Consistently producing double-digit dividend growth during tough times has been the hallmark of high-flying property group Resilient for many years.
The spectacular pace of dividend growth at Resilient, founded in 2002 by lawyer turned property baron Des de Beer, left investors in awe and its JSE-listed rivals in envy. Resilient delivered annual dividend growth of between 16% and 25% over the past five years, while its counterparts were struggling to maintain growth of 6% to 8%.
However, if Resilient’s results for the year to June 2018 are anything to go by, the company’s outperformance has stunningly crashed.
Resilient, whose flagship properties include Jabulani Mall in Soweto, The Grove Mall in Pretoria and Mall of the North in Polokwane, reported lower dividend growth for the first time in 14 years. After market close on Friday, Resilient declared a dividend (or distribution, as referred to in the property sector) of R5.65 for the year ending June 30, 2018, compared with R5.67 in the previous financial year.
A Moneyweb analysis of Resilient’s results going back as far as 2004 shows that this is the first time the company has reported lower dividends. Although the decline in its dividend was marginal at 0.3%, it’s a blow for a property group that has been a market darling for rewarding investors handsomely.
The decline is expected to continue in 2019, with De Beer saying he expects dividends to be at least 2.6% lower. This is in stark contrast to his earlier expectations at Resilient’s interim results in February, when he forecasted growth of at least 12% for 2019.
He didn’t respond to Moneyweb’s request for comment.
Why bearish dividend outlook?
You don’t have to look far for reasons behind Resilient’s change in tune and below-market dividends. The company was forced to make changes to how it calculates distributable income (a source of dividend payments) after conceding to questionable accounting practices that artificially boosted its dividend payments.
A number of highly critical reports by asset managers 36ONE and Mergence, stockbroker Navigare, and independent sell-side research house Arqaam Capital accused Resilient of using other sources of income to boost its dividend payments. The scathing reports have taken a toll on Resilient’s share price, which has fallen by 61.06% so far this year, erasing R38.5 billion from its market capitalisation.
Real estate investment trusts (Reits) like Resilient usually pay dividends from rental income generated by their properties. Resilient went a step further, 36ONE said, by including the interest earned from loan repayments to it from its black economic empowerment (BEE) partner, the Siyakha Trust, which holds 9.9% of Resilient’s shares. For example, in its 2017 financial year, R317 million of Resilient’s income was generated by interest paid by the Siyakha Trust.8/17/2018, 12:00:00 AM
De Beer initially rejected allegations emerging from the reports, saying that local hedge fund managers are involved in a deliberate campaign to short-sell Resilient’s shares. He said that Resilient doesn’t control the Siyakha Trust as it has a separate board, nor does Resilient have exposure to variable returns from the BEE trust.
However, in a U-turn in May, Resilient admitted that it does control the Siyakha Trust, as it has exposure to its variable returns and has the ability to influence income earned from it. This was a massive concession by Resilient as it gives credence to allegations by 36ONE, Mergence, Navigare and Arqaam Capital.
It also precipitated a process by Resilient to restate its financial results going back to 2016 and change its accounting treatment of the Siyakha Trust by consolidating it into its own financial results.
In other words, Siyakha Trust will be a dedicated BEE ownership vehicle for Resilient and the interest earned on loans will be recognised separately from distributable income. The consolidation is already having a negative impact on Resilient’s dividend growth outlook (as seen in its dividend for the period under review and its outlook for 2019).