Balwin finds new ways to diversify income
Sectional title developer to launch a rental business to boost cash generation
Listed sectional title developer and seller Balwin Properties is planning to launch a rental business, which it will list in the next two years.
The company, which saw its revenue rise 33% in the six months to August according to results released on Monday, is trying to expand its source of income so it can begin to pay dividends again.
“We will announce an exciting partnership which will enable us to launch a rental business in the next few weeks. We believe that while build-to-sell has been our main business since we listed three years ago, we need new ways of generating income. One of these is a rental business and the other is our internet fibre infrastructure and renewable solar energy business,” financial director Jonathan Weltman said.
He said that by having both a build-to-sell and a rental business, Balwin could also manage interest rates changes and protect its earnings.
“If interest rates enter a steep rising cycle, demand for rental property will also rise. If interest rates fall, we will do more build-to-sell work,” he said.
Only a few listed property companies have been offering investors exposure to rental property. Indluplace Properties and Transcend are solely focused on rental property, while Octodec Investments and SA Corporate Real Estate have rental businesses but also own a variety of other real estate assets.
CEO Steve Brookes said Balwin had performed well despite a weak economic environment, and that the group was enjoying strong demand for its units.
A total of 1,058 units were handed over and recognised as revenue during the period, translating into 33% growth in revenue to R1.19bn. The average selling price per unit remained consistent at R1.125m compared with R1.218m in 2017.
Balwin is not paying a full-year dividend. It last paid a dividend of 21c per ordinary share for its financial year to February 2018. But in the six months to August, the company decided it would be best “to focus on cash management and preservation”. The board would reconsider Balwin’s dividend position at year-end.
Peter Clark, portfolio manager at Investec Asset Management, said investors were waiting for Balwin to return to a position where it could pay dividends again.
“Although earnings improved and cash flow from operations has turned positive, the dividend is not yet fully cash covered. The free cash-flow yield is therefore not as attractive as the earnings or dividend yield may suggest. The fundamentals remain challenging in the current SA macro environment,” he said.