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Property: Largest Commercial Property Transaction in Recent Years


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Old Mutual Life Assurance Company of South Africa (OMLACSA), current owner of the premier retail properties, Menlyn Park Shopping Centre in Pretoria and Cavendish Square and Connect Shopping Centre in Cape Town, has signed sale agreements in respect of 50% undivided ownership interests in these properties with Pareto Ltd., for a purchase price of close to R2.5 billion.

Old Mutual Investment Group Property Investments, which currently manages the two retail properties, is being retained as managing agent. The parties have agreed to a market-related fee for the management of the assets by OMIGPI.

Ben Kodisang, managing director of OMIGPI said this is the largest commercial property transaction in South Africa since the sale of the V and A Waterfront.

“The sale of part ownership in these premier retail properties and the price achieved supports the market values of our portfolio and clearly demonstrates that good quality property still commands value even in a depressed market,” Kodisang said.

The transaction is not yet final. It is subject to certain suspensive conditions, including the successful conclusion of the co-management agreement and regulatory approvals.

Commenting on the deal with Old Mutual, Alex Phakathi, Pareto’s managing director, said: “These are significant acquisitions for Pareto as they give us a presence in the important Pretoria market and increase our asset exposure in the Western Cape – Cavendish Square and Connect Shopping Centre has the highest LSM footprint in the Cape Town area.”

“We are now represented in South Africa’s commercial, administrative, legislative and judicial capitals, which are markets with substantial purchasing power,” Phakathi adds.

Old Mutual’s strategic rationale for the sale of the properties is that OMLACSA’s policyholder funds were overweight in property, particularly within the retail sector. This transaction enables them to reduce their exposure and rebalance the mix of their total property portfolio while retaining a meaningful interest in both Menlyn and Cavendish. Both properties remain strongly performing assets and underpin the quality of the total property portfolio known as the Triangle Core Fund.

OMLACSA will continue to be a major property investor and developer, and specifically will be co-investing alongside Pareto in further expansion of these precincts into the future.

For Pareto, this acquisition is part of a continuing strategy to grow their portfolio and is approved by their shareholders. The transaction will be funded in the normal way Pareto funds its capital expenditure, which could entail a mix of third party debt and shareholder equity contribution.

The yields are in line with the parties’ investment criteria, taking into account the current market conditions and also reflect the quality of the assets being acquired in this transaction.

Pleased with the joint ownership, Kodisang said, “The partner we have chosen adopts a similar investment philosophy to ourselves, has a strong balance sheet and available funding to realise additional value in the properties. This is a good deal for both parties and we see this transaction as the start of a long and mutually beneficial relationship.”

For Phakathi, “Both centres fit in well with our existing assets and we are pleased with the quality and experience of our new partners, who have a similar property mindset to ourselves. We are confident that we will be able to work together with our new partners to enhance the value of these centres.”

Commenting on Menlyn Park specifically, Phakathi said Pareto and Old Mutual will be considering expansion opportunities to improve the tenant mix and create further value for both investors.

Pareto, which is owned by the Eskom Pension and Provident Fund and the Public Investment Corporation, has existing interests in seven other shopping centres, including: Cresta (100%), Sandton City (25%), Southgate (67%) and Westgate (56%) in Johannesburg; The Pavilion (100%) in Durban; Tyger Valley (58%) in Cape Town; and Mimosa Mall (100%) in Bloemfontein.

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