Balwin Rentals, a wholly owned subsidiary of listed property group, Balwin, is set to significantly expand its rental portfolio with plans to develop up to 7,300 rental apartments over the next eight to 10 years.
Strategic Rationale
The group said in a voluntary update on Wednesday (24 July), that at the time of listing, Balwin said it envisioned the strategic development of a dedicated rental portfolio to complement its core business operations.
In recent years, Balwin said it has invested in building capacity, expertise, technology, and systems to roll out a modern, scalable, and efficient rental portfolio.
This expansion will not interfere with its current build-to-sell model, which delivers approximately 2,000 to 3,000 sectional title apartments annually and has the flexibility to scale further based on market demand.
Balwin said it plans to leverage its strong brand presence by positioning the rental portfolio as an incubator, helping qualifying tenants transition into purchasing Balwin apartments.
The rental developments will adhere to EDGE Advanced certification standards, maintaining the high-quality benchmarks associated with Balwin’s build-to-sell model.
Importantly, these rental properties will be reserved exclusively for rental and will not be offered for sale on the open market, it stressed.
The introduction of this defensive asset class is expected to further diversify Balwin's revenue streams and enhance annuity income, balancing the cyclical nature of the build-to-sell business.
Additionally, it will make optimal use of Balwin's unused land portfolio.
Balwin said it has identified land parcels for the initial six build-to-rent projects, encompassing up to 7,300 apartments.
This represents about 20% of the Company’s current unused land. The initial sites are located in Johannesburg East, Tshwane East, and the Western Cape.
Structure and Capital Allocation
The rental portfolio will be managed through Balwin Rentals, which is an existing wholly owned subsidiary of Balwin. To fund the development, Balwin Rentals plans to secure long-term debt financing from commercial lenders and Development Finance Institutions at favourable interest rates.
Similar to the build-to-sell model, the rental developments will be constructed and leased in phases to minimise risk.
Balwin Rentals will have comprehensive control over the rental estates, allowing for optimal cost management.
The rental portfolio will be managed internally with a focus on technology to reduce operating costs and enhance yield performance.
The rental portfolio will offer market rentals ranging from R6,000 to R13,000 per month for one-, two-, and three-bedroom apartments.
These units will feature quality and lifestyle elements such as solar panels, high-speed fiber connectivity, and facial recognition access control.
Cost engineering ensures these developments will achieve above-market yields at the target rental rates, the developer said.
While the revenue contribution from Balwin Rentals is expected to be minimal for the financial year ending February 28, 2025, it is anticipated to progressively contribute to the group's annuity income and net asset value growth.
Initial studies suggest that the rental portfolio rollout will generate approximately 39,000 direct and indirect job opportunities.
The apartment developer reported in May that its profits for 2024 had halved.
The group's sales dropped by 29% to R2.4 billion for the year ending February, and profit after tax decreased by 50% to R217.4 million.
Shares in Balwin have declined nearly 15% in the year-do-date period.
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