JSE-listed Balwin Properties’ subsidiary Balwin Rentals has secured a right of first refusal to acquire 4 544 rental apartments that will be developed by Balwin.
The developments are Greenpark, in Boksburg, comprising 1 056 apartments, which are expected to be completed by December 2021; Greenlee, in Linbro Park, comprising 1 728 apartments, which are scheduled for completion in March 2024; and Greencreek, in Riverwalk Estate, in Pretoria, comprising 1 760 apartments, which are expected to be completed in March 2025.
The 4 544 rental apartments will be sold in phases to Balwin Rentals at a roughly 30% margin.
Under the terms of the agreement, Balwin Rentals has already entered into an agreement to acquire 96 residential rental apartments in the Greenpark development for R57.14-million.
Balwin CE Steve Brookes explained that the company always intended to develop and retain a rental model that would ensure annuity income.
“We believe the rental model initiative in its current form provides us with significant value-unlocking opportunities without any cash-flow implications. We will continue with our current model of developing, selling and handing over developments in phases to mitigate risk,” he added.
Balwin will retain a 25% interest in Balwin Rentals, providing it with annuity income. Proceeds from the sale of these rental apartments will be reinvested into Balwin's existing development pipeline.
Brookes noted that the rental units would retain Balwin’s “quality and innovative design” but would be distinct from its build-to-sell models, both in architecture and specification levels.
He admitted that the strategy was defensive, as rentals are more popular in a higher interest rate environment, while prospective clients opt to buy when interest rates are low.
“This allows us to not only perform through the cycle, but we anticipate that the annuity income derived from the rentals will smooth our cash flow in the longer term,” he said.