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General overview and update following engagement with stakeholders
RESILIENT REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2002/016851/06)
JSE share code: RES ISIN: ZAE000209557
Bond company code: BIRPIF
(Approved as a REIT by the JSE)
("Resilient" or "the Company")
GENERAL OVERVIEW AND UPDATE FOLLOWING ENGAGEMENT WITH STAKEHOLDERS
INTRODUCTION
This announcement summarises key events for Resilient over the last year, clarifies matters that remain open
and those considered resolved, and is an update on the outcome of engagement by an independent board sub-
committee (the "committee") with a range of stakeholders.
BACKGROUND AND KEY EVENTS THROUGH 2018
In January, a rumour and social media campaign was coupled with a sharp sell-off and unusual share trading
patterns causing Resilient's share price to decline from its December 2017 highs. In response, Resilient provided
a voluntary trading update and distribution guidance, brought forward the presentation of its interim results, and
met with the Financial Services Board (now the Financial Sector Conduct Authority) ("FSCA") regarding its
concerns that the campaign was impacting on its share price.
In late January, market speculation that Resilient would be the subject of a report by Viceroy Research proved
incorrect, but rumours abounded and, on 2 February 2018, by SENS announcement, Resilient warned
shareholders that it was aware of rumours that it would be the target of a report apparently intended to
substantiate the views of short-sellers. In the following week, reports by short-sellers or their associates began
being circulated, and Resilient published its responses showing the reports to contain materially false and
misleading facts and innuendos.
Facing these extensive negative accusations and commentaries, Resilient investigated possible candidates of
stature and credibility to lead an independent review of the key allegations.
By mid-February, Resilient was able to announce that the independent review would be led by Mr Shauket
Fakie, whose credentials include appointment for seven years as the Auditor General of South Africa and serving
as the chairperson of the United Nations Panel of External Auditors. Mr Fakie then appointed an independent
advocate, with directly relevant expertise and experience in forensic market abuse investigation and prosecution,
to assist him with the review.
In late March, Resilient updated shareholders on several matters including progress and expected timing of a
report by Mr Fakie following the independent review and referred shareholders to its website where the agreed
wide scope of the review had been made public.
In the meantime, Resilient pursued with Fortress REIT Limited ("Fortress") and the trustees of the Siyakha
Education Trust and The Siyakha 2 Education Trusts ("Siyakha Trusts") the possibilities of a restructure of the
Siyakha Trusts, keeping shareholders informed by SENS announcements in February and March.
In the same period, Resilient explored a number of different mechanisms for eliminating its shareholding in
Fortress, culminating in an announcement on 6 April 2018 of its distribution in specie of Fortress B shares as a
return of capital.
After various update announcements, on 10 April 2018, Resilient announced the outcome of the independent
review as contained in a report provided to the board by Mr Fakie. At that stage, Mr Fakie's preference was to
provide his report to the FSCA and to make public only the outcome of his report, which found that no
wrongdoing on the part of Resilient or its executives was evident from the available information. Despite market
criticism, the Resilient board respected Mr Fakie's preference to delay making his full report public, on the basis
that Mr Fakie would be available to meet with interested parties, including shareholders and asset managers, to
discuss his report and the process and scope of his review, which happened over the following months.
In March, the FSCA issued a press release identifying that it was investigating allegations of market abuse in
respect of Resilient shares. Resilient has offered and continues to offer every assistance and co-operation to the
FSCA and is well aware that its shareholders are deeply frustrated at the limited information made available by
the FSCA and the perceived lack of progress. Resilient is confident that it has done all it can to interrogate and
have the information available to it independently reviewed, with no indication of wrongdoing on the part of the
Company or its executives and their associates. However, the committee recognises that only the FSCA has the
extensive investigative powers required to adequately probe and address unlawful third party share dealings.
In May, the Resilient board announced that it had revisited the accounting treatment of the Siyakha Trusts in
terms of IFRS 10: Consolidated Financial Statements. Having engaged and consulted with various IFRS and
legal experts, Resilient concluded that it should have consolidated the Siyakha Trusts and group results were
restated accordingly.
From about June, the nomination committee considered a number of proposals from shareholders regarding
board composition and interviewed candidates for appointment as new independent non-executive directors. In
June, Mr Barry Stuhler resigned as a long-standing director and in August Resilient appointed Messrs Alan
Olivier, David Brown and Des Gordon as new independent non-executive directors, with Mr Olivier replacing
Mrs Thembi Chagonda as chair of the board.
With the changes in the composition of the board, in September the newly appointed chairman revisited with
Mr Fakie whether he would be prepared to make the report of his independent review public, as the market had
no sense of when the FSCA might complete its investigation. Mr Fakie agreed, provided the report was first
reviewed by attorneys. When that review was completed a few weeks later, Resilient released Mr Fakie's report
to the public. Feedback from stakeholders generally has confirmed the view that Mr Fakie's review was credible
and independent and that release of the full report resolved concerns regarding share activity by Resilient and
its subsidiaries, executives and their associates, and the Siyakha Trusts. One shareholder has queried the three
on-market sales, of 2 695 NEPI shares, 3 894 Rockcastle shares and 4 877 NEPI Rockcastle shares, detailed in
Table 1A of Mr Fakie's report, as the specifics of these trades were not detailed. The committee has reviewed
these trades, which were on-market at prevailing prices and effected for administrative purposes, such as
achieving rounding in the shareholding preceding a reporting period, and will provide the full details to the
shareholder concerned, copying Mr Fakie.
In August, ten asset managers (the "signatories") wrote to Resilient, with a copy of the letter immediately leaked
to the press, requesting a further independent and open-ended investigation to be done jointly with Fortress,
Greenbay Properties Limited and NEPI Rockcastle plc. Resilient appointed a board committee of six
independent non-executive directors to consider the letter and prepared a comprehensive written reply to the
chairs of all the signatories setting out its initial views, including that it was not feasible or appropriate for
four separately listed companies to undertake any joint investigation, and requesting further information and
clarification from the signatories regarding their views and positions. Over the weeks that followed, most of the
signatories replied in writing, but not on a collective basis. The replies were diverse, ranging from a leading
asset manager stating that it was very satisfied with the committee's written response and did not think any
further action was required on the part of the board, to some still calling for a further investigation. While none
of the correspondence after the first letter from the signatories has been leaked to the press, Resilient has kept
shareholders updated through regular SENS announcements on 31 August, 11 September and 18 October 2018.
Following the correspondence, the committee has now met with all the signatories, as well as a number of
Resilient's largest shareholders (including shareholders who declined to sign the August letter), to ensure as far
as practicable that the committee understands the positions of the signatories, major shareholders and other
stakeholders. All in all, over the last several weeks, the committee has met with sixteen stakeholders, an
engagement process that will be continued in 2019.
Reiterating its commitment to dealing appropriately with all substantiated concerns of stakeholders and to
transparent engagement and communication, the board provides in this announcement a summary of the key
allegations raised through the year including matters originally raised by the signatories as well as concerns that
it is aware remain common to five or more of the sixteen stakeholders after the engagement process. Resilient
summarises its actions, taken and to be taken, in response, below:
MATTER OR CONCERN RESILIENT RESPONSE STATUS
Cross-shareholding with Fortress Addressed by in specie distribution of Resilient's Resolved
Fortress B shares.
Allegations that Resilient's Resilient appointed new independent valuers to Resolved
directly held properties were over value all of its properties as at 30 June 2018,
valued resulting in the Company's South African portfolio
being valued upwards by 3.9%, as further detailed
in the June 2018 annual financial statements.
Allegations that the share activity 14 months of share trading activity has been Resolved to the
of Resilient subsidiaries, independently reviewed by Mr Fakie, who has best of Resilient's
executives and their associates, exonerated Resilient, its executives and their ability given the
and the Siyakha Trusts was associates, and the Siyakha Trusts, based on the information
manipulative evidence available to him. One stakeholder has available to it
asked for the review period to be extended, but
absent any evidence indicating any wrongdoing,
the committee does not consider this request
justified.
Allegations relating to third party The investigation of these allegations can only be Ongoing
share dealings undertaken by the FSCA. The chairman of
Resilient will however write to, and will as
appropriate continue to liaise with, the FSCA
offering every assistance with its investigation, as
well as communicating market and stakeholder
concerns that the investigation should be resolved
as urgently as is feasible and requesting periodic
meaningful updates.
Accounting related to the Siyakha Group results have been restated reflecting Resolved
Trusts consolidation of the Siyakha Trusts.
Distributable earnings derived The decline in the price of shares held by the Resolved
from loans to the Siyakha Trusts Siyakha Trusts has resulted in the reduction and
elimination of their net asset value. For so long as
the Siyakha Trusts' total liabilities exceed the
value of its total assets Resilient will, for purposes
of calculating its distributable earnings, recognise
interest accrued on the loans advanced to the
Siyakha Trusts only to the extent that the accrued
interest is matched by dividends declared for the
same period in respect of the shares held by the
Siyakha Trusts. Resilient has updated its published
distribution guidance on this basis.
Restructure of relationship with Principles of a proposed restructure have been Ongoing
the Siyakha Trusts announced, with details to be proposed to
shareholders in the first half of 2019, subject to
agreement with affected third parties.
Establishment of an independent An independent whistle-blower hotline has been Resolved
whistle-blower hotline established, which refers all allegations it receives
to the chair of the board. Only one complaint has
been received via this hotline to date, relating to a
Resilient SENS announcement on 5 February 2018
and misconstruing information provided regarding
share trades by the Siyakha Trusts. A response has
been provided by the chair to the complainant and
no further queries have arisen.
Board composition The board of directors has been reconstituted by Resolved
one resignation, three new appointments of
independent non-executives (including candidates
nominated by shareholders) and the appointment
of a new chair.
Capital raising The report by Mr Fakie following his independent Resolved
review dealt with the processes followed in the
implementation of the Resilient bookbuild in
August 2017 and the considerations and process
for the allocation of shares to participants. In
addition, the committee has reviewed the processes
followed by the bookrunner, Java Capital, in all
three of the bookbuilds undertaken by Resilient
since 2014 and is satisfied that the processes and
allocations, even though unregulated, were
appropriately and fairly considered.
Property transactions The Company understands that stakeholders Ongoing
remain concerned about the resurfacing of
allegations contained in a series of anonymous
mails known as the "Limpopo memos", which
were widely circulated in 2009. While the
transactions in question relate to Fortress,
allegations were made implicating certain
executives of Resilient, who became involved in
subsequent litigation involving a commercial
competitor which culminated in a civil court
ordering that investigations (which the executives
believed were improper and undertaken by so-
called "rogue cops" at the behest of the competitor)
should rather be referred to the National
Prosecuting Authority as an appropriate and
impartial authority. Fortress has announced its
investigation of these matters and has informed
Resilient that the outcome of its investigations will
be made fully available to the committee. If this
outcome includes any adverse finding relating to
any director or employee of Resilient, the
committee will act appropriately. In the meantime,
the committee has been given no reason to
consider there to be any misconduct or wrongdoing
on the part of any Resilient director or employee.
BBBEE compliance Stakeholders have queried the compliance of the Ongoing
Siyakha Trusts with applicable board-based black
economic empowerment regulations. Over the
years, Resilient has been advised by external
consultants who assessed the compliance of the
Siyakha Trusts with the applicable BBBEE codes,
particularly in periods when the codes were
amended. This advice is available to the committee
and does not indicate any instances of non-
compliance. While the Siyakha Trusts may be
compliant with the respective legislation which
makes them eligible to be recognised as a BBBEE
shareholder of Resilient, their current negative net
asset value has impacted its overall recognition for
purposes of the ownership scorecard and Resilient
expects this to negatively impact its BBBEE rating
at the conclusion of the ongoing evaluation of
Resilient’s empowerment credentials. A proposed
restructure of the Siyakha Trusts is expected to be
finalised in the first half of 2019.
Company policies governing Resilient has strong controls in place for the Ongoing
directors’ dealings disclosure of directors' interests and dealings in
Resilient shares, which comply with the JSE
Listings Requirements. The board intends
expanding these policies to require disclosure by
directors (to the chairman) of intended trades in the
shares of companies in which the Company is
invested, with the intention of identifying potential
conflicts. In addition, the board has noted that
Resilient' management does not currently own
any retail properties and has adopted a policy
precluding management from direct investment in
retail properties without prior board approval.
Resilient responses to false and The committee has noted various reports, Open and under
misleading content of analyst commentary and press coverage that contain ongoing
reports, commentary and press materially false information concerning Resilient, consideration
coverage which should be referred to the FSCA as the
regulator mandated to investigate and, in
appropriate instances, take enforcement action in
cases of market abuse in the form of false,
misleading or deceptive statements in respect of
Resilient' shares or in respect of the Company'
past or future performance. In addition, the
committee is considering what action, if any,
would be achievement-orientated regarding the
many examples of press coverage that does not
meet the requirement for truthful, accurate and fair
reporting contained in the Code of Ethics and
Conduct for South African Print and Online
Media, adopted by The Press Council of South
Africa.
GENERAL COMMENTS ON CONCERNS AND ALLEGATIONS
In general, stakeholders appear to the Company to have welcomed the steps taken to date by the board in
addressing all concerns and allegations that have arisen during the year and to have been encouraged by the
board’s commitment to transparency and to acting in the best interests of Resilient and its shareholders.
The committee notes in particular that, having now had the benefit of access to the report prepared by Mr Fakie
and made public by Resilient, all stakeholders engaged by the committee were unanimously of the view that Mr
Fakie was a credible and independent party for purposes of the independent review.
Since 11 September 2018, as publicised in prior announcements, the Company has arranged for an independent
whistle-blower hotline reporting directly to the chair of the board of Resilient. Over nearly four months of
extensive communication with a wide range of stakeholders and open availability through the hotline for anyone
to provide information (anonymously, if preferred), the committee and the chair of Resilient have not been
provided with any evidence substantiating any of the concerns raised by the signatories of the letter received in
August, or other stakeholders or commentators. The committee reiterates that it remains available to receive
such evidence either directly or through the whistle-blower hotline.
Having considered the extensive remedial actions taken, the results of the investigations performed, and the
feedback received from stakeholders, the committee considers key remaining open matters to be the FSCA
investigation of third-party share dealings and the investigation by Fortress related to the property transactions
during 2009 or earlier. The committee awaits the conclusion of these investigations and remains committed to
full transparency in addressing any findings that may impact the Company or its stakeholders.
The committee will continue to liaise with stakeholders regarding all matters raised, including those not of
common concern to stakeholders.
Shareholders will be kept updated by further announcement.
13 December 2018
Sponsor
Java Capital
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