Resilient on Eastern Europe, the mafia and market manipulation via social media
One of the biggest drawcards of the Resilient group’s listed property real estate investment trusts (Reits) has been almost uninterrupted double-digit distribution growth for the past few years. Once a virtue, that’s now prompting sceptics to ask how the companies are able to produce such high growth so consistently. Business Day caught up with Resilient CEO Des de Beer.
I don’t think there is a concern, I really don’t. You can see the major institutions entering the market and buying recently; they like our transparency, they understand the model. If you look at our assets, [they’re] very different to everybody else’s and in very good condition. We’ve made some very good decisions, entering markets early which were very neglected — and we’ve done well out of them. I remember when we first went into Romania, people were saying: Romania, Mongolia — today they’re saying these are some of the sexiest markets in the world.
Also we don’t directly own offices. The office sector is very distressed, so we sold out many years ago. There’s a difference between the views of the major institutions and the views of hedgies [hedge funds] using social media.
Our financials are good, they’re transparent. Remember, we don’t price our shares, the market prices our shares.
Speaking about Bulgaria and Romania, they score badly on Transparency International’s corruption index, which raises questions about how to do ethical business there.
We never get involved in the politics; we’re very, very careful. We have not been involved in difficult relationships. You don’t need to. I think the levels of corruption in SA at present are multiples of what those countries have had at their worst.
So you’re saying it is possible to do clean business in that country?
Absolutely.
What about rumours that you overpaid for a Bulgarian shopping centre and bought it from a suspected member of the Russian mafia?
I really don’t want to talk to social media. It’s anonymous, it’s driven overwhelmingly by the hedge funds’ short positions, most of it’s fictitious. All acquisitions have a careful process.
And Europe is very strict … so it’s not even realistic, especially if you take protection insurance for title and other risks.
The recent price movements were after a social media campaign followed by aggressive selling … this was a wellplanned attack. I’d rather the Financial Services Board dealt with it as in our opinion it’s an issue of market manipulation.
Some analysts are concerned about the extent of the cross holdings between all the Resilient companies.
Well, look at our reasoning: at certain stages we thought the markets were attractive overseas and we didn’t like the South African market.
How do you invest money offshore? You can do it through Reserve Bank approval on FDI [foreign direct investment], which is very cumbersome and really not very efficient, or through inward-listed companies. This is much more efficient and less risky in our opinion because it does not involve annual Reserve Bank approvals. If you have a better suggestion, we’re open to it.
Greenbay raised a huge amount of money from the markets in 2017 — far more money than it initially planned to. Was that sensible?
Where there are opportunities you raise capital if the market supports it, otherwise you can’t take advantage of those opportunities. Resilient’s been at huge premiums for years and we have not frequently raised capital. On gearing levels, we like keeping them conservative. Resilient probably raised less capital than most of our competitors. Management and staff own about 15% [so] management’s decisions are in everybody’s interests.
Do your companies need to grow by acquisition?
In Resilient’s case, we are doing little in this country. We’re only developing two malls — there’s nothing wrong with doing nothing.
Are there any other spots in the world showing similar promise to Eastern Europe?
We don’t discuss where we see a great opportunity because our competitors follow us aggressively. The interest rate cycle is turning, which is inherently not good for property … so some of the opportunities aren’t necessarily [in] buying assets, it’s conservatively managing your balance sheet.
Do you think this global shift in interest rates will manifest quickly?
We don’t even position ourselves; we just take out the interest rate risk. We’ve always had a long interest rate swap profile in SA, which has come at some cost, and we’ve lengthened that … further. Nepi raised an investment-grade bond in Europe and we think it was completely the right thing to do.
Is the golden era for listed property waning, if not over?
The companies at risk are the companies without the growth, because if interest rates are rising faster than your income grows, you’re going backwards.