Real estate panic on fears about Viceroy

There was widespread panic selling across the listed property sector on Thursday on speculation that the Resilient group of companies could be the target of a corporate governance report that US firm Viceroy Research said it would release in 2018.

Commentators suspect hedge funds are selling shares in companies in the Resilient property stable in anticipation of a report that may highlight alleged illegalities or irregularities within the group.

Viceroy Research, the US firm that became prominent after releasing a report about embattled Steinhoff International’s accounts in December, said it had another report on the way on an unnamed South African firm.

Investors across the JSE are trying to work out who the dubious company could be.

But Garreth Elston of Golden Section Capital said that while it was common in large listed real estate markets such as the US and Canada for research houses and fund managers to release critical corporate governance reports and short-sell property stocks, this was not yet the case in SA. The country’s listed property sector was still relatively young, having gained momentum in the past decade.

The Resilient group includes some of the largest blue-chip real estate stocks listed on the JSE: Resilient Reit, Nepi Rockcastle, Fortress Income Fund and Greenbay Properties.

These stocks have all performed well over the past few years, often beating the sector’s average dividend and capital growth. Resilient Reit’s total growth was 37.08% in 2017, while the sector’s growth was 16.18%, Elston said.

Resilient Reit CEO Des de Beer said the group had no internal concerns.

“This is a concentrated effort to weaken our share prices. Yes, Resilient group companies trade

at a premium but that is a market-driven premium.”

The sell-off of Resilient group shares prompted sales of other real estate investment trusts across the JSE.

The South African listed property index closed 2.18% down on Thursday, having dropped as much as 8.5% before recovering.

Growthpoint Properties, the largest locally based real estate company, closed 0.75% lower at R26.30, having hit an intraday low of minus 1.54%.

Growthpoint Properties CEO Norbert Sasse said that the fall was in line with what global bond prices were doing, as yields rose.

South African regulators are scrutinising trades. The Financial Services Board is working with the JSE to review trading activity and determine whether a formal probe is warranted.

Fayyaz Mottiar, who heads Absa’s Property Equity Fund, said the share sales had been speculative and illogical. “These sellers have behaved irrationally and acted without facts. Today, I bought more stock in the likes of Greenbay, which actually has low gearing despite what some news reports have said.”