Balwin Properties Limited (BWN) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, to a prerecorded presentation of our results for the 6 months ending the 31st of August 2023. Please remember to send through your questions as we progress with the discussion as there will be a live question-and-answer session on conclusion of the presentation. We present our results today against a backdrop of significant headwinds for home buyers and the sector, predominantly driven by the high interest rate cycles, the highest in the last 14 years. In addition, global macroeconomic volatility, the further depreciation of the rand and constrained GDP growth due to ongoing load shedding are driving uncertainty around further rate increases or a higher-for-longer interest rate environment. Although banks continue to lend competitively, some bond originators report a slowdown of up to 25% in home loan applications on a year-on-year basis. However, despite starting on a very negative basis, Balwin is still an incredible brand. I'm very proud of the brand. I've been known to be a good jockey in hard times. A lot of my mentors have said, I can ride the wild horse. I'm here. I'm steadfast. I'm working hard. I'm making sure that this company will get through these tough times. We'll discuss the impact of these external realities on our results, which have been one of the toughest periods in our 27 years as well as the prospects going forward. With me is Jonathan Bigham, our CFO, who will run us through the numbers; and Raaziq Ismail, Head of Legal and Annuity, who will take us through the performance of the annuity businesses. The period under review showed some interesting shifts in apartment mix and the impact of semigration, which I'll unpack in the next slide. Our development pipeline remains significant at 40,125 apartments. And I'm excited to share that we've inaugurated our 10th 6-star graded lifestyle center with net zero carbon emission during the review period. This is an incredible achievement. I had this vision for Balwin many years ago and thanks to the phenomenal team that managed to achieve this. To achieve 10 6-star graded buildings is an absolutely fantastic achievement, and thank you to everybody. Energy efficiency and sustainability are increasingly differentiating factors for prospective homebuyers, driven by ongoing above-inflation utility cost increases. We are also increasingly noticing debt providers attracting an ESG hurdle to their funding. Our green initiatives are therefore not only the right thing to do, but have a business implication impact as well. Notwithstanding the challenges facing the sector, we continue to achieve recognition for quality and innovation on the world stage. I'm very proud to share that last week, we were awarded an unbelievable 6 regional and 6 international awards at the Africa and Arabia International Property Awards. All 6 international awards earned 5-star ratings, the highest category, for our Green-kloof, Thaba Eco Village, Munyaka, De Kuile and De-Aan-Zicht developments. From an operational perspective, as a result of the macro conditions described earlier, 834 apartments were handed over during the period, which is 526 less than the previous comparative period. The resulting revenue contracted by 25% to ZAR 1.2 billion. Notwithstanding the lower revenue rate, our ongoing efforts in cost reduction and the increased contribution from the annuity businesses supported positive trends in profit and gross margin, which Jonathan Bigham will unpack in more detail. The impact of semigration is evident in the revenue contributions from the Western Cape, where we continue to experience strong sales. For the first time in Balwin's 27-year history, the Western Cape is the highest performing region. A further interesting shift in the apartment mix were the higher demand for our larger 3-bedroom ground floor apartments, which contributed 40% of revenue compared to 28% in the first 6 months. This is predominantly as a result of families downscaling to smaller homes in a secure lifestyle estate with the added benefit of all the features at no cost. I'm also very pleased with our annuity business that posted a 42% increase in revenue of ZAR 56 million, contributing almost 5% to the group's total revenue. Raaziq will delve into these details a little bit later. I am very, very pleased with annuity as it was a vision of mine, and I believe in years to come, these percentages will definitely show a huge part in our bottom line. During the period, we have stuck to our core focus of executing our existing pipeline of developments. As mentioned earlier, it's been an exceptionally tough time for the sector. The reduction of developers within our sector is a concern. Now competition is good and healthy for the environment. As we move towards low interest rate cycle with an increase in demand for construction, we hope to see more competitive environment. Our risk approach has always been to carefully balance our rate of construction against our rate of sale. Although our construction rate has significantly slowed down, we still retain most of the necessary skills and experience required to take advantage in the, hopefully, uptick in sales and markets in the future. Our number of presold apartments will only be recognized in revenue in the next reporting period came to 688. Although down 182 apartments on a comparative period, it represents a healthy buffer, especially once interest rates stabilize. The table on Slide 6 provides a breakdown of sales per region and by the collection. In the Western Cape, demand for our Classic Collection apartments at De-Aan-Zicht, Fynbos, The Huntsman remain extremely strong. This performance was well supported by ongoing sales at Greenbay in Gordon's Bay, our only Green Collection in the Western Cape. In KwaZulu-Natal, Izinga Eco Estate and Ballito Hills contributed a combined 153 apartments to sales, up from the previous year, representing 18% of the total number of apartments handed over in the period. The balance of 279 apartments were within the Gauteng node with Munyaka in Waterfall, Gauteng. Continuing its strong sales performance and maintaining its position as the main contributor in the region. Sales of The Blyde are down from prior reporting periods with 21 apartments handed over in the 6 months under review. During the review period, we successfully completed the Mint Resort at The Blyde, a 64-room hotel constructed above the Lifestyle Center with sweeping views of the lagoon. Short-stay visitors have access to the Lifestyle Center and the lagoon amenities in a manageable environment. The hotel is managed on behalf of Balwin Annuity by the Mint Hotels under a management agreement for a revenue-linked fee. A projected rate of return on the ZAR 60 million investment is approximately 19% based on a 75% occupancy rate. I am happy to share that the hotel is currently fully booked. We are currently piloting a similar approach in monetizing our significant investments in the lifestyle facilities of our developments. At Thaba Eco Estate, the Lifestyle Center has been developed to allow nonresidents access as part of a membership package with interest and sales tracking ahead of our expectations. If these pilot projects prove successful, future estates will be developed in a similar fashion, further supporting annuity revenue generation. Gauteng's contribution to apartments recognizing revenue, traditionally, the group's mainstay in number of apartments and revenue, contracted to 33% as a result of lower demand. Although semigration is real, we remain positive on the long-term sustainable demand within Gauteng, which is expected to gradually improve as the market recovers. This then brings us to our development pipeline. Currently, we have high concentration in the East of Pretoria with opportunities represented by Mooikloof Smart City that will be developed in phases. We are handing over the first of 3 phases of 120 apartments in Mooikloof Smart City in November this year. To date, we have invested ZAR 300 million in bulk water, road and in electricity infrastructure upgrades in this node. These upgrades form part of government's infrastructure commitment for the area as contained in the strategic integrated project gazetted from 2018. In terms of the SIP, government will provide the funding for the infrastructure to the value of ZAR 1.4 billion through certain mechanisms. We continue to engage with the government on this matter. Our infrastructure investments reflect in the developments under construction line in the statement of financial position. Jonathan will give more color on this. However, infrastructure investments was a major contributor to this line item increasing by ZAR 540 million during the review period. The unlocking of most of Pretoria East is highly dependent on the appropriate bulk infrastructure upgrades, resulting in a very much a chicken and egg situation. The demand for our Green Collection is significant in the node as evident through the first 3 phases that we handed over in the current 6-month reporting period. Although several feasibility models based on various scenarios are being considered, the reality is that the funding of bulk infrastructure from our own balance sheet is significantly slowing down the provision of quality housing and infrastructure as envisaged by the SIP. We remain confident that government will eventually disperse to allocate the ZAR 1.4 billion that will unlock significant growth opportunities in the node. In contrast, the Western Cape currently represents a larger sales opportunity, but with the shortest development horizon at 4 years. It always amazes me with the Western Cape when I started that with [indiscernible] many, many years ago. It was only myself and Rodney Gray, our Managing Director, that believed in the Western Cape. So maybe when we have future ventures, people will believe in us. Considering they can take up to 7 years to rezone land from agricultural to residential in the Western Cape, we will strategically expand our land bank in this province. In KwaZulu-Natal, we recently announced the expansion of our footprint. Shongweni Park will comprise 1,260 apartments in 20 phases over the next 4 years in Westown, near Hillcrest in the outer west of Durban. This development will form part of our Classic Collection and is complementary to the 2 coastal estates in Umhlanga and Ballito. And in Gauteng, our focus will predominantly be on building out our current pipeline in Pretoria East. Smaller land opportunities with service and zoned land in high growth nodes will be considered on a case-by-case-by basis. I now hand over to Jonathan Bigham to run us through the financial overview.

Thank you, Steve, and good morning, everyone. In introduction, the opening slide details an overview of the financial position and performance of Balwin Properties for the 6-month period ended 31 August, 2023. Revenue decreased by 25% to ZAR 1.2 billion on the back of 834 apartments being handed over. The gross profit margin of the group pleasingly grew to 33%, up from 26% in the prior period. I will unpack this improvement in some detail later in the presentation. Operating costs of the group reduced by 4% from the prior period, while the operating cost of the company reduced by 21%. On the back of this, profit for the period increased by 3% to ZAR 177 million, which culminated in the 3% growth in earnings per share and 4% increase in the headline earnings per share, respectively. Debt levels and bank covenants at period end were within the required thresholds as set by the lenders and the Board with cash on hand of ZAR 443 million, a 42% LTV ratio and 3.3x interest cover ratio. Net asset value per share increased 10% from the prior period with a current net asset value per share at ZAR 7.62. Focusing on the income statement of the group. Balwin recorded revenue of ZAR 1.2 billion, down from the ZAR 1.6 billion reported in the prior period. The gross profit margin showed pleasing growth to 33%, continuing the recent margin growth trend with the group reporting gross profit of ZAR 396 million. As noted earlier, operating costs decreased 4% to ZAR 167 million for the group. This resulted in a 20% operating profit margin being recorded, an increase from 15% in the prior period. Net investment income reduced by ZAR 4.5 million to ZAR 3.5 million, owing mainly to the increased debt in the early stages of certain annuity businesses. The group's effective tax rate of 27.1% is materially in line with the corporate tax rate. This resulted in profit after tax of ZAR 177 million, a 3% increase from the prior period. The increase in profits flow through to earnings per share and headline earnings per share materially with growth of 3% and 4%, respectively. In the following slides, I'll unpack some of the more material line items within the income statement. Starting with the revenue. Revenue was earned from the following sources, namely: revenue from the sale of apartments, the major contributor of the group at ZAR 1.1 billion; revenue from the sale of development rights of ZAR 70 million; and revenue from the annuity business of ZAR 56 million, a pleasing increase from the prior period. In total, the group recorded revenue of ZAR 1.2 billion, a 25% reduction from the ZAR 1.6 billion recorded in the previous interim period. Balwin handed over 834 apartments in the period, a 39% reduction from the 1,360 apartments handed over this time last year, reflecting the challenging conditions in the residential housing market, as noted by Steve. The group experienced strong demand for its 1- and 2-bedroom apartments but did see an increase in sales for 3-bedroom apartments, which grew to 27% of all apartments handed over. Over the page, we provide the detail of the 834 apartments recognized in revenue, period developments and summarizing the trends on a regional and collection basis. On a regional basis, we noted for the first time in the history of the group that the Western Cape is the biggest contributor to revenue recorded with 42% of all revenue being derived from this region. This was followed by 32% of revenue from Gauteng with the balance of 26% coming from KwaZulu-Natal. With respect to the analysis by collection, the Classic Collection increased its contribution to revenue to 71%, and it remains comfortably the biggest contributor to revenue. Somewhat disappointingly, we saw the Green Collection almost halve its contribution to 10% of total revenue in the period, owing to the geographic concentration of the Green Collection in Gauteng, where demand lagged the rest of the country. Additionally, the target market within the Green Collection brand have been the most severely affected by the ongoing economic pressures impacting on loan affordability. The balance of 19% of revenue was derived from the Signature Collection, materially in line with the last year with Izinga Eco Estate in KwaZulu-Natal being the strongest performing Signature Collection development. The analysis of the average selling price of apartments is only really considered meaningful if performed by comparing each apartment type within the relevant collection. This is because average selling prices are significantly influenced by the sales mix of apartments included in revenue, being the apartment type between 1- to 3-bedroom apartments or the collection between the Green, Classic and Signature Collection brands. Selling prices in the Classic Collection were generally stable compared to the prior comparative period. A modest price increase was achieved in this collection when measured on a per square meter basis. However, we noted a trend of clients opting for slightly smaller-sized apartments in the period, which reduced the all-in selling price per apartment type. The Green Collection recorded strong selling price growth across all apartment types with a major drive coming from Greenbay situated in Gordon's Bay owing to the continued strong demand of that development. Owing to the differing nature of the respective developments within the Signature Collection, selling prices for this brand are reviewed at a development level. The annuity businesses contributed revenue of ZAR 56.3 million, representing a 42% growth from the prior period and comprising nearly 5% of the group revenue. Below, we illustrate the annuity revenue contributions, with fiber and infrastructure revenue, rental revenue and revenue from mortgage origination continuing to be the major contributors to the annuity revenue streams. Revenue from the monetization of lifestyle assets within the group emerged as a new contributor in the period, which Raaziq will provide an understanding of, a bit later. As discussed earlier, the group's gross profit margin showed further improvements in the current period, increasing to 33%. The previous 2 reporting periods recorded a 29% and 26% gross profit margin, respectively, illustrating the continued margin improvements over the past few years. Gross profit from the sale of apartments is the biggest margin contributor at ZAR 295 million, with a GP margin of 28% recorded, a 4% increase from the prior period. This is owing to the focused cost containment measures, design efficiencies as well as careful price adjustments to cover increased costs where possible. The margin recorded from the sale of apartments was somewhat protected by the apartments that were presold and owing to the prevailing macroeconomic conditions, the continued upward trend in gross profit margins is going to be a real challenge for the upcoming financial year. Short-term focus will be to try to best protect the existing margin levels, although we do anticipate margin contraction for the second half of the year. The target gross margin of the group remains in the low-to-mid-30%. Further contributing to the growth in the gross profit margin in the period was the increase in profitability from the annuity businesses for which no cost of sale is recorded as well as the once-off gross profit derived from the sale of the development rights, which accounted for an approximate 2% uplift in the group margin reported. Consolidated operating expenses amounted to ZAR 167 million, a 4% reduction from the prior period. As traditionally done, the analysis of the operating cost is best done when split between the company and annuity businesses, with the breakdown of the cost being disclosed on the following slide between fixed, performance-linked and variable costs as well as depreciation and amortization. Balwin Properties, being the company, decreased operating expenses by 21% in response to the reduction in sales activity noted. Excluding noncash items, the company reduced its operating costs by 27% to ZAR 111 million for the 6-month period. Fixed expenditure reduced by 9% with inflationary increases offset by focused cost cutting where appropriate. Variable costs, includes sales-related costs such as sales commissions and marketing, decreased by 33%, slightly exceeding the reduction in revenue. No allowance has been made for performance-linked expenditure as it is not expected that the minimum measures as set out in the company's preapproved scorecard will be achieved. The annuity businesses' operating expenses increased by ZAR 265 million over the prior period due to the ongoing operational activity in the subsidiaries. The annuity businesses returned an operating profit margin of 25% for the period. Raaziq will provide more color on the makeup and performance of the annuity group for the year. Group profit increased by 3% to ZAR 177 million. Earnings per share and headline earnings per share increased by 3% and 4%, respectively, to [ ZAR 0.3793 ] per share. With respect to dividends, owing to the current market conditions and the continued uncertainty in this regard, the Board has concluded to not declare a dividend for the period. This position will be reconsidered at the end of the financial year. On to the balance sheet and from an overview perspective. Noncurrent assets increased by ZAR 130 million to ZAR 650 million, owing to transactions mostly within the annuity businesses. Current assets of ZAR 7 billion comprise mostly of developments under construction of ZAR 6.3 billion, cash and cash equivalents of ZAR 443 million and trade receivables of ZAR 231 million. Equity reflected ZAR 4 billion, working out to an accounting net asset value per share of ZAR 8.49, which is measured at cost. It must be noted that the accounting shares and issue differs from the total shares on issue for the JSE, mostly due to the technical accounting of the BEE transaction. When calculated based on the total shares and issue for the JSE, the net asset value per share is calculated at ZAR 7.62. Total liabilities amount to ZAR 3.7 billion, with the major contributor being the development loans and facilities, which aggregate ZAR 3.2 billion in total when combining both the current and noncurrent portions. The main drivers of costs incurred in noncurrent assets pertain to the ongoing investment in solar assets, the continued rollout of fiber infrastructure and the final fit-outs of the Gauteng head office following the building being 100% tenanted. During the period, the group also constructed a 64-key hotel, as noted by Steve earlier in the presentation, has a cost of ZAR 60 million at The Blyde in Tshwane East, overlooking the Crystal Lagoon. Developments under construction include the cost of land, infrastructure costs, development rights as well as construction costs and increased by ZAR 540 million to ZAR 6.3 billion at period end. On a regional and brand overview, we note that the majority of the balance is located in the Gauteng node at 75% and within the Classic Collection at 74%, with no material variance from the makeup of the balances from the previous period end. The breakdown of developments under construction was as follows: 38% of the balance comprised land and land contribution costs, down from 41% from February 2023; 8% reflects the development rights, a marginal reduction from February's balance of 9%; with the remaining 54% representing construction costs, an increase from the prior year's 51% contribution. As noted through this statistic, the increase in developments under construction in the year was driven predominantly through construction costs as opposed to additional investment in land, reflecting Balwin's focus on developing its existing pipeline. The major construction costs were incurred to complete the construction of: the Lifestyle Center apartments at Munyaka, Balwin's flagship developments in Waterfall; the continued development of Thaba Eco Village in the south of Johannesburg; the commencement of development of De Kuile, our new project in [ Kuils River ] in Western Cape, we will be handing over the first phase in a few days' time; as well as a ramp-up in the development activity in Green-kloof, the first development within the Mooikloof Smart City node where the first 4 phases of 160 apartments are scheduled for handover in the second half of the financial year. Another major driver of cost incurred, as elaborated by Steve earlier, was the infrastructure cost to install the services at Green-kloof required to obtain the necessary council approval for this development. Trade receivables mostly consists of apartments handed over at year-end, but not yet registered and is materially in line with the prior period. As communicated earlier, cash on hand at period end closed at ZAR 444 million, including ZAR 1 million of restricted cash in the form of guarantees, exceeding the funding covenants and minimum cash thresholds as set by the Board. Cash management continues to receive priority focus by the Board and the cash position recorded is a healthy one. The Treasury Committee has continued its active oversight of matters, including cash management, debt overview, forecasting and covenant compliance. Looking forward, we'll continue to closely and carefully manage the relationship between the rate of construction and the rate of sales, a dynamic fundamental to the appropriate cash management of the group. Development loans and facilities increased to ZAR 3.2 billion at an LTV of 42%, an increase from the 40.7% recorded at the prior year-end. Additionally, the group reported an interest cover ratio of 3.3x, with both measures being well above the requirements of the lenders. The Board actively manages the debt exposure of the group against the debt covenants and the treasury policy. With respect to the LTV measure, it must be noted that the only asset that is fair valued pertains to the residential property portfolio held as investment property by the subsidiary Balwin Rentals Proprietary Limited. This asset constitutes 2% of the total asset base of the group. Accordingly, 98% of the group assets, including the material developments under construction, are measured at cost with no fair value adjustments. The breakdown of development loans and facilities is shown on the following slide and split between the nature of the funding. We've continued our positive and transparent engagement with financial partners in the period to ensure that appropriate facilities and financial support remains in place for the group. The group reported a temporary reversion in the recent trend of positive cash generation, owing mostly to the extensive investment of approximately ZAR 600 million in working capital in the period, mostly in the form of the developments under construction, as discussed earlier. This led to the outflow of cash from operating activities of ZAR 428 million. In closing, I'd like to express a huge token of appreciation to the Board and the Balwin executive team as well as to the finance department for their commitment to accurate and quality reporting. I'd like now to hand over to Raaziq, who will take you through the annuity businesses. Thank you.

Thank you, Jonathan. I will be providing an overview of our annuity business performance over the past 6 months and will highlight the key accomplishments, challenges and future prospects. As Steve has alluded to earlier on, the global and domestic economies are currently experiencing very challenging conditions, which have reduced consumer spending, investment into property and the like. As a business division, we have done our best to remain resilient and adaptable to the market and consumers' needs. Despite tough trading conditions, the Balwin Annuity Group performed relatively well in the first 6 months of the year, achieving an operating profit of ZAR 24.3 million and a net profit after tax of ZAR 2.7 million. Our return on capital employed in Balwin Annuity is 17.4%, which indicates a strong reason to continue investment into annuity businesses. The overall EBITDA margin for the interim period is a healthy 36.2% while the NPAT margin is 4%, which positively impacts the overall margin of the Balwin Group. Balwin Fiber, Balwin Mortgages, Balwin Rentals and Balwin Green Living were the largest contributors to the ZAR 24.3 million operating profit, while Balwin Lifestyle, Balwin Education, Balwin Insurance, Balwin Head Office and Balwin Technik were responsible for the residual of the income statement. The operating profit of ZAR 24.3 million is up by 45% when compared to the prior interim period. Balwin Fiber has increased its connected homes from 11,671 to12,121 with active clients increasing from 8,230 to 8,614. The average rate per unit or line rental collected from Internet service providers increased by 4.3% to ZAR 511 per apartment per month since Feb 2023. The fiber business achieved an operating profit of ZAR 9.3 million, up by 17.8% when compared with the prior reporting period and a net profit of ZAR 4.2 million, up by 2.8% year-on-year, which indicates the strong growth potential of this business. We successfully reduced backhaul and operational costs by 8.3% and are focusing on the use of technology to reduce the resources required to operate efficiently. We have finalized the installation of redundant fiber infrastructure cables in 16 estates, which means that our clients have no downtime when there are unforeseen outages to Internet services. Our 3-month free fiber campaign continues to assist in increasing the value proposition to our clients, and we are also investigating alternative marketing strategies to further enhance the value of our offering to help increase the uptake of Balwin Fiber. We have launched Balwin Connect, which is our own Internet service provider that will operate on a closed access network basis in our new developments with the first development being De Kuile in Western Cape. All of our new apartments will now come with a built-in router, allowing our clients to immediately gain access to fiber services at the click of a button. We believe that this should have a positive impact on uptake across our client base. Linked to this, we will now also offer prepaid fiber in our lifestyle centers and apartments to clients through [indiscernible]. Balwin Mortgages has performed well with 752 mortgages secured between March 2023 and August 2023 at an aggregate value of ZAR 893 million. A further 25 external mortgages not related to Balwin sales was secured at the value of ZAR 30 million. Our external mortgages website went live in June 2023, and we believe we have a competitive advantage because of our strong relationships with the banks and our conveyances offering our clients 50% discount in transfer and bond costs. On a positive note, we have managed to sign exclusivity agreements with a few managing agents and the external mortgage business should see growth in the near future. Our strategic focus is to educate the market on our offering and to use Balwin Mortgages as their origination expert. To achieve this, we will be employing various marketing strategies. The business achieved an operating profit of ZAR 2.6 million and a net profit after tax of ZAR 1.9 million for the 6-month period. The EBITDA margin for the 6 months ended is 40.7%, while the NPAT margin is 29.7%, indicating the strong profitability of this business. As a result of our green initiatives within the Balwin Group and our EDGE-certified apartments, the mortgage team has managed to secure our clients' discounts on the individual interest rates ranging between 0.25% to 0.75%. In assets, this equates to a saving for our clients of approximately ZAR 33 million over a 20-year mortgage period based on the mortgages approved for the 6-month period. Our energy business continues to leverage off existing solar assets, which Balwin installed to meet SANS requirements and is generating 4.1 megawatt of clean, sustainable and cheaper electricity for our clients. We are able to provide our clients with a 10% discount on the electricity bill. Given the current world energy crisis, solar installations are becoming increasingly popular, and Balwin has been at the forefront of ensuring green development. We are constantly looking for ways to enhance the business through partnerships such as Discovery Green. This business achieved an operating profit of ZAR 1.4 million with an EBITDA margin of 59.4%. The rise in interest rates have been challenging as the business is heavily geared. However, this business will gain great traction in 3 to 5 years' time with a substantial upswing from year 10. Balwin Energy is currently operating on 10 development sites and has reduced emissions in the Balwin Group by 985 tonnes of carbon dioxide equivalent within the first 6 months of the financial year. We are very optimistic about the prospects of the energy business and firmly believe that it has the potential to yield excellent results in the long term. The existing Balwin Rentals portfolio consists of 215 apartments and achieved an operating profit of ZAR 5.7 million and a net profit after tax of ZAR 82,000 for the 6-month period. The EBITDA margin for the period end is 68.1%, while the NPAT margin may seem negligible, this business was heavily impacted by rising interest rates. Despite these hikes, we have managed to meet our financial obligations and are actively engaging to negotiate lower interest rates on the funding. The rental portfolio achieved an operational yield on cost of 9.1% and an average occupancy rate of 94% throughout the period with a period low of 91% and a high of 98%, which is a significant achievement in the current economic climate. The early-stage other businesses reported an aggregate loss of ZAR 3.46 million, mainly due to the infancy and rising interest rates. Balwin Lifestyle manages the Blyde Lifestyle Center and Lagoon, Munyaka Lagoon and Thaba Lifestyle Center in Sports Center. While Balwin Lifestyle may be loss-making for now, in time to come, we expect a great return on capital invested as the memberships grow. We are happy to report that as of 1 October, 2023, the Balwin Head Office was fully tenanted and occupied, and we continue to closely manage the cost of funding in all associated operational costs. We have partnered with Epic Outdoor on our new digital screen as we accelerate efforts to increase our advertising revenue. Although we are in a tough economic environment, we remain positive and committed to the growth of annuity businesses. I now hand you back to Steve who will discuss Balwin sustainability initiatives and open the floor for questions. Thank you.

Thank you, Raaziq. It's great to see the youngsters coming through in our business and the talent that we've got in our business and the depth of our management. Thank you very much, Raaziq. As I mentioned earlier, our continued commitment to reducing our environmental impact is not only the responsible thing to do, but it has financial imperative. These initiatives, alongside our consistent quality and innovation, will continue to differentiate us from the competition in a very, very tough market and should support our negotiations for more favorable funding and continue to build the Balwin brand, which has been going now for 27 years. We were the first in the country to leverage our ability to build more sustainability with our green bond. This qualifies homeowners for an additional reduction over and above the best bond rate they can get because of our sustainability of our developments. To date, we are exceptionally proud of 752 Balwin green bonds. This was an initiative that I started, which in the beginning, there was a lot of people that said this is not really going to work, and I'm glad that I continued with it, and we're extremely proud of it, and we've given our clients a saving of approximately ZAR 33 million over a 20-year period. During the year-end review, we launched our 10th 6-star green-rated Lifestyle Center. This is a tremendous achievement. It is extremely tough for my management to get to 6-star green rating and we always strive for the maximum innovation points, which really make it a lot of fun getting it right. The net zero carbon footprint of these centers as well as the corporate head office not only significantly saves on utility costs, but serves as an important educational tool for homeowners, staff and tenants and the youth of South Africa on the transition to a greener future. I am proud to share that Balwin is the first South African company to have both a science-based target and a net zero commitment approved by the international Science Based Target initiative that provides us with a pathway to reducing our contribution to global warming. It is further worth noting that to date, we have certified just over 23,000 apartments as EDGE-compliant. The excellence in design for greater efficiency initiative by the International Finance Corporation requires a 20% saving in water and embodied energy during the construction phase compared to conventional building methods. So far, we are very proud of this. We have certified just over 15,000 apartments as EDGE Advanced with a 40% saving in embodied energy and 20% in water usage. All apartments currently under construction are built according to EDGE Advanced standards. Looking forward, I want to touch on the fact that no interim dividend has been declared. As the founder and major shareholder of this group, I can assure you that this was not an easy decision. As a Board, we considered several factors that could potentially impact our operating environment. The most significant of these is having to potentially deal with a protracted period of prevailing high interest rates, especially if conflict in the Middle East and the war in Ukraine should escalate. Due to these factors and other considerations, free cash flow will predominantly be allocated towards reducing debt as much as possible. Dividend payments will again be reconsidered at the end of the current financial year in February 2024 based on prevailing economic conditions and the group's overall requirements at the time. Although we expect apartment sales to return to normalized levels over the medium term, the rate at which this will occur is predominantly dependent on factors beyond our control, including stable or low interest rates and a good, robust growing economy. Our focus, therefore, remains on these factors that we can manage such as innovative incentive packages to drive sales, cost containment, building out our current development pipeline in line with sales and continuing to scale our annuity businesses. Although margin pressure is expected to continue for the rest of the financial year, I remain cautiously optimistic that barring any further global or domestic turmoil, we are nearing the bottom of the current cycle, which is arguably the toughest in our 27-year history. The ongoing decrease in balance sheet debt, our focus on sales and our emphasis on cost reduction will stand us in good stead to take advantage of any positive uptick in market conditions. This brings our presentation to a conclusion. Thank you very much for dialing in. I'll now open the floor for questions. Thank you.

Thank you very much for dialing in to the Balwin interim results presentation. Thank you also for sending through your questions beforehand. We've got quite a lot to get through. The first question is from [ Rudi Niekerk ]. He's asking, In the results commentary, you mentioned that the major contributor to investment property pertains to the investment in the rental portfolio owned by Balwin Rentals with 215 apartments. How many of the 834 apartments sold during the period were sold to Balwin Rentals?

[ Rudi ], I think on the balance sheet side of things, the investment in the noncurrent assets wasn't to do with the Balwin Rentals side, I think that's been an established business for quite some time. You might recall in about this time last year, we took over 100% of the ownership of that to convert it from an associate to a subsidiary, but there hasn't been an investment from a capital side of things in the last 12 months materially in the investment property portfolio, specific to the Greenpark apartments. Just to confirm, there were no apartments sold in the current year to the Balwin Rentals. So those 834 apartment sales were all open market sales to the public.

And a question from [ Peter Nord ] from [ Nordtrust ]. He's saying, in 2015, on listing, the share price was close to ZAR 10. Today, it is 1/4 of that. The directors costs in 2015 were ZAR 14 million. In 2023, they were ZAR 55 million. With the dividend being paused, don't you think that it's about time that the directors' salaries are slashed too?

Peter, thank you for the question. I'll take that as well. I think with respect to directors' remuneration, just a note, the directors' remuneration is governed by the Remuneration Committee. We do have an experienced remuneration committee that is chaired by the Chairman of the Board that ensures that the remuneration director is market-related. As part of that process, they do undertake an annual benchmarking where we use the PwC annual directors' remuneration guideline from a benchmarking perspective. That was done again this year. Additionally to that, the remuneration policy as well as the remuneration implementation report is tabled to the shareholders for voting purposes. If I recall, this year, we received 80% and 85% approval from the shareholder base from a remuneration vote perspective.

And then a question from Keith McLachlan from Integral Asset Management. It's a 2-part question. The first one is, with regards to the group, not the project overheads, what is your base fixed cost per annum? And the second question is a sales mix shift towards the larger units, in other words, 3-bedroom units. How does this impact your annuity-related sales from these units? Less larger units surely translates to lower volumes at new annuity sales as these tend to linked units and not square meters sold.

I'll take the first part, and I'll hand over to Raaziq on the annuity side of things. The annuity businesses, the vast majority of the costs are fixed costs. So materially, all of the ZAR 42 million is a fixed cost. There's a step structure from a fixed cost perspective. So there's quite a lot of revenue that can still be unlocked without incurring significant amount more of the fixed cost side of things, but it is really a fixed cost business from the annuity side of things, and that follows through in terms of how we do the accounting with no cost of sales in the annuity businesses.

I don't think that the larger 3-beds or building larger units or selling larger units, they have a material impact on annuity-related sales. There are instances such as a bigger unit may require a faster fiber line. So we'll have a faster fiber line to the apartment owner and a 3-bedroom unit may cost more or has a higher purchase price. So there'll be a higher commission made by the mortgage origination business, but I don't think there's a material impact on annuity-related sales.

A couple of questions from Charles Boles from Titanium Capital. The first 2 relates to the sale of development rights. He's asking, what does the ZAR 70 million revenue from sale of development rights comprise? And also the ZAR 70 million development rights, please can you clarify, does the hotel operator pay for cost of construction of the hotel? What revenue does Balwin derive going forward? And is this a percentage of revenue? And also, is Balwin essentially just providing land with developed infrastructure?

So thank you very much for that question. It's very simple. We sold the rights. Remember, Waterfall, we have the right to develop from the Waterfall Institute. So therefore, we have sold a part of our right for ZAR 70 million to develop a hotel. We are not involved in the construction of the hotel. The person that bought the -- well, the entity that bought the hotel rights will develop it. We have a step-in right if things goes -- go awry, and we have a step-in on the quality control, which I have assured Waterfall, we will be keeping a careful eye to make sure the quality of the hotel is of the usual Balwin high standard.

And then a follow-up question from Charles is, do you have insight as to how many of the unit sales were sold to owner occupiers versus investors for rental purposes? Has this changed significantly over prior year periods?