Transnet is selling the iconic Carlton Centre, but will remain in the Johannesburg CBD, in line with its ambitions to become a leading property developer and boost group cash flow.
“Yes, we are selling Carlton Centre, but we are not leaving the CBD. I think that is one thing people will be worried about, [saying] if state-owned entities leave the city centres, what about [the future of] our CBDs?” Transnet Property CEO Kapei Phahlamohlaka said.
He told Business Times this week the entity was hoping to fetch no less than the R900m valuation for the building.
“It is our wish and prayer that we get the valuation.” he said, adding that proceeds of the sale would go towards ensuring Transnet remained in the Johannesburg, Tshwane and Durban CBDs.
Transnet is refurbishing its new head office next to Park Station, Johannesburg, and is upgrading its Nzasm building in Pretoria for Transnet Freight Rail employees who currently work in a third-party property in Parktown, Johannesburg. In Durban, it is bringing its offices under one roof in a building it owns.
The entity bought the Carlton Centre in 1999 and used it as its head office from about 2000. In 2018 it moved staff to a building in Waterfall, Midrand, to enable a revamp of the centre. However, renovations never happened.
The Waterfall lease was due for renewal in August 2021, with Transnet informing the landlord, Attacq, of non-renewal in March that year.
The Carlton Centre is home to popular retail groups including Pick n Pay, Woolworths, The Foschini Group and Mr Price, and has the 600-bed Carlton Hotel that was mothballed in 1997.
“I think it is going to be the beginning of a new era. People always talk about the Carlton Hotel to say this is the hotel [former president Nelson] Mandela visited when he came out of prison. Can we duplicate that at Transnet? We won't. We believe a third-party developer can do that. When a third-party developer does that, they will resuscitate the memories, reinvent what it used to be, so people can love Carlton Centre again,” said Phahlamohlaka.
Transnet is also disposing of its residential property portfolio, which includes 4,600 houses, to staff and non-staff. In addition, it will sell 18 hostels across the country, with the uMlazi facility in Durban, also known as Tehuis, being the largest with 10,000 residents
“We find ourselves in a position today where generally Transnet is challenged financially, then we start looking at assets and say what do we do? Do we have the capability and the financial muscle to reinvest into Carlton Centre? The answer is no. What value are we adding to Johannesburg by keeping a property that has got so much potential, but we do not have the resources [to] turn it around?
The Carlton Centre is Transnet's second-biggest asset in its property division after the 640-hectare old Durban airport, valued at R2bn.
However, Transnet's plans to develop a logistics hub there have been legally hamstrung.
The entity is working towards developing 90 hectares of the property that are not affected by the legal battle. It is co-operating with Dube TradePort to establish an automotive supply hub. There are also plans to develop a rail link between the airport and the Durban port.
He said under CEO Portia Derby, the group plans to become a leading asset developer and had identified land on which to develop precincts.
“It could be an industrial precinct, a mix-use precinct, it could be anything you want. We have identified 24 [sites]. We are identifying more. We are interacting with the municipalities to understand their IDPs. We are looking for private sector participation (PSP). We will put our land as a contribution of Transnet, a third party will bring in the money and we will bring the development know-how,” he said.
Transnet is also disposing of its residential property portfolio, which includes 4,600 houses, to staff and non-staff. In addition, it will sell 18 hostels across the country, with the uMlazi facility in Durban, also known as Tehuis, being the largest with 10,000 residents.
In the 2017/18 financial year Transnet announced plans to sell hostels to various metros for R1.
“Basically it was Transnet donating the hostels [where our people no longer live] and saying: 'Can you take them and convert them into proper human settlements?' It has been a marathon battle until today. We spend about R100m a year on the hostels we generate zero revenue from,” Phahlamohlaka said.
He added that Transnet plans to develop a waterfront in Signal Hill in East London and another in Gqeberha, once the manganese terminal has been relocated to the port of Ngqura.
Transnet swung to a R5bn profit in 2021/2022 from an R8bn loss the previous year after the re-evaluation of the group's assets.
"You can imagine a few years ago Transnet did not know the full extent of its investment portfolio and through the recent valuations, Transnet has been able to achieve growth in the investment portfolio to R29,8bn, including the ports. This resulted in Transnet recovering from a loss to achieving a profit.
At that time the Transnet gearing was sitting at 49%, already approaching a level where they were going to breach the covenants because certain funders of Transnet require that you do not breach 50% of your gearing.
"At the time the gearing was 49% through the re-evaluation of Transnet property we were able to drop that gearing from 49% to 45%, that is the role we play.
When we do that, we create headroom for Transnet to approach capital markets again, they can borrow more so that they can do other operational businesses. That is one critical role we play is to strengthen the balance sheet," Phahlamohlaka said.
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