Resilient Group of REITs Bashed as Short Sellers Raise Bets

(Bloomberg) -- A group of intertwined South African real estate investment trusts is finding that while their close ties and dealings with each other have business benefits, when it comes to suffering, they also suffer together.

Fortress REIT Ltd. and Resilient REIT Ltd. extended losses on Monday to cement their positions as the worst-performing REITs this year among 199 global funds tracked by Bloomberg. Stable mates NEPI Rockcastle Plc and Greenbay Properties Ltd. are hovering in the same territory, with losses of 36 percent to 45 percent between the four of them. More investors are betting the stocks will drop as short interest in Johannesburg-based Resilient and Bucharest, Romania-based NEPI climb to a record, according to IHS MarkIt data.

The funds came under scrutiny in an internal research note by 36ONE Asset Management Pty Ltd. and analysts at Arqaam Capital Ltd., who questioned the valuation of the companies as well as inter-related transactions of as much as 122 billion rand ($10 billion). Resilient said in a statement on Monday that 36ONE’s research is “more informed by its large short position than by objective analysis.” The hedge-fund manager declined to comment because the report is an internal document.

The share slump continued even as the companies issued regulatory announcements saying investors have nothing to fear over the cross-holdings they have in each other or the inter-related transactions. Resilient, which played a founding role in NEPI Rockcastle, Fortress REIT and Greenbay, said its investments in the other companies have always been a “clear and important component” of its business and that it’s preparing a document to address matters raised in the 36ONE report as well as those in the Arqaam note.

It is “not quite fair” to single out only short sellers as some long-only money managers and analysts are raising the same concerns, Michele Santangelo, a money manager at Independent Securities, said by phone from Johannesburg. “More and more people are citing the same sort of issues with regards to the Resilient stable and I think its making a lot of investors nervous.”

Resilient shares rose 1 percent to 101.01 rand in early Johannesburg trade Tuesday, snapping two days of losses. Fortress fell 2.1 percent, extending a three-day decline to 14 percent. Rockcastle fell 0.6 percent and Greenbay rose 3.7 percent.

To contact the reporters on this story: Loni Prinsloo in Johannesburg at lprinsloo3@bloomberg.net, Thembisile Dzonzi in Johannesburg at tdzonzi@bloomberg.net.

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, John Bowker, Robert Brand

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