Willdale’s proposed land development transactions!

The Zimbabwe Stock Exchange (ZSE) listed brick manufacturer recently released a circular to its shareholders, concerning the company’s plans to get involved in some land development projects. The proposed transaction is not necessarily asking for any additional capital from shareholders, but just seeking approval to continue with the transaction.

Willdale currently has a value to the tune of 178 hectares, which was previously used for various other reasons including the extraction of clay for brick manufacturing and now wants to explore developing that land for residential and commercial use. According to projections in the circular, the transaction could lead to a 56% jump in the company’s assets, in US-dollar terms.?

The bulk of the land is in Mt Hampden, where the company is headquartered, and with the new capital city moving to that area, new ideas have emerged. The value of developed land in that Mt Hampden area has significantly increased and is now comparable to Harare prices. The three distinct projects that the company is proposing are Haydon, Kinvarra and Christmas Gift in Gweru. The combined nominal value of these pieces of land is just under US$3 million.

The proposed transactions are in-kind transactions that will see Willdale providing lend and the contractors coming up with the development services. Upon completion, the parties then share the units at a rate pro rata to their contribution. The extraordinary general meeting has been scheduled for 4 April 2024 to vote for this proposal.

Haydon Transaction

The biggest proposed development is Haydon Park, sitting on 126.3 hectares of land and envisaged to produce 483 units ranging from residential to commercial units. The contractor for this project is called Zusammen and will provide development costs of up to US$19.5 million as its equity to the project. On the other hand, Willdale’s contribution is the cost of land which is pegged at US$5m, plus the endowment to the Zvimba Rural District Council plus the cost of a project engineer.

Some of the obligations of Zusammen will include financing the project, and construction of all the civil works. They also must satisfy all the inspection requirements of the authority, who is the Zvimba Rural District Council in this case.

This land will require to be reclaimed for it to fit for development since it was once used for clay extraction. The land currently has invaders on it and court processes to evict them are underway, according to the circular. The entire land development will take 2.5 years and is projected to cash in US$37.5m. After the development, the company will sell the stands and deploy the cash flow back into the business.

Kinvarra

The other project is the Kinvarra Project for 129 commercial stands. This project will be contracted to a company called Melrose Private Limited. The proposed developments are envisaged to require US$6.4m for development broken down as $4 million being Willdale’s contribution of land and 2.4m being the costs of development. According to the circular it will be in proximity to the proposed cyber city, which is designated as a special economic zone.

The obligations of Melrose are comparable to those of Zusammen in these transactions and in both cases Willdale will provide the land. This project is however envisaged to take 2 years to complete if voted for.? After development, the company anticipates to cash in 15.3 million from that project.

Christmas Gift

Willdale also plans to carry out the Christmas Gift project in Gweru which they have currently labelled a future project. This project is 12.6 hectares and includes residential, commercial, and industrial stands at similar terms and conditions to the other 2 projects, with those of Hayden and Kinvarra. The expected cash flow from the project should be at least double the value of the land and a condition precedent would be to get a subdivision permit from the relevant authority.

Overall Analyst’s Comment

I think this is a welcome move by the company and it allows the brick manufacturer to squeeze its asset in the form of the land. Considering that land is a finite resource and Mt Hampden land is going to be prime land, perhaps Haydon and Kinvarra might have been separated in terms of the timing of execution and signing of agreements. Nevertheless, I am of the view that the transaction will help improve the shareholders’ wealth, assuming they go as projected in the circular.

I am also of the view that the fact that the company did not choose to do a rights issue to develop the land on itself is a masterstroke for several reasons including the fact that the chances of success would have been slim had they asked shareholders for additional capital. The rights issue, especially if it included a ZWL component, would also have included the company taking a substantial risk when most costs in the real estate development are now in hard currency.

The structure also limits the exposure of Willdale to the more operational aspects of land development, which is not their core competence. The idea of investing part of its proceeds into acquiring brick manufacturing equipment will also assist in boosting the company’s capacity at a time when its competitor is facing some headwinds. ?

From a shareholder perspective, I think voting for the transaction would be the most logical step and the asset squeeze allows value creation. The proposed stand selling prices after development are also within market range and achievable.

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