Resilient anxious about effects of protests
Resilient, the shopping mall owner at the centre of 2018’s property scandal that saw the listed real estate sector lose more than R120bn in value, says the biggest threat to its portfolio for the next year is social unrest and a weak economy.
“Social unrest and protests could result in security concerns at Resilient’s properties, as well as damage to property.
“The economic conditions could result in a reduction in demand for space, increased cost of doing business, the potential of tenant defaults and reduced distributions,” said chair Alan OIivier, in the group’s annual report.
Resilient’s success in SA has stemmed from investing in malls that face little competition in underserviced towns. Its malls include Boardwalk Inkwazi in Richards Bay and Brits Mall in the North West province. It also has exposure to Mall of the North in Limpopo as well as i’langa Mall and Highveld Mall, which are both in Mpumalanga.
But the group has said these are the kinds of areas where service delivery and other protests are most prevalent.
Olivier said Resilient’s asset and property managers reviewed the security requirements of Resilient’s properties on a regular basis.
The group would also use conservative balance sheet management and a larger range of funding sources than it had in the past. In addition, it would monitor the performance of tenants and the collection of rentals by property managers. The company owns 38 retail centres in SA worth R23bn and four in Nigeria valued at R655.4m.
Resilient, which has a market capitalisation of R27bn, is recovering from 2018, its toughest year since listing in 2002. Resilient’s shares were flogged for a few months starting in January 2018, sending its share price reeling. Its share price lost 60% of its value in 2018, but has recovered in 2019, increasing 17.6% year to date.
A few asset and hedge fund managers released reports in which they suggested that Resilient and other companies it was affiliated to at the time Fortress, Nepi Rockcastle and Lighthouse Capital were overvalued and that related party deals and insider trading had been used to boost dividend and share price growth.
The listed property sector took a hit, given that the four companies made up as much as 40% of the FTSE/JSE SA Listed Property Index (Sapy) at the beginning of 2018. The Sapy ended up with a total loss, including dividend and capital growth, of 25.26%.
The Financial Sector Conduct Authority, the country’s highest financial market regulator, investigated the allegations around the four companies. It has closed most of the investigation, having found no wrongdoing. The only part of the investigation still outstanding relates to allegations of false and misleading reporting by and about Resilient itself.
Resilient did make changes following criticism from its shareholders. It removed its cross shareholding with industrial and commuter retail specialist landlord Fortress and also changed how it accounted for its BEE trust, Siyakha.
Olivier said Resilient’s fortunes in 2020 needed to be judged with the effects of these changes in mind.
“With the distribution to shareholders of Resilient’s holding of Fortress B shares in May 2018, the repositioning of Siyakha Trusts and ultimately the repurchase of Resilient shares from the empowerment trust, the financial position of Resilient has substantially changed from what it was prior to the concerns raised in the market,” he said.
“In the current environment, the prospects for economic growth in SA appear to be limited, in the short term at least. This has resulted in several strategic discussions about the future direction of Resilient.”