JSE-listed property developer Balwin Properties increased its profit for the financial year ended February 28 by 15% year-on-year, resulting in a profit margin of 27%, while revenue increased by 16% to R3.1-billion.
As a result, Balwin’s net asset value increased by 10% to R7.49 a share.
Balwin CE Steve Brookes says breaking through the R3-billion revenue barrier for the first time is a “huge achievement” and that when he started the business 26 years ago with a 50-apartment development, he never imagined Balwin would achieve this milestone.
Revenue growth was mainly the result of an increase in the number of apartments handed over during the year and an overall increase in the selling prices of apartments.
The group continues to prioritise cash management and use, as well as to engage with its funding partners to ensure appropriate facilities and financial support remain in place. Through these focused capital allocation initiatives, Balwin ended the period with a cash position of R666-million – an increase of R329.1-million from the prior year.
The group secured term loan facilities totalling R560-million from Sanlam and Stanlib, representing a significant milestone in broadening its funding base in a cost-effective manner.
At period end, a final gross dividend of 13.4c apiece was declared.
“In line with our ethos of putting our clients first, Balwin leveraged our advancements in building green with the retail banks to negotiate preferential mortgage rates for its clients.
To date, 4 367 green bonds have been secured for clients, with an estimated total saving of R325-million over the average bond terms,” he says.
Balwin notes that significant increases in costs within the construction industry over the past year impacted on Balwin’s profit margin, but that these were mitigated to a large extent through effective cost engineering, creative modifications to design and specifications, as well as concentrated cost containment, supported by an in-house procurement department.
The balance of material cost increases was offset by selling price increases achieved by the group.
Operating profit for the year was 8% higher year-on-year, at R363.1-million.
Profitability was, however, impacted by a one-off International Financial Reporting Standards 2 charge of R34.1-million relating to a black economic empowerment transaction. Excluding the impact of this one-off charge, profit for the year increased by 18.1% to R397.2-million.
From a capital allocation perspective, Brookes says that, considering the deep discount between the current share price and Balwin’s net asset value, a share buy-back programme will be highly earnings accretive and will drive growth in headline earnings a share.
“To this effect, we have received board approval to launch a share buy-back programme, the quantum of which will be monitored and updated over time.”
Operating expenses increased by 13.7% to R301.6-million at period-end, mainly driven by movements in non-cash costs, comprising primarily of depreciation, volume-based sales commissions and sales activity-related costs.
The Balwin Fibre subsidiary also reported higher costs owing to the increase in the volumes of apartments connected to fibre networks.
Excluding these costs, Balwin’s operating costs increased by 6.1% year-on-year.
Selling prices for the Classic and Green Collection developments grew by an average of 6.9% and 4.6% respectively, from the prior year when measuring the total respective portfolios.
These increases in average selling prices were offset by the mix of developments and apartments with different selling prices as a result of the specific market dynamics within the development.
Excluding all new developments introduced in the period under review, or developments that were fully sold out in the prior year, the average selling price of Balwin units increased by 7.2% and 5.5% for the Classic and Green Collection developments, respectively.
During the period, demand for one- and two-bedroom apartments remained strong and comprised about 80% (77% in the 2021 financial year) of the total apartments recognised in revenue.
Going forward, the group has a secure development pipeline of 51 803 apartments across 28 developments in key target nodes – representing a development horizon of about 15 to 20 years.
“A core focus for the team is the execution of the existing pipeline to unlock value.
“Considering that zoning in our main operational areas can take anything from five to seven years, strategic land acquisitions remain important; however, we will place greater emphasis on accelerating the unlocking of the existing pipeline going forward, while carefully matching the rate of construction to the rate of sales,” Brookes says.
Meanwhile, during the financial year, Balwin continued to focus on reducing its environmental impact through innovation in design and building techniques.
In this regard, 27 719 apartments were registered as EDGE Advanced since January 2021.
EDGE Advanced requires apartments to achieve an on-site energy saving of 40% or more, an improvement from the 20% savings required for basic EDGE certification in addition to the 20% reduction in water usage and embodied energy in material which was previously a requirement for EDGE certification.
Lifestyle centres at seven of Balwin’s developments achieved six-star green ratings by the Green Building Council, six of which were credited with a net-zero carbon rating.