Director perks.

Posted On Friday, 13 December 2002 10:01 Published by eProp Commercial Property News
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Directors rake in R4m extra while shareholders go without.


Property-Housing-ResidentialRand Leases Properties lost a net R9m - after finance costs (mainly mortgage payments), a distribution to debenture holders and tax charges - on revenue of R134m in the year to June 2002. The listed property loan stock company faces cash-flow problems and has passed its dividend. Its share price is lagging at 90c from a 12-month high of 200c.

An unhappy picture. So what do chairman Roger Kebble, MD Grant Fischer and financial director Pravin Rama do about it? Certainly not the remedial measures minorities were hoping for. Instead, they get the group to pay 155c each for 9m linked units that they took up at 110c/unit during the past 12 months - pocketing a tidy R4m profit - despite the low share price.

The units were funded through an interest-free staff incentive scheme. This is on top of the R2,8m in salaries and benefits the three were paid, also in 2002. (The remuneration committee comprises Kebble, Fischer and Paul Ferguson).

Small shareholders could be forgiven for interpreting this as plundering. Equally, unit holders in Marriott, Standard Bank properties and listed fund Redefine - together holding about 35% of RL Props - could be forgiven for wanting to know why their management acceded to the buy-back, which goes against minority interests.

For the record, Fischer says the company does not have cash-flow problems. 'It is true that at year-end current liabilities exceeded current assets but this is a technical situation resulting from the method of payment used by Housing Board, coupled with accounting practice,' he says. He argues that the dividend was not passed because of cash-flow problems but because of lower-than-expected profits from the company's low-cost housing activities.

RL Props directors aren't exactly building a record of adding to shareholder value. Take the group's recent history. In November 2000, it bought a portfolio of investment properties. In September 2001, directors announced the R205m acquisition of a further 20 office and retail properties, mainly in Johannesburg.

The acquisition was settled in shares, which were converted to cash by placing the shares in the market. Though the new properties would transform the company from a developer of mining land to a property investor, said the directors, problems soon followed.

In September 2002, RL Props' audited accounts showed that the company had generated an attributable loss of R730 000 against a profit of R11m last year. (Instead of the loss, unaudited preliminary results for the same period showed an attributable profit of R3,5m.) Less than a month later, on October 20, directors announced the sale of the portfolio to quoted property group Redefine. They also announced a buy-back of their share options at 160c.

Rama presents the usual argument for the share buy-back: that it is earnings- and net asset value-enhancing. That's unlikely, given the buy-back's premium to the current share price. But Rama has an answer for that, too. The reason for the premium, he says, is that 'the shares were at 155c when the directors resolved to buy them back'. Fischer says the buy-back was due to 'a change in the nature of the business that may result in a change in the future distribution policy'.

True. The share price climbed fairly steadily for the eight months to October this year, around the time when the share buy-back was announced, plunging down to a low of 80c soon afterwards. This also raises the question of how the share price held at around 150c while the shares were being placed in the market, collapsing as the sales ended.

Other signs of disrespect for minority interests abound. There was an outcry when directors' emoluments jumped from R1,6m in 2000 to R4,7m in 2001. This included R500 000 to Fischer for a restraint of trade. Fully justified, said Brett Kebble when pressed on the matter by the FM (see Property August 30). But neither Kebble nor Fischer disclosed to the FM - or anyone - that Fischer's restraint of trade had actually been R1,5m. This only came to light at the AGM two weeks ago when directors were questioned about a second R500 000 payment to Fischer.

Then there are the Kebbles' dealings in RL Props units. The 2001 accounts showed Roger with no shares. The 2002 accounts at June 30 showed 5,7m shares, including the 3,6m option. The November 7 circular to investors on selling its properties shows Roger Kebble's shareholding cut to 3,6m shares. He claims the JSE was informed about the transactions. But Sens has no record of Roger dealing in shares between June and November.

The Kebbles' interests in RL Props have mainly been held by Consolidated Mining Management Services, a subsidiary of Kebbles' listed JCI, and by Kebble-owned New Mining Corp (now called Matodzi), which has sold its property assets to JCI.

The trades between JCI and New Mining Corporation are hardly transparent. Records of the transactions are not to be found either on Sens or in RL Props documents. (Nor were they enough to alert the JSE Securities Exchange listings division until recently, when it received a complaint from a shareholder.)

Shareholders could now face a new danger. Some time in February, RL Props will receive about R70m worth of highly liquid Redefine units paying out a useful R10m/year. Also, RL Props, controlled largely by the Kebbles, could make its next move on Mvelaphanda Properties. The FM has speculated (see Companies October 18) that this successful empowerment company - in which JCI has a large interest - could be reversed into RL Props. Mvelaprop has three big developments in Cape Town that should produce profits of more than R100m in the next two years.

The upside is that this would create SA's only listed empowerment property development group with management experienced in large developments mixing residential, office and retail activity. It would be a brilliantly timed move.

But the danger: the deal could be timed to turn a large portion of the Redefine units into bonuses and cash portions of payment for the Mvela assets. And don't forget the deep share price discount that comes with Kebble involvement.

Last modified on Monday, 28 April 2014 09:16

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