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RESILIENT REIT LIMITED - Response To Rumours And Allegations Emanating From Short Sellers / Withdrawal Of Cautionary Announcement

Release Date: 12/02/2018 09:10
Code(s): RES     PDF:  
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Response To Rumours And Allegations Emanating From Short Sellers  / Withdrawal Of Cautionary Announcement

RESILIENT REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2002/016851/06)
JSE share code: RES ISIN: ZAE000209557
(Approved as a REIT by the JSE)
(“Resilient” or “the Company”)


RESPONSE TO RUMOURS AND ALLEGATIONS EMANATING FROM SHORT SELLERS / WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT


The Company has analysed the 36One report referred to in the SENS announcement released on 9 February 2018. Having fully
considered the content and context of the report, the Company is of the view that there is no reason for shareholders to continue to
exercise caution in their dealings in the Company’s securities and the cautionary announcement of 9 February 2018 is accordingly
withdrawn.

The Company has engaged and will continue to engage with its shareholders, all relevant regulators and authorities including the
JSE and the Directorate of Market Abuse.

The Company is preparing a FAQ document to address matters raised in the reports and rumours circulated in the market over the
last few weeks and is engaging with major shareholders in the course of today to ensure any of their concerns are addressed. This
document will be made available on the Company website as soon as the process is complete. The Company will announce on
SENS when the link to the FAQ document is active.

In the meantime, the following points are worth noting, which will be expanded on in the FAQ document:

Background to Resilient and this announcement

•   Resilient is a REIT that owns direct property and investments in other REITs as well as property companies. Resilient played
    a founding role in NEPI Rockcastle, Fortress REIT and Greenbay and its investments in these companies have always been a
    clear and important component of Resilient’s business. Each of the companies was established to pursue a strategy
    differentiated from the core strategy of Resilient and the structure of Resilient’s investments has been a function of its South
    African context including regulatory and exchange control considerations.

•   With the success of the differentiated strategies, each of the companies has become substantial in its own right. While these
    companies have common history, each has its own and independent board of directors and management which operate in full
    conformity with applicable stock exchange requirements and best practices in respect of governance. As a result of this history,
    Resilient is generally available to assist these companies with access to its range of skills and experience and, in some instances,
    Resilient’s interests are represented through non-executive board appointments. These matters are fully disclosed.

•   Resilient is satisfied that market participants generally have a thorough understanding of the investment case the Company
    offers and that this understanding is appropriately supported by Resilient’s disclosure. Resilient engages and will continue to
    engage constructively with its auditors, investors, sell-side analysts as well as the JSE with the purpose of disclosing all the
    information required to conform to applicable standards and inform the investment decisions of market participants.

•   It is for the market to judge whether a narrow focus on tangible asset value provides an adequate reflection of the investment
    case for Resilient or any of the companies it has invested in. Other factors considered relevant by objective market commentators
    include growth in distributions, capital structure, quality of property portfolio, geographical spread of assets, lease covenants,
    debt profile, experience of management, alignment between key executives and shareholders, internalised asset management,
    real estate skills and experience and the ability to develop/redevelop properties.

•    The Company does not determine the market price of its shares and 36One’s untested allegations of concealment, deception
     and share price manipulation are not substantiated and will not stand up to independent scrutiny, which is underway by the
     relevant regulators with the full co-operation of the Company and its board and management. The Company believes that
     36One’s views, which have been widely disseminated over the last month, are more informed by its large short position than
     by objective analysis. 36One’s failure to put any of its views forward to the Company for comment should also be noted.

The Siyakha Trusts
• Some background to the establishment, objectives and operations of the Siyakha Educational Trusts is available in the integrated
    reports available on Resilient’s website at www.resilient.co.za.

•   The current trustees of the Siyakha Trusts are as follows:
                  Name of trust                                                Trustees

                  The Siyakha Education Trust                                  Dazray Tarr
                                                                               Jacques Johannes van Wyk
                                                                               Leeone Phoebe Gindan

                  The Siyakha 1 Education Trust                                Dazray Tarr
                                                                               Jacques Johannes van Wyk
                                                                               Leeone Phoebe Gindan

                  The Siyakha 2 Education Trust                                Tshiamo Daphne Vilakazi
                                                                               Ndhlabole Shongwe
                                                                               Leeone Phoebe Gindan


              Thembi Chagonda is not a trustee of any of the above trusts. She was previously a trustee of The Siyakha Education
              Trust and The Siyakha 1 Education Trust, but resigned on 1 March 2017 following her appointment as chairperson of
              the Resilient board.

         •    Resilient’s decision not to consolidate the Siyakha Trusts reflects Resilient’s judgement regarding applicable
              accounting standards based primarily on the fact that Resilient was not exposed to credit risk and variable returns as a
              result of its relationship with the Siyakha Trusts. Resilient, with its auditors, re-evaluates this decision for each
              reporting period. Resilient closely monitors the credit risk in its funding of the Siyakha Trusts. At 31 December 2017,
              the net asset value of the Siyakha Trusts on a combined basis was R4.9 billion and this remains positive despite current
              conditions.

         •    Perhaps more important to investors is that there would be no material impact if Resilient were to consolidate the
              Siyakha Trusts at 31 December 2017. Consolidation would enhance Resilient’s NAV without any impact on its
              distributable earnings or distributions. IFRS accounting does not determine distributable earnings. In accordance with
              the SA REIT Association Best Practice Recommendations (the “BPR”), Resilient discloses a reconciliation between
              its distributable earnings calculated in terms of the BPR and its IFRS net income. The effect of a consolidation of the
              Siyakha Trust on the IFRS net income of Resilient would be adjusted in the reconciliation so that Resilient’s
              distributions would be unchanged if the Siyakha Trusts were consolidated.

Scrip dividends and antecedent dividends governed by the BPR

     • It is common practice for REITs and listed property companies to provide shareholders with an election to receive
          distributions either in cash or in the form of new shares. When NEPI Rockcastle and Greenbay offer new shares as an
          alternative to their semi-annual distributions, Resilient evaluates the economics in each instance in light of its overall cash
          flow requirements. If Resilient elects to receive the distribution in the form of new shares rather than in cash, this is an
          investment decision and this component of Resilient’s distribution will then be funded out of Resilient’s other available
          cash resources. A decrease in the share price of the companies Resilient is invested in will not impact on their distributions
          and in respect of each distribution Resilient will assess its election to receive cash or shares dependent on all relevant
          factors including its cash position.

     •    In terms of the BPR, for any REIT issuing new equity, pursuant to a scrip dividend or a placement, antecedent dividends
          form part of the cash inflow on the issue of new equity and should be recognised as such. Antecedent dividends should
          not be accounted for as income in the IFRS compliant statement of comprehensive income, but the REIT should bring in
          the antecedent dividend when determining its distributable earnings, on a fully disclosed basis, so as to ensure that the
          antecedent portion will not result in dilution of existing shareholders. Not distributing the antecedent portion will result in
          existing shareholders being diluted, due to the payment of a dividend based on a greater number of shares in issue, without
          having had the benefit of the cash flow from the new issues of shares (or the risks and rewards of ownership of any
          investment property purchased with the issue of new shares) in the financial period to which the dividend relates.

Loans to employees

 • Resilient’s remuneration policies have always reflected the principle that equity incentivisation should align key executives
    with shareholders through exposure to the upside and downside of share price performance. The Company’s remuneration
    policies are approved by shareholders annually.

Share trades

         • The full details of the purchases and sales of shares by Resilient, Fortress and the Siyakha Trusts will be provided in
             the FAQ document. It is evident from the detail that these transactions, undertaken in all instances for appropriate
             commercial objectives, could not have served any manipulative purpose.

•   A summary of relevant purchases and sales of shares by Resilient is as follows:

      Resilient                                      FFB                NRP                  ROC                 GRP
      30-Jun-17                              172 930 000          29 270 000           200 400 000       1 550 975 000
      Purchase in bookbuild (1                                     1 544 583                               400 000 000
      bookbuild each)
      Purchase in the market                                          18 965                                    13 678
      Sale in the market                                              (4 877)
      ROC convert to NRP on merger                                42 638 296         (200 400 000)
      Scrip dividend shares received                               1 533 033                                30 311 322
      31-Dec-17                              172 930 000          75 000 000                     -       1 981 300 000
    The scrip dividend received on the NRP investment in October 2017 accrued to Resilient Properties (790 263 NRP
    shares) and was sold to its wholly-owned subsidiary on 17 October 2017. This is intra-group and not included above.

•   Fortress has provided Resilient with a summary of the relevant purchases and sales by Fortress as follows:

                                                     RES                  NRP                 ROC                    GRP
    Fortress
    30-Jun-17                                 39 456 000            59 154 000          358 432 000      1 480 410 000
    Purchase in bookbuild (1                                         1 544 583                             400 000 000
    bookbuild each)
    Purchase in the market                        154 000                2 322                                   5 010
    Sale in the market
    ROC convert to NRP on                                           76 262 122        (358 432 000)
    merger
    Scrip     dividend     shares                                    2 886 973                              29 214 990
    received
    31-Dec-17                                 39 610 000          139 850 000                      -     1 909 630 000

•   The Siyakha Trusts have provided Resilient with a summary of the relevant purchases and sales by them as follows:


    Siyakha 2 Education Trust                                         RES                   FFA                   FFB
    30-Jun-17                                                    9 317 547            20 444 141            20 444 141
    Aug 2017 - buy in market                                       184 622
    Aug 2017 - RES bookbuild                                     1 983 262
    Oct 2017 - Fortress BEE issue                                                      9 281 603                 9 281 603
    Nov 2017 - RES BEE issue                                     1 879 000
    31-Dec-17                                                   13 364 431            29 725 744            29 725 744

    Siyakha Education Trust                                           RES                   FFA                    FFB
    30-Jun-17                                                   39 886 513            87 495 313           101 533 488
    Aug 2017 – sell in market                                                                               (2 600 000)
    Sep 2017 – sell in market                                                                                 (938 175)
    Oct 2017 – sell in market                                                                               (3 917 384)
    Nov 2017 – sell in market                                     (68 440)                                  (5 040 826)
    Dec 2017 – buy/sell in market                                                        512 970              (265 560)
    31-Dec-17                                                   39 818 073            88 008 283            88 771 543

•   The following shares were transferred between wholly-owned subsidiaries of Resilient during October 2017 and
    December 2017:

                                 Number       of     shares   From                           To
                                 transferred
    GRP                          1 490 460 000                Resilient Properties (Pty)     Resilient 1 (Pty) Ltd
                                                              Ltd
                                                                                             Resilient 2 (Pty) Ltd
                                                                                             Resilient 3 (Pty) Ltd
                                                                                             Resilient 4 (Pty) Ltd

    NRP                          43 267 986                   Resilient Properties (Pty)     Resilient 1 (Pty) Ltd
                                                              Ltd

•   The following shares were transferred between wholly-owned subsidiaries of Fortress during December 2017:


                   Number        of    From                                             To
                   shares
                   transferred
       GRP         1 895 314 300       Capital Propfund (Pty) Ltd                       Fortress Income 10 (Pty) Ltd
                                       Fortress Income 2 (Pty) Ltd                      Fortress Income 11 (Pty) Ltd
                                       Fortress Income 3 (Pty) Ltd                      Fortress Income 12 (Pty) Ltd
                                       Lodestone Investments (Pty) Ltd                  Fortress Income 13 (Pty) Ltd


       NRP         139 847 678         Capital Propfund (Pty) Ltd                       Fortress Income 10 (Pty) Ltd
                                       Capital Propfund 3 (Pty) Ltd                     Fortress Income 11 (Pty) Ltd
                                       Capital Propfund 4 (Pty) Ltd                     Fortress Income 12 (Pty) Ltd
                                       Capital Propfund 4 (Pty) Ltd (previously iFour   Fortress Income 13 (Pty) Ltd
                                       Properties 2 (Pty) Ltd)
                                       Fortress Income 2 (Pty) Ltd
                                       Fortress Income 3 (Pty) Ltd
                                       Pangbourne Properties Limited


•   All Resilient executives have provided the Company’s audit committee with detailed explanations of all on and off-
    market transactions and intra-account movements in shares in which the executive or any associate of the executive
    are interested. Resilient can discern no impropriety and the rationales for and manner of implementation of the
    transactions and movements do not show any purpose or effect that could be considered manipulative. All parties
    involved have undertaken to co-operate fully with independent investigations.


•   Associates of senior executives of Resilient restructured their holdings of shares without any change in underlying
    beneficial interests, as summarised below.


     Resilient executive director   Previous associate                   Current associate
     Andries de Lange               Nano Trust                           Dyer Investments (Pty) Ltd (owned by Dyer
                                                                         Trust)
     Des de Beer                    Hollyrood Investments (Pty) Ltd      Delsa Investments (Pty) Ltd (owned by Grove
                                    (owned by Suni Trust)                Trust)
     Nick Hanekom                   Eaglelet Investments (Pty) Ltd       Nubie Investments (Pty) Ltd (owned by Zinnia
                                    (owned by Eaglelet Trust)            Trust)

          •    The following shares were affected by the restructuring :


               RES                                                                                                      28 887 383
               NRP                                                                                                      10 756 493
               FFB                                                                                                      23 413 045
               GRP                                                                                                     236 974 474


          •    The following shares were transferred between broker accounts (same name transfers) for collateral purposes:


               Name of entity                                  Investment            Number of shares                      Month
               Diversified Properties 2 (Pty) Ltd                    NRP                   4 000 000                     May 2017
               Resilient Properties (Pty) Ltd                        GRP                 500 000 000                     May 2017
               Resilient Properties (Pty) Ltd                        FFB                  15 000 000                     May 2017
               Fortress Income 2 (Pty) Ltd                           GRP                  33 335 334                     Apr 2017
               Fortress Income 2 (Pty) Ltd                           GRP                 404 792 017                     Nov 2017

          •    Mr J da Costa, the CEO of Improvon, is a reputable and well-known figure in the SA real estate market and previously
               provided valuable service on the boards of listed REITs including Resilient and, before that, Capital Property Fund.
               Mr da Costa was involved with the establishment of Greenbay, which was first listed as Green Flash Properties Ltd,
               before Resilient made its investment in that company. There have been no related party transactions with Mr da Costa
               that have not been fully disclosed. Mr da Costa’s personal transactions in shares have nothing to do with Resilient or
               its board or management.

          •    Mr HJ Oberholzer is known to the Company as a manager of substantial private investments, representing principals
               who have long invested in Resilient and the companies it is invested in. No member of the board or management of
               Resilient has any interest or involvement in these investing activities.

          •    Allistar Fredericks was the first black hockey player selected to the SA national team, represented South Africa in
               hockey at the Olympics and remains prominent in the administration of SA hockey at school and national level. In
               December 2012, he established the Allistar Fredericks Development HOC (the “HOC Trust”) as a registered Public
               Benefit Organisation providing educational scholarships for black children skilled at hockey. The affairs of the HOC
               Trust are not substantial: it had a net worth at 31 December 2017 of approximately R39 million and an annual expense
               budget of R5 million. Its trustees are Allistar Fredericks, Tim Hewan and Des de Beer, none of whom are beneficiaries.
               Des is personally a supporter of the HOC Trust, but is not involved in its day to day affairs. One of the Siyakha Trusts
               has also supported the HOC Trust. Tim Hewan (B.Sc, MBA) is an independent financial consultant, certified financial
               planner and certified tax practitioner and he is the trustee tasked with management of the financial affairs of the HOC
               Trust. Early in May 2017, the HOC Trust sold various investments including Greenbay shares to fund a project it then
               re-considered. Its liquidity requirements changed within a few weeks after it sold the investments and, when Greenbay
               undertook an accelerated book build late in May 2017, the HOC Trust reacquired Greenbay shares. The HOC Trust’s
               sale of Greenbay shares in early May 2017 was at an average sale price of R1,72 per share and its reacquisition of
               Greenbay shares at the end of May 2017 was at the placement price of R1,86 per share.

Having assessed all allegations and insinuations of wrongdoing disseminated by short sellers, the board of Resilient is of the view
that there is no reason for shareholders to exercise caution in their dealings in the Company’s securities.

Resilient is committed to transparency and full disclosure and will continue to address valid concerns from all market participants,
including through the FAQ document currently being prepared. The company will also continue to engage with the relevant
authorities, especially regarding the circumstances surrounding the 36One report.

12 February 2018


Sponsor

Java Capital

Date: 12/02/2018 09:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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