Tongaat Hulett release of 42 hectares for R50bn Ridgeside development to stimulate R12bn in fresh investment
On a day when most of South Africa was glued to the Mandela Memorial at the FNB Stadium, KZN-based Tongaat Hulett announced the release of a large chunk of land into its hugely successful Ridgeside development in Umhlanga. Mike Deighton, who runs the group's property development division, flew up to Johannesburg to share the impact of this on what is already a R50bn development called Ridgeside. These additional 42 hectares are likely to attract a further R12bn in brick and mortar investment by developers – and net something over R1bn for Tongaat in the next year. That's a significant boost for a group whose attributable profit should be around R1.4bn in the year to end March 2014. – AH
ALEC HOGG: Tongaat Hulett will release 42 of the remaining 62 hectares of Ridgeside on Umhlanga Ridge to the market. Mike Deighton, Chief Executive of Tongaat Hulett Developments joins us for more. When did you guys start developing property on the north coast of KZN?
MIKE DEIGHTON: Alec, it's been some 20 years with the momentum developing primarily round about 17 years ago. Umhlanga Ridge itself is about 17 years old. We really got to running in about 1996.
ALEC HOGG: It was all sugar cane fields.
MIKE DEIGHTON: Yes, it was all sugar cane fields. The company still has a land holding of 8 300 hectares of prime land, which we will convert actively to urban development. About 6 000 hectares of that is around Durban itself.
ALEC HOGG: The decision to actually not sell off the land – or not to give it to somebody else to develop – but to do it yourself… remember, you were a sugar cane company at that point. How was that taken?
MIKE DEIGHTON: Our forebears had some foresight and some vision. The company's always been involved in issues of development throughout the regions where we operate. And I daresay that that legacy stands with us today. Today we obviously stand in a period where we're once again reviewing those strategies, and how – appropriately – to drive the maximum possibilities of development. It's just part of a continuing legacy. It has been there for a very long period in land management within Tongaat Hulett.
ALEC HOGG: How much have you unlocked?
MIKE DEIGHTON: Really, since we commenced about 2 000 developable hectares over roughly a 20-year period.
ALEC HOGG: What's it worth?
MIKE DEIGHTON: It's very difficult to put a number to that today. We certainly have a much better idea as we look at the portfolio holistically.
ALEC HOGG: But you made R500m out of property development in the last reporting period. If you were to accumulate those over 20 years, it must run into many billions.
MIKE DEIGHTON: I daresay it does. I think the difficulty one has is always looking back, the time value, the money, and the circumstances. I think – and importantly, where we're sitting now – in Durban, today the portfolio platform is so much better than it was historically, so you now have a gateway. You have, as we've said, R50bn worth of investment in the last 17 years in a place like Ridgeside. You therefore have fantastic infrastructural investment taking place, and great partnerships I think now between government and private sector that are emerging. The drivers for value going forward are much stronger. Historically, I say anything like that is always difficult to do a present-day evaluation of things that took place 20 years ago.
ALEC HOGG: Looking back, it must have been a bit of a gamble because the south coast was far better developed…Amanzimtoti, and where the airport was, and yet you guys went north because you had the land. I suppose there was nowhere else you could develop. Was that viewed as a risk?
MIKE DEIGHTON: Alec, yes and obviously this goes well before my time with the company, but one must realise that there was… Again, it's reflecting on a day like today – such different circumstances. There always was, for many years before development gained momentum, a realisation that the northern corridor of Durban, was in fact, truncated. In fact, there was pressure. You had Tongaat, Verulam, you had a development corridor, and in the midst of this, you had this agricultural land. Many years back – and it's certainly in excess of those 20 years I alluded to – the company took a view together with many stakeholders. It was a time when planning was not great, and legitimacy of government was not where it is today. They took the view to start the process of planning forward, the release, and then the conversion of that land into agriculture.
ALEC HOGG: Now it's kicking into gear in a big way. The Dube Airport development is one of more to come.
MIKE DEIGHTON: Look, Dube Tradeport…once again, that's a government initiative, but a hugely important piece of infrastructure in that northern region of Ethekweni and for KZN. We know. We are very close the guys there. The investment…the international platform that's being created around Durban is something quite incredible.
ALEC HOGG: How much land do you have left in Umhlanga?
MIKE DEIGHTON: Effectively there are two areas. Maybe I should say…around Durban: about 5 000 hectares between Ballito and Umhlanga. We have about 1 000 hectares out in Tshongweni near the Hillcrest area, but then specifically in the Umhlanga region. As we've said, we're releasing 432 of the remaining 62 hectares in Ridgeside and very much in terms of that jewel in the crown – that Umhlanga Ridge success story – this is getting very close to the end of that particular land holding.
ALEC HOGG: What does it mean – releasing?
MIKE DEIGHTON: I think it's important here to get a process that's right. Strategically, we have taken a very important decision here, that this is how we see ourselves maximising investment and value into the region. To do that effectively, one has to take a rational, and very ordered and structured approach. As we said in our interim results in November, we gave an indication that we were going to institute the process. We're now doing a very wide communication process about the opportunity, and what it is. We're giving people an opportunity to express interest – to log onto our website and express their interest. We'll then take an assessment of what that is about, look at the credentials of the purchasers and what they mean, their make-up and characteristics, and then move into a very formalised process in the first quarter and the first half of next year, towards concluding a transaction.
ALEC HOGG: So I can't come along and buy a quarter acre stand. That's not going to happen. You will sell it to developers – developers of residential developments.
MIKE DEIGHTON: It has been interesting Alec, being up and running for about three days. We've had a phenomenal response in terms of people logging in. There's a lot of interest from smaller individuals who may be formed into some form of consortium, so there is an opportunity here depending on how the wheels eventually turn, for smaller investors to participate in a structured consortium.
ALEC HOGG: Why are you doing such a big block at one time?
MIKE DEIGHTON: We think it's the way to unlock the most value. In a place like this, when one reflects on our business model – and obviously this has been an emerging strategy for several years now – but when one reflects on it primarily, we've undertaken sales of township stands. That, to some extent is limiting, so your big players, people who we believe for a site like this…it would actually be better for competition, that people have a vision slightly different from ours – maybe bigger than ours. Maybe international players – we've had that level of interest – might make more value out of this site than we would by purely adopting a 'sale of stands' approach.
ALEC HOGG: What does it mean to shareholders? Can you give us some indication of how much value will be unlocked and when shareholders might see it?
MIKE DEIGHTON: We anticipate – and it's pretty much benchmarked into what's happening today – that the value of real estate investment on that site will represent north of R12 billion. We've consciously not put a price out there because we do believe that the successful investor will be the one who sees the highest value and that, in turn, will reflect to shareholders
ALEC HOGG: What's it worth per hectare?
MIKE DEIGHTON: We've just concluded, to give you a bit of an indication: in our last reporting period we concluded a transaction in that area that effected a net profit of R34 million per hectare, so we certainly are talking 'absolutely prime property'.
ALEC HOGG: So it's not R12 billion, but it could be over one billion.
MIKE DEIGHTON: I would say, without doubt, it will be over one billion.
ALEC HOGG: When will shareholders see the benefits?
MIKE DEIGHTON: That will depend on when the transaction is actually concluded. We're working, as I say, on a structured process. Our intention and our project plan – all being equal – is to achieve that in the first half of next year, but we're not going to be rushed into doing a transaction that not represent what we are seeking to achieve.
ALEC HOGG: The first half of next year is fairly close – it's not years out. You did mention that you have a lot of land between Durban and Zimbali, your project near Ballito, which has been highly successful. I think most people know about the development you did at Zimbali. What's going to happen to that land?
MIKE DEIGHTON: Alec, I think it's important here, to say that we're working to a really long-term strategy. Maybe to give you a little bit of an indication, for example; in 2005, with a portfolio of over 8 000 hectares of land, we had only 150 hectares of that signed. We sit today with something like just short of 500 – in fact, 467 hectares as reported recently – but we're actively working at the moment, actively, on application processes that will increase that by some 1 400 hectares in the relatively short term
ALEC HOGG: What is it zoned for, though?
MIKE DEIGHTON: It's zoned for a mix of uses. Therein lies the strategic importance of what we're doing. With a large portfolio like this, you need a portfolio of different uses. You need to bring land into a status where it can be turned around reasonably quickly, and where one can then transact in a variety of manners. So these – we're terming them mega land transactions – are not unique. Ridgeside is not unique. We anticipate doing more of these. We anticipate continuing conventional township establishment site sales approach, and we do see other structured transactions taking place. It's a range of uses right across the board, a range of different locations if one really looks at it, with their own individual dynamics, and interesting prospects to raise the stakes for investment into the Durban region quite considerably.