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SYC - Sycom Property Fund - Audited group results and declaration of the final

Release Date: 09/06/2011 08:05
Code(s): SYC
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SYC - Sycom Property Fund - Audited group results and declaration of the final distribution for the year ended 31 March 2011 Sycom Property Fund("Sycom") A Collective Investment Scheme in property registered in terms of the Collective Investment Schemes Control Act, No. 45 of 2002 and managed by Sycom Property Fund Managers Limited (Registration number 1986/002756/06) JSE Share code: SYC ISIN: ZAE000019303 AUDITED GROUP RESULTS AND DECLARATION OF THE FINAL DISTRIBUTION FOR THE YEAR ENDED 31 MARCH 2011 The directors of Sycom Property Fund Managers Limited, the management company of Sycom Property Fund (Sycom) or (the Fund, submit their report on the audited results of Sycom for the year ended 31 March 2011. CONDENSED STATEMENT OF FINANCIAL POSITION Audited at Audited at
31 Mar 2011 31 Mar 2010 (R`000) (R`000) ASSETS
Non-current assets Investment property 5570533 5150956 Investment in securities 213 803 213 778 Total non-current assets 5784336 5364734 Current assets Rental and other receivables 58 991 41 374 Cash and cash equivalents 129 134 152 203 Total current assets 188 125 193 577 Total assets 5972461 5558311 UNITHOLDERS` FUNDS AND LIABILITIES Unitholder`s funds Unitholders` capital 1863856 1661615 Non-distributable reserves 3036451 2745596 Total capital and reserves 4900307 4407211 Non-current liabilities Unsecured borrowings 800 902 714 424 Deferred Tax 1 498 - Total non-current liabilities 802 400 714 424 Current liabilities Trade and other payables 66 696 239 328 Other financial liabilities 31 212 28 743 Unitholders for distribution 171 846 168 605 Total current liabilities 269 754 436 676 Total liabilities 1072154 1151100 Total unitholders` funds and 5972461 5558311 liabilities
Net asset value per unit - cents 2 267 2 149 Audited twelve Audited twelve months to 31 Mar months to 31 Mar 2011 2010
(R`000) (R`000) CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Rental revenue 493355 446732 Contractual rental revenue and 493397 462879 recoveries Straight-line rental income -42 -16147 accrual Property operating expenses -85379 -71838
Net rental and related revenue 407976 374894 Investment income 10700 9793
Fair value gain on investment 294764 175148 property and investments Fair value gain on investment 386297 277382 properties Fair value deficit on listed -91533 -102234 investment Administrative expenses -27683 -22687 Service charge -25998 -21163 Other administrative expenses -1685 -1524 Profit before net finance costs 685757 537148 Net finance costs -54701 -57658 Interest income 18449 12162 Interest expense -70781 -63484 Fair value adjustment on interest -2369 -6336 rate and cross currency swaps Profit before income tax 631056 479490 Taxation -1498 0 Profit for the year 629558 479490 Number of units in issue (`000) 216182 205107 Number of weighted average units 214898 205107 in issue (`000) Earnings per unit - cents 291.22 233.78 Weighted average earnings per 292.96 233.78 unit - cents RECONCILIATION OF EARNINGS TO HEADLINE EARNINGS AND DISTRIBUTABLE EARNINGS Total comprehensive income 629558 479490 Unrealised surplus on revaluation -384799 -277382 of investment properties, net of deferred tax Headline earnings 244759 202108 Straight-line rental income 42 16147 accrual Unrealised deficit on swaps 2369 6336 Unrealised deficit on revaluation 91533 102234 of investment in securities Distributable earnings 338703 326825 Annual Earnings per unit: Basic earnings per unit- cents 291.22 233.78 Weighted average earnings per 292.96 233.78 unit Headline earnings per unit - 113.22 98.54 cents Weighted headline earnings per 113.9 98.54 unit Annual distribution per unit - 156.67 159.34 cents Distribution per unit for the six 77.18 77.14 months ended 30 September 2010: Distribution per unit for the six 79.49 82.20 months ended 31 March 2011:
CONDENSED STATEMENT OF CASH FLOWS Audited at Audited at 31 Mar 2011 31 Mar 2010 (R`000) (R`000)
Cash generated from operating activities Cash generated from operating 356481 375361 activities Interest received 9582 12162 Interest paid -68329 -65726 Dividend received 8905 11708 Distribution paid -342776 -320741 Taxation paid 0 -231 Net cash (outflow)/inflow from -36137 12533 operating activities
Cash flows from investing activities Additions to investment property -28462 -42185 Subscription to rights issue- -91557 0 SESCF Net cash outflow from investing -120019 -42185 activities
Cash flows from financing activities Proceeds on issue of new units 47957 0 Capital issue costs -1448 -213 Increase in borrowings 86578 28545 Net cash inflow from financing 133087 28332 activities
Net decrease in cash and cash -23069 -1320 balances Cash and cash balances at the 152203 153523 beginning of the period Cash and cash equivalents at the 129134 152203 end of the period
CONDENSED STATEMENT OF CHANGES IN UNITHOLDERS FUNDS Capital Non Retained Total
distributable earnings reserve (R`000) (R`000) (R`000) (R`000)
Balance at 31 March 1661828 2592931 - 4254759 2009 Capital issue costs (213) - - (213) Total profit or loss - - 479 490 479 490 and comprehensive income for the year Transfer to non- - 152665 (152665) - distributable reserve Unitholders - - (326825) (326825) distribution
Balance at 31 March 1661615 2745596 - 4407211 2010 Transactions with owners, recorded directly in equity Issue of 8 897 297 157283 - - 157283 units in April 2010 Issue for acquisition 157286 - - 157286 of Tyger Hills Office Park (Pty) Ltd Capital issue costs (3) - - (3) Issue of 1 396 657 28930 - - 28930 units in September 2010 Proceeds 29886 - - 29886 Capital issue costs (956) - - (956) Issue of 780 078 16028 - - 16028 units in September 2010 Proceeds 16517 - - 16517 Capital issue costs (489) - - (489) Total profit or loss - - 629558 629558 and comprehensive income for the year Transfer to non- - 290855 (290855) - distributable reserve Unitholders - - (338703) (338703) distribution
Balance at 31 March 1863856 3036451 - 4900307 2011 BASIS OF PREPARATION AND AUDIT OPINION The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IAS 34 and interpretations adopted by the International Accounting Standards Board (IASB) and the Collective Investment Schemes Control Act, 2002. The financial statements are prepared on the historical cost basis, except for investment properties, investment properties held for sale, derivative financial instruments, and financial assets carried at fair value through profit and loss which are measured at fair value. The financial statements are prepared on the going concern basis and Sycom`s accounting policies have been applied consistently to all periods presented. KPMG Inc. has audited the financial information set out above. Their unmodified audit report is available for inspection at the company`s registered office. The information contained in the commentary below does not form part of the audit opinion. COMMENTARY 1. REVIEW OF RESULTS AND OPERATIONS The board of Sycom Property Fund Managers Limited (`SPFM`) reports a distribution of 79.49 cents per unit (cpu) for the six months ended 31 March 2011. Together with the interim distribution of 77.18 cpu, this gives unitholders an annual distribution of 156.67 cpu, in line with guidance provided in the interim results announcement of 17 November 2010. Although distributions were slightly lower than the prior year, the value of the property portfolio grew by a pleasing 8.4%, underlining the long-term quality of Sycom`s assets. The fund was adversely affected by a cyclical rise in office vacancies, but as the office market improves and vacancies gradually reduce to more normalised levels, unitholders can expect Sycom to continue its long-term record of delivering real distribution growth on a cumulative basis.
Office market The office market remained under pressure during the period under review, and as a result, a vacancy rate of over 10% persisted until the financial year end. The average vacancy rate for the year ended 31 March 2011 was 10.9%, compared with a much lower average vacancy of 8.2% for the previous year. The effect on distributions was a negative 2.5 cpu or 1.6%. The cyclical downturn in the office market also resulted in negative rental reversions on leases renewed, with average net rentals declining from R108.99/m2 on expiry to R105.50/m2 on average across the 27,664m2 of renewals that took place in the year to 31 March 2011. There are, however, positive signs that the office market is entering a recovery phase. The retention rate for leases that expired during the year was 90%, compared to 60% in the prior year. Towards the end of the current financial year, new leases for 4,960m2 were concluded, although the tenants were not in occupation and paying rent by the year end. The financial effects of these new deals will come through in the 2012 year. Subsequent to the year end, a further 6,113m2 of leases were concluded, of which 5,365 m2 were renewals. Retail Sycom`s South African retail portfolio generated turnover growth of 6.5% for the year to 31 March 2011. Vaal Mall once again showed the strongest turnover growth at 8.7%, with Fourways Crossing at 6.3%, N1 City at 7.6%, Somerset Mall at 4.5% and Paarl Mall at 5.7%. Although the quarter ended 31 March 2011 reflected a slow-down in turnover growth to 3.6% compared with the same quarter last year, the month of April reversed this trend with an exceptional 13.3% growth in turnover. Segmental contribution to retail turnover for the year is shown in the chart below. It reflects a combined contribution of 56.1% from supermarkets (food majors) and apparel, down from 57.5% last year, and indicating a slight shift in consumer spending to more durable goods. Segment Segment: % of Turnover Apparel 30.8% Food Majors 25.3% Electronics & Music 11.7% Health & Beauty 9.3% Food Service & Entertainment 7.1% Other 5.7% Discounters 5.2% Home & Furniture 4.9% 100.0%
The homeware and electronics segments continued their resurgence, delivering growth rates over the prior year of 16% and 9% respectively. The apparel segment showed turnover growth of just under 7%, but supermarkets gave a more modest performance, with growth of 2.7% for the year, slowing to less than 1% for the last quarter, as shown in the chart below: SYCOM: Turnover & Rent to Turnover Ratio by Segment Segment Quarter-on-Quarter Year-on-Year Total Turnover 3.6% 6.5% Food Majors 0.8% 2.7% Apparel 4.5% 6.9% Home 20.4% 16.0% Electronics 0.6% 9.0% Discounters -5.9% 3.7% Health & Beauty 4.7% 6.6% Food Service 6.4% 6.6% The major shift in the rent to turnover ratios was a positive change of nearly 10% for the homeware segment, showing that the growth in tenant turnovers exceeded the growth in their rentals paid. The ratios for food majors and electronics deteriorated slightly, but still remain comfortably within accepted norms for these segments. Overall, the picture emerging from the analysis of these ratios is that tenant turnovers are growing comfortably in line with rentals, and that rental affordability is therefore not under any threat. Segment Rent Ratio Rent Ratio Year-on-Year 2010 2011 Growth Food Majors 1.7% 1.8% 3.5% Apparel 5.6% 5.6% -0.6% Home 9.5% 8.6% -9.4% Electronics 2.4% 2.5% 4.6% Discounters 3.3% 3.3% -0.3% Health & Beauty 2.5% 2.5% 1.2% Food Service 8.5% 8.5% -0.1% During the year under review, leases totalling 36,410m2 terminated at an average rental of R129.81/m2. Renewals were completed at an average rental of R132.48/m2. The retail vacancy remained fairly constant in the year at approximately 1.7%. Expiries in the 2012 financial year will amount to 40,500m2, terminating at an average rental of R147.80/m2. These leases are expected to be renewed at an average rate of R156.30/m2. 2. BORROWINGS Sycom has an approved facility of R950 million. The facility is subject to renewal in November 2014. At 31 March 2011, R801 million of this facility had been utilised, with 62% of borrowings subject to interest rate swaps, as tabulated below. This level of interest rate hedging is in line with board policy. The weighted average borrowing cost is 8.2%. Sycom`s gearing level is presently 13.8%. Including the effects of its investment in SESCF, Sycom`s `see-through` gearing level is 20.3%, and the board would be comfortable to increase the overall level of gearing to approximately 30%, subject to securing suitable acquisition opportunities. Type Maturity Date Effective Value % of total Rate R`m SWAP 1 June 2011 8.90% 100 12.5% SWAP 1 June 2012 8.77% 100 12.5% SWAP 17 Mar 2014 11.15% 200 25.0% SWAP 9 April 2014 10.86% 100 12.5% 500 62.4% Floating 25 November 6.50% 301 37.6% 2014
8.21% 801 100.0% 3. STENHAM EUROPEAN SHOPPING CENTRE FUND (`SESCF`) During the year, SESCF was re-capitalised by its shareholders through a rights issue undertaken during September 2010. The funds raised were used to settle debt and reduce the gearing level. Sycom followed its rights, resulting in an additional investment of R91.5m in SESCF. The rights issue was priced to yield 8%, and Sycom has subsequently entered into a Euribor- based cross currency swap for the amount of its additional investment. At year end, the all-in rate on the cross currency swap was 4%. SESCF`s sole investment is the 96,000m2 Nova Eventis shopping centre in Leipzig. The centre has started to show signs of the improving retail climate in Germany, with low vacancies and stable rentals. With reduced gearing in SESCF for the last quarter of the current financial year, the dividend received from SESCF grew by just over 9% in Rand terms, even after taking into account a modest strengthening in the exchange value of the Rand against the Euro over the course of the year from March 2010. At 31 March 2011, Nova Eventis was independently valued by BulweinGesa Valuation at Euro300m, down from last year`s valuation of Euro339m. As a result, Sycom`s investment in SESCF has been impaired by R91.5m. Had Sycom not followed its rights under the rights issue referred to above, the impairment would have been R156.8m, but there was an off-setting positive adjustment of R65.3m on the value of the shares acquired in terms of the rights issue, and this contained the net impairment to the R91.5m referred to above. SESCF has negotiated an option to extend its senior debt facility of Euro209m, due to expire on 18 July 2011, by one year to 18 July 2012, on the same credit margin as currently applies to the facility. The board of SESCF has until 17 June 2011 to exercise this option. 4. FORWARD LEASE EXPIRIES The forward lease expiry profile shows relatively high levels of renewal activity ahead in the 2012 financial year, principally due to the renewal of two large office tenants. Renewal discussions are already advanced with both of them. Vaal Mall also goes through a major renewal period in 2012, and expectations are for a meaningful upward rental reversion, as well as full tenant retention. After 2012, lease expiries diminish substantially. The expiry profile by Rental Income is shown below: Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Retail 14.6% 7.7% 8.9% 4.3% 8.6% Offices 17.8% 3.5% 5.5% 5.6% 1.3% Total 32.4% 11.1% 14.4% 9.9% 9.9% 5. VACANCIES AND BAD DEBTS The table below provides details of Sycom`s vacancies at March 2010 and March 2011, expressed by area. Mar-11 Mar-10 Retail vacancy 1.7% 1.7% Office vacancy 11.7% 10.2% Total vacancy 6.6% 5.9% By rental income, Sycom`s vacancies were 5.7% at 31 March 2011, with 4.5% of the total attributable to offices and 1.2% to retail assets. The board will continue to actively focus on new leasing deals to reduce the office vacancy as quickly as possible, whilst maintaining its strategic emphasis on securing good quality lease covenants of longer duration. The impairment provision at 31 March 2011 amounted to R2.2m compared to R4.9m at 31 March 2010, with the difference of R2.7m applied to write off bad debts. The bad debt and tenant arrears positions have stabilized and the board does not expect any abnormal provisions or write offs to become necessary as the economic climate continues to slowly improve. 6. UNIT HOLDER SUMMARY Sycom`s major unit holders at 31 March 2011 are shown below, with a comparison to the prior year. Major unitholders 31-Mar-2011 31-Mar-2010 Hyprop 34.8% 36.7% Acucap 19.8% 18.3% PIC (GEPF) 6.0% 4.2% Attfund 4.1% - Stanlib 3.9% 3.0% Nedbank 2.7% 2.8% Old Mutual 2.7% 2.6% Redefine - 3.2% 74.0% 70.8%
7. PROSPECTS The weak office cycle over the last 18 months, with rising vacancies, has led to a short-term setback in Sycom`s growth, but as the recovery of the `A` grade office market gathers momentum, the high office vacancy rate will start to reverse. Rising consumer spending will also support improved rental growth in Sycom`s retail portfolio. Together, these factors will enhance Sycom`s revenue base and return the fund to solid distribution growth. In addition, in terms of its strategy, Sycom continues to seek opportunities that will enhance shareholder value, including the expansion of retail assets that are performing well and have further bulk rights, by acquiring additional shares in co-owned assets as opportunities arise, and by acquiring good quality office and retail properties that offer sound long-term growth prospects. The above information has not been reviewed or reported on by Sycom`s auditors. 8. PAYMENT OF INTEREST Notice is hereby given of the declaration of distribution number 52 in respect of the six months to 31 March 2011. The final distribution of 79.49 (seventy nine comma four nine) cents per unit has been approved in respect of the six month period ended 31 March 2011. The last date to trade the units cum distribution is Friday, 24 June 2011 and the record date will be Friday, 1 July 2011. The units will start trading ex-distribution from Monday, 27 June 2011. Distributions will be made to unit holders on Monday 4 July 2011. Unit certificates may not be dematerialised or rematerialised between Monday, 27 June 2011 and Friday, 1 July 2011 both days inclusive. On behalf of the Board G K EVERINGHAM Chairman Sycom Property Fund Managers Ltd PA THEODOSIOU CEO Sycom Property Fund Managers Ltd 9 June 2011 Registered Office Suite A11 Westlake Square Westlake Drive Westlake CAPE TOWN Transfer secretaries: Computershare Investor Services (Proprietary) Limited 70 Marshall Street JOHANNESBURG http://www.sycom.co.za Share Code: SYC ISIN: ZAE000019303 Directors: GK Everingham (Chairman), SM Moloko (Deputy Chairman), FM Berkeley, JPD Flanagan, BM Stocks, PA Theodosiou*# (CEO), CB Marlow*, GR Jones* * Executive, # British Sponsor: Nedbank Capital Date: 09/06/2011 08:05:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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