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Resilient CEO sees ‘positive outcome’ from FSCA investigation

Expects fund and related companies to be cleared of allegations related to share price manipulation.

Resilient CEO Des de Beer says he is “personally confident of a positive outcome” from the Financial Sector Conduct Authority (FSCA) investigation into alleged share price manipulation within the group.

He was speaking to Moneyweb this week following the release of the group’s 2019 full-year results to June on Friday. Barring a brief mention during a presentation to analysts at the JSE on Tuesday – simply that the company was still awaiting “finalisation of the FSCA investigation” – De Beer declined to comment further on the matter.

The real estate investment trust (Reit) and linked companies Fortress, Nepi Rockcastle and Lighthouse Capital (formerly Greenbay Properties) were rocked by allegations of insider trading and share price manipulation last year that saw more than R100 billion wiped off the share price of the four. It also resulted in contagion in the listed property sector, with the FTSE/JSE South African Listed Property Yield (Sapy) index sliding 25% in a torrid 2018 also impacted by poor local economic conditions.

Cleared of insider trading charges

The FSCA in March cleared Resilient, Fortress and Nepi Rockcastle of all wrongdoing relating to allegations of insider trading of shares by key directors and associates. However, the market manipulation probe by the regulator is still ongoing.

Read: FSCA clears Resilient companies of insider trading

In the meantime, Resilient has unbundled its cross-holdings in Fortress and dissolved its controversial Siyakha Trust black empowerment entity. It also brought in a new board last year headed by former Grindrod CEO Alan Olivier and announced recently that former Mr Price CEO Stuart Bird has been appointed to the board.

Speaking to Moneyweb at the results presentation, Olivier said Resilient had spent a lot of time and effort over the past year to deal with the issues raised by some fund managers and other parties.

“We have listened to their concerns and dealt with all the issues. However, it is important to note that none of the stakeholders could substantiate their claims, so this gives us a level of comfort regarding the remaining investigation by the FSCA.” 

Read: FSCA probes Viceroy, fund managers over Nepi Rockcastle report

Olivier also noted that the FSCA had found no evidence of insider trading, which he said supported the findings of an independent investigation commissioned by Resilient and led by Shauket Fakie, SA’s former auditor-general. The Fakie investigation also cleared the company of any wrongdoing relating to share price manipulation.

“Resilient is in a better position now, especially following the unbundling of its holding in Fortress,” says Olivier. “In SA, Resilient can now purely focus on the retail property market which it knows well.”

Growth despite the turbulence

Despite a turbulent year, Resilient still managed to deliver distribution growth of 3.3% on its existing property and investment portfolio. It is forecasting distribution growth of 5% next year.

The fund, which now has a market capitalisation of just over R24 billion, declared a final dividend of 267.40 cents per share for the six months ended June 2019. Together with the 263.66 cents per share declared for the interim period, the dividend for the 2019 financial year totalled 531.06 cents per share.

“The year-on-year dividends declared are not comparable as a result of the distribution of Fortress B shares to Resilient shareholders in May 2018 and as a consequence there is no income relating to those shares in the current year,” the company explained in its results announcement on the JSE. 

“If the effect of the Fortress B distribution in the prior year is eliminated, the dividends for 2019 increased by 3.3%.”

De Beer says Resilient performed well despite tough economic conditions in SA, where the fund holds two thirds of its portfolio. Its vacancies came in at a low 1.8%, while its loan-to-value ratio is the second lowest in the listed property sector at 26.8%.

Assets

Resilient owns 28 retail centres in South Africa with a gross lettable area (GLA) of 1.17 million square metres (m2) and three retail centres in Nigeria with a GLA of 29 908m2. It invests in dominant regional retail centres, largely in secondary cities in the country such as Mbombela, Polokwane and Richards Bay as well as townships and rural areas.

Just over 30% of its portfolio is held offshore through its stakes in Nepi Rockcastle and Lighthouse Capital, while 1.9% of assets are held in Nigeria through a retail property joint venture with Shoprite.

Commenting on the results, Meago Asset Management research head Ryan Eichstadt says Resilient achieved robust organic growth from its SA assets. “This is despite a tough operating environment where consumer discretionary spend and operating cost pressures continue to negatively affect South African retail Reits.”

He adds: “Resilient’s relevant tenant mix and dominant high-quality centres has resulted in low vacancies, positive reversions and, by implication, sustainable rental income growth.

“The fund has also maintained a healthy balance sheet, allowing it to invest in potential inorganic growth opportunities identified both locally and offshore.”

Keillen Ndlovu, head of listed property funds at Stanlib, also mentions Resilient’s strong balance sheet and points out that its loan-to-value [LTV] ratio of 27% is lower than the market average of about 40%. “The lower LTV gives Resilient an edge in terms of taking advantage of opportunities that may arise,” says Ndlovu. “Despite the challenges it has faced over the past year and a half, the business remains operationally sound and its assets continue to be well-managed and are performing better than the sector.”

Ndlovu adds that the 5% distribution growth outlook is above the sector average of 2%.

Asked about the FSCA investigation, Eichstadt notes: “All reports and findings to date have cleared Resilient and its executives of wrongdoing. Furthermore, the fund has made all efforts to engage with shareholders with respect to concerns raised and have mostly resolved these.

“Outstanding investigations by the FSCA relate to market manipulation in the company’s shares and whether there were any misleading statements by the company.”

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