Balwin Properties builds thousands of apartments every year, which makes it one of South Africa's biggest residential developers, with projects across Gauteng, KwaZulu-Natal and the Western Cape. In September, after 11 years on the JSE, it went back into private hands. Roughly half of it now belongs to an unlikely new investor: the Public Investment Corporation, which invests government workers' pensions and had never owned a Balwin share before.
A builder that has started renting
Balwin's model has been to build big apartment developments and sell the units, and it has handed over about 26,000 homes so far. More recently it has started keeping some to rent out. Its first purpose-built rental development, The Eastlake in Linbro Park in Joburg, was 99% let at its February year-end, and it is weighing roughly 7,700 more apartments for rental.
The business was improving, too. In the year to February, revenue rose 21% to R2.7 billion and profit rose 9% to R254 million. As interest rates eased, apartment sales picked up, and Balwin sold more than 1,000 apartments in March and April alone.
Why shareholders took the money
The share price never caught up. Balwin listed at R10.25 in 2015 and was trading at R3.12 by April this year, and shareholders had gone two years without a dividend while the company paid down debt. Balwin itself said the listing had become less compelling, with thin trading, a share stuck below the value of its assets, and the cost of staying listed.
So when a PIC-led consortium offered R4.35 a share in May, it looked like a decent way out. The price was about 41% above Balwin's average over the previous six months, and 98.48% of shareholders voted for it. The PIC put in about R1.12 billion for its stake, alongside founder and chief executive Steve Brookes's Volker Holdings.
The bargain, and the wait
The PIC sees the same price very differently. A valuer it hired puts Balwin's shares at R8.46 each, almost double what it paid, and Balwin's own audited books say R9.77. Much of that value is tied up in R6.9 billion of developments still under construction, which only turns into cash once the homes are built, sold and transferred.
That makes this a long game. In written replies to Parliament last week, Finance Minister Enoch Godongwana said the PIC sees it as a nine- to twelve-year investment, targeting a return of 17.05%, with no right to sell its stake back and no promised exit date. Whether that discount becomes a profit for government pensions depends on Balwin delivering the homes, sales and rental income behind the valuation.
