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Resilient group of Reits pummelled as short sellers raise bets

Fortress Reit Ltd and Resilient Reit Ltd are now the worst-performing Reits this year.

A group of intertwined South African real estate investment trusts is finding that while their close ties and dealings with each other have business benefits, when it comes to suffering, they also suffer together.

Read: Gloves come off for the Resilient stable

What is the Resilient stable accused of?

Fortress Reit and Resilient Reit extended losses on Monday to cement their positions as the worst-performing Reits this year among 199 global funds tracked by Bloomberg. Stable mates NEPI Rockcastle and Greenbay Properties are hovering in the same territory, with losses of 36% to 45% between the four of them. More investors are betting the stocks will drop as short interest in Johannesburg-based Resilient and Bucharest, Romania-based NEPI climb to a record, according to IHS MarkIt data.

The funds came under scrutiny in an internal research note by 36ONE Asset Management and analysts at Arqaam Capital, who questioned the valuation of the companies as well as inter-related transactions of as much as R122 billion. Resilient said in a statement on Monday that 36ONE’s research is “more informed by its large short position than by objective analysis.” The hedge-fund manager declined to comment because the report is an internal document.

The share slump continued even as the companies issued regulatory announcements saying investors have nothing to fear over the cross-holdings they have in each other or the inter-related transactions. Resilient, which played a founding role in Nepi Rockcastle, Fortress Reit and Greenbay, said its investments in the other companies have always been a “clear and important component” of its business and that it is preparing a document to address matters raised in the 36ONE report as well as those in the Arqaam note.

It is “not quite fair” to single out only short sellers as some long-only money managers and analysts are raising the same concerns, Michele Santangelo, a money manager at Independent Securities, said by phone from Johannesburg. “More and more people are citing the same sort of issues with regards to the Resilient stable and I think its making a lot of investors nervous.”

Resilient shares rose 1% to R101.01 in early Johannesburg trade Tuesday, snapping two days of losses. Fortress fell 2.1%, extending a three-day decline to 14%. Rockcastle fell 0.6% and Greenbay rose 3.7%.

© 2018 Bloomberg

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Any comments from the passive fund infustry…your top40 and prop trackers are getting a hiding. Wonder if Magda analysed the Resilient Group…

Well, the NewFunds Momentum ETF added Resilient to its constituents this month so that’s been fantastic… 🙁

Why are these “Ponzi” shares not being identified by local (and much vaunted) analysts?

Because they are half a sleep and don’t understand the basics of valuations. In depth analysis is not the forte of SA analysts – and the AFS are confusing enough. IFRS also contributes to the confusion.

36ONE must have had insider info as in the case of Viceroy to do their analysis. You don’t unpack the level of detail that they have from the published results.

in short we need straight forward historical cost based reporting with decent notes. The reporting requirements for listed companies must be simplified to a point where there are no grey areas. Resilient used the confusing reporting to obfuscate financial information. Likewise intergroup transactions should have a note all on their own so that analysts can identify actual arm’s length transactions.

EISH, maybe the PIC can help, yoh yoh yoh ,give them another chance
So WhEre TO from here ?

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