Balwin Properties: Strategic Leasing Model – Balwin Rentals Proprietary Limited Share Buyback Transaction

0






Balwin Properties Limited

(Incorporated in the Republic of South Africa) Registration Number: 2003/028851/06 Share Code: BWN

ISIN Code: ZAE000209532 (“Balwin”)

STRATEGIC RENTAL MODEL – BALWIN RENTALS LIMITED OWNER SHARE BUYBACK TRANSACTION

MAIN CHARACTERISTICS

  • Balwin Rentals concluded an action repurchase agreement to repurchase the 75% of issued shares
  • The purchase price of R18 million will be settled through a loan from Balwin Properties to Balwin Rentals
  • Following the transaction, Balwin Properties’ current 25% stake will represent 100% of the issued shares in Balwin Rentals
  • The existing portfolio of 215 rental apartments has been operating for three years with an annual operational yield of 9.77% and 94% occupancy on average
  • Balwin Properties currently manages the portfolio management on behalf of Balwin Rentals and has been solely responsible for securing the occupancy of the apartments
  • With the rental portfolio having gained economies of scale, Balwin Properties should benefit from the capital appreciation and rental income generated by Balwin Rentals
  • The acquisition further enables Balwin Properties to accelerate its development pipeline, particularly with respect to small parcels of land constrained by urban planning or environmental considerations, allowing for reduced density on a particular site.
  1. INTRODUCTION
    Balwin Properties currently owns 25% (twenty-five per cent) of the issued shares of Balwin Rentals Proprietary Limited (“Balwin Rentals” or “the rental company”). Yieldex Trading 2 Proprietary Limited (“Yield index“) currently owns 75% of the total issued share capital of Balwin Rentals.
    As part of Balwin’s strategic initiative to grow its rental portfolio, Balwin Rentals intends to buy back 75% of the issued shares from Yieldex at a purchase price of R18,000,000.00 (eighteen million rand) (“Transaction“).
  2. STRATEGIC OBJECTIVE AND RATIONALE
    Balwin Rentals’ current portfolio comprises 215 rental apartments located within Balwin’s Greenpark development.
    The portfolio is currently generating an average annual operating return of 9.77% with potential gross rental income of approximately R15,800,000 for the financial year 2022/2023, based on a historical average occupancy rate of 94% .
    Balwin Properties is currently responsible for the placement, management and rental collections of the Balwin Rentals portfolio and has optimized its management and collection processes since inception.

With Balwin Rentals having achieved economies of scale, Balwin Properties has identified a unique opportunity to capitalize on its efficient processes by expanding its rental portfolio and taking full advantage of the capital appreciation and rental income generated by Balwin Rentals. The 215 apartments were originally acquired by Balwin Rentals at a reduced price of R128,000,000 and have appreciated over the last 3 years to a value of R170,682,739 based on current sales prices realized in the development Greenpark by Balwin Properties.

Balwin Properties’ vision is to expand this rental portfolio by developing small-scale rental developments of 200 to 500 apartments and through cost engineering, increasing its net rental yield.

The transaction further allows Balwin Properties to accelerate its development pipeline, particularly on smaller parcels of land constrained by urban planning or environmental considerations, allowing for reduced density on a particular site.

Demand for Balwin’s “green brand” remains high, particularly in the current macro-economic climate and rising interest rate cycle, making property rental a more attractive proposition for some potential buyers. During a declining interest rate cycle, Balwin Properties could benefit from the supply of apartments to rent and apartments to buy. Through the transaction, all long-term capital growth, net asset value growth and, ultimately, regular dividend income will accrue to Balwin Properties.

Balwin Rentals is currently adjusted at around 73%, measured at book value. Following the transaction, Balwin Rentals intends to amortize the company’s debt through rental income to lend at value levels of approximately 50% over the next 5 years.

  1. COMPANY DETAILS
    Balwin Rentals currently manages and operates 215 apartments at an average 94% occupancy rate in Balwin Properties’ Greenpark development, located on Gauteng’s East Rand. Monthly rents range from R5,500 to R10,900 per apartment.
    Balwin Rentals’ asset base is R143,679,853 according to the latest set of audited financial statements, with current funding facilities held through Nedbank to a total value of R100,783,000.
  2. TRANSACTION DETAILS
    Balwin Rentals will acquire 75% of the issued share capital from Yieldex for a purchase price of R18,000,000.00 under a share buy-back agreement (“Deal“) entered into between the parties. The Transaction will result in a reduction in the number of ordinary shares issued from 100 to 25. As a result, Balwin will be the 100% (one hundred percent) shareholder of Balwin Rentals.
    The Transaction will be financed by a loan from Balwin Properties to Balwin Rentals in the amount of R18,000,000. This loan will only be used for the Transaction. The remaining 25 issued ordinary shares will be transferred from Balwin Rentals to Balwin Annuity (Proprietary) Limited (“Balwin Annuity”), a new wholly-owned subsidiary of Balwin Properties.
  3. SMALL RELATED PARTY TRANSACTION

As Stephen Volker Brookes, Ronen Zekry and Arnold Shapiro are directors of Balwin and Balwin Rentals, these directors are deemed to be partners of the rental company and the transaction is deemed to be a “small related party transaction” within the meaning of the 10 of the JSE Limited Listing Requirements (“JSE“).

Accordingly, written confirmation is required from an independent expert confirming the fairness of the terms of the Transaction to Balwin shareholders.

  1. EQUITY NOTICE
    Balwin has appointed BDO Corporate Finance Proprietary Limited (“BDO“) as an independent expert. BDO, having evaluated the Transaction, has concluded that it is fair and that the Transaction is within its valuation range and equal to its base valuation (the “Fairness Notice“). The Fairness Opinion has been approved by the JSE and is available for inspection at Balwin’s registered office for 28 days from the date of this announcement.
    Shareholders are advised that this announcement is made for informational purposes only and that no action is required by Balwin shareholders with respect to the Transaction.
  2. EFFECTIVE DATE OF THE TRANSACTION
    Under the terms of the Agreement, the effective date of the Transaction will be May 24, 2022.
    Johannesburg May 24, 2022
    Sponsor:
    Investec Bank Limited
    Independent expert:
    BDO Corporate Finance Proprietary Limited

Warning

Balwin Properties Ltd. published this content on May 24, 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unmodified, on May 24, 2022 1:08:08 PM UTC.

Public now 2022

All BALWIN PROPERTIES LIMITED news

Sales

Net revenue

Net debt

P/E ratio
Yield
Capitalization 1,353 million
86.3M
86.3 million
EV / Sales -1
EV / Sales 0
# of employees
Floating 48.3%

Chart BALWIN PROPERTIES LIMITED


Duration :

Period :




Balwin Properties Limited Technical Analysis Chart |  MarketScreener



Evolution of the income statement


Share.

About Author

Comments are closed.