Date 16082018 Presented by MR M GOVENDER ACTING

Date: 16/08/2018 Presented by: MR M GOVENDER ACTING DIVISIONAL HEAD : REAL ESTATE MANAGEMENT SERVICES on Behalf of the DIRECTOR GENERAL of DPW REPORT BY THE PMTE REAL ESTATE MANAGEMENT SERVICES AND SMALL HARBOURS AND COASTAL DEVELOPMENT UNITS OF THE DPW, ON STEPS TAKEN TO IMPROVE LEASE MANAGEMENT AND ACHIEVE THE STATED TARGETS TO REALISE SAVINGS ON IDENTIFIED PRIVATE LEASES 1

CONTENTS 1. Purpose 2. PMTE Business Case 3. PMTE Business Model 4. REMS Operating Environment 5. REMS Operations 6. Preparing for the new REMS 7. Addressing Government Savings through Acquisition and Leasing IN 8. Addressing revenue generation through Disposal and Letting OUT 9. Increasing Property Payments and Administration efficiencies 10. Improving how we provide services through tailored Business Processes 11. Increasing our capacity through a Skills Improvement Programme 2

PURPOSE REMS is committed to conduct its business in terms of section 217 of the Constitution. When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or s services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective. We will address the following issues in pursuance of the above: 1. 2. 3. 4. Give context on the REMS operations and mandate Respond to performance concerns Give feedback on the REMS interventions to address performance concerns Business improvement interventions: a) Expedited lease renewal and renegotiation b) Business Processes review 3

PMTE 4 4

PMTE BUSINESS MODEL REAL ESTATE INFORMATION & REGISTRY DETERMINE IMMOVABLE ASSET MANAGEMENT STRATEGY REAL ESTATE INVESTMENT PLAN / ACQUIRE / DISPOSE CONSTRUCTION PROJECT MANAGEMENT EXECUTE: PROVIDE ACCOMMODATION REAL ESTATE MANAGEMENT FACILITIES MANAGEMENT OPERATE (LEASES) MAINTAIN Finance PROPERTY MANAGEMENT PMTE Operationalization through Business Process Review Supply Chain Management 5

REMS OPERATING ENVIRONMENT • • State: R 4, 3 billion Other: ±R 20/30 million DISPOSALS Letting OUT Our mandate R 4, 5 billion The REMS balance sheet PROPERTY PAYMENTS AND ADMINISTRATION Utilisation Client Billing Property Payments ACQUISITIONS Lease to own Short term leasing Out-right purchase Bo. T • • Rates and taxes: R 1, 3 billion Lights/ water and utilities: R 4, 3 billion REMS total leased in 2566 Debit Total valid 1846 User Charges Total expired 720 Total vacant state owned 88 300 Total let out privately 1270 Total illegally occupied 1300 R 4, 5 billion Rates and Taxes Leasing reimbursement from users R 4, 5 billion Landlords (creditors) Lights and Water Letting OUT(revenue) 5720 Total occupied by user deps. Credit The extent of our work R 1, 3 billion R 4, 5 billion R 1, 3 billion R 31 million R 10, 331 billion R 7, 1 billion Surplus R 3, 231 billion 6

REMS OPERATIONS Acquisitions and leasing IN 1. Provision of suitable functional accommodation for client departments Ø Leasing in (Short-term) Ø Build Operate and Transfer (Permanent solution) Ø Out-right purchase (Permanent solution) Ø Lease to own (Permanent solution) 2. Ensure the efficiency in acquiring properties Ø Acquisition Framework Ø Implementation of the Property Empowerment Policy Ø Establishment of a panel of landlords 3. Establishment of proper governance processes 4. Expedited lease renewal and negotiation State Owned and Disposals and Letting OUT 1. Management of state owned property occupied by: Ø Private tenants Ø User departments 2. Management of vacant state owned properties Ø Letting OUT Ø Other forms of disposal Ø Marketing of vacant state owned properties Property Administration and Payments 1. Administration and payments of the following services: Ø Rates, Municipal services, Lease rentals, Shared Savings, Day to day maintenance, Cleaning & Gardening; and Security services Ø Resolve disputes and disconnection of services by suppliers such as municipalities, Eskom 2. General administration 3. Management of illegally occupied properties 4. Property ownership verification REMS operations and manages an estimated R 9 Billion in collections (receivable) and R 7 Billion in payments 7

PREPARING FOR THE NEW AND IMPROVED REMS - Expedited lease renewals - Disposal Framework 2 -4 May: Regions, HO: REMS, Client Departments, UDM, AG, SIU 14 -16 June: Regions, HO: REMS, UDM, Client Departments 31 July– 2 August: HO Finance, HO: REMS, Regions, UDM - Business Process Review - Marketing and advertising of surplus state owned properties - Acquisition Framework - Conclude user department issues (itemised billing, state to state lease agreement) - Review standard leasing IN lease agreement ( incorporate SIU recommendations and lease reversions) - Establishment of satellite offices - Conduct regional visits: Leasing IN (new), Lease renewals, Planning meetings for investor conferences, regional investor conferences, national investor conference - Municipal engagements to discuss rates and taxes and water and electricity to reconcile accounts (savings) - Finalisation of strategy for Illegally occupied properties 8

ACHIEVING GOVERNMENT SAVINGS THROUGH: ACQUISITION AND LEASING IN 9

LEASED PORTFOLIO REGION EXPIRED LEASES VALID LEASES TOTAL BLOEMFONTEIN 118 62 180 CAPE TOWN 55 313 368 DURBAN 74 310 384 JOHANNESBURG 82 102 184 KIMBERLY 88 90 178 MMABATHO 60 102 162 MTHATHA 68 111 179 NELSPRUIT 47 150 197 POLOKWANE 13 161 174 PORT ELIZABETH 70 253 323 PRETORIA 28 209 237 TOTAL 720 1846 2566 10

ACTION PLAN Acquisition and Leasing IN (Temporary) PROBLEM INTERVENTION Existing leases 1. Escalated rental - Expedited lease renewal and renegotiation programme and escalation - Revision of SCM circular rates IMPACT - savings on lease costs - bargaining power to address maintenance and general building upkeep, capital investment into leased buildings - normalise industry rental rates for office accommodation - promote the transformation of the property industry Backlog on the procurement of new accommodation 1. Procurement of - implementation of the Acquisition Framework new , alternative - engage with user departments to establish their needs for functional and additional accommodation for possible conversion into permanent solutions space - Engagement with regional offices to determine the extent of the backlog (350) - engagement with regions to share the new procurement approach - engagement with landlords to inform them of the new opportunities for the provision of permanent accommodation solutions - improve the efficiency of procuring user specific, functional accommodation for client departments as per the approved PI/ investment decision improve efficiencies in the procurement of emergency and urgent accommodation as well as procurement from single source providers promote the transformation of the property industry 11

EXPEDITED LEASE RENEWAL AND RENEGOTIATION: PROJECT IMPLEMENTATION PLAN Minister briefed Top 100 landlords, User Departments and Banks on 31 May 2018. National Treasury and SIU made presentations on the day REMS further briefed user departments on the implementation plan on 12 -14 June 2018 Provincial landlords are briefed about lease renewal and renegotiation 20 June – 6 August 2018 Landlords confirm submitted offers or resubmit lease renewal offers for renegotiation 1 July – 30 August 2018 Issuing of SCM forms to landlords to complete their negotiated offer for adjudication process (i. e. Schedules A to C of the lease agreement & DPW 08 and other forms) 01 July – 31 October 2018 Adjudication process and conclusion of lease agreement 1 July – 30 November 2018

PROJECTED SAVINGS: 2018/19 ANNUAL TARGET IS R 200 MILLION An analysis was performed on SAPS leases with high rates per square metre. A sample of 19 leases (175, 778. 65 square metres) was selected in Pretoria, Cape Town and Durban regions which had average rate per square metre of R 200. Figure: The graph above illustrate the potential savings the Department can achieve for the 19 leases, over the different lease periods, if the rates are renegotiated to market related rates.

STATUS UPDATE ON LEASE RENEGOTIATIONS total leases (2194) offers received (956) negotiated offers (483) 800 700 600 500 400 300 200 100 0 Bloemfontein Cape Town Durban Johannesburg Kimberley Mmabatho Nelspruit Polokwane Port Elizabeth Pretoria Mthatha Head Office 14

GENERATING REVENUE THROUGH: DISPOSAL AND LETTING OUT 15

MANAGEMENT OF STATE OWNED PROPERTY: MANDATE 1. In terms of GIAMA, the PMTE is: Øthe custodian of National Government Immovable Assets ØDefault custodian of unregistered and unsurveyed properties in South Africa. ØMandated to provide quality, user specific, functional accommodation for client departments 2. The Department is a Custodian of 29 322 registered and unregistered land parcels, with 93 943 improvements; 3. Approximately 88 300 buildings are allocated and used by 51 user departments, 4. The surplus state owned properties are estimated to be 5 720, made up of 5187 vacant land parcels and an estimated 500 Improvements 16

VACANT SURPLUS PROPERTY Bloemfontein Durban Cape Town Johannesburg Kimberly Nelspruit Port Elizabeth Polokwane Pretoria Mmabatho Umtata TOTAL: GRAND TOTAL: Vacant Land/Farms Office 401 95 786 3 2103 7 142 4 1233 16 153 0 289 9 8 0 52 1 17 0 3 7 5187 142 Residential Airstrip 107 0 56 0 47 0 12 0 3 0 105 1 23 1 10 0 0 2 21 0 387 4 5720 NOTE: • Verification of surplus properties remains a continuous exercise; • The number of surplus properties might increase as verification unfolds; • Reconciliation and migration of data between PMIS and Master database continues; • REMS is instituting systems and measures to identify Bona Vacantia properties 17

Disposal and Letting OUT AREAS OF CONCERN AND PLANNED INTERVENTIONS PROBLEM STATEMENT INTERVENTION Occupied properties by User departments Disputed properties Introducing user occupation confirmation certificate (user to provide – annually) Electronic submission of confirmation certificates y clients conclusion of lease agreement between DPW and user departments Inability to conduct Request the user to submit user physical verification experience of the building (condition assessment - annually) Conduct sample physical verification (Regions) Establishment of 21 satellite offices IMPACT - reduce number of disputed properties - enable finance to collect revenue - define responsibilities of users and custodians in terms of maintenance - updated property information - status quo of each property in terms of maintenance requirements - contribute towards updating of the asset register 18

Disposal and Letting OUT AREAS OF CONCERN AND PLANNED INTERVENTIONS PROBLEM STATEMENT Surplus Properties Existing leases on letting out which are below market rental rates Poor marketing of surplus state owned properties INTERVENTION IMPACT renegotiation of all existing leases - increase on revenue - regional planning meetings with: - National and Provincial treasuries, Municipalities, provincial government, landlords, banks and other entities of government - nine provincial investor conferences - national investor conference - publish requests for proposals on the letting out of surplus state owned properties Partnerships with municipalities for the administration and management of state owned properties - attraction of investment - increase revenue - decrease holding costs (rates and taxes, water and lights, security etc. ) - decrease vandalism - decrease illegal occupation - decrease land grabs - create localised jobs - contribute towards economic growth - promote skills transfer - create opportunities for emerging business and contribute to the transformation of the property industry 19

PREPARATION FOR THE LETTING OUT OF STATE OWNED SURPLUS PROPERTIES • The branch is conducting provincial workshops to prepare for the advertising of surplus property • The advertising of properties will be kick-started by 9 provincial investor conferences and one national investor conference starting in October 2018 REGION DATE Johannesburg and Pretoria 15 – 16 August 2018 Cape Town 23 – 24 August 2018 Kimberley 30 – 31 August 2018 Mmabatho 05 – 06 September 2018 Polokwane 10 – 11 September 2018 Nelspruit 13 – 14 September 2018 Port Elizabeth and Mthatha 19 - 20 September 2018 Durban 27 - 28 September 2018 Bloemfontein 04 - 05 October 2018 20

MANAGING TENANTS THROUGH: PROPERTY PAYMENTS AND ADMINISTRATION 21

PROBLEM STATEMENT • Disputed Municipal services payments and Shared services (Water and Energy Saving) by Client Departments • Illegal occupation of vacant state owned properties • Collection of rentals due from tenants 22

PROPERTY PAYMENTS FOR 2017/2018 FIN YEAR • The total expenditure for 2017/2018 on property related payments is over R 11. 8 billion. This includes: – Rates(R 1. 2 billion), – Municipal services(R 4. 3 billion), – Lease rental(R 4. 4 billion), – Shared Savings (Water and Energy savings R 321. 1 million), – Day to day maintenance(R 1. 2 billion), – Cleaning & Gardening(R 264. 7 million); and – Security services(R 77. 8 million). • Municipal services, Lease Rental and Shared Savings are recoverable payments. • A Task Team has been established to deal with the disputes (Finance HO and REMS)

INTERVENTIONS: MUNICIPAL ENGAGEMENTS: PROPERTY PAYMENTS Purpose: 1. Coordinate communication with municipalities regarding property rates and taxes, water and electricity 2. Reconcile municipal invoices with DPW payments 3. Negotiate for the reduction of municipal invoices 4. Discuss the management of state owned vacant properties: ü ü ü Securing Letting OUT Transfers, donations, administration and management Governance tool: Mo. U between DPW and individual municipalities 24

We have piloted this intervention with the following municipalities: Municipality Province Partnership initiatives ZF Mgawu District Municipality Northern Cape Management of DPW vacant properties Development – Capital investment – of DPW vacant properties Elundini Local Municipality Eastern Cape Development of a government precinct on DPW land Mandeni Local Municipality Kwa-Zulu Natal Availing of land for development – Capital investment Ray Nkonyeni Local Municipality Kwa-Zulu Natal Management and Development of DPW land Ndlambe Local Municipality Eastern Cape Development on DPW land – Capital investment, skills development Namaqua District Municipality Northern Cape Joint identification of investment and development opportunities Management and protection of DPW properties 25

INTERVENTIONS: ILEGALLY OCCUPIED PROPERTIES: OPERATION BRING BACK 1. 2. 3. REMS is working with the SIU to identify and investigate illegally occupied properties To date, 1300 properties have been identified as illegally occupied. REMS is in the process of: • Investigating, with the SIU, all cases submitted/ reported • Evicting the illegal occupants; and • regularising the occupation status by conclusion of a lease agreement. Below: images of illegally occupied properties in Gauteng 26

BUSINESS PROCESS REVIEW 27

PMTE HIGH-LEVEL BUSINESS PROCESS 28

ACQUISITION REMS PROCESS LANDSCAPE STORY BOARD OUTRIGHT PURCHASE LEASE RENEWAL OCCUPANT (ANNUAL OCCUPANCY CONFIRMATION RETURN) LETTING AGREEMENT DONATION IN LEASE AGREEMENT LEASE IN OCCUPIED SERVICE LEVEL AGREEMENT TENANT TITLE DEED STEWARD (USER DEPARTMENT) OCCUPANCY AGREEMENT PROPERTY HAND BACK PROPERTY HAND OVER FRAMEWORK / SERVICE LEVEL AGREEMENT PROPERTY FINANCE COLLECT USER CHARGES / LEASE PAYMENTS PAY RENTAL, RATES AND UTILITIES NOT OCCUPIED CUSTODIAN (PMTE PROPERTY) IAR DISPOSAL TEMPORARY (LETTING OUT) VACANT PROPERTY ADMINISTRATION DISPOSAL PERMANENT

REMS TEMPORARY ACQUISITIONS (LEASING IN) STORY BOARD * Lease Acquisition through competitive bidding * Negotiated Strategy using emergency and sole supplier ACQUISITION PLAN SPACE NORMS PROCUREMENT METHODOLOGY Receive Investment Decision / PI (*Divisional Head: REMS) (* Senior General Manager) Bid Administration (* Administration - PM and Head: Acquisitions) (* Advert - SCM ) (* Bid Receipt – SCM and PM) N BSC: PM (Client & Architect) (* Senior General Manager) Site Evaluation Report R BEC: PM (Architect & QS) (Objective Report) MAINTENANCE PLAN REPAIRS AND UPGRADE COMMITMENT TENANT INSTALLATION R BAC: PM (Adjudication Criteria) (Recommendation) National Oversight STATISTICAL ANALYSIS Tenant Installation Reconfiguration and Refurbishment Contracting and Document Management Occupation Administration and Finance Monitor and Manage Contract

REMS TEMPORARY DISPOSALS (LETTING OUT) STORY BOARD Identify and Information Gathering Bid Specification Bid Administration (Advert) Evaluation Recommendation Final Approval Contracting and Document Management Monitor and Manage Contract Occupation Administration and Finance

INCREASING CAPACITY: SKILLS IMPROVEMENT PROGRAMME • The REMS branch will under go in-house training aimed at skilling REMS staff • Targeted timeframes: January – June 2019 • Courses to be held: – Introduction to Real Estate Management – Property Law – Property Finance – Financial Accounting – Public Sector Procurement – Property Development – Market analysis/ research 32

END National Department of Public Works (NDPW) Head Office: Public Works CGO Building Cnr Bosman and Madiba Pretoria Central Private Bag X 65 Pretoria 0001 Website: http: //www. publicworks. gov. za 33