Balwin Properties, developer of mid-to-upper income apartments, lifted headline earnings per share a robust by 44 percent to 24.95 cents in the six months to August, as it recovered from difficult market conditions owing to the pandemic. Photo: File
Balwin Properties, developer of mid-to-upper income apartments, lifted headline earnings per share a robust by 44 percent to 24.95 cents in the six months to August, as it recovered from difficult market conditions owing to the pandemic. Photo: File

Balwin Properties lifts headline earnings per share as it recovers from slump due to the Covid-19 pandemic

By Edward West Time of article published Oct 21, 2021

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BALWIN Properties, developer of mid-to-upper income apartments, lifted headline earnings per share a robust by 44 percent to 24.95 cents in the six months to August, as it recovered from difficult market conditions owing to the pandemic.

Chief executive Steve Brookes said operational activity steadily recovered to pre-Covid-19 levels, supported by a continuing demand for apartments.

He said in a telephone interview that they were working on plans to introduce annuity income to the group, for smoother earnings flow and some hedging to the property development operation, and although he could not provide details yet, “we believe this contribution will become massive”.

Balwin’s share price was trading 0.26 percent higher at R3.90 yesterday. Brookes said although property development companies traditionally trade at a discount to net asset value, “we would like to see the share trading at around R6 to R6.50”, and additional annuity income should assist in this.

Revenue increased 41 percent to R1.3 billion from the prior Covid-19-impacted period’s R929.6 million. Operating profit surged 44 percent to R158.6m from an increased number of apartments recognised in revenue, which increased from 896 apartments in the prior comparable period to 1 261 units.

The gross profit margin fell slightly to 24 percent from 25 percent, due to marketing to grow sales in response to the weak economy, but the group was confident of achieving its target of low to mid-30 percent in the short to medium term.

The gross margin of the relatively early-stage developments would improve as they mature due to the phase-by-phase increase in the selling price exceeding the incremental development costs for each new phase, he said.

Operating expenses rose by 25 percent to R151m, mainly driven by increased sales commissions from the rise in revenue and once-off fees from the raising of a R500m loan.

Financial director Jonathan Weltman said the longer-term funding, the first time the group had accessed this type of loan, would lower the cost of finance, and options were being explored to increase this type of funding in future.

The average selling price per apartment of R1 190 427 remained consistent with the comparative prior year R1 188 671.

Increases in selling prices were offset by a change in the mix of apartments sold, with an increase in contribution from one- and two-bedroom apartments, together with a higher contribution from the Green Collection apartments.

One- and two-bedroom apartments constituted 80 percent of apartments recognised in revenue, while the Green Collection apartments accounted for 30 percent.

Balwin pre-sold 2 846 apartments beyond the reporting period, an increase of 347 apartments compared with the prior six-month period, indicating strong sustained demand, said Brookes. These apartments were not recognised in revenue.

The group has a development pipeline of 56 313 apartments across 29 developments, representing an approximate 15- to 20-year development horizon.

A total of 27 719 apartments had been registered as Edge Advanced since January 2021. Edge Advanced requires apartments to achieve an on-site energy saving of 40 percent or more, an improvement from 20 percent savings required for a basic Edge certification, in addition to the 20 percent reduction in water usage and embodied energy in material, which was previously a requirement for Edge certification.

A focus on capital allocation saw the cash position increase by R311m to a healthy R738.8m at period-end.

“While we are cautious in the prevailing macro-economic climate, we are counting on the resilience of the Balwin brand as demonstrated by the sustained demand from our clients, which is evidenced through continued strong sales and healthy pre-sales recorded,” said Brookes.

A dividend of 7.4c per share (2021: 19.6c) was declared.

The prior dividend included a deferred dividend that was withheld at the end of the 2020 financial year.

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BUSINESS REPROT

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