Are South Africa’s big property owners ripping off the government by charging it above market rates for premises? That’s certainly been the accusation levelled at them by some in government. There are critics who say it is government’s own fault and that it is because of bureaucratic inefficiencies that landlords have been able to tap what is clearly a lucrative rental stream. Sandile Nomvete, CEO of the biggest black-owned property group – Delta Property Fund – says there’s more than meets the eye to charging government higher rent for office space than corporates. In this interview with Alec Hogg, publisher of BizNews and a host on the CNBC Power Hour, he says the difference is that businesses aren’t quoted for rates and taxes. And, government occupies smarter offices than corporates – hence the higher price per square metre. Delta is a Real Estate Investment Trust (Reit) listed on the Johannesburg stock exchange. It manages commercial properties in South African cities as well as Morocco and Mozambique. – JC
Â
ALEC HOGG: Delta Property Fund’s six-months, results-to–end of August show improved revenues. The distribution’s up 23 percent. The size of the portfolio is now above seven-billion and with us in the studio to have a look at this, is Sandile Nomvete.  He is the Chief Executive of Delta Property Fund. Sandile, we’ve been talking quite a lot to another party in the failed merger attempt – Rebosis and Sisa Bulelane. What happened there? He got us very excited about it and I think the whole market was. One day it was on and the next day, it seemed as though you guys had had a punch-up, or something.
SANDILE NOMVETE: Not at all Alec, and thank you very much for the opportunity. Alec, we think that the merger is still a very good idea but after much analysis, we found that there was a lot happening in Rebosis’ life and in Delta’s life to give ourselves time to be able to fulfil. It would have been a R20bn black-owned company, but I think there were a number of unresolved/unrelated issues that we needed to resolve.
ALEC HOGG: Were they opportunities then that you were pursuing outside?
SANDILE NOMVETE: One of those was Delta International from our perspective. We were in the midst of launching/buying into Osiris, which became Delta International, which is a Pan-African investment.
ALEC HOGG: Morocco and Mozambique, so far.
SANDILE NOMVETE: So far – exactly – and that’s a compelling story. That was difficult to assess, particularly from their side, and they were busy rolling out some of their pipelines from a retail perspective. As the two management teams ironically, we felt that the story was right but the timing was not right. What we have advised the market is that perhaps we’ll review it at a later stage. I think we have a lot of mutual respect with Sisa and his management and I think the respect is mutual.
ALEC HOGG: So you’ve diarised, maybe in a year’s time or two years’ time you’ll get together and have a chat.
SANDILE NOMVETE: Absolutely.
ALEC HOGG: Sasha and I were taking in the market report earlier about the details/breakdown in your portfolio. The one that we’re puzzled about is that you’re charging Government R108m2 for office accommodation, but you’re charging the private sector R85. We know a few flags have been waved in budget speeches on this, with Government saying they feel that they’re being charged too much.
SANDILE NOMVETE: Exactly.
ALEC HOGG: Give us an understanding of the difference here.
SANDILE NOMVETE: The difference boils down to rates and taxes. It’s as simple as that, Alec. The price that we quote in our results from the private sector excludes rates and taxes. Government doesn’t pay rates and taxes and off our State price…that’s probably/normally equates to about R15m2, which is quite significant. Once you include that R15m2 then the private sector…
ALEC HOGG: It’s still R19.00 or R20.00 less.
SANDILE NOMVETE: Sure. If you look at the type of private sector clients that are still left in the CBDs, they’re not at the same balance sheet strength, as you would have in Government.
ALEC HOGG: Are there better buildings at Government than in your private sector?
SANDILE NOMVETE: Without a doubt. We have a Capex underway of some 200-million. We’ve spent huge amounts of money reinvesting in the CBDs where we play, particularly in the Durban and Pretoria CBC, so we spend quite a fair amount of money and these have all been tenant-driven where the tenant wants to be there. There are big, chunky assets. We’re talking about the one property, 115 Breytenbach, which is 45 000m2 building. In its history – and Government has been there for a long time – we’re just about to complete the third renovation in the building. These buildings need the type of investment that the likes of Delta are putting through.
ALEC HOGG: What about the environment? We know that a lot of work’s been done in the Johannesburg CBD, particularly the financial district around the mining houses and the old stock exchange, but Durban is a dodgy area now – downtown Durban. Are you doing anything to uplift it? Your 500-million – that you announced just the other day – that you’re putting into it, isn’t going to be worth a whole lot of if the CBD continues to slide.
SANDILE NOMVETE: Alec, I’m quite proud to say that as far as Durban – and I come from Durban, originally – the Delta properties are probably the best-looking assets in the Durban CBD. We have a huge, vested, interest in the Durban CBD and we are very eager to engage with the municipality there to make sure that the investment we’re putting in is obviously matched by security levels etcetera.
ALEC HOGG: But property owners in Sandton and Rosebank, just to use Johannesburg as an example: they have their own security guards there. They make sure that the places are safe. Are you doing the same?
SANDILE NOMVETE: Look, this is part of the pipeline and we are one of those landlords incidentally, who is in the Johannesburg CBD. We have some very nice assets, so we have some experience that we can obviously share. I have no doubt that Durban is a fantastic CBD. It’s literally a hive of activity. The foot traffic that goes through the CBD is second to none, so I think we are very confident about the ability between ourselves and local Government to make sure that it’s sustained, otherwise we wouldn’t be putting that investment there.
ALEC HOGG: But I’m talking about security here. If you want to go and get mugged, it’s very easy to get mugged in Durban.
SANDILE NOMVETE: Look, I haven’t experienced that and I think the truth of the matter is that the Government departments (historically) have basically, based themselves in the CBD’s so it is in their vested interested, as it is in the landlords’, to make sure that the CBD is well looked after, clean, and the management around security is absolutely critical. Now, if you look at the node where we play, the bulk of our portfolio is next to the Durban ICC and it’s actually not that bad.
ALEC HOGG: It’s a good part.
SANDILE NOMVETE: It’s a good part of the city. If you want to compare to how Mayor Guliani won back New York, it was block-by-block and that’s the same approach that maybe, the likes of ourselves along with the local municipalities need to approach particular problems of security.
ALEC HOGG: The broken window syndrome. I’m sure you’ve read a lot about it.
SANDILE NOMVETE: Absolutely.
ALEC HOGG: Just to close off with, it’s been a good half-year for you with 23 percent increase in the distribution. Is this because you have a bigger base to play with now?
SANDILE NOMVETE: That’s correct. Alec, we do try to be dominant in the nodes we play in, particularly in the Durban CBD. We think we have very compelling large property assets, which dominate the surrounding environment. Pretoria is another interesting and enticing area and I think the large group gets efficiencies going. Our cost-to-income ratio is obviously, something we are managing very well and I think we will continue to do that.
ALEC HOGG: Hence, the promise of maybe getting together with Rebosis at some point.
SANDILE NOMVETE: Absolutely.
GUGULETHU MFUPHI: Sandile, thank you. It was fascinating talking with the CEO of, I think, the biggest black-owned property group in the country. Sandile Nomvete is the Chief Executive of Delta Property Fund.
 bl
