Pareto Limited

Retail-focused property fund Pareto has over the past few years churned out impressive financial performances but its mettle will be tested as retail spending takes a dip because of slowing economic activity.

The consumer exuberance of the past few years has lost steam. High interest rates and rising costs of basic goods and services have punched holes in consumer purses. Retail spending is declining. Consumer confidence as measured by the Bureau for Economic Research (BER) was knocked to a 24-year low in the second quarter of this year.

That means retail property players who were merely riding the crest of the wave stand to be exposed. Pareto - which is the largest retail-focused property fund in the country, with assets valued at about R10bn - comes under the spotlight.

However, Pareto's numbers cruncher, Nomzamo Radebe is not having sleepless nights. Like everyone else, she is concerned about the wellbeing of consumer spending but the chief financial officer derives comfort from the quality of the assets under her watchful eye. These assets include exposure in super-regional shopping centres such as 100% of Cresta, 25% of Sandton City, 58% of Tyger Valley and 100% of the Pavilion.

"I'm confident that our portfolio of prime retail assets can withstand the prevailing pressure," she says. "They are resilient. That is not only due to their type and quality but it is largely about how they are managed."

Radebe, a chartered accountant, is running a tight ship, which is visible in the financial numbers churned out by the group over the past few years. Key indicators come in above the benchmark. This suggests that Pareto was not merely riding the wave but has been driving efficiencies, which then produces above-average margins.

In the financial period ended June this year, Pareto produced a 12,3% improvement in net property income to R704m from revenue of R939m. The operating costs are well controlled at about 28% of gross income compared to a benchmark of 33%. Cash distribution to shareholders grew by 20% to R676m.

Radebe points out that these numbers emanate from a well-designed focus on key factors like costs, lease management and general portfolio management.

Pareto's latest annual report summarises the group's management strategy as follows: "We invest capital to enhance our portfolio returns through renovations and expansions and increase cash distributions to shareholders. We focus on improving profit margins through diligent leasing, minimising vacancies and optimising the tenant mix."

By Sibonelo Radebe, Financial Mail