JOHANNESBURG - ABSA Property Equity Fund has entered the debate over allegations levelled at listed Resilient Reit and its associated companies, which in recent weeks has resulted in a significant slump in the share prices of these companies and billions wiped off their value.
Fayyaz Mottiar, the portfolio manager of Absa Property Franchise, said yesterday that the property sector as a whole had de-rated over the past few weeks, with the bulk of the downward pressure focused on Resilient Reit and its associated companies.
This followed a report released in the market by a local hedge fund that levelled several allegations at the Resilient group of companies, including various concerns of manipulation in the form of over-valuations, complex transactions and unclear governance structures.
The companies that have born the brunt of the share price slump are Resilient Reit, Nepi Rockcastle, Fortress and Greenbay.
Mottiar said that, if any of the allegations proved to be true, it would put the entire listed property sector under stress. This would create concerns around the property sector as a whole, the benchmarks Absa Property Franchise used and the vulnerability of index funds subject to these benchmarks, he said.
“This is an issue for those funds which are benchmark cognisant. As at December 2017, the Resilient Reit and associated companies made up 40percent of the property benchmark,” he said.
Mottiar said the Absa Property Equity Fund remained an active, pragmatic value investor within the property sector and defended its investment process, stressing Absa Asset management relied only on verified and audited information when making decisions.
He said they independently investigated and estimated the level of risk inherent in the entities in which they invested and had looked at the main allegations made against Resilient Reit and its associated companies and the response by Resilient's management.
These allegations included alleged price manipulation, concealment and deception.
Mottiar said Resilient executives had stated that they had provided detailed explanations of all on- and off-market transactions and intra-account movements in shares within the group of companies and had determined that no manipulative practices were carried out. He said Resilient executives had further committed to co-operate fully with independent investigations.
Feedback
Resilient said earlier this month that it had noted the consistent feedback from its shareholders that the cross-shareholding of Resilient with Fortress Reit should be unwound and the need to reconsider its relationship with the Siyakha education trusts.
The company said it had prioritised these issues. Its board was committed to taking every step necessary to address allegations and commentaries from all sources, and there was a need for a prompt independent review of the information available to it.
It has commissioned its own independent review led by former auditor-general and current independent director of Absa Group, Shauket Fakie, that would prioritise all available information regarding listed share activity since July 1
last year by the company and its executives and senior management in Resilient shares and in the listed shares Resilient held. The company committed to make the outcome of this review public.
Mottiar said Absa had reassessed its internal models to ensure they took into consideration anything that could impact its valuation of the Resilient Group of companies. “We remain confident in our thorough, bottom-up, fundamental research process and will continue to trust in that process. These sell-offs present further opportunities for us to evaluate our fund positions.
“We understand the distress this may be causing investors, but would like to reaffirm that we are in continuous two-way open communication with the management team at Resilient and all other related counters,” he said.