Listed property funds are eyeing the potential sale of the Eskom Pension Fund’s (EPF) stake in Pareto, an unlisted property loan stock company that houses a portfolio of prime retail assets valued close to R10bn.

The EPF holds 60% of Pareto’s linked units; the remaining 40% are held by the Public Investment Corp (PIC).

Pareto’s portfolio features some of the best retail assets in the country and market talk is that the EPF wants out. The portfolio includes significant holdings in regional shopping centres such as Sandton City, Cresta, Eastgate, Southgate and Westgate in Johannesburg. It also has holdings in Tyger Valley in Cape Town and The Pavilion in Durban.

It is said that the EPF has placed its stake on the market with a view to shifting its focus towards a more liquid and diversified property portfolio.

Given the quality of the assets in Pareto’s portfolio, investors are likely to clamour for a piece of the stake on sale. The PIC could be eyeing the shares as it seeks to boost its property exposure from the current estimated 2% of its total asset base of R700bn to a total of 10%.

Pareto and the EPF did not respond to the FM’s queries.

Pricing in such a sale is expected to be a challenge in the current state of the market, but the EPF would probably insist on a premium price for its holding. These hopes are likely to be dashed by the present depressed conditions.

A star performer in the past few years, retail property has cooled off, according to the latest figures released by real estate performance analysis group Investment Property Databank. The group’s numbers show retail property posting a total return of 26% last year. This is down from 27,45% in 2006 and 32,6% in 2005.

The EPF is said to have appointed an international banking group to advise on the disposal of its Pareto stake. Observers say the appointment of an international player — most likely to be Deutsche Bank — suggests that EPF is widening its search for an international buyer. Armed with hard currency, players like Dubai World are known for outbidding locals by pushing yields to levels that are unacceptable to local investors.

But the PIC might have the muscle to compete. Government’s pension fund manager is known for aggressive bidding. When the PIC took over former listed property loan stock CBS for about R2,3bn, it outbid its competition on price.