Material issues within the business and how
these have been managed
Securing income-earning contracts
In October 2010 the group secured the role of investment manager of
an offshore listed property fund. The fund, South African Property
Opportunities (SAPRO), is invested in a mixed portfolio of assets in
South Africa. The total market value of these assets was externally
valued at approximately R1,4 billion at December 2010.
Our role as investment manager is to ensure a return to shareholders
through managed development and sale of the asset portfolio. Selected
assets will be fully developed, whilst others will be made available for
sale once the salient rights and zonings are achieved in line with
Group Five is remunerated on a monthly basis and has specific
incentives linked to returns for SAPRO shareholders.
In addition, the team worked closely with the Group Five Motlekar
social and affordable housing joint venture to facilitate the structuring
of the Crystal Park affordable housing contract in Gauteng.
Construction of a 50 unit show house complex on the site is now
underway. Developments to date have been positive, with marketing
initiatives due to start shortly. Property Developments will earn a
development fee, whilst the construction revenue will be reported
through Building and Housing.
Positioning for core future development contracts
During the year, a prime located land parcel in the Melrose area in
Johannesburg was secured. With zoning rights anticipated to be
obtained before the end of F2012, and with the ability to develop up to
65 000 square metres of bulk on the site in a phased approach, this
project contributes significantly to our portfolio of land holding for long
term development and ownership.
During the year, it was decided to divest of our equity in 114 West
in Sandton. Although we invested in line with our strategy of long
term investment, market conditions led to the partners changing the
terms of the investment to an individual office sale scheme, which
does not offer long term returns. Our decision to divest provided
upfront returns and additional headroom to secure further
opportunities in the short term.
Realising value from our Waterfall Farm investment
While construction has officially commenced at the Waterfall Farm in
Gauteng, the overall development continues to mature at a slower than
A decision was taken by all the shareholders of the Waterfall
Development company to formally exit its equity participation in the
Atterbury fund, the developers of the Waterfall Farm. This generated a
fair value profit of R13,3 million.
Our preferred construction position for all infrastructure and top
structure works as well as specific material supply on the contract
Project conversion to development and/or sale
The conversion of land assets into above-ground developments continues
to be a challenge. We remain focused on achieving this as and when key
tenants can be identified and engaged on a long term basis. Our assets
are situated in prime locations and remain ungeared.
The divestment of our existing residential portfolio has also taken
longer than anticipated. This was largely due to the group’s strategy of
maximising value during the current negative cycle. To achieve returns
during this cycle while sales at appropriate returns have not been
possible, the group has rented its units on hand. Tenancy levels remain high, with revenues matching expenses.
Property market cycle
Careful and considered management of the downside risks in the real
estate sector has played a vital part in achieving the reported results.
With interest rates set to rise towards the end of calendar year 2011 and
with an expected slow and protracted recovery, management will
continue to focus on managing its portfolio transition strategy throughthe downturn to preserve current asset values. With a diversified portfolio
of fee-generating work, combined with a longer term equity positioning,
the segment is positioned for profit growth in the longer term.
||We secured the role of investment manager of an
offshore listed property fund, South African Property
||A prime located land parcel in the Melrose area in
Johannesburg was secured
||Construction on Crystal Park affordable housing
project was started earlier than anticipated with the
construction of a 50 unit show house complex