RESILIENT REIT: Sighs of relief from investors
Investors who held onto their shares in Resilient Reit, Nepi Rockcastle, Fortress and Greenbay over the past three weeks no doubt heaved a collective sigh of relief on Tuesday after it emerged that the real estate group, which makes up around 40% of the SA listed property index’s value, wasn’t the latest target of New York-based short-seller Viceroy Research.
Instead, Viceroy released a scathing report on Capitec Bank, accusing the company of being a loan shark that should be placed in curatorship. The Capitec report followed the release of a Viceroy report in December on Steinhoff’s accounting irregularities, which contributed to the near-total collapse of its share price.
In early morning trade on Tuesday, the share prices of the Resilient group’s four listed entities were all up between 6% and 8%.
That followed three weeks of extreme volatility, with more than R30bn wiped off the value of the four companies, seemingly triggered by speculation that the group could be next in Viceroy’s firing line.
Resilient’s co-founder and MD Des de Beer last week claimed the share price slump was driven by one or two local hedge-fund managers who had embarked on a deliberate campaign to short-sell the group’s shares amid fragile market sentiment, which unfortunately had a negative impact on sentiment among the group’s retail investors.
In a bid to calm market jitters, De Beer brought forward Resilient’s half-year results announcement by two weeks to last Friday. However, not even a stellar set of results, when the mall owner reported above-market 13.4% dividend growth for the six months ending December, could avert a fresh sell-down of the group on Monday. That brought the share price falls of the five companies year-to-date to between 22% and 25%.
Analysts don’t expect the destruction in the group’s market value to be fully recouped overnight. "The current environment is one in which investors in general are very skittish," says Meago Asset Managers director Jay Padayatchi. "So the release of the Viceroy report will definitely reduce the pressure on the Resilient group share prices, but the volatility is likely to remain amid an uncertain broader investment environment.’’
Keillen Ndlovu, head of listed property funds at Stanlib, agrees.
He adds that while Resilient produced a
good set of results in line with market expectations, investors may well decide to sit on the sidelines until Fortress and Nepi Rockcastle report their respective December results over the next two weeks.
While smaller retail investors have no doubt been spooked by the wild swings in the Resilient group’s share prices in recent weeks, Ndlovu says the lesson to be learnt is that investments in property stocks should be based on facts, not speculation.
De Beer voiced a similar sentiment at a packed results presentation at the group’s Rivonia head office on Tuesday, saying the relatively new entry of hedge funds to the listed property space has created a fresh nervousness in the market.
He said SA is one of the few countries where speculators don’t have to disclose their short positions, which creates increased uncertainty for long-term investors. De Beer has asked the FSB to investigate what he claims has been an orchestrated smear campaign against the group in recent weeks.
Meanwhile, property bulls will no doubt use current share-price weakness as a buying opportunity. Ndlovu says Stanlib has, over the past two weeks, already selectively increased its exposure to property stocks, including the Resilient stable of shares.
Despite Tuesday’s tentative recovery in Resilient’s share price, the stock still offers a fairly decent yield of close to 6% — up from around 4.5% at the beginning of the year.
Moreover, management still expects dividend growth of 13% for the full year to June 2018 and at least 12% for 2019. This is no mean feat given how most SA-based property companies are struggling just to maintain growth of 6%-8%.
Resilient’s continued outperformance of its peers will be supported by its sizeable offshore exposure, which makes up 46% of its R52.14bn portfolio — mostly via stakes in Central and Eastern European-focused Nepi Rockcastle and Greenbay.
However, prospects for Resilient’s local portfolio of 26 malls are also looking decidedly rosier. De Beer said they have already noted a marked improvement in sentiment among SA shoppers, with better retail trading conditions starting to filter through to lower vacancies and better-than-expected trading density growth. The average vacancy was at a negligible 1.7% in December, down from 1.9% in June.
De Beer said while average retail sales growth of 5.3% for the six months ending December was not "earth shattering", some malls — including Boardwalk Inkwazi and The Galleria, both in KwaZulu Natal — had notched up growth of more than 10%.
"November’s sales performance was particularly strong, partially supported by Black Friday promotions. We expected a pullback in December but were pleasantly surprised," said De Beer.
The company’s other flagship properties include Mall of the North in Polokwane, I’langa Mall in Nelspruit, The Grove Mall in Pretoria and Jabulani Mall in Soweto.