Investors tear into Resilient after damning report
Property trust's share price tanks 8.5% on Monday
Investors were not persuaded by Resilient’s initial response to damaging allegations made by 36One Asset Management and on Monday marked down the shares significantly, moving them towards the levels the asset management company contends are more appropriate.
A report by 36One, which leaked into the market on Friday, claims the exceptionally high valuations of the Des de Beer led Resilient group, which also includes Fortress, Nepi-Rockcastle and Greenbay Properties, “arose from insider-directed and insider-related transactions in group companies’ shares (intended) to deliberately inflate share prices and volumes traded.”
A section titled “Possible insider trading” referred to the purchase and sale of Greenbay shares by Allistar Fredericks Development around the time of the Greenbay bookbuild in May 2017. Fredericks was the first black hockey player selected for the SA national team.
“The timing of these sales was either highly fortuitous or based on insider information,” said the 36One report. On Monday Resilient said De Beer was a trustee of the Allistar Fredericks Development trust and that neither he nor Fredericks were beneficiaries.
Resilient said 36One’s untested allegations of concealment, deception and share price manipulation are not substantiated and will not stand up to independent scrutiny.Another of the many concerns raised by 36One is the remuneration policies of the four companies. The employees, who do not have retirement benefits, are incentivised to take out loans from the company to purchase the company’s shares. An employee can borrow up to 20 times his/her annual remuneration. “The incentive to increase the share price becomes excessive,” said 36One.
The Resilient share price fell 8.5% on Monday to close at R98.84, significantly down from the R151.16 at which the share peaked at the end of December following its inclusion in the Top 40 index. The 36One report argues that if contrived underlying premiums are stripped out Resilient’s net asset value as at September 2017 was R53.99 a share. The report suggests there is no justification for the shares of property companies to be trading above their net asset value.
It estimates the Nepi-Rockcastle NAV to be R110.26 a share and Fortress at R12.31 a share. On Monday Fortress closed 11.8% weaker at R23.70 having reached a high of R42.50 at the end of December. Nepi-Rockcastle was down 9.17% to close at R126.26 on Monday compared with a late December all time high of R217.50.
Long-time supporters of Resilient management say the report does not take into consideration the very attractive properties in the group or management’s deal-making abilities.