Property

AECI's property activities are managed by two companies, Heartland Properties and Heartland Leasing. Operating profit of R75 million was achieved by the segment as a whole, after recognising R83 million of remediation expenses. The R83 million charge comprises R25 million expensed directly to the income statement and R58 million resulting from an increase in the provision for environmental remediation, based on an estimate of further work required at Somerset West and Umbogintwini. Revenue of R450 million was generated. This comprises property sales of 86 hectares of land (160 000 m² of commercial and industrial bulk rights and rights for some 500 residential units) which generated R217 million of revenue, leasing revenue of R127 million, and services of R106 million.

Heartland Properties

Heartland Properties' focus is on development projects that can best realise value from land that has become surplus to AECI's operational needs and, therefore, can be made available for alternative use. Best value is realised through a process of strategic macro planning, strategic infrastructure facilitation, matching market demand and the incremental release of land that has the further benefit of enhancing the value of the remainder of the land asset.

Due to further releases and a more accurate measurement of the surplus, the extent of land in excess of AECI's needs has increased to 3 770 hectares. Of this, some 2 320 hectares remain and most of this will be made available for redevelopment over the next 10 to 15 years. The land is mainly at Modderfontein, in Gauteng, and at Somerset West in the Western Cape. It is anticipated that, based on current town planning criteria, the total developable bulk that can be realised from these land holdings is in excess of 14 million m², as disclosed to investors in October 2007. An independent, internationally-based third party has been commissioned by AECI to verify the Group's own valuation of its landholdings' potential value in terms of developable bulk. This evaluation is expected in the second quarter of 2008.

Progress

At Modderfontein, the highly successful Greenstone Hill mixed use development was sold out in 2007. This 315 hectare development generated total revenue of R450 million over four years and includes the Greenstone Mall (85 000 m² of retail space), the Stoneridge Value Centre (68 000 m²), commercial office space (105 000 m²) and 4 000 residential units of varied densities. Achieved selling prices increased progressively over the life of the project and it will be used as a model for future developments.

Extension 11 (six hectares) of the Longmeadow Business Estate, a very successful light industrial complex in Gauteng, was sold during 2007 for R33 million.

Late in 2006, AECI and the Province of Gauteng agreed that a Gautrain Rapid Rail Link station at Modderfontein would be desirable when justified in terms of passenger volumes and economic considerations in the future. Detailed planning of the basic infrastructure for such a station has been completed and agreement has been reached with the Province of Gauteng that this infrastructure will be included in the current Gautrain project, at AECI's cost. Heartland Properties will retain the development rights around the planned station.

Heartland Properties’ executive team

	Neil Hayes (29) Neil joined the company as financial controller in 2004 and, in 2006, was promoted to finance director. He has a BCom (Hons) degree and is a registered chartered accountant.
	Deon van Zyl (37) With degrees in architecture and a Master’s qualification in city planning and urban design, Deon left architectural practice to join Heartland Properties in 1999. He assumed project management responsibilities for Heartland in the Western Cape in 2000 and has led development planning for the Somerset West site. He was appointed development director, at national level, in 2005.
	Mike Walsh (39) Mike immigrated to South Africa, from Ireland, in 1992. Prior to joining Heartland as sales manager in 2002, he had worked in the corporate property field at other JSE-listed companies. He was appointed sales director in 2005 and is responsible for overseeing sales at all sites.

Conservation Park

AECI is committed to retaining some land at Modderfontein for conservation purposes. To this end, an area of 275 hectares straddling the Modderfontein Spruit and including several dams, pristine grasslands and hills, has been identified.

The final area has been surveyed and a subdivision and rezoning application has been submitted to the City of Johannesburg for consideration. It is hoped that a decision will be forthcoming in 2008. Issues requiring resolution are the future capital and recurrent funding of the area, the management of the park and operational issues.

The park will fulfil an important social and ecological role in the greater Johannesburg region. It is in line with AECI's policy of demonstrating meaningful social responsibility through the establishment of a sustainable environmental legacy.

In developing a marketing strategy for the Conservation Park, Heartland Properties envisages it as part of an overall lifestyle concept, focusing on its appeal as an ecological and aesthetic resource, with organised access.

Other sites

At Somerset West, four hectares of land in Phase A of the Precinct 1 mixed use development were released to the market and sold out. This phase included 17 000 m² of commercial and 10 000 m² of residential bulk space.

At Richards Bay, Heartland Properties assisted AECI, the landowner, in disposing of a redundant 45 hectare factory site. The property was sold for R29 million and ownership was transferred before mid-year.

Outlook

In determining strategy, Heartland Properties continues to seek not only to align sectoral offerings with market demand but also to maintain an appropriate balance between the sale of larger land portions to developers and the potentially higher value to be derived through the delayed sale of serviced sites. In line with this strategy, it is anticipated that in excess of R150 million will be invested in infrastructure, services and related items in 2008. R70 million was invested in 2007, mainly at Greenstone Hill, Modderfontein, and at Somerset West.

At Modderfontein, transactions in 2008 are expected mostly in respect of peripheral areas such as the proposed 50 hectare Founders Hill, Extension 1 industrial site. The planning emphasis will be on preparing land for release from 2009 on the main site. In 2007, further progress was made in understanding better and dealing with the few remaining uncertainties regarding the Gautrain project. As a result, land planning has gained a higher degree of certainty. The longer-term benefits that will accrue from this via future developments are being pursued energetically.

At Somerset West, most of the Precinct 1 mixed use development is expected to be sold out in 2008. The remaining peripheral areas are also expected to be ready for release in the year. These include the proposed development of Portions 47 and 53 (north-east and east of the main site respectively), over a combined area of 26 hectares.

During the next three years, approvals from the planning authorities are expected for some 1 250 000 m² of commercial and industrial bulk rights and, additionally, approximately 10 000 residential opportunities extending over almost 400 hectares in total. Applications to the relevant authorities in respect of most of these rights have been submitted and the remaining applications are imminent. No undue delays in approvals are expected, providing the availability of bulk services, particularly electricity, is sustained.

Heartland Leasing

Heartland Leasing is the company in the Group's property portfolio tasked with letting and managing buildings at Modderfontein, Potchefstroom, Somerset West and Umbogintwini that are surplus to the Group's needs.

The company provides a range of services to mainly chemical-based manufacturers at the Umbogintwini site and manages the responsibilities associated with remediation and re-use of land impacted by historical manufacturing activities at all AECI-owned sites.

For its remediation activities, Heartland Leasing prioritises cash spend on projects related to reducing safety, health and environmental risks both on- and off-site, compliance with enviro-legal requirements, and the clean-up of land affected by past operations. Wherever possible, clean-up and land re-use initiatives are planned in parallel to ensure that expenditure on remediation is followed as closely as is feasible by income generation through the release of land for alternative use by third parties.

Heartland Leasing’s executive team

	Reg Bhikum (49) He was appointed managing director in 2005. Since joining AECI in 1981, Reg has held positions in administration, sales, logistics and general management. Prior to taking up his current portfolio, he was general manager of Umbogintwini Operations Services and led the transformation of that site to ensure its alignment with the needs of the new AECI. Reg is a BCom graduate, has a diploma in Datametrics and has completed the University of Cape Town’s Executive Management Programme.
	Martin Burr (55) He joined AECI in 1977 and has worked in various Group companies in the project, production and general management fields. He moved to Heartland as regional manager, Western Cape, in 2001 and took up his position as remediation director, Western Cape, in 2005. Martin has BSc (Chem Eng) and BCom (Hons) degrees.
	Ron Nicolas (44) He joined Heartland Leasing in January 2008 as commercial director, having held directorships in finance at other manufacturing companies. He also has experience in internal auditing, sales and marketing. Ron has BCom, BCompt (Hons) and MBL degrees.
	Ewan Alanthwaite (47) He took up his position as services director in January 2008. He has qualifications in electrical engineering and in general management. Ewan joined AECI in 1985 as an apprentice electrician at Umbogintwini, eventually being appointed that site’s engineering manager in 2000 and services manager in 2006.
	Rod de Klerk (58) He is remediation director, Gauteng, with some 30 years’ experience in the AECI Group across a range of engineering, production, projects, maintenance, and training and development functions. In 2002, subsequent to playing a key role in the final decommissioning of Modderfontein’s ammonia and urea plants, he transferred to remediation activities at Group level. He was appointed to his current position in 2005.
	Nick Tsouros (43) He is the company’s leasing director. Nick joined AECI as an apprentice fitter in 1984 and subsequently worked in engineering, contracts, procurement and supply. He moved to Heartland in 2000 as procurement manager, became increasingly involved in leasing activities and was appointed a director in 2005. Nick also has diplomas in purchasing management and practical accounting, and a certificate in estate agency.

Leased assets

Gross income on leased assets was R127 million in 2007.

The gross lettable area under the company's management totalled 326 000 m², down from 360 000 m² in 2006 owing mainly to the sale of the Milnerton site in June 2006 and development at Somerset West. This required some building demolition.

At year-end, the vacancy rate was 22 per cent. This rate is skewed by the non-occupancy of one large building at Potchefstroom. Excluding this, vacancies were at 12 per cent in December 2007, down from 16 per cent the previous year.

Services

Utilities and services such as steam, water, electricity, effluent treatment and security are provided and managed by Heartland Leasing at the Umbogintwini Industrial Complex. A major advantage of this arrangement is that it allows the site's 13 main manufacturing companies and more than 50 smaller tenants to focus on their core businesses. This portion of Heartland Leasing's activities returned a profit of R11 million for the year, compared with R7 million in 2006.

Remediation

The characterisation of AECI's traditional sites commenced in 1992 and was essentially complete by 2003. Data gathered in the characterisation phase have guided plans and programmes for remediation activities.

Pleasing progress was made in projects at Somerset West that aim to facilitate planned redevelopment there in 2008 and in the years thereafter. By year-end, remediation of the Somerset West site was very well advanced. At Modderfontein and Umbogintwini, too, steady progress was made in a variety of projects, designed either to remediate land for re-use or to ensure that impacted areas are not released for re-use but are, instead, made safe from environmental and human health perspectives.

It is most gratifying that the relevant local and provincial authorities, as well as other stakeholders, remained generally supportive of the environmental aspects of projects at all sites. Heartland Leasing's ability to meet remediation goals effectively and timeously is facilitated by their ongoing input and cooperation.

Outlook

In 2008, Heartland Leasing will continue to focus on reducing the vacancy rate with a view to enhancing the financial delivery of all of its sites. At Umbogintwini, implementation of the "build-to-let" strategy began on a small scale and the first tenant took occupancy in 2007. More such rentals will be secured in 2008 and the company will continue to pursue major manufacturing tenants for this site.

The remediation strategy remains unchanged and projects will again be prioritised to ensure legal compliance and to facilitate eventual land re-use for the benefit of the AECI Group and its shareholders.

Heartland Leasing is confident that its business will continue to prosper, but due cognizance must be given to the end goal of profitably disposing of surplus assets rather than their long-term occupation by tenants.