Pareto Limited

A whole new world awaits unlisted property loan stock company Pareto, as it prepares to splash out about R5bn to grow its asset base in the next 24 months.

Pareto plans to deliver on its growth promise using a three-pronged strategy - the acquisitions of existing assets, joint ventures with developers in new developments and unearthing the potential of existing assets through expansions, redevelopment and refurbishments.

There is the long-established pillar of expanding the existing asset base, which is complemented by acquisitions. Pareto will, to a lesser extent, comb the market for development opportunities. The group's executives clearly state they are not about to recklessly assume development risk.

The new investment plan will boost Pareto's net asset value by 50% to more than R15bn, which will make it one of the largest property funds in SA. More interestingly, Pareto - which is currently a retail-focused fund - plans a measured venture into industrial and office property. It has secured a mandate from the board of directors to look at mixed-use retail developments with light industrial and office properties as part of the mix.

Pareto's retail investment range has been widened. The property fund's investment horizon was previously limited to large shopping centres with gross lettable area of not less than 60 000 m². The bar has been lowered to 30 000 m², which brings onto Pareto's radar screen a wide variety of community shopping centres.

The widened mandate creates more than enough space for Pareto's lean management to play around. That applies more to recently appointed acquisition manager Osafo Gyimah. As evident in his title, Gyimah was brought in to give life to Pareto's long-stated growth ambitions.

Gyimah is no stranger to the property industry. He is a well-rounded property professional who holds a master's degree in building science from the University of the Witwatersrand, topped with an MBA from the University of Pretoria. He has been around the property block, having worked for JHI, McDonald's, Woolworths' Property Division and the Construction Industry Development Board.

Talking to Gyimah, you get the sense that he means business. "I came to Pareto because they threw a real challenge at me," he says. "My job is clear and the organisation is serious about it. I'm expected to grow the asset base and they will give me the resources to do so."

Gyimah hit the ground running. Having joined Pareto in March, he is now bedding down the acquisition of Mimosa Mall, a 37 000 m² shopping centre in Bloemfontein. "We are a small organisation and therefore able to move much quicker than our competitors," he says.

Pareto has projects worth about R3,2bn in the pipeline. These include new acquisitions and expansion of existing properties. "We have to ensure that the potential of our existing assets is exploited fully," says Gyimah. Some of the existing assets are already undergoing expansion work.

Gyimah's work is made easy by Pareto's extraordinarily strong balance sheet. Having stayed away from acquisition for some time, Pareto boasts a gearing level of about 4%, which can be moved up to about 20% to drive growth. Simply put, money is no problem.

"If there is an asset in the market that is aligned to the investment strategy and the numbers are making sense, we will do it," says Gyimah.

It has to be noted that Gyimah does not wield a blank cheque. He still serves an organisation that remains cautious in its investment decisions. That is largely borne out of the nature of its shareholders and the ultimate beneficiaries of its profits. Pareto is owned by the Eskom Pension & Provident Fund (EPPF) and the Public Investment Corp (PIC), which manage funds on behalf of workers.

"Pareto's prudence is not about to be sacrificed for the sake of meeting growth targets," says chief financial officer Nomzamo Radebe. "We are always aware of our shareholders' mandate and needs." That filters through to Pareto's growth strategy. New acquisitions are subjected to a rigorous due diligence process to assess the suitability of the assets pursued. "One has to always be cautious of growing the asset too fast," she says.

The man sent out to break new ground is acutely aware of the stringent investment guidelines. "If you work for an organisation like Pareto, the picture of the ultimate beneficiaries of the business remains with you all the time," says Gyimah.

"Every asset you look at has to conform to our investment criteria and ultimately the needs of the shareholders," he says. "We will always be clinical in our due diligence processes to obtain the best possible returns for our shareholders. We will buy assets if they meet our criteria, which includes clearly defined quality measures, cash flows and total returns."

By Sibonelo Radebe, Financial Mail