JOHANNESBURG - Listed sectional title home builder Balwin Properties plans to establish a residential rental real estate investment trust (Reit) that it would list on the JSE.
Steve Brookes, the chief executive and founder of Balwin, said yesterday (mon) this initiative formed part of a plan to secure annuity income for the company.
Brookes said they had created Balwin Rental, which they planned in the future to list, and had developed an extremely attractive low-cost rental package with Boogertman architects.
“The rental is between R4 500 and R8 500 a month and we have got three developments that we are rolling out right now for a total of 4 500 apartments. It should take us the next three to four year to roll out,” he said.
Brookes said Balwin would not be keeping those developments but would sell them to the residential Reit.
He said they were currently in the process of finalising the legal arrangements with a preferred bidder for the establishment of a strategic alliance and should be in a position to announce details about this initiative in about the next month.
"It's going to be very advantageous for Balwin shareholders. It will also improve our cash flow and take some lumpiness out of our earnings. We are very excited about this,” he said.
Brookes admitted it would take about another two years to build up some scale in the residential Reit before it would be listed but declined to provide further details about the initiative until the announcement was made.
But he confirmed Balwin had the capacity to develop up to 5 000 residential units a year and developed about 2 000 in the year to February and would probably develop 3 000 units in the current financial year.
“If I stick on 2 000 rental apartments, I’ve got the business where I want it to be. About 40 percent of our of business will then be rental and 60 percent will be for the consumer at retail prices. I think it’s a good blend,” he said.
Delays experienced in obtaining town planning and local authority approvals for the commencement of construction of certain new developments around the country negatively impacted the financial performance of Balwin in the year to February.
Balwin yesterday (mon) reported a 26 percent decline in headline earnings a share to 104c from 140c in the previous year.
Revenue declined by 9 percent to R2.5bn because of the rezoning and local authority approval delays.
Brookes said they would address this problem by, where possible, in future only buying zoned land.
He added that despite not being happy with the financial performance of the group in the past year, it still made a profit of R491 million last year.
A final dividend a share of 21c was declared, which increased the dividend a share for the full year to 31c compared to the 42c in the previous year.
Brookes said the group had a secure pipeline of 39 951 apartments across 25 locations, with a 14-year development horizon. This ensured that Balwin had a number of developments being built and sold across diverse locations at any point in time to ensure the sales target of between 2 000 and 3 000 apartments was achieved each year.
Brookes said the group expected growth in sales in the year ahead because of improving consumer sentiment following the change in the country’s political leadership, together with declining interest rates and the lower inflation environment.