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SGA/SGB - Synergy Income Fund Limited - Reviewed interim results for the six

Release Date: 07/03/2012 13:35
Code(s): SGA SGB
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SGA/SGB - Synergy Income Fund Limited - Reviewed interim results for the six months ended 31 December 2011 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: ZAE000161550 JSE share code for B linked units: SGB ISIN: ZAE000162293 ("Synergy" or the "Fund") REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2011 Condensed statement of comprehensive income Reviewed Unaudited Audited
Six months ended Six months ended Year ended 31 December 31 December 30 June 2011 2010 2011 R R R
REVENUE Property portfolio 8 198 590 - - Recoveries and 7 564 978 - - contractual rental revenue Straight-line rental 633 612 - - income accrual Rental revenue 8 198 590 - - Property operating costs (2 557 946) - (78 125) Administration costs (1 845 678) (14 375) (22 256) Net operating 3 794 966 (14 375) (100 381) profit/(loss) Changes in fair value of 32 143 979 - - investment properties Adjustment resulting from (633 612) - - straight-lining of rental revenue Profit/(Loss) from 35 305 333 (14 375) (100 381) operations Listing expenses (8 799 307) - - Net finance income 3 828 717 - 523 150 Profit/(Loss) before 30 334 743 (14 375) 422 769 debenture interest and taxation Debenture interest (6 990 071) - (422 769) Profit/(Loss) before 23 344 672 (14 375) - taxation Taxation (6 053 464) - - Profit/(Loss) for the 17 291 208 (14 375) - period attributable to Synergyshareholders Other comprehensive - - - income/(loss) for the period, net of taxation Total comprehensive 17 291 208 (14 375) - income/(loss) for the period Reconciliation of earnings/(loss), headline earnings/(loss) and distributable earnings Profit/(Loss) for the 17 291 208 (14 375) - period attributable to Synergy shareholders Debenture interest 6 990 071 - 422 769 Basic earnings/(loss) 24 281 279 (14 375) 422 769 attributable to linked unitholders Changes in fair value of (25 456 903) - - investment properties (net of deferred taxation) Changes in fair value of 31 510 367 - - investment properties Deferred taxation (6 053 464) - - Headline (loss)/profit to (1 175 624) (14 375) 422 769 linked unitholders Listing expenses 8 799 307 - - Straight-line rental (633 612) - - income accrual Distributable earnings 6 990 071 (14 375) 422 769 Six months ended 31 6 990 071 - - December Distributed to B linked 5 577 231 - - units** To be distributed to A 970 826 - - linked units*** To be distributed to B 442 014 - - linked units*** Six months ended 30 June - - 422 769 Distributed - - 422 769 Total distributions 6 990 071 - 422 769 Actual number of A linked 24 889 156 - - units in issue* Actual number of B linked 73 113 070 - 12 696 170 units in issue* Weighted number of A 2 434 809 - - linked units in issue Weighted number of B 53 340 548 - 2 052 258 linked units in issue Earnings per A share 31.00 - - (cents) Earnings per A linked 70.87 - - unit (cents) Earnings per B share 31.00 - - (cents) Earnings per B linked 42.29 - 21 unit (cents) Headline loss per A share (14.64) - - (cents) Headline earnings per A 25.23 - - linked unit (cents) Headline (loss)/earnings (14.64) - 21 per B share (cents) Headline (loss)/earnings (3.36) - 21 per B linked unit (cents) Distribution per A linked 3.90 - - unit payable (cents) Distribution per B linked 9.30 - - unit paid (cents) Distribution per B linked 0.6046 - 21 unit payable (cents) * The first issue of linked units was on 3 May 2011. Prior to this there were no linked units in issue. ** This distribution was made to the holders of B linked units prior to 14 December 2011 (listing date). *** This amount will be distributed with the next distribution made. The distribution per B linked unit paid was paid to holders of 60 million B linked units for the period to 13 December 2011. This distribution payable to A and B linked unitholders in the current period is for the 18 days to 31 December 2011. The Fund has no dilutionary instruments in issue. Condensed statement of financial position Reviewed Unaudited Audited as at as at as at 31 December 31 December 30 June
2011 2010 2011 R R R ASSETS Non-current assets 368 624 168 - - Investment property 367 800 000 - - Fair value of property portfolio 367 166 388 - - for accounting purposes Straight-line rental income accrual 633 612 - - Other financial assets 815 243 - - Property, plant and equipment 8 925 - - Current assets 241 481 139 496 63 916 413 Trade and other receivables 4 054 675 426 769 939 Cash and cash equivalents 237 426 464 70 63 146 474 Total assets 610 105 307 496 63 916 413 EQUITY AND LIABILITIES Stated capital and reserves 18 271 230 (14 305) 127 031 Stated capital 980 022 70 127 031 Reserves 17 291 208 (14 375) - Non-current liabilities 587 865 139 - 63 353 889 Debenture capital 581 412 553 - 63 353 889 Interest-bearing liabilities 399 122 - - Deferred taxation 6 053 464 - - Current liabilities 3 968 938 14 801 435 493 Trade and other payables 2 556 098 14 801 435 493 Debenture interest payable 1 412 840 - - Total equity and liabilities 610 105 307 496 63 916 413 Net asset value per combined linked 6.12 - 5.00 unit* Net asset value per A linked unit* 8.76 - - Net asset value per B linked unit* 5.22 5.00 - * Net asset value includes total equity attributable to equity holders and linked debentures. Condensed statement of changes in equity Reviewed Unaudited Audited Six months Six months Year ended ended ended
31 December 31 December 30 June 2011 2010 2011 R R R Balance at the beginning of the 127 031 70 70 period Repurchase of shares (70) - - Issue of linked units 853 061 - 126 961 Total comprehensive income/(loss) 17 291 208 (14 375) - for the period Total stated capital and reserves 18 271 230 (14 305) 127 031 Condensed statement of cash flow Reviewed Unaudited Audited
Six months Six months Year ended ended ended 31 December 31 December 30 June 2011 2010 2011
R R R Cash flows from operating activities Cash generated from operations (6 127 896) - (434 827) Net finance income 3 828 717 - 523 150 Linked unit distributions paid (5 577 231) - (422 769) Net cash outflow from operating (7 876 410) - (334 446) activities Net cash outflow from investing (336 298 - - activities 816) Net cash inflow from financing 518 455 216 70 63 480 850 activities Net movement in cash and cash 174 279 990 70 63 146 404 equivalents Cash and cash equivalents at 63 146 474 - 70 beginning of the period Cash and cash equivalents at the 237 426 464 70 63 146 474 end of the period Commentary Profile Synergy Income Fund Limited ("Synergy" or the "Fund") is a specialised retail property fund with a specific focus on medium-sized community and regional shopping centres located in high-growth lower LSM nodes. There is a portfolio emphasis on commuter oriented centres located in township and rural areas. Synergy`s property portfolio as at 31 December 2011 consisted of four properties with a total market value of R367.8 million ("the initial portfolio").The initial portfolio and the portfolios in respect of which acquisition agreements have been signed but where conditions remain unfulfilled were assembled during 2011 by Capital Land Asset Management (Proprietary) Limited ("Capital Land"), Synergy`s appointed asset manager. Listing on the JSE Limited and unit structure Synergy was listed on the main board of the Johannesburg Stock Exchange ("JSE") on 14 December 2011. Synergy has separately listed A and B linked units each offering investors a different risk and reward profile. The A linked units have a preferential entitlement to distributions with an initial one-year forward distribution yield of 9.4% and with annual distributions which escalate at 5% until 30 June 2017 and thereafter at the lower of 5% and CPI. The remaining distributable income, after the payment of distributions to A linked unitholders, accrues to B linked unitholders. At 31 December 2011 there were 24.9 million A linked units in issue and 73.1 million B linked units in issue. Financial results Synergy took transfer of the initial portfolio during the period October 2011 to December 2011. Prior to the transfer of the first property on 7 October 2011 the only asset of the Fund was cash, which was held against guarantees issued in respect of the properties to be acquired by the Fund. Income reflected for the six months ended 31 December 2011 comprised interest earned on cash deposits as well as property income from the initial portfolio. The initial portfolio was externally valued as at 1 December 2011 by an independent valuer, Mills Fitchet Magnus Penny (Proprietary) Limited at R367.8 million, resulting in a fair value gain of R32.1 million in the reporting period. Administration costs consist primarily of asset management fees and due diligence costs on acquisitions with which Synergy did not proceed. Synergy declared a pre-listing distribution for the period ended 13 December 2011 of 9.3 cents per B linked unit. This distribution was paid out to the holders of the 60 million B linked units in issue prior to listing. The distribution accrued for the 18 days ended 31 December 2011 will be paid out with the next distribution made. Property portfolio The initial portfolio as at 31 December 2011 Property Location Transfer Capitalised Valuation date cost R R
Sediba Plaza North- 7 October 125 828 015 133 600 000 Shopping Centre West 2011 KwaMashu KwaZulu- 25 October 104 190 153 108 400 000 Shopping Centre Natal 2011 Ruimsig Gauteng 22 December 73 313 225 88 300 000 Boulevard 2011 Taxi City KwaZulu- 6 December 32 324 628 37 500 000 Shopping Natal 2011 Centre 335 656 021 367 800 000 Properties transferred after 31 December 2011 Property Location Transfer date Consideration Valuation R R King KwaZulu- 16 February 186 000 000 210 000 000 Senzangakhona Natal 2012 Shopping Centre 186 000 000 210 000 000 Properties pending transfer Property Location Consideration Valuation R R
The Village KwaZulu-Natal 79 631 713 93 000 000 Centre (Richdens) Hubyeni Limpopo 80 792 806 106 000 000 Shopping Centre Nzhelele Valley Limpopo 30 575 481 33 000 000 Shopping Centre Van Western Cape 38 000 000 44 000 000 Riebeeckshof Shopping Centre Highland Mews Mpumalanga 130 000 000 150 000 000 Shopping Centre Ermelo Game Mpumalanga 26 000 000 28 000 000 Shopping Centre Renbro Shopping Gauteng 107 000 000 108 000 000 Centre Setsing Free State 240 000 000 257 000 000 Crescent Shopping Centre Gugulethu Western Cape 290 000 000 308 000 000 Square Shopping Centre 1 022 000 000 1 127 000 000 Total property 1 543 656 021 1 704 800 000 portfolio Initial portfolio As at 31 December 2011 Synergy`s property portfolio consisted of four properties with a total market value of R367.8 million. Details of these properties and their respective transfer dates are given in the table above. Properties transferred to Synergy after 31 December 2011 Synergy took transfer of King Senzangakhona Shopping Centre in Ulundi ("KSSC") on 16 February 2012, bringing the Fund`s current portfolio to five properties with an aggregate market value of R577.8 million. Properties pending transfer to Synergy As disclosed in the pre-listing statement dated 30 November 2011, Synergy has contracted to acquire a further two property portfolios (comprising seven properties in total) from SA Corporate Real Estate Fund for an aggregate purchase consideration of R492 million and with an aggregate market value of R562 million ("the SAC acquisitions"). The SAC acquisitions remain subject to receipt of approval from the Competition Authorities. On 28 February 2012, Synergy 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 and with an aggregate market value of R565 million. These two properties formed part of the Old Mutual Life Assurance Company (South Africa) Limited portfolio of assets known as The Ideas Managed Fund. These acquisitions remain subject to various conditions precedent including: - obtaining the requisite resolutions by the vendors/vendors` directors and shareholders approving each acquisition by Synergy; - the securing of the appropriate regulatory approvals, including that of the JSE and the Competition Authorities, for the implementation of the acquisitions; - the linked unitholders of Synergy approving each acquisition in a general meeting; - the company successfully placing sufficient Synergy linked units for cash with third party placees in terms of a vendor placement in order to fund up to a maximum of 70% of the purchase price payable to the vendor/s in respect of each acquisition; and - Synergy securing debt funding of not less than 30% of each acquisition or such greater amount as makes up the shortfall between the money raised pursuant to the placement and the purchase price payable to the vendor/s. The acquisitions are not inter-conditional. On transfer of all properties comprising the contracted acquisitions described above (collectively, "the contracted acquisitions") the estimated aggregate market value of Synergy`s property portfolio is expected to be R1.7 billion. Borrowings The proceeds from the listing were utilised to pay down bank borrowings in full, leaving the Fund with no bank borrowings at 31 December 2011. The purchase consideration in respect of KSSC was discharged through a drawdown of R90 million on the available loan facility and the balance was funded through existing capital. Funding of the portfolio The contracted acquisitions will be funded through a combination of bank debt and the issue of new Synergy linked units in terms of vendor placements. It is expected that, subsequent to the conclusion of the contracted acquisitions, Synergy`s loan to value ratio will be in the region of 41%, in line with its gearing strategy as set out in the pre-listing statement. Directorate William Brooks was appointed as Chief Executive Officer of the Fund on 13 November 2007. Martin Kuscus was appointed as Chairperson on 1 October 2011 and Uys Meyer was appointed as Financial Director with effect from 17 November 2011. Craig Coetzee (appointed 13 September 2010), Sean Segar (appointed 1 January 2011), Maurice Mdlolo (appointed 1 August 2011), Amanda Ramsden (appointed 1 October 2011) and Lizwi Mtumtum (appointed 1 October 2011) are non-executive directors of Synergy. As previously detailed in the pre-listing statement, Craig Coetzee tendered his resignation as a director of Synergy effective 29 February 2012. Craig has completed his role in the assembly and listing of Synergy. Craig will remain a member of the investment committee of Synergy and a director of Capital Land. Prospects The properties acquired to date have been performing in line with projections made at the time of acquisitions. Whilst it is the Fund`s intention to continue to grow its portfolio through well-considered, value-enhancing acquisitions, the board is also mindful of the need for a period of post-acquisition consolidation where management attention is focused on the continued maintenance and enhancement of value through strong operational strategy and control. Strategies in this regard have been implemented and portfolio performance is continually assessed. Preparation, accounting policies and review opinion These reviewed interim results for the six months ended 31 December 2011 have been prepared in accordance with International Financial Reporting Standards, the AC 500 standards as issued by the Accounting Practices Board, the JSE Listings Requirements and the requirements of the South African Companies Act, 2008. This report has been prepared in terms of IAS 34 - "Interim Financial Reporting". The interim results for the six months ended 31 December 2011 have been reviewed by the Fund`s independent external auditors, Moore Stephens BKV Inc., and their review opinion is available for inspection at the Fund`s registered office. This report was compiled under the supervision of Uys Meyer, BAcc (Hons), the Financial Director. The accounting policies adopted are consistent with those applied in the prior periods. The directors are not aware of any matters or circumstances arising subsequent to 31 December 2011 that require any additional disclosure or adjustment to the financial statements and which are not disclosed in this announcement. By order of the board Synergy Income Fund Limited Cape Town 7 March 2012 Directors: M Kuscus* (Chairperson), W Brooks (CEO), U Meyer (FD), C Coetzee, S Segar*, M Mdlolo, A Ramsden*, L Mtumtum* *Independent non-executive Registered office: 23rd Floor, Triangle House, 22 Riebeeck Street, Cape Town, 8001 (Postnet Suite 33, Private Bag X3, Roggebaai, 8012) Transfer secretaries: Computershare Investor Services (Proprietary) Limited Sponsor: Java Capital Company secretary: Probity Business Services (Proprietary) Limited www.synergyincomefund.com Date: 07/03/2012 13:35:01 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. 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