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

Balwin Properties Limited

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

ISIN: ZAE000209532 ("Balwin")

STRATEGIC RENTAL MODEL - BALWIN RENTALS PROPRIETARY LIMITED SHARE BUYBACK TRANSACTION

SALIENT FEATURES

• Balwin Rentals has entered into a share buy-back agreement to repurchase the 75% issued shares
• The purchase consideration of R18 million will be settled by way of a loan from Balwin Properties to Balwin Rentals
• Following the transaction, Balwin Properties' current 25% shareholding 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 operating yield of 9.77% and 94% occupancy on average
• Balwin Properties is currently managing the portfolio management on behalf of Balwin Rentals and has been solely responsible for ensuring the occupancy of the apartments
• With the rental portfolio having gained economies of scale, Balwin Properties stands to benefit from the capital appreciation and rental income generated by Balwin Rentals
• The acquisition further allows Balwin Properties to expedite on its development pipeline, especially with regard to smaller land parcels constrained by town planning or environmental considerations, allowing for a reduced density on a particular site.

1. INTRODUCTION
   Balwin Properties currently owns 25% (twenty five percent) of the issued shares in Balwin Rentals Proprietary Limited ("Balwin Rentals" or "the Rental Company"). Yieldex Trading 2 Proprietary Limited ("Yieldex") currently owns 75% of the total issued share capital in Balwin Rentals.
   As part of Balwin's strategic initiative to expand on 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 in Balwin's Greenpark development.
   The portfolio is currently generating an average annual operating yield of 9.77% with a potential gross rental income of approximately R15,800,000 for the 2022/2023 financial year, based on historic average occupancy levels of 94%.
   Balwin Properties is currently responsible for the placement, management and rental collections of the Balwin Rentals portfolio and it has optimized its management and collection processes since inception.

With Balwin Rentals having reached economies of scale, Balwin Properties has identified a unique opportunity to capitalize on its effective processes by expanding its rental portfolio and obtaining the full benefit from the capital appreciation and rental income generated by Balwin Rentals. The 215 apartments were initially acquired by Balwin Rentals at a discounted price of R128,000,000 and have appreciated over the past 3 years to a value of R170 682 739 based on current selling prices being achieved in the Greenpark development by Balwin Properties.

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

The Transaction further allows Balwin Properties to expedite on its development pipeline, especially on smaller land parcels constrained by town planning or environmental considerations, allowing for a reduced density on a particular site.

Demand for Balwin's "Green Brand" remains high, especially in the current macro-economic climate and rising interest rate cycle, that makes property rentals a more attractive proposition for some potential buyers. During a downward interest rate cycle, Balwin Properties could benefit from offering both rental apartments and apartments to purchase. Through the Transaction, all long-term capital growth, net asset value growth, and in time, regular dividend income will accrue to Balwin Properties.

Balwin Rentals is currently geared at approximately 73%, measured at book value. Post the Transaction, it is the intention of Balwin Rentals to amortise the debt in the business through rental income to loan to value levels of approximately 50% over the next 5 years.

1. DETAILS OF THE BUSINESS
   Balwin Rentals currently manages and operates 215 apartments at an average occupancy rate of 94% at Balwin Properties' Greenpark development, located on the East Rand of Gauteng. Monthly rentals range from R5 500 to R10 900 per apartment.
   The asset base of Balwin Rentals is R143 679 853 as per the most recently audited set of financial statements, with current financing facilities held through Nedbank to the aggregated value of R100 783 000.
2. DETAILS OF THE TRANSACTION
   Balwin Rentals will acquire 75% of the issued share capital from Yieldex for a purchase price of R18 000 000.00 in terms of a Share Buy-Back Agreement ("Agreement") concluded between the parties. The Transaction will result in the issued ordinary shares decreasing from 100 to 25. This will result in Balwin being the 100% (hundred percentage) shareholder of Balwin Rentals.
   The Transaction will be financed through a loan from Balwin Properties to Balwin Rentals at a value of R18 000 000. This loan will be solely used for the Transaction. The remaining 25 issued ordinary shares will be transferred from Balwin Rentals to Balwin Annuity (Proprietary) Limited ("Balwin Annuity"), a newly formed subsidiary that is 100% (hundred percent) owned by 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 associates of the Rental Company and the Transaction is deemed to be a "small related party transaction" in terms of section 10 of the Listings Requirements of the JSE Limited ("JSE").

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

1. FAIRNESS OPINION
   Balwin appointed BDO Corporate Finance Proprietary Limited ("BDO") as the independent expert. BDO, having evaluated the Transaction, has found that it is fair and that the Transaction is within its valuation range and equal to its core valuation (the "Fairness Opinion"). The Fairness Opinion has been approved by the JSE and is available for inspection at the registered offices of Balwin for 28 days from the date of this announcement.
   Shareholders are advised that this announcement is made for information purposes only and no action is required by Balwin shareholders with regard to the Transaction.
2. EFFECTIVE DATE OF THE TRANSACTION
   In terms of the Agreement, the effective date of the Transaction will be 24 May 2022.
   Johannesburg 24 May 2022
   Sponsor:
   Investec Bank Limited
   Independent expert:
   BDO Corporate Finance Proprietary Limited