Behind Resilient’s grim dividend forecast
Mall owner says power cuts and Edcon struggles have contributed to 6.3% cut
Resilient, which was involved in a property scandal that saw it lose more than 60% of its market value in 2018 after traders flogged its shares, has warned that power disruptions and national retailer Edcon’s struggles will reduce its dividend growth in its upcoming financial results.
The group, which owns malls in small towns such as Tzaneen, Polokwane and Brits, and also has stakes in European retail landlords Nepi Rockcastle and Lighthouse Capital, said problems beyond its control had led to rising costs.
It said in a pre-close statement on the JSE’s news service that it now expects to pay a dividend close to 530c a share for the year to June, at the lower end of its guidance. The upper end was 550c. This meant its total dividend for the year would be about 6.3% lower than that achieved in its 2018 financial year.
Resilient is not used to its dividends shrinking. Even though its total dividend for the year to June 2018 was 565.44c, 0.3% lower than the 567.29c for the year to June 2017, the company has achieved dividend growth in every financial reporting period since listing in December 2002.
Its earnings were being dented by higher costs for repairs and maintenance of electrical items due to Eskom’s power cuts. The company said no fees from trading or development profits were included in distributable earnings.
Resilient also announced that Edcon’s Edgars chain planned to close two stores in its malls. But it said there was demand from national tenants for this space at higher rentals.
The closure of the Edgars stores would result in an R11.1m reduction in distributable earnings for the 2019 financial year.
Resilient was formerly part of a stable of property companies that included Fortress, Nepi Rockcastle and Lighthouse Capital. The companies owned stakes within one another, shared offices and some were created by members of Resilient’s management and directors.
At the beginning of 2018, there was a sudden sell-off of shares in the companies in the stable, which persisted for weeks. Some asset and hedge fund managers released reports suggesting that the stable was overvalued and that inter-related party deals, a BEE trust once co-owned by Resilient and Fortress, as well as share trading had been used to inflate share prices and profits. By the end of the year, more than R100bn in value had been lost and the share prices have since recovered very slowly.
The Financial Sector Conduct Authority (FSCA) has been investigating the stable and the trading of the four companies’ shares for more than a year.
The investigation has so far found no evidence of insider trading at any of the four companies. It is yet to release findings on allegations of price manipulation through share trades and false and misleading reporting by and on Resilient and Lighthouse Capital. It cleared Nepi Rockcastle in the middle of June.
The FSCA is probing possible prohibited trading practices relating to trading by and on Fortress shares on the JSE.
Wynand Smit, real estate analyst at Anchor Stockbrokers, said Resilient had responded to shareholders’ concerns.
“The company has done well to address shareholder concerns over the last 12 months, which included the elimination of the cross-holding with Fortress, the Siyakha Trust restructuring and the review of the constitution of the board,” he said.
Smit said Resilient’s plan to reduce its loan-to-value ratio to below 30% by the end of financial year 2019 was “good in a challenging local property market” and lower than the sector average at about 36%.
Resilient CEO Des de Beer could not be reached for comment.
Correction: June 26 2019
In an earlier version of this article we incorrectly reported that the FSCA was investigating allegations of false and misleading reporting by Fortress. In fact, the FSCA is investigating only possible prohibited trading practices relating to trading in its shares on the JSE. Possible insider trading and false and misleading reporting cases have been closed.