Why the ‘affordable living’ Wedgewood project in Sandton was canned
Listed property group, Balwin Properties, has provided further clarification around its decision to cancel its R1.6 billion Wedgewood apartment building – which aimed to bring affordable units to Sandton.
The 20-storey development officially launched sales in November 2020, with plans for construction to start on 1 April.
However, on 22 April Balwin confirmed it would not be moving ahead with the project, citing unspecified risks.
In presenting its annual results for the year ended 29 February 2021 on Monday, the group clarified that these risks are tied to low sales conversions and a new construction method it had planned to implement with the Wedgewood and other ‘Lifestyle’ brands.
Balwin said that, while the Wedgewood in particular had been met with an initial influx of demand – netting R1 billion in sales in the first 45 days of launch – this did not carry through to the required levels.
“The (Wedgewood) transaction contained certain conditions precedent, most notably the requirement to meet specific secured pre-sales levels that would mitigate the cash flow risk through the achievement of appropriate funding for the construction of the development,” it said.
“Although the group recorded unprecedented demand, the conversion of the sale offers to secured sales was lower than expected and significantly lower than the conversion rate of the other brands within the group’s portfolio.”
The company added that there were additional risks associated with a new ‘single phase’ construction as opposed to its proven multiple phase construction model.
This resulted in management, and the transaction committee, recommending to the board that the project was not in the best interests of the shareholders or the home-buyers. This recommendation was endorsed by the board.
Balwin said that it will continue to focus on its Classic, Green and Signature Collection brands – being four-storey walk-up apartments, lower-spec blocks, and upmarket units, respectively.
The Wedgewood aimed to introduce the group’s Lifestyle brand, including a number of unique features including a five-a-side football field and outdoor cinema. It aimed to bring more affordable residential options to those looking to live in more upmarket areas, with studio apartments starting at R900,000.
Financial performance
Balwin said its financial year was mired by unprecedented socio-economic and market conditions with unusual working and living environments – all as a result of the Covid-19 pandemic, lockdowns, and the effect they both had on consumers and investors.
“Although the macro-economic conditions and the devastating impact of Covid-19 are reflected in the results of the group for the year ended 28 February 2021, the board is satisfied with the processes implemented to best mitigate the impact of the pandemic on the group’s operational and financial performance,” it said.
Salient features:
- Revenue: decreased 7% to R2.7 billion;
- Profit for the year: decreased 18% to R336.4 million;
- Headline earnings per share: decreased 19% to 71.47 cents per share;
- Net asset value per share: increased 8% to 682.83 cents per share.
The group declared a final gross dividend of 16.20 cents per ordinary share. No dividend was declared in the corresponding period.
Despite a welcome reduction in the prime lending rate of 275-basis points since the commencement of the financial year, market conditions remained challenging for consumers, it said.
In response, Balwin said it continued its marketing campaigns through price incentives and other sales related promotions to continue to drive sales.
“Although margin dilutive, these marketing campaigns have yielded the desired results in promoting sales and ensuring the generation of cash flow to the business,” it said.
This allowed the group to deliver 2,546 apartments to clients which were recognised in revenue for the year under review (2020: 2,715 apartments), despite the protracted construction delay.
Demand for one- and two-bedroom apartments remained strong and comprised approximately 77% (2020: 74%) of the total apartments recognised in revenue.
The average selling price for an apartment of R1,044,103 (2020: R1,047,092) was consistent with the prior year. Marginal increases in selling prices of apartments were offset by the change in the mix of apartments sold, together with a continued increased contribution from the Green Collection apartments, it said.
Looking ahead
The group said that although prevailing market conditions remained challenging, its pipeline investment opportunities allow for the company to grow its footprint and to replace completed projects.
It expanded its secure development pipeline to 62,288 apartments across 28 developments in key target nodes. This represents an approximate 15-year development horizon.
In the latest financial year it successfully launched eight new developments, including a ‘beach in the city’ development, Munyaka, at Waterfall:
- Munyaka – Waterfall
- Thaba Eco Village – Johannesburg South
- Mooikloof Eco Estate – Tshwane East
- De Aan-Zicht – Milnerton, Western Cape
- Greencreek – Tshwane East
- Greenbay – Somerset West, Western Cape
- Greenkloof – Tshwane East
- Izinga Eco Estate – Umhlanga
The group said it continues to monitor the land reform policy and is taking the necessary actions to ensure that its secured pipeline of property developments is not negatively impacted.
“While remaining cautious in the prevailing macro-economic climate, the board is positive on the resilience of the Balwin product as demonstrated by the sustained demand by its customers.
“This is evidenced through continued strong sales, enhanced by the highly successful launch of the online sales platform during the Covid-19 lockdown, as well as the extremely healthy pre-sales recorded for future years,” it said.
Read: Balwin cancels R1.6 billion ‘affordable living’ apartment project in Sandton
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