Balwin delivers strong full-year results, but again no dividend

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SIMON BROWN: I’m chatting with Steve Brookes, CEO at Balwin Properties. We had results for the year-end in February. Revenue up 21%, recurring Heps [headline earnings per share] up 41%. Steve, I appreciate the time. The recurring Heps – my sense really is accounting treatment. You had some land sale transactions, some fair value adjustments, some write offs, et cetera, hence the difference between the two.

STEVE BROOKES: Yes, thanks very much. You’re spot on, correct, 100%.

SIMON BROWN: Let’s move to the dividend. The dividend has been skipped again. Not really a comment in the balance sheet. Just perhaps more just about this was to end of February, and frankly warning on uncertainty, inflation, interest rates. Hence no dividend. Is that thinking around the distribution?

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STEVE BROOKES: Yes, 100%.The two wars on the go at the moment in the world are tricky and inflation is definitely going up. Could interest rates be going up? We pray not. But we’ve got to guard our cash. We’ve got to guard it, and also we’ve got a big, big plan for debt reduction in the long term – short term and long term.

SIMON BROWN: How about sales? We haven’t seen inflation up, although we haven’t got the data. We’ve seen fuel prices up – that has hit the pocket. What have sales been like post the period end?

STEVE BROOKES: In the Western Cape we’re shooting the lights out. That’s a great story, the Western Cape. In Natal and Gauteng it’s a bit more difficult. Natal is starting to improve because of tremendous work by Rodney Gray and Kyle Gallagher, my general manager with the council. We’re starting to get away from that whole era of corruption in the councils. So they’re starting to work, trying to help us.

Gauteng is still struggling. We need our mayor to start really putting his shoulder to the wheel with infrastructure.

SIMON BROWN: You mentioned KZN, Umhlanga, Ballito, Westown. Those are the three top of mind for me. You mentioned municipal services dependency. You do rely on the municipalities a lot, whether it be up here in Johannesburg or down in KZN, eThekwini.

STEVE BROOKES: We  are relying on them; we need to work with them. There needs to be a team effort. As I said, Rodney Gray, our managing director, has made big headway in Natal where he has actually gone and seen them himself, and they’ve reciprocated and said, ‘Let’s get on with it’ – which is a fantastic attitude.

I personally went to Gauteng, to Johannesburg, to the municipality, and they received me – absolutely outstanding. I dealt with the JRA [Johannesburg Road Agency], and I dealt with Building Control. They were brilliant and that’s a big, big turnaround.

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SIMON BROWN: You mentioned the Western Cape. A question to you. The Western Cape is a little over half of the business, but your pipeline is you’ve some 14 000-odd in Tshwane,  Johannesburg. KZN almost 6 000. Western Cape only 8 000. You ran out of stock there. Are you looking for new development space in the Western Cape?

STEVE BROOKES: As they say, God doesn’t build land, so we need to find land. We have got one big one that I’ve been on with hunting for a long time. Hopefully that comes to fruition. But we definitely need to look at more land in the Western Cape. You’re spot on.

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SIMON BROWN: Sales for the period. Apartments were up 17% to just over 2 000, but forward sales up 57% at 1 200 and change. You’re getting momentum, and that’s an important point.

STEVE BROOKES: Yes, we like to keep our sales going. Sales is an important part of our business. We’ve got everybody highly focused on the business to it. And as long as we keep delivering good-quality apartments to our clients at an affordable price – I repeat, at an affordable price – we mustn’t get too big-headed and start pushing the prices. We need to be very, very conservative.

SIMON BROWN: And you’re still in that sweet spot of pricing.

STEVE BROOKES: Correct. We will continue trying to be innovative and stay in that sweet spot.

Read:
Balwin pivots to rental model as sales struggle
Balwin boosts profitability, despite fewer apartment sales

SIMON BROWN: Balwin Annuity – I remember when this was sort of a glint in your eye, just starting. It’s now over R200 [million] revenue. It’s really a good margin business. And, of course, if you sell 2 000 apartments a year, over a decade that’s 20 000. Your Annuity grows 10X. I mean, it is that simple. It is a great little business you’ve got there.

STEVE BROOKES: A very wise young man – I won’t say his name because he doesn’t like it – gave me the hint a few years ago. He’s been our partner for a long time, and it really sparked us off into annuity income as long as we always remember that the client must benefit from it.

So we worked very hard to make sure that our clients benefit from our annuity income as well.

SIMON BROWN: It’s simple stuff. It’s fibre to the home, it’s solar. To your point things I’d need and frankly want.

STEVE BROOKES: Correct. And we’re always looking at better, more honest approaches for our annuity business. We’ve a great team there and we’re looking to grow it. I think there’s a great trajectory going forward.

SIMON BROWN: Your rental strategy is relatively new. How’s that going?

STEVE BROOKES: We should have started that many years ago – as my exco says, but  we didn’t. Now we are going for it. We’ve got four projects which are starting at the moment. Our goal is to get up to 7 000 rental apartments.

Our chairman, Hilton Saven, gave me some invaluable advice on the gross and the net profit, and we’ve stuck to that very good advice and we’re achieving the numbers that we like. We are  getting there with the numbers. And our portfolio is very, very well received by the public.

Read:
Balwin Properties to boost rental portfolio to 7 300 apartments
Balwin’s profit plunges with almost 900 fewer apartment sales last year

SIMON BROWN: A last question. You had 2 000 units in the past year. What is your sort of operational feasibility at current levels in terms of units a year that you could build for sale?

STEVE BROOKES: On our build-to-sell we can easily ramp it up for between 4 500 and 5 000 with our current infrastructure. So there’s big headroom for our ability, but obviously with the macroeconomics and world economics, we’ve got to watch it; we’ve got to watch it.

SIMON BROWN: Yes. It has been the cornerstone of Balwin – you build to demand. You don’t build and then hope.

We’ll leave it there. Steve Brooks, CEO of Balwin, always appreciate the time.

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