Balwin Properties was founded in 1996 by Stephen Brookes and has developed, marketed and sold more than 70 residential estates comprising about 13,500 individual units. The apartments, priced from R600,000-R1.7m, are targeted at middle-income buyers and investors. The company, under Brookes, has ambitions to be the largest listed residential property fund on the JSE, saying it will roll out a strong development pipeline in the next five years including developing a rental portfolio.
Balwin Properties, under Brookes, has always prided itself in delivering good quality affordable apartments that exceed the client’s expectations. It also has a strong Board of Directors and exceptional middle management. According to Brookes “Balwin Properties first development was completed in 1996, and was called Ivory Court which is in the South of Johannesburg. This initial development consisted of 50 apartments. All 50 apartments were sold out in 1 weekend and we thought we were rock stars. With very little experience to start with we have grown from strength to strength”.
Balwin focuses on large-scale sectional-title residential estates in high-growth, high-density nodes in major cities. CEO Stephen Brookes said he had ambitions to grow the fund to a market capitalisation of R10bn within five years. One the eve of the companies listing on the JSE Brookes said “I believe Balwin has decided to list at an opportune time. I appreciate that SA’s economic environment is weak currently but we have a strong pipeline and a robust business. I feel that Balwin can grow strongly over the next five years and we can double the share price,” he said.
The company recently announced an outstanding first set of financial results as a JSE listed company. Balwin listed on 15 October last year and differentiates itself from other JSE listed property companies and REITs through underpinning its business strategy by generating profits through the development and sale of large-scale residential estates. These estates average in size between 500 and 1 000 units and offer buyers secure, affordable, high-quality and environmentally friendly one, two and three bedroom apartments ranging in size from 45m2 to 120m2.
Balwin Properties reported revenue of R2.1 billion for the 12 months ended 29 February 2016, a 54% increase on the prior year and operating profit of R768 million, up 69%. Headline earnings per share rose 68% to 131 cents with profit after tax of R559 million exceeding the pre-listing forecast of R542 million by R17 million.
The financial year saw a record number of registrations totalling 2 087 units. In addition, several first phase developments that were launched during the period, sold out within a few weeks of coming to market.
“Despite a rising interest rate cycle and continued pressure on disposable income, interest in our offering remains resilient. We offer a premium product at market related prices, with tenants finding the lifestyle element including recreation and gym facilities, free wi-fi, a restaurant and spa on the estate very appealing,” added Brookes.
In line with its growth strategy, Balwin concluded several strategic land acquisitions in key nodes such as Bryanston, Olivedale, Linbro Park, Modderfontein and Kyalami during the financial year. The Company also increased its operating footprint in Pretoria East through the acquisition of two land parcels for the development of the Grove Lane (136 units – sold out) and River Walk (6 300 units) estates as well as in the Western Cape through the acquisition of land for the development of The Sandown. At year end, Balwin’s secured pipeline stood at 16 200 homes to be developed across Johannesburg, Pretoria and the Western Cape over approximately seven years.
“In addition to our existing pipeline, we concluded an agreement providing us the right to develop approximately 15 300 more units in the Waterfall node. This development will consist of three different developments in close proximity to the newly opened Mall of Africa. I believe our developments will change the way people live, shop, work and play in the node,” said Brookes.
Balwin’s investment proposition is backed by a robust, proven, business model supported by urbanisation and growth of the middle class which should see strong demand continuing. The Company mitigates risk by matching construction to pre-sales and rolling out developments over several phases which are separately financed. “This phased approach to development provides us with an exceptional cash generating ability and scalability that protects the business from macro-economic impacts to some extent,” explained Brookes.
Cash flow generated is closely monitored to ensure that proceeds are reinvested into the business in order to create long term value for shareholders as well as ensuring an appropriate margin of safety is maintained.
Balwin’s policy is to re-invest 70% of its after tax profits back into the business to support development growth, with the remaining 30% of profits distributed to shareholders.
Balwin Properties’ long-term goals are to continually provide good quality affordable apartments of the highest standard, which exceeds their client’s expectations. Brookes primary goal is to ensure that the company develops a strong national foothold in the major metropolitan areas. They also have plans to shift their focus to creating and building up a substantial residential portfolio. Balwin Properties is to continually reinvest profits back into the company to promote growth.
Stephen Brookes Top Five Investment Tips
- Invest in a good property developer with a good track record.
- Buy middle range property that gives a good yield.
- Stay involved in all property developed.
- Ensure you invest in good quality clients.
Qualifications: National Higher Diploma Civil Engineering
Children: 2 Children
Mentor: Richard Branson
Motto: Word hard, be innovative, deliver good quality and exceed people’s expectations