Motseng CEO Sandile Nomvete on the company, the inflation and interest rate outlook, and investing in the property sector.
Bruce Whitfield: The fact that interest rates are likely to stay steady for longer, following remarks from the Reserve Bank governor last night, suggests that the economic environment we find ourselves in, compared to two months ago, is a lot healthier.
That ultimately could be good for listed property. Sandile Nomvete is the chief executive officer of Motseng. Sandile, just to clarify — it used to be Motseng-Marriott, a 50/50 JV between Motseng and Marriott. Now, Marriott has been bought by Old Mutual Properties, and I’m all terribly confused.
Sandile Nomvete: Bruce, thanks for inviting me onto your programme. Let me just give you some background as to how the company was formed, three years ago.
Marriott were prudent, and identified quite early that there were obviously going to be changes within the property sector. They had certain assets that belonged to state pension funds, which obviously needed to be empowered.
And they went out on a search to find their proper BEE partner three years ago, to assist them with the management of these assets. We obviously had quite a good relationship with them from day one.
If a joint venture outside of the structure of the main Marriott was formed, which had plus minus R1.7- to R1.8-billion of assets then, which were predominantly shopping centres.
But you know, the company has operated with an independent board, it was chaired by our chairman, JB Mokwaza, and we had our own employees outside of that. But obviously we (… unclear …) of the infrastructure of Marriott systems. They had huge IT systems, research, the leasing, brokers all over the country.
It made a good fit, and I was fortunate enough to be the inaugural MD of that particular company. But the Motseng Marriott relationship affair is a subsidiary of Motseng Property Group; the name has changed.
The same property group has always been there, and Motseng Property as such, has facilitated management and other interests as well.
With the changing of the environment in property and obviously with the charter coming, they were involved in another transaction with another player in the property sector. We were prudent enough, as Motseng shareholders, to seize the opportunity to really create a substantial black owned property management company, which I’m glad to say today we are 100 percent black-owned.
Bruce Whitfield: What is the value of assets under management?
Sandile Nomvete: Including our residential side, it’s about R2.6-billion. It’s been phenomenal. It’s been quite an interesting ride. I think my introduction — I’ve got an IT background — it generally tends to be a very conservative market, very close-knit. There are very few players who control a vast amount of property. So your target market is very limited, as a service provider into that market.
Bruce Whitfield: It’s an interesting sector, and it has been a very strong growth sector in the last three years or so. 2005 in the property sector — it has always been a safe-haven as far as many investors are concerned, but it’s been a pretty exciting year in the equity market.
We have record highs almost on a daily basis. Has the property sector suffered as a result of this strength in broader equity?
Sandile Nomvete: I don’t think so. I think it’s done very well. I think people are anticipating that it’s peaking out, and it might not sustain the type of returns that it has been delivering to the investors as an asset class, anyway.
But what it has done on the ground is that it’s literally sucked up as much stock as it can take. Now if you as an investor are wanting to buy a property as a physical asset directly, you’ll be found wanting. Because guys are getting good yields from a listed sector perspective, so they can offer competitive yields, in terms of purchase.
Bruce Whitfield: Those yields are pretty good across industrial property, commercial property and office property, which is doing exceptionally well. Shopping centres are absolutely flying. They’re being thrown up all over the place. You drive past a plot of land one day, two weeks later you go past and somebody’s digging holes in the ground to lay foundations for a new shopping centre.
Sandile Nomvete: It’s obviously being pushed by retailing. I think the retailing sector has done very well. The new black middle class that everyone is talking about has really come through. And we see that in the numbers in the shopping centres that we manage. The retailers are going well, and they’re looking from more space. They’re looking to expand.
Bruce Whitfield: We’ve heard that from many retailers companies. Mr Price was saying it wants to double the size of some of its stores. But there just isn’t the space available, and that’s very good right now.
But now we look at South Africa 2006. Tito Mboweni was making very positive noises about inflation, and as a result, interest rates have gone down the line.
Your outlook for interest rates? We’re unlikely to see an increase on Thursday, but when the rates start picking up, and they must at some point, this property sector, especially when you look at the shopping centres, the retailers, that sort of thing, there’s got to be a bit of pressure coming in there.
Sandile Nomvete: There will be, and that’s why it’s important for any investor in there, when you do review some of these listed property funds, you obviously have an understanding of the underlying assets. The quality of those assets, that you’re not just driven by the hype that’s being played in there.
I think you need to be prudent, specifically in the buoyant market, because once the retailers start taking a knock, they’re probably not going to be performing, specifically your Mom’s and Pop’s. I think your big nationals generally get a good deal from the landlords, so you need to be prudent if you are going to be investing in the market as well, in the JSE.
Bruce Whitfield: We’ve got about 30 seconds — which area of the property sector do you think is going to perform best in 2006?
Sandile Nomvete: I’m going to take a stab here and say the industrial sector. I think it’s also based on the retailers, basically. It’s not just about opening new shops, but about finding new warehouse facilities, new distribution channels. For me I would say the industrial sector should perform. Offices are also ticking up quite nicely, in particular areas.
Bruce Whitfield: Sandile Nomvete, thank you very much. The chief executive for Motseng.
