Balwin’s share price slides 5% as head office controversy snowballs

BALWIN Properties’s shares sank 5 percent in intra-day trade yesterday as its controversial purchase of a new head office in upmarket Melrose Arch, Johannesburg, took a new twist on social media as Piet Viljoen, a portfolio manager at Counterpoint Asset Management, argued it a bad move.

Balwin’s shares were down 5.33 percent at R3.02 at 2pm, while the FTSE/JSE Real Estate index was up 0.26 percent at 1 050.44 points.

“I would estimate the return on investment for the type of property Balwin management just bought with shareholders' funds will be less than 5 percent annually,” Viljoen said on Twitter.

Viljoen’s Twitter comment yesterday came after BR attempts to get comment from him on the weekend were unsuccessful.

Balwin last week announced that it was buying Erf 108 Birnam, measuring 2999 square meters in extent for R125 802942 - a purchase market participants on social media see as lavish and flashy.

This despite Balwin motivating the move, saying that, among other benefits, the acquisition would reduce its utility costs, was well logistically positioned, would provide it with a better facility for staff and be good for advertising. Attempts to contact Balwin Property yesterday for comment were unsuccessful by 2.30pm.

Viljoen yesterday on Twitter @pietviljoen laid out his argument.

“Balwin has just bought a head office building for over R100mn, eliciting lots of comments on fintwit. Given that one of the key tasks of any management team is capital allocation, what does this action tell us about Balwin's management?,” he said.

Balwin’s shares trade at less than half of net asset value. By investing at this price, they could earn a satisfactory return of more than 16 percent.

“However, management has chosen not to take this action. In fact, they recently issued new shares at an even lower price, thereby diluting already poor returns on capital even further.  And now, they have bought a new head office,” he said in a lengthy thread on Twitter explaining his reasoning.

Viljoen's ultimate conclusion was to avoid investing in the company.

Viljoen’s view differs from independent analyst Ryk de Kerk, who said on Friday that the move to buy a head office made sense.

De Klerk said in October 2020, the Mooikloof Mega Residential City in Tshwane, Gauteng, was launched. It was a public-private partnership between Balwin Properties, the provincial government, and the City of Tshwane. It was a huge project where residential property developments will eventually amount to some 50 000 sectional title units.

It was, therefore, understandable that Balwin needed additional office space, De Klerk said.