Balwin experienced strong demand for its lifestyle apartments for the year ended 28 February 2019, despite ongoing economic headwinds and sustained consumer pressure.
Balwin Chief Executive, Steve Brookes comments: “We are satisfied with the results and our continued focus on new growth opportunities are expected to be a major catalyst in increasing sales and profitability over the medium term. During the year we successfully adapted our sales offering to include more one- and two-bedroom
offerings, which supported sales.
“Exceptional sales continue to be recorded at The Blyde (Tshwane East) and Ballito Hills (Ballito), with sales rates significantly exceeding the development average of approximately 25 apartments per month. The success at The Blyde is largely as a result of the opening of the Crystal Lagoon during the year, the first of its kind in sub-Saharan Africa. We are very proud of this initiative and look forward to many more opportunities being realised to emulate this success”.
Key focus areas for the year under review were operational performance, cash preservation and executing on the existing development pipeline, with pleasing results being achieved. Balwin recognised in revenue 2 437 apartments during the reporting period. This included 2 281 build-to-sell apartments (2018: 2 084 apartments) while 156 of the newly introduced purpose-built apartments were sold to Balwin Rentals Proprietary Limited (“Balwin Rentals”), a residential property fund, in the current year. This demonstrates the consistent demand for Balwin’s high quality, affordable apartments and innovative lifestyle product offering to the South African market.
Due to a difficult macro-economic environment Balwin rationalised their development pipeline from 39 951 to 28 419 which allows the company to focus and further manage their cash resources. An increase in the number of apartments recognised in the current financial year contributed to revenue growth of 6% over the prior year. The average selling price per apartment reduced in line with expectations to R1 069 462 (2018: R1 177 848) owing to a different product mix as well as the inclusion of the revenue from the apartments sold to Balwin Rentals.
The group has made pleasing progress in the management and utilisation of cash, with cash resources at year end improving to R329.4 million from R100.0 million in the previous year. Cash management and preservation remain key focus areas for the upcoming financial year. Balwin has accessed various funding mechanisms to deliver on the strategy including:
• Development finance obtained on a phase-by-phase basis and secured against the pre-sales of the specific phase being financed. Development finance is obtained at an approximate loan to cost of 70% with the remainder of the construction costs financed through equity.
• Land funding obtained from major financial institutions at a range of 50% to 70% of the cost of
The group’s long-term debt-to-equity ratio at the end of the reporting period was 23% compared to
25% in the prior corresponding period. A focus area for management in the current year will be
sourcing funding of infrastructure costs that will assist in unlocking the development value.
The board declared a final gross dividend of 14.51 cents per ordinary share, payable out of income
reserves for the year ended 28 February 2019. Balwin continues to be adversely affected from a cash flow perspective by council delays which prevents the timeous registration of apartments, a common occurrence in the industry. As a result of these delays, the group was unable to register 864 apartments by year-end. By the end of April
2019, only 66 apartments had not been registered and are expected to lodge and register
Balwin successfully implemented one of its strategic objectives by introducing a purpose-built product for sale to a large-scale residential property fund. In addition to complementing the existing business model, this product will allow Balwin to utilise and unlock its existing land bank at a faster rate. In the current year, Balwin concluded the sale and registration of 156 apartments to Balwin Rentals, a strategic alliance partner, for a total consideration of R85.6 million. A further 96 apartments were sold to Balwin Rentals but have not yet registered and will be recognised in revenue in the 2020 financial year.
Brookes advised that “we believe that the rental model initiative in its current form provides us
with significant value-unlocking opportunities without any cashflow implications. We will continue
with our current model of developing, selling and handing over developments in phases to mitigate risk”.
He went on to say “that this initiative exemplifies Balwin’s ability to provide a flexible product offering to service the target market”. The first rental development launched to the market is Greenpark in Boksburg. Three further rental
developments, all under the ‘Green’ brand, are planned for Gauteng, totalling over 6 000 apartments.
The exceptional quality of the developments and the creative design of the Balwin product was recognised at the recent Africa and Arabia Property Awards where Balwin received four awards in the categories of “Apartment, For South Africa” for its Ballito Hills development (Ballito), “Leisure Architecture” and “Leisure development for South Africa” for The Blyde development (Tshwane East) and “Developer website for South Africa” for the Balwin website.
Brookes advised that “these awards provide comfort to our clients, our suppliers and our investors that we are delivering a quality product and we will continue to do so, not just for the awards but to provide value to our clients and enhanced returns to our shareholders”.
Source: SA Property Insider