans.
In the first phase of this new initiative, AFHCO Calgro M3 will acquire new units developed by Calgro M3 in Johannesburg and Cape Town for a total consideration of R1,639 billion. This will be followed by further acquisitions from Calgro M3 over the next few years as well as acquisitions from other established rental portfolios where these are available at attractive returns. "The intention is to build a substantial residential portfolio in the next few years, with the ultimate goal to reach property investments in the residential market in excess of R 10 billion," comments Mackey. SA Corporate believes residential property investment as an asset class represents a compelling investment case with the opportunity to establish a portfolio of significant scale in a sector with underweight listed exposure and defensive characteristics due to its non-discretionary nature.
Acquisitions will be funded in the target ratio of 35% debt and 65% equity. The AFHCO Calgro M3 REIT controlled company is to target net property income yields of circa 11%, with the new company distributing 100% of its pre-tax income to its shareholders, in accordance with AFHCO Calgro M3's dividend cycle.
The only remaining condition precedent for the transaction is regulatory approval from the Competition Commission.
Calgro M3 is excited about the prospects of this new venture. "Entering into an agreement with SA Corporate, by far one of the most successful REIT's when it comes to residential exposure in South Africa, will ensure that Calgro M3's strategic decision to enter this market is undertaken with a reputable partner who will drive the management, marketing and growth of the Company," concludes Lategan.