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SGA/SGB - Synergy Income Fund Limited - Financial effects relating to the
proposed acquisition of a property portfolio and withdrawal of cautionary
SYNERGY INCOME FUND LIMITED
(formerly Capital Land Retail Fund Limited)
(Incorporated in the Republic of South Africa on 13 November 2007)
(Registration number 2007/032604/06)
JSE share code for A linked units: SGA ISIN Code: ZAE000161550
JSE share code for B linked units: SGB ISIN Code: ZAE000162293
("Synergy" or "the company")
FINANCIAL EFFECTS RELATING TO THE PROPOSED ACQUISITION OF A PROPERTY
PORTFOLIO AND WITHDRAWAL OF CAUTIONARY
INTRODUCTION
Linked unitholders are referred to the announcement released on SENS on 28
February 2012 in which it was announced that Synergy had concluded agreements
for the acquisition of the Setsing Crescent Shopping Centre ("Setsing
Crescent") and the Gugulethu Square Shopping Centre ("Gugulethu Square") for
an aggregate purchase consideration of R530 million (before the escalation
adjustment referred to below)(each an
"acquisition" and together "the acquisitions"). Setsing Crescent and
Gugulethu Square formed part of the Old Mutual Life Assurance Company (South
Africa) Limited`s portfolio of assets known as the Ideas Managed Fund.
As further advised on 28 February 2012, it is the intention of the company to
fund the aggregate purchase price of the acquisitions by way of an issue of A
and B linked units, in terms of the placement of A and B linked units with
third party placees, or otherwise ("the placement") and debt funding.
The purpose of this announcement is to present the financial effects of the
acquisitions, including the effects of the placement and debt funding.
FORECAST FINANCIAL INFORMATION
Set out below are the summarised forecast statements of comprehensive income
("the profit forecasts") of Setsing Crescent and Gugulethu Square for the
year ending 30 June 2013 and the year ending 30 June 2014 ("the forecast
periods"). The profit forecasts have been prepared on the assumption that the
acquisitions will be implemented on 1 July 2012 and on the basis that the
profit forecasts include forecast results for the forecast periods.
The profit forecasts, including the assumptions on which they are based and
the financial information from which they are prepared, are the
responsibility of the directors of Synergy. The profit forecasts have not
been reviewed or reported on by the independent reporting accountants.
The full profit forecasts and the explanatory notes thereto will be provided
in the circular to be issued to Synergy linked unitholders in regard to the
acquisitions.
The summarised profit forecasts presented in the tables below have been
prepared in accordance with the company`s accounting policies and in
compliance with IFRS.
Summarised profit forecast in respect of Setsing Crescent:
Forecast Forecast
for the for the
year year
ending ending
30 June 30 June
2013 2014
R`000 R`000
Recoveries and contractual rental 32 979 36 584
revenue
Straight-line rental income accrual 1 078 724
(net of deferred tax)
Rental revenue 34 057 37 308
Net property income 23 398 24 704
Net operating profit* 22 113 23 419
Total profit and comprehensive income 1 078 724
for the year after debenture interest*
Distributable earnings 11 926 13 585
Summarised profit forecast in respect of Gugulethu Square:
Forecast Forecast
for the for the
year year
ending ending
30 June 30 June
2013 2014
R`000 R`000
Recoveries and contractual rental 45 773 51 003
revenue
Straight-line rental income accrual 1 533 533
(net of deferred tax)
Rental revenue 47 306 51 536
Net property income 28 721 29 558
Net operating profit* 27 181 28 018
Total profit and comprehensive income 1 533 533
for the year after debenture interest*
Distributable earnings 14 731 16 568
* Includes the effects of straight-lining rental income and the related
deferred tax charge and asset management fees.
The summarised profit forecasts incorporate the following material
assumptions in respect of revenue and expenses that can be influenced by the
directors:
- Synergy`s management`s forecasts are based on information derived from
the property manager, historical information and work performed by the
independent property valuer.
- Contracted revenue is based on existing lease agreements, whilst
uncontracted revenue amounts to 1.2% and 4.2% for Setsing Crescent and
Gugulethu Square, respectively, for the year ending 31 June 2013 and
58.2% and 10.7% for Setsing Crescent and Gugulethu Square, respectively,
for the year ending 30 June 2014.
- All existing lease agreements are valid.
- Turnover rental (rental income based on the actual turnover of the
tenant) has only been forecast for those tenants who have previously
paid turnover rental.
- Current vacant space has been forecast on a property-by-property basis
and has been assumed to remain vacant unless it is deemed probable that
such space will be let.
- Leases expiring during the forecast periods have been forecast on a
lease-by-lease basis, and in circumstances where discussion with the
lessee has proven positive, are forecast to be let at current market
rates.
- Synergy management`s forecast property operating expenditure has been
determined based on management`s review of historical expenditure, where
available, and discussion with the property manager.
- Properties will be paid for as and when they are transferred. The dates
of transfer are assumed to be 1 July 2012 in respect of both
acquisitions.
- It has been assumed that with regard to the placement, new A and B
linked units will be issued in the same ratio as the capital raised in
terms of the private placement at the time of listing and that new A and
B linked units will be issued at market prices (estimated using the 30
day VWAP prior to the date of this announcement). Accordingly, it has
been assumed that 12 867 243 A linked units will be issued at R8.79 per
A linked unit and 36 874 499 B linked units will be issued at R5.46 per
B linked unit, raising gross proceeds of R314 million.
- Transaction costs are assumed to be approximately R16 million.
Transaction costs include, inter alia, debt raising fees, capital
raising fees and an asset acquisition fee (as set out below).
- In terms of the acquisition agreements, the purchase consideration of
R240 million in respect of Setsing Crescent and the purchase
consideration of R290 million in respect of Gugulethu Square will
increase at a rate of 0.02739726% per day from 1 June 2012 until the
date of transfer of each property.
- R314 million of the proceeds of the placement are assumed to be utilised
to partially fund the acquisitions of Setsing Crescent and Gugulethu
Square.
- The balance of the purchase consideration of R236 million is assumed to
be funded through new debt facilities.
- Synergy is assumed to have a loan-to-vaue ratio of approximately 40%
(R680 million) once all properties that have been contracted for, have
been transferred, including Setsing Crescent and Gugulethu Square and
the properties being acquired from SA Corporate Real Estate (as
disclosed in the pre-listing statement).
- No fair value adjustments have been provided for either Setsing Crescent
or Gugulethu Square in the year ending 30 June 2013 and the year ending
30 June 2014.
- Interest is assumed to be payable on the debt funding at a melded fixed
and variable rate of 8.5% per annum.
The summarised profit forecasts incorporate the following material
assumptions in respect of revenue and expenses that cannot be influenced by
the directors:
- There are no unforeseen economic factors that will affect either the
lessees` ability to meet their commitments in terms of the existing
lease agreements or the forecast future profitability of these
properties.
- In terms of the asset management agreement with Capital Land Asset
Management (Proprietary) Limited ("Capital Land"), Synergy shall pay
Capital Land:
- an asset acquisition fee of 1% of the aggregate purchase price;
- a monthly fee equivalent to 1/12th of 0.5% of the aggregate of the
market capitalisation and the borrowings of Synergy;and
- for all property management services a monthly fee equivalent to 4% of
gross monthly income collected.
- No future properties will be acquired and no properties will be disposed
of during the forecast periods other than the acquisitions and those
disclosed in the pre-listing statement.
- Debenture interest will be paid to A and B linked unitholders in
accordance with the provisions of the debenture trust deed.
UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITIONS
The table below sets out the unaudited pro forma financial effects of the
acquisitions based on Synergy`s reviewed interim results for the six months
ended 31 December 2011. These financial effects are the responsibility of the
directors of Synergy and they have been prepared for illustrative purposes
only, in order to provide information about the financial position of Synergy
only, assuming that the acquisitions had been implemented on 31 December 2011
for purposes of the statement of financial position.
The unaudited pro forma statement of financial position of Synergy at 31
December 2011 and the explanatory notes thereto will be provided in the
circular to Synergy linked unitholders.
Due to their nature, the unaudited pro forma financial effects may not fairly
present Synergy`s financial position subsequent to the acquisitions. The
unaudited pro forma financial effects have not been reviewed or reported on
by the independent reporting accountants.
The unaudited pro forma financial effects have been prepared in accordance
with the accounting policies of Synergy that were used in the preparation of
the reviewed interim results for the six months ended 31 December 2011.
As forecast financial information for the acquisitions has been prepared and
presented above, financial effects in respect of an unaudited pro forma
statement of comprehensive income have not been presented.
The table below reflects the unaudited pro forma financial effects of the
acquisitions on a Synergy linked unitholder:
Before the Acquisitio Acquisitio After the Change
acquisitio n of n of acquisition after
ns1 Setsing Gugulethu s the
Crescent Square acquisi
tions
(%)
Net asset value 6.12 6.56 6.52 6.39 4.4%
and net tangible 8.76 8.82 8.77 8.90 1.6%
asset value per 5.22 5.49 5.44 5.43 4.0%
linked unit
(Rands)
- combined
linked unit
- A linked units
- B linked units
Actual number of 24 889 156 5 826 676 7 040 567 37 756 399 51.7%
linked units in 73 113 070 16 697 886 20 176 613 109 987 569 50.4%
issue
- A linked units
- B linked units
Notes and assumptions:
1. The figures set out in the "Before the acquisitions" column above
have been extracted, without adjustment, from the reviewed results
of the company for the six months ended 31 December 2011.
2. The acquisitions are assumed to have been implemented on 31
December 2011 for net asset value and net tangible asset value per
linked unit purposes.
3. The King Senzangkhona Shopping Centre ("KSSC") in Ulundi
transferred on 16 February 2012 and has been accounted for post 31
December 2011. R96 million of the purchase consideration of the
KSSC was funded through the proceeds raised from the private
placement which took place prior to the listing of Synergy and the
balance of the purchase consideration of R90 million was funded
through bank debt.
4. It has been assumed that with regard to the placement, new A and B
linked units will be issued in the same ratio as the capital raised
in terms of the private placement at the time of listing and that
new A and B linked units will be issued at market prices (estimated
using the 30 day VWAP prior to the date of this announcement).
Accordingly, it has been assumed that 12 867 243 A linked units
will be issued at R8.79 per A linked unit and 36 874 499 B linked
units will be issued at R5.46 per B linked unit, raising gross
proceeds of R314 million.
5. Transaction costs are assumed to be approximately R16 million.
Transaction costs include, inter alia, debt raising fees, capital
raising fees and an asset acquisition fee (as set out above).
6. Setsing Crescent and Gugulethu Square are assumed to be acquired
with effect from 31 December 2011 for a purchase consideration of
R242 million and R292 million respectively.
7. R314 million of the proceeds of the placement are assumed to be
utilised to partially fund the acquisitions of Setsing Crescent and
Gugulethu Square.
8. The balance of the purchase consideration of R236 million is
assumed to be funded through new debt facilities.
9. Setsing Crescent and Gugulethu Square have been valued at R257
million and R308 million, respectively, by Mills Fitchet Magnus
Penny (Proprietary) Limited (who are independent valuers
registered as professional associate valuers in terms of the
Property Valuers Profession Act, No. 47 of 2000). The acquisitions
have been accounted for in terms of IFRS 3 Business Combinations
(2008) which provides that net assets which are acquired should be
recorded at their fair values. Accordingly, the difference of R23
million between the aggregate purchase consideration of R542
million (including capitalised transaction costs) and the fair
values of Setsing Crescent and Gugulethu Square of R565 million has
been recorded as negative goodwill and is included as part of
accumulated profit.
WITHDRAWAL OF CAUTIONARY
Synergy linked unitholders are referred to the cautionary announcement dated
28 February 2012 and are advised that following the release of the financial
effects of the acquisitions, caution is no longer required to be exercised by
linked unitholders when dealing in their linked units.
15 March 2012
Corporate advisor and sponsor
Java Capital
Date: 15/03/2012 15:51:01 Supplied by www.sharenet.co.za
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