PROPERTY MANAGEMENT TRADING ENTITY Mr Paul Serote - Head of PMTE November 2015 Property Management Trading Entity 1
ITEMS FOR DISCUSSION Economic Climate Property Management trading Entity Strategy going forward Property Management Trading Entity 2
Economic Climate Property Management Trading Entity 3
Economic State Challenges Current Economic Outlook: Stagnant Revenue; Increasing expenditure 2015 Projected Economic Growth : 2%(revised down further to 1.8%). This is down from 2.5 per cent indicated in October 2014 Electricity constraints effects: holding back growth in manufacturing and mining inhibits investment in housing and raises costs for businesses and households. Funding challenges at SOE s: Financing of state-owned companies (Eskom, SAA and SAPO) #FeesMustFall State needs to find supplementary funding to accommodate the nil fee increases for Tertiary Education Property Management Trading Entity 4
Economic State: Challenges Increasing national expenditure: R1.24 trillion in 2014/15 to R1.56 trillion in 2017/18. Net loan debt of the national government is expected to stabilise at less than 45% of GDP in 2017/18 (High) Interest on state debt: R115 billion this year to R153 billion in 2017/18 Property Management Trading Entity 5
Impact of the Economic Climate A reduction in the main budget expenditure ceiling of about R25billion over the next two years, compared with the 2014 Budget baseline Revised spending plans across the whole of government, aimed at: Greater efficiency Reduced waste and An improved composition of spending Fiscal Support to state-owned companies over the period ahead has necessitated asset sales due to restricted fiscus Government wide administration plays a role in lessening the fiscal burden PMTE s role is to manage accommodation expenditure within reasonable parameters. Property Management Trading Entity 6
PMTE Background In 1997, DPW White Paper User charges In 1999, Cabinet approved establishment State Property Agency In 2002, a joint NT/ DPSA Technical Committee recommended a trading entity approach. In 2006, NT approved PMTE (subject to specified conditions) Budgets were devolved to user departments to fairly reflect the cost of Government services. PMTE => became vehicle to effect user charges on accommodation. NT directive not fully complied with => 8 years under performance culminating in adverse audit findings, (2 consecutive disclaimers by AG largely due to failure to operationalize the PMTE). In 2012 Minister launched Turnaround Strategy with the operationalization of PMTE at core of strategy. Property Management Trading Entity 7
PMTE Background Launched separate projects under the Turnaround umbrella limited to the Stabilisation Phase, others will continue for several years. Property Management Trading Entity 8 8
PMTE Background MINISTER 1/5 strategic priorities => The operationalisation of PMTE and the transformation of the core property business (including construction management). NB!!! We need to balance 2 requirements: 1. Professionalise our property business in order to optimally utilise our large property portfolio (approx. 100 000 structures on 35 000 land parcels) productively by benchmarking best practice VS. 2. Deliver i.t.o. Government s Goals & Objectives in non-profit service delivery sphere: provision of land => human settlement & land reform; provide accommodation to Government (below economic rent) Transforming Built Environment - Black and female empowerment Provide spatial planning services => small & rural towns / harbours. Property Management Trading Entity 9
PMTE Mandate EXTENDED MANDATE To improve service delivery in the context of Government s priorities and to save costs to the Department and the fiscus by: Maintaining the value of Government s assets Improving access to and quality of Government s assets Optimal utilisation of State stock and move away from leasing-in Utilise State s vacant properties productively to create a funding stream for capital maintenance and improvements To reclaim mandate of Public Works develop small proclaimed and unproclaimed harbours develop Government precincts in small towns and rural areas safeguarding the State s assets from vandalism, theft and invasion reclaiming all misappropriated State land preserve Government assets, structures, building, land parcels Property Management Trading Entity 10
PMTE Strategic Outcomes Improved utilisation of the State s properties to save costs and improve quality of public buildings Skills development and Employment Opportunities through the provision of Construction, Property and Facilities Management Services to the State Promoting economic growth through integrated infrastructure development. To leverage the State s property portfolio to contribute towards Government s broader transformation, empowerment and economic development goals. Good corporate governance to support effectual service delivery Property Management Trading Entity 11
The Trading Entity Treasury Regulation 19 salient points: In terms of PFMA head of the trading entity refers to either: a) the accounting officer as appointed in terms of PFMA; or b) an official assigned to head the trading entity A trading entity is regarded as an entity operating within the administration of a department. All obligations on departments in these regulations apply to trading entities, unless the context indicates otherwise. The Accounting Officer (DG) of the department operating a trading entity must ensure that the Head complies with the PFMA and Treasury Regulations. Property Management Trading Entity 12
PMTE Business Model BUSINESS MODEL Interdisciplinary approach has been adopted, with greater synergies between DPW s traditional property and asset management functions => Integrated approach to delivery. Core business of the PMTE consists of three focussed operational divisions: Real Estate Investment Management, Real Estate Management, and Facilities Management. Two special service delivery divisions that will collectively realise PMTE s asset management goals and services to the State: Real Estate Information & Registry Services; and Construction Project Management. Property Management Trading Entity 13
DPW ANALYSIS MANDATE (LAW) CONSIDER BASED ON EPWP REGULATORY INTER- GOVERNMETAL PROPERTY BUSINESS 1. Accommodation Provision 2. Infrastructure Delivery 3. Asset Lifecycle Management PM KAM PROJECTS ICR AIM ENABLING SERVICES CABINET / NATIONAL TREASURY 2006 POLICY Govt Agenda National Priorities PLAN MANDATE (LAW) 1. Client Relationship Management 2. Infrastructure Delivery 3. Asset Lifecycle Management AQUIRE OPERATE & MAINTAIN DISPOSE PROPERTY INDUSTRY 1. External Environment Economy, Technology etc. 2. Current Industry Trends 3. Benchmarking 4. Best Practice Asset Mgt REAM FM NON DELIVERY MANDATE: - High Costs - Lack Service Delivery SOLUTION PROFESSIONALISE PROPERTY BUSINESS (PMTE) HOW? REVISE BUSINESS MODEL VALUE DRIVERS TRANS- FORMATION GROWTH PROBLEM STATEMENT PROFESSIONALISE DEFINITION: - Competence Quality/Efficiency - Income Generate for sustainability WHY? VALUE DRIVERS IMPROVE SERVICE DELIVERY SAVE COST POLICY & REGULATION Sector / DPW services in Gvmt NEW DPW REAL ESTATE REGISTRY REAL ESTATE INVESTMENT PLAN / AQUIRE / DISPOSE CONSTRUCTION MANAGEMENT EPWP PRESTIGE INTER GOVERN MENTAL HOW WE ORGANISE OURSELVES OPERATIONALLY REAL ESTATE MANAGEMENT OPERATE & FACILITIES MANAGEMENT MAINTAIN PMTE 14 Property Management Trading Entity 14
PMTE Business Model REAL ESTATE INFORMATION & REGISTRY CONSTRUCTION PROJECT MANAGEMENT Property Management Trading Entity 15
PMTE Progress In contextualizing where we are in the PMTE the following must be noted: 1. Cabinet s approval for the Operationalisation of the PMTE 2014 2. Approved transfer of PMTE functions and budget allocations 2014 and revised 2015 3. First PMTE 5 year Strategic Plan and Annual Performance Plan approved and in implementation 4. Cabinet approved capacitation of PMTE top management structure 5. First draft PMTE Functional Structure submitted to DPSA 6. Creation of strategic project delivery units within the PMTE Small Harbors and Small Town Development 7. Improved Audit Outcomes for the PMTE 8. Efforts towards the clearing of the lease backlog and further actions taken to prevent the accumulation of expired leases 2 nd NT Dispensation 9. Progress made in the creation of a clean and credible Immovable Asset Register Property Management Trading Entity 16
3 Year Lease + Escalation Currently, around R4bn p.a. is spent on leased-in properties (a portfolio of approx. 2800 leases). Of these lease agreements, the rates of 56% are higher than the market rates by an average of 45%. At 31 March 2012 approx. 60% (1680) leases had expired and ran on month-to-moth basis and needed renewal. Following the prescribed SCM process, task would have taken a long period given the extent of the irregular expenditure then. As a consequence, application made to NT to grant Special dispensation for the renewal of expired leases on a negotiated basis on the following conditions: Property occupied Client Department Client Department demonstrated willingness to continue occupation Landlord demonstrated willingness to allow continued occupation Property Management Trading Entity 17
3 Year Lease + Escalation NT granted dispensation with following conditions: Maximum period of extension 3 years Escalation capped at CPI (5.5%) PMTE to devise an SCM process efficient for the leasing (in progress) We will be engaging with the industry on the revised leasing framework Property Management Trading Entity 18
PMTE Strategy The PMTE has a key focused investment mandate of ensuring that every asset complies with a lowered total cost of ownership and higher return on investment => Save costs Under-utilised and redundant space to be made available for economic opportunities Comprehensive maintenance programme to be developed across the portfolio Underutilised or not appropriately resourced properties are earmarked for rapid redevelopment eg. Agrivaal Building Property Management Trading Entity 19
PMTE Strategy Based on the enhanced immovable asset register, we will identify vacant / suitable freehold (minimum 80) properties annually over a period of 5 years, for redevelopment by private sector developers (designated groups). Feasibility studies will be conducted to determine the appropriate project structuring, the concession term, and financial T&C s We will call for proposals publically from interested parties to redevelop and operate these assets as viable accommodation solutions (private or public sector tenancy) Property Management Trading Entity 20
Examples of 5 Year Targets In better utilising the State s vacant properties productively and to extend the life-cycle of existing state properties; as well as reduce the cost of leasing-in, the PMTE has set the following targets for example: 5 YEAR TARGET ESTIMATED PERFORMAN CE 2014/15 1 500 of vacant free hold properties approved for redevelopment by property developers 2 Occupancy rate of freehold property increased by 50 % for partially occupied properties MEDIUM-TERM TARGETS 2015/16 2016/17 2017/18 80-100 80-100 80-100 5% 10% 15% Property Management Trading Entity 21
Q Q&A& A Property Management Trading Entity 22
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