Failure to sign leases has cost the state R3bn over three years
Each year the state has lost R1bn because it has not signed a long-term rental framework which offered rentals at lower rates than it pays
The department of public works has cost itself and taxpayers R3bn since 2016 because it has been tardy in signing new leases, which would have been at lower rental rates and with longer terms.
Chief investment officer at Bridge Fund Managers, Ian Anderson, said the government was leaking money unnecessarily.
“The new leases would be at lower rentals and that would result in savings of approximately R1bn a year. These proposals have been on the table for some time now so government has paid a few billion rands of extra rental by not signing these leases timeously,” he said.
The department has been slow to sign more than 2,550 leases since 2016, only signing 40, Delta Property Fund said in a briefing to investors.
Many landlords had signed leases with state tenants that had terms of at least 10 years, in the mid-2000s. In 2016, as a number of the leases were coming up for renewal, the landlords began to present new 7-10 year leases at lower rentals, given the large vacancies in the office market and the need to retain the state departments as tenants.
The department said it has been working through each lease but it was understaffed and asked landlords including the largest JSE-listed state-focused company, Delta Property Fund, to be patient.
Delta, headed by CEO Sandile Nomvete, and which gets around three quarters of its revenue annually from the government, on Monday warned that its dividend payouts would drop sharply in the year to February, because of its struggles with the department.
The company paid relatively high interest rates on the debt it raised compared with its peers in the listed property sector, because it was unable to provide clear lease profiles to banks.
Distributable income for the year to February 2019 was expected to be between R525.5m and R560m, reflecting a decrease of between 19% and 24% compared with the R691.6m for the year to February 2018.
Head of listed property funds at Stanlib, Keillen Ndlovu, said while Delta waited for the department to commit to long leases, it had had to use very short ones with terms ranging from month-to-month to a year.
The shorter leases, increasing vacancies, higher debt levels as well as rising funding costs had led to declining distributions for Delta, Ndlovu said.
Delta's COO Otis Tshabalala said in a pre-close call to investors that the department had been presented with five sets of lease agreements over the past three years. It was supposed to have signed an agreement with Delta by the end of December 2018 but had failed to do so.
While Delta wanted to continue to have a professional relationship with the state, he said the delay was problematic and the board would intervene to try to expedite the process.