Real estate group Texton Property Fund has been stung by its fourth CEO resignation in barely three years.
Texton announced on Friday that Nosiphiwo Balfour, who was appointed as CEO in July 2017, has resigned with effect from October 31. The company did not mention the reason(s) for Balfour’s resignation but said in a stock exchange filing that an interim CEO is in the process of being appointed.
Balfour’s resignation will arguably come as a shock in SA’s real estate sector as she was central to efforts of stabilising Texton, which owns a R5.5 billion property portfolio spread across SA and the UK.
Her appointment came at a time when shareholder sentiment towards the company was negative given its stock underperformance, the high CEO and board members turnover rate, slow dividend growth and its exposure to SA’s struggling office sector.
At 35 years old, Balfour was also one of the youngest and first black female CEOs in SA’s real estate sector, which still has few black and female professionals holding senior management positions in companies. Balfour replaced Nic Morris, who also abruptly resigned in 2017. Prior to Morris being at the helm of Texton, the company had Angelique de Rauville and Rob Kane as CEOs.
Garreth Elston, a portfolio manager at Reitway Global, said in terms of volatility in SA’s real estate sector, Texton has “set a standard that companies should not emulate.”
“The choice of CEO after Nic Morris’ departure required a very experienced, stable-hand property professional, preferably one with experience in turning around troubled companies. Given the company’s history though, it is highly likely that several candidates approached would choose not to proceed with the opportunity to lead Texton,” said Elston.
He said Texton’s board has to make difficult decisions if they hope to regain any semblance of investor confidence.
Upon Balfour’s arrival at Texton, she managed to reduce the company’s exposure to the office property sector through the acquisition in May 2018 of a R205 million logistics property portfolio in Cape Town. She also completed Texton’s much-anticipated internalisation of the company’s asset management. However, some market watchers remain concerned about Texton’s UK-based properties given the political and economic uncertainty brought by Brexit.
Coming into the CEO role, Balfour called shareholders to be patient and give management the space to build a renewed track record. “The new management should be given some grace in terms of an opportunity to give the market the proof of the pudding. We are sitting with a better-positioned property portfolio for growth and we need to make it defensive in the tough trading conditions to come,” she recently told Moneyweb.
Despite Balfour’s turnaround efforts, Texton’s stock has underperformed the market. So far this year, Texton shares are down 7.15% and 43.1% over the past three years.
Its share price underperformance has prompted market watchers to speculate that Texton would be a takeover target by larger counterparts, with the frontrunner expected to be Rebosis Property Fund.
The company recently postponed the release of its results for the year ended June 30, which were due to be released on September 3. The results will be released on September 28, 2018.
The postponement was prompted by Texton’s black economic empowerment (BEE) consortium defaulting on its loan from the Government Employees Pension Fund (GEPF) to acquire a more than 13% stake in Texton, valued at about R290 million at the time of writing. The GEPF, which has R2 trillion worth of investments managed by the Public Investment Corporation (PIC), advanced a R443.5 million loan to the BEE consortium in 2014.
As part of the security on the loan, Texton granted the GEPF a put option (an agreement to sell shares at a specified price and time frame) on its shares. In a recent stock exchange filing, Texton said because its BEE consortium told the PIC that it is “unable to remedy the [loan] default” by September 12, the GEPF decided to exercise its put option – or in other words, Texton will be required to repurchase the Texton shares from the GEPF.
“Given the current share price and the illiquid volume of the Texton share the sale will not restore or remedy any covenant breach [of the loan] and therefore the PIC has notified Texton that they are exercising the put option,” it said.