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RESILIENT REIT LIMITED - General overview and update

Release Date: 28/05/2019 15:15
Code(s): RES RES41 RES40 RES36 RES34 RES35 RES38     PDF:  
 
Wrap Text
General overview and update

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 "Company")


GENERAL OVERVIEW AND UPDATE


INTRODUCTION

Some six months ago, on 13 December 2018, Resilient published a SENS announcement summarising key
events for Resilient during 2018, clarifying matters that remain open and those considered resolved, and
updating the market on the outcome of engagement by an independent board sub-committee (the "Committee")
with a range of stakeholders.

As regards events subsequent to December 2018, the Committee and the board of directors (the "Board") have
noted that in March 2019 the FSCA announced that it had decided to close its insider trading case relating to
shares in Resilient and on 24 May 2019 Fortress REIT Limited ("Fortress") announced the outcome and its
board's response to the findings of the PwC report, made available on its website (which Resilient refers to
below as the "PwC findings").

KEY ACTION ITEMS FOR RESILIENT THROUGH 2018 AND 2019

Resilient sets out below its table of action items updated to be current to the date of this announcement by the
additional wording that appears indicated by an asterisk (*):


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 its properties as at 30 June 2018, resulting
valued                                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.

                                      * Resilient notes the outcome of the PwC report:
                                      "Based on their review of (1) share trades by
                                      Fortress in Resilient Stable shares, (2) movements
                                      in the relevant share prices, (3) share trade volumes
                                      of Resilient Stable Companies and (4) SENS
                                      announcements by, the Resilient Stable
                                      companies, PwC found no evidence of market
                                      manipulation or insider dealing by Fortress in
                                      relation to those companies' shares, in
                                      contravention of the FMA."

                                      "…PwC found that there was no evidence of
                                      market manipulation or insider dealing
                                      in relation to Fortress shares, in contravention of
                                      the FMA, by any of the Siyakha Trusts."

Allegations relating to third-party   The investigation of these allegations can only be            Ongoing
share dealings                        undertaken by the FSCA. The chairman of
                                      Resilient has written to, and will as appropriate
                                      continue to liaise with, the FSCA offering every
                                      assistance with its investigation, as well as
                                      periodically communicating  market and
                                      stakeholder concerns that the remaining
                                      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 of
                                      their net asset value. For so long as the Siyakha
                                      Trusts' total liabilities exceed the value of their
                                      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      * The restructure of the Siyakha Trusts into                  * Resolved, with
the Siyakha Trusts                    separate ownership vehicles for Resilient and                 the pending
                                      Fortress has been achieved. On 20 May 2019,                   proposal subject
                                      Resilient posted a circular to shareholders                   to shareholder
                                      regarding a proposal to acquire all the shares held           approval
                                      by The Resilient Empowerment Trust ("the
                                      Trust"), being 52 182 504 Resilient shares and
                                      7 474 707 Fortress B shares, in full settlement of
                                      the loans advanced by the group to the Trust. If this
                                      is not approved by Resilient shareholders, the
                                      Trust will remain a shareholder in Resilient, albeit
                                      with a liability due to Resilient that substantially
                                      exceeds the value of its assets.

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.

                                      * Up to the date of this announcement, no further
                                      queries have arisen.

Board composition                     * The Board has been reconstituted by one                     Resolved
                                      resignation, one retirement, four new appointments
                                      of independent non-executives (including
                                      candidates nominated by shareholders) and the
                                      appointment of a new chair. In addition, two of the
                                      newly appointed independent non-executive
                                      directors were appointed to the audit committee
                                      with David Brown being appointed as the new
                                      chairman.

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                 * With the release by Fortress of the PwC findings,           * Resolved
                                      the Committee has not been given any reason to
                                      consider there to be any misconduct or wrongdoing
                                      relating to Resilient on the part of any Resilient
                                      director or employee regarding historic property
                                      transactions referred to in the allegations.

B-BBEE compliance                     Stakeholders queried the compliance of the                    * Resolved
                                      Siyakha Trusts with applicable broad-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 B-BBEE 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 B-BBEE
                                      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 continue to negatively impact its B-
                                      BBEE rating.

                                      * In light of the advice recently provided by the
                                      Company's rating agent that the Company is now
                                      rated non-compliant as a result of the
                                      circumstances relating to the Siyakha Trusts, the
                                      Company will give consideration to its B-BBEE
                                      status once the result of the vote put to its
                                      shareholders is known.

Company policies governing            Resilient has strong controls in place for the                * Resolved
directors' dealings                   disclosure of directors' interests and dealings in
                                      Resilient shares, which comply with the JSE
                                      Listings Requirements.
                                      * The Board has expanded 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's 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      * In March 2019, Resilient provided its analysis of           Ongoing
misleading content of analyst         various reports and commentary to the FSCA for
reports, commentary and press         investigation of whether the content of the reports
coverage                              and commentary constitutes market abuse in the
                                      form of false, misleading or deceptive statements
                                      in respect of Resilient's shares or in respect of the
                                      Company's past or future performance. The FSCA
                                      has confirmed to Resilient that the matter is under
                                      investigation.

                                      In addition, Resilient has instructed and briefed
                                      media law experts regarding what action, if any,
                                      would be achievement-orientated regarding the
                                      many examples of press coverage that do 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

Having considered the extensive remedial actions taken, the results of the investigations performed, and the
feedback received from stakeholders, the Committee considers the only remaining open matters to be the FSCA
investigations of third-party share dealings and of possible market abuse in the form of false, misleading or
deceptive statements relating to Resilient or its shares including arising from third-party commentary and
reports, as well as the Committee's consideration of whether any action should be taken regarding the nature of
the press coverage once legal advice has been received and the FSCA investigations have been concluded. 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.

Shareholders will be kept informed of developments, if any, by further announcement.

28 May 2019


Sponsor
Java Capital

Date: 28/05/2019 03:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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