AECI: property slump hurts

Johannesburg - A lack of demand owing to the depressed economic climate has resulted in JSE-listed African Explosives and Chemical Services (AECI) stalling the sale of 2 000 hectares of land it owns in Johannesburg and the Western Cape.

Through its Heartland Properties subsidiary, AECI owns 2 200 hectares of land in Modderfontein to the east of Johannesburg and in Somerset West, outside Cape Town.

AECI embarked on the process of selling off some of the land it deemed surplus to its operational requirements a decade ago. It has reduced its land holdings by a third of the initial total of 3 300 hectares.

Heartland also leases property in the Modderfontein (Greenstone Hill) and Somerset West areas, and has a gross lettable area of 275 000 m² under management.

For the year to end-December 2008, AECI's property division reported a 4% fall in revenue to R432m and a 40% contraction in profit to R45m. However, property accounts for only 3% of the company's revenue.

AECI has obtained all the necessary zoning rights and carried out environmental impact assessment procedures. It has also completed bulk infrastructure build on its land, providing for electrical and water facilities.

During the year the company disposed of 35 hectares of land; Heartland intends investing about R900m over the next five years to release about 1 000 hectares of land for sale.

There has been very little interest from buyers and developers in AECI's land in the subdued economic climate, says Edwards.

"In particular nobody wants to invest in building and developing residential areas, but there has been some interest for commercial and industrial usage," says Edwards.

The lack of interest from residential developers is due in part to higher building costs. Edwards says he doesn't see building costs coming down until October 2009.

Some economists say the property market could be set for a recovery by the end of the year; Edwards says he is looking forward to that.

AECI's properties held through Heartland were valued t R2.5bn in July 2008 by Old Mutual Investment Group. At end-December, they had a carrying value of R422m on the balance sheet.

Headline earnings per share rose 16% to 412c. Revenue was up 48% to R12.8bn. The company declared a final dividend of 141c/share - unchanged when compared with 2007. This brought the total dividend for the year to 231c/share, an 8% increase.

Shares in AECI closed 3.2% lower at 4 430c, compared with a 2.6% drop in the all-share index.

- Fin24.com