Balwin Properties CEO Steve Brookes
Despite a tough operating environment, residential property developer Balwin Properties continued to perform well in the six months ended August 31, with the group’s revenue up 19% year-on-year to R894-million.
The increase was driven by good sales volumes, which were in line with forecasts, which further resulted in good top-line growth.
“Demand for our product remains strong and sales are tracking our expectations with 1 015 apartments already pre-sold for the second half of the year,” Balwin founder and CEO Steve Brookes told Engineering News Online during a telephone interview on Monday.
Balwin launched four new developments in the first half of the financial year, with 14 developments now under way.
Four developments – The Blyde, in Pretoria; The Whisken and The Reid, in Johannesburg; and Ballito Hills, in Ballito, KwaZulu-Natal – experienced delays in obtaining certain council approvals. This delay resulted in delays in construction, as well as the handing over of about 300 apartments to clients. This impacted performance negatively as fewer developments came to market for sale.
“Good progress has been made since the period-end regarding the approvals and construction is on track,” Brookes has assured, noting that the group was also awaiting the environmental approval for Green Park, in Boksburg.
The group has further invested extensively on major civils and infrastructure works ahead of the construction of apartments at three large new developments.
While these factors resulted in a lower gross margin of 32.4% as a result of the large number of early-stage developments currently under way, and profit declining 6% to R163-million, Balwin continues to target a gross profit margin of between 35% and 40% through the entire lifecycle of a development.
The group’s earnings a share, and headline earnings a share for the reporting period each declined by 5% to 35c, from 37c cents in the first half of the prior financial year.
Brookes highlighted that the group had centralised its procurement processes with the establishment of a new procurement department that has unlocked significant cost savings.
“We remain highly innovative and continuously drive initiatives to differentiate our product [offering],” he noted.
DEVELOPMENT PROGRESS
Significant progress was made on the Waterfall properties with all regulatory approvals obtained for The Polo Fields development, of which phases 1 and 2 were handed over in July. Balwin sold 107 units at The Polo Fields.
Sales at the Kikuyu development have also been “outstanding” with the first two phases to be handed over this month.
A total of 643 units were sold across the Waterfall developments, while The Cambridge, in Johannesburg north, was sold out.
Brookes added that development demand in the Western Cape remains strong, while Balwin has sold more than 150 units at Ballito Hills, in KwaZulu-Natal – the group’s first development in the region. The first phase is expected to be registered early in the 2019 financial year.
Brookes added that, while the group was mindful of the challenging economic conditions, and had been agile in responding to market dynamics, it is executing several initiatives to effectively adjust its model. This includes the configuration of the apartment blocks, as well as the pace of development and pricing points to maintain healthy sales levels.
“Careful capital allocation and cautious cash flow management also remain priorities to ensure optimal execution across all developments,” added Brookes.
Balwin declared an interim dividend of 10c a share, which is in line with its policy to distribute 30% of after-tax profit to shareholders.
NEW BUSINESS SEGMENT
The group, meanwhile, launched a new business segment to generate annuity income, including through partnerships to implement solar energy solutions, the leasing of education facilities to experienced and robust operators, storage solutions and fibre infrastructure within the Balwin estates.
Balwin expects to make an announcement on the new education model before the end of the year.
The fibre infrastructure model is currently being run through Balwin Fibre, a new subsidiary of Balwin Properties, that will own all fibre infrastructure across Balwin estates going forward, with the aim of becoming a large fibre network operator in South Africa.
Brookes added that management remained focused on delivering on its rental model through strategic alliances, such as with Transcend Residential Property Fund, which was announced in August. The alliance aims to bring to market up to 8 900 high-quality, affordable rental apartments across five developments in key Gauteng nodes over the next six years.
Balwin will also seek to acquire zoned land, on which repayments can be made on
registration.
“The increased scale brought about by the new developments, the delayed projects coming on stream, costs controls, operational efficiencies and the benefit of new annuity income initiatives such as fibre, solar energy solutions, storage and education will support the company’s performance,” Brookes concluded.