It may not be an exaggeration to predict that property could represent as much as 60% of clothing and textile conglomerate Seardel Investment Corp’s tangible value within five years.

In the year to March, Seardel’s R824m property portfolio represented 35% of total tangible assets. That is to say the property segment is now bigger than the tangible value of the core textile operations (R662m, or 28% of tangible value) and the clothing segment (R552m or 22 %).

The FM has long held that Seardel should primarily be regarded as a property play, though there’s still no official utterance from the company or its outright controlling shareholder, Hosken Consolidated Investments (HCI), that Seardel should be regarded as anything but a clothing and textile hub.

But since 2009, when the closure of the textile division’s vertical pipeline released 150000m² of vacant industrial real estate, there has been a willingness to build a standalone property division that would offer a “predictable revenue” stream for the group.

Seardel’s plans for a R250m redevelopment of two commercial parks at New Germany and Mobeni in KwaZulu Natal are already well advanced.

The total gross lettable area at New Germany is 147000m², of which only 39000m² is occupied by Seardel operations. The remaining 108000m² is to be redeveloped at a cost of R174m.

To date a chunky 77000m² has been completed, with the remaining portion to be finished off before the end of the year.

At Mobeni, 44000m² of 90000m² is being redeveloped for outside tenants at a cost of R73m.

So far Seardel has completed the redevelopment of 14000m² of this with the remainder scheduled for completion by mid-2013.

Seardel CEO Stuart Queen says the company has let 90% of the redeveloped property. “We are pleased with developments in tenants secured and the cost of the redevelopment.”

It’s difficult at this early juncture to pencil in possible profit contributions from the investment properties. But Seardel’s annual report shows that revenue derived from investment property trebled between 2011 and 2012 to R24,5m.

More importantly, the carrying value of the properties over the same period was stretched to R358m from R224m previously.

It seems reasonable to assume that revenue flows generated by external tenants from the division once the New Germany and Mobeni redevelopments are completed could top R50m.

Would profits then of R30m be unreasonable?

Perhaps a more important consideration would be how property-rich Seardel fits into HCI’s longer-term plans for a real estate hub, noting that the investment conglomerate is not only a significant property holder via Gallagher Estates and Golden Arrow Bus Services, but is involved in the development of retail properties in Sea Point and Upington.

Source: Financial Mail – Marc Hasenfuss