Shares in residential-focused developer Balwin Properties jumped more than 6% on the JSE on Monday as the group defied market conditions to deliver a 19% increase in revenue to R1.419 billion for its half-year to August 31.
This saw the group report a 5% increase in headline earnings per share (Heps) to 40 cents and declare an interim dividend of 11.7 cents per share for the period. It did not declare a dividend for its 2018 half-year.
The group’s earnings and profit margins did however come under pressure as Balwin spent more on marketing to punt its developments, including:
- Polofields and Kikuyu at Waterfall in Joburg
- The Blyde east of Pretoria
- Paardevlei Lifestyle Estate in Cape Town, and
- Ballito Hills on the KwaZulu-Natal (KZN) North Coast.
While Balwin posted a positive 5% growth in Heps, this was still slower growth compared to 9% Heps growth for its corresponding 2018 half-year. The group also saw a reduction in its gross profit margin from 27% to 25%.
Recent years have seen Balwin’s gross profit margins fall in the face of tough SA economic conditions. For its last half-year, gross profit margins dropped 5% – from 32% in 2017 to 27% in 2018.
Recognised as SA’s largest residential sectional-title developer, Balwin noted that it handed over 1 309 apartments during the half year, up 24% compared to 2018. Its cash resources also improved significantly by R211 million.
During an interim results video presentation to investors and analysts on Monday, Balwin CEO Steve Brookes described the performance as “exceptional” in the context of the tough economy and residential property market.
‘Sheer hard work’
“We have worked our socks off and it is through this sheer hard work that we have managed to hand over 1 309 apartments [1 213 sold to buyers and 96 rental apartments sold to Balwin Rentals] within our various developments, which represent a 24% increase for the half-year,” he said. “There is continued demand for Balwin’s products in the market and we have also improved our cash position significantly.”
Brookes noted that apartment sales were “doing very well” with one- and two-bedroom units, while movement of three-bedroom units in the higher end of the market had slowed. He said Balwin is looking to exit from the higher end of the market once developments like Polofields are complete.
‘Elite’ apartments to be phased out
Speaking to Moneyweb later, Brookes explained that given current lacklustre market conditions, Balwin is set to phase out its “elite model” or upper-end apartments. “We will be focusing on one- and two-bedroom units, which traditionally has been our bread and butter for years as the core part of our business.”
Balwin, which has a R1.4 billion JSE market capitalisation, reported in its latest results that it has a secured development pipeline of 28 127 apartments over the next eight years.
It has R3.2 billion in developments currently under construction focused largely on the hub provinces of Gauteng, Western Cape and KZN.
Bringing beach life to Gauteng
Brookes revealed to Moneyweb that the group is set to launch its second major development in SA to boast a Crystal Lagoons feature – an innovative amenity described in a Balwin statement as “bringing idyllic beach paradises to new locations, where swimming, kayaking, paddle boarding and sailing can be enjoyed”. It will be located at the group’s new Monyaka Estate planned for the Waterfall node in Joburg.
“Our Blyde Estate development in Pretoria East is home to the first-ever Crystal Lagoon in SA,” said Brookes. “The Blyde has seen strong apartments sales and we are excited about the launch of our second estate with a Crystal Lagoon in Joburg in February next year.”
The new Monyaka Estate, a R9 billion development, will ultimately have around 5 000 apartments, he added.
Brookes said Balwin is set to increase its presence in KZN with two new estate developments planned around Umhlanga, in addition to its current developments at Ballito.
Commenting on Balwin’s interim results, Small Talk Daily Research analyst Anthony Clark said it was a pleasing performance despite a very challenging market.
“Balwin had very good top-line revenue growth from the number of apartment units sold – up like-on-like by some 24%.
Value strategy paying off
“What Balwin has successfully done is realise that current residential market buyers, particularly those starting off on the lower rung of the ladder in the more affordable segment, want a good value-based proposition,” he said.
“They are changing their model to go back to their core principles of building affordable, entry-level and well-specified properties between the R500 000 and R1.5 million mark.
“The Paardevlei and Polofields high-end developments, which were started years ago when the economy was different, are really struggling.
“Sales, I believe, are running at less than half of expectations and that’s a drag on the overall business.”
During his presentation, Brookes highlighted Balwin setting a world record for registering 16 000 of its apartments as part of the ‘Edge’ (Excellence in Design for Greater Efficiencies) green building certification programme and securing a six-star Green Star building rating for one of its estate lifestyle centres from the Green Building Council South Africa (GBCSA).
Edge is a residential green building rating tool from the International Finance Corporation and is carried out in the country by the GBCSA. Its standard is set at a minimum of 20% reduction across energy consumption, water usage and embodied energy in materials.