Spotlight moves to Resilient stable

The Resilient group of companies, which has often out-performed its peers in terms of capital and dividend growth, is set to face the most intense scrutiny it ever has, if rumours about a report on its practices and governance, are true.

However, some of fund managers have moved to allay their clients’ fears, saying they will continue to invest in the stable, which includes Resilient Reit (real estate investment trust), Nepi Rockcastle, Fortress Income Fund and Greenbay Properties. They argue the firms are well managed by experts, who have found better investment opportunities and taken bigger risks than other commercial property owners and that the alleged report is unlikely to find anything dubious.

“I am a long-term buyer of stocks in this stable. The likes of Greenbay is very low-geared and is able to grow its dividends by 25% a year without having to increase its debt,” said Fayyaz Mottiar, head of property at Absa Asset Management.

US group Viceroy Research said at the end of December it would release a report on a second South African firm. This followed the release of its report on Steinhoff International.

Some red flags about the nature of the Resilient stable, which Viceroy could highlight, include the criticism that the firms’ corporate structures are overly complicated. It is possible that mergers between stable members had created overvalued larger members and cross holdings between the funds could lead to dubious deals.

But investors have been rewarded by these hybrid direct and indirect property groups.

Effectively, all the members of the stable have invested to some extent in dominant regional malls in SA and abroad. They then have investments in each other and as well as other sectors. Fortress Income Fund, which achieved a total return of 35.85% for its B shares and 20.19% for its A shares, owns high-end warehousing and light industrial property in SA. Nepi Rockcastle owns malls in the eight eastern European countries. It returned 35.71% in 2017 .

Resilient Reit, which invests in regional malls in SA, achieved a total return of 37.08%. Greenbay, which returned nearly 65% in 2017, invests in global infrastructure funds and distressed European property.

Garreth Elston, a fund manager at Golden Section Capital, said that over the past 12 years of analysing the Resilient group, he had “not come across anything irregular about it, but the companies were overvalued”.