Ann Crotty Writer-at-large
Resilient Property Income Fund
Resilient Property Income Fund

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 at about the time of the Greenbay bookbuild in May 2017. Fredericks was the first black hockey player selected for the 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 were not substantiated and would not stand up to independent scrutiny.

Among the many issues of concern raised by 36ONE are the remuneration policies of the four companies. Employees, who do not have retirement benefits, are incentivised to take out loans from the company to buy its shares. Employees can borrow up to 20 times their 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 said that if contrived underlying premiums were stripped out Resilient’s net asset value at September 2017 was R53.99 per share. The report suggested there was no justification for shares of property companies to be trading above net asset value. It estimated the Nepi-Rockcastle net asset value to be R110.26 per share and Fortress R12.31 per 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 record high of R217.50.

Longtime 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.

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