Listed property woes continue with Nepi Rockcastle report

● South Africans invested in listed property will question whether they should stay invested, given that 2018 has been the worst in 20 years for the sector in terms of total returns.

Add to that the volatility of Nepi Rockcastle’s share price this week.

The JSE-listed company, which owns more than 50 shopping centres in nine countries in Central and Eastern Europe, with its largest assets in Romania, saw its share price lose 14%, or R9bn, on Wednesday before gaining back almost all of the losses on Thursday and Friday.

The fall followed a report by Viceroy Research, which criticised Nepi’s profit calculations, and the recovery came after Nepi released a detailed response. Its asset base is worth more than à5.3bn (about R82.8bn).

Meanwhile, the all property index, which includes all property groups listed on the JSE, had lost 23.4% by the end of Thursday. This included dividend and share price returns. This means investors — many of them pensioners who invested in listed property because it was seen as a “safe and reliable” sector — have had more than R100bn shaved off of their holdings.

Garreth Elston, a portfolio manager at Reitway Global, said listed property companies’ share prices are not supposed to be so volatile.

In its report, released on Wednesday, Viceroy accused Nepi Rockcastle of overstating profits. It said Nepi’s Romanian subsidiaries had recorded a pretax loss of about à41m in 2017 and not the à284.8m profit reported by the company.

Romania accounts for close to 60% of the group’s net rental and related income.

Viceroy said Nepi had deliberately misled investors by using accounting policies that weren’t compliant with international financial reporting standards (IFRS).

But Nepi CEO Alex Morar said on Wednesday that Viceroy’s research report was poorly written and that its authors did not understand that accounting rules differed in Romania compared with IFRS.

“Viceroy has ignored or does not understand the reporting regulations that the company is obliged to observe locally and internationally — in particular, the differences between local accounting standards and IFRS,” he said.

Nepi Rockcastle is a member of the Resilient stable of companies that includes Resilient, Fortress and Greenbay Properties.

These four companies’ share prices have been under sustained pressure since January.

There was a large sell-off in their shares after critics suggested that directors at the companies had manipulated the share prices and dividends paid for a number of years. The Financial Sector Conduct Authority has been investigating trading and reporting around the companies for months.

Viceroy appeared on South African investors’ radars in December when it published a report on Steinhoff International that coincided with the company admitting to massive accounting irregularities.

Viceroy has a history of acting as a short seller of well-performing stocks. Short selling involves the sale of a security that the seller has borrowed. A short seller profits if a

Investors have had more than R100bn shaved off of their holdings

security’s price declines.

Nepi Rockcastle was formed in July 2017 out of the merger of New Europe Property Investments and Rockcastle, two top performers in listed property.

There were suggestions in January that Viceroy would release a report about the Resilient stable of companies, but the report that was released that month was on banking group Capitec.

Morar said on Friday that his company was considering taking legal action against Viceroy. “We are certainly assessing our options in this direction and have been contacting lawyers.”

● ➽