Pareto Limited

June 30, 2009

With seven major “super regional” and regional shopping centres in its current portfolio – which is valued at around R10 billion – Pareto is keen to diversify its property interests and to become a player in the “junior regional” shopping centre arena. Essentially, it’s on the acquisition trail and is interested in receiving proposals towards possible deals.

Formed in 1998 and owned by the Eskom Pension and Provident Fund and the Public Investment Corporation, Pareto sees itself as an asset gatherer and an asset manager. Its current portfolio comprises: four shopping centres in the Greater Johannesburg area – namely Sandton City (25% owned by Pareto), Westgate (56%), Southgate (67%) and Cresta (100%); Cape Town (Tygervalley - 58%); Durban (The Pavilion - 100%); and Bloemfontein (Mimosa Mall - 100%).

“While we are retail shopping centres specialists, we have broadened our focus to include mixed developments, with the proviso that any new investments we consider must be at least 50% retail by nature,” says Alex Phakathi, Pareto’s MD.

In addition, due to the changing nature of shopping trends and catchment areas, Pareto has lowered the minimum size for it to invest in a shopping centre to 30,000 square metres from 60,000 square metres.

“The big shopping centres continue to play a major role in South Africa, but there has also been a significant move towards convenience shopping which has led to the emergence of and the need for smaller shopping centres in many parts of the country. We believe we should also be involved in this market.”

According to Phakathi, who has headed up Pareto since 2004, the company has optimised its existing portfolio and is now looking for growth through acquisitions and entering into developments with ”reputable partners”. Significantly, Pareto does not see itself taking development risk, preferring to get involved in offtake agreements and tenant mixing once new development has been completed.

With extremely low gearing compared to most property loan stock companies, unlisted Pareto believes its major strengths include its ability to take a long term view and negotiate speedily.

“Over the past 18 months we have been extremely busy analysing several proposals and doing due diligences on possible investments, but we have a low hit ratio” says Phakathi, stressing that Pareto has stringent investment criteria, making it very selective about its growth activities.

Pareto’s aim is to have a prime portfolio made up of properties that are dominant in their catchment areas, enabling the company to meet its mandate of delivering consistently growing property income to its shareholders.

Pareto’s most recent acquisition is the Mimosa Mall in Bloemfontein which was acquired last year to give it a dominant shopping centre foothold in the Free State province’s capital city. Prior to this acquisition, Pareto’s growth was organic, including multi-million rand upgrades to the Cresta and Pavilion shopping centres.

Apart from being a major player in the retail property market, Phakathi says Pareto is fully committed to advancing Broad-Based Black Economic Empowerment in the property industry through procurement, training, education and its involvement in the transformation-focused Property Sector Charter.

Corporate Social Investment (CSI) is also a major commitment, with the company budgeting to invest around R5 million a year in sustainable projects. One of its major projects involves sponsoring the Chair in Property Studies in the School of Construction Economics and Management at the University of the Witwatersrand.