Wrap Text
Audited Financial Statements for the year ended for the year ended 30 June 2012
SYNERGY INCOME FUND LIMITED
(formerly Capital Land Retail Fund Limited)
(Incorporated in the Republic of South Africa)
(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")
Highlights
- 218% growth in assets from R368 million to R1.171 billion
- Two further acquisitions concluded during August 2012 bringing the portfolio value to R1.736 billion
- Distributions in line with pre-listing projections: A linked units 44.22 cents, B linked units 19.53 cents
- Portfolio vacancies reduced by 21% from 5.8% to 4.6%
- Successful vendor consideration placement of R376 million in new linked units concluded
Commentary
Profile
Synergy is a specialised retail property fund with a specific focus on medium-sized community and regional
shopping centres located in high-growth nodes. There is a portfolio emphasis on commuter-oriented centres
located in township areas and rural towns.
Synergy's property portfolio as at 30 June 2012 consisted of 12 properties with a total market value of R1.171 billion.
Two further property acquisitions were completed and transferred to Synergy during August 2012 increasing the
current market value of total assets to R1.736 billion.
Listing on the JSE and unit structure
Synergy 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 that escalate at 5% annually until 30 June 2017 and
thereafter at the lower of 5% or CPI. The remaining distributable income, after payment of distributions to A linked
unitholders, accrues to B linked unitholders. At 30 June 2012 there were 24.9 million A linked units in issue and
73.1 million B linked units in issue.
Synergy recently completed a vendor consideration placement to fund new acquisitions. The placement was
significantly oversubscribed and R376 million was raised. The additional linked units were listed on the JSE on
13 August 2012 bringing the total linked units in issue to 47.4 million A linked units and 106.4 million B linked units.
Financial results
Synergy's board is pleased to announce a distribution of 44.22 cents per A linked unit and 19.53 cents per B linked
unit for the period from listing to 30 June 2012. This is in line with original projections communicated to investors
and was achieved despite significant delays in the transfer of several properties to Synergy. This distribution was
paid on 13 August 2012.
Synergy previously declared a pre-listing distribution for the period ended 13 December 2011 of 9.3 cents per
B linked unit, which was paid to the holders of the 60 million B linked units in issue prior to listing.
The maiden annual trading period to June 2012 accounts for 12 properties that were brought onto the Synergy
balance sheet during the period. Seven of these properties transferred to Synergy on or about 1 June 2012, three
months later than expected, because of delays imposed by the Competition Authorities.
Synergy's property portfolio has grown from R368 million in December to R1.171 billion at 30 June 2012. Four
of the 12 properties in the portfolio were externally valued by an independent valuer, Mills Fitchet Magnus Penny
(Proprietary) Limited, at 1 April 2012 and these values are considered to be a reasonable approximation of the
30 June 2012 values. Directors' valuations were performed for the remaining eight properties at 30 June 2012.
The recognition of investment property at fair value at 30 June 2012 resulted in a fair value gain of R153.1 million
in the current financial year.
Operational performance
Vacancy ratios of retail lettable area (96% of gross lettable area ("GLA")) on the full Synergy portfolio (including
both transferred and contracted acquisitions) reduced from 5.8% at 31 December 2011 to 4.6% at 30 June 2012.
This represents a 21.0% improvement in the last six-month period. Rental reversions across the portfolio have
trended upwards by 4.5% driven by a proactive leasing strategy targeting the underlet components of the portfolio.
Of current retail vacancies 1.3% are planned vacancies at Highland Mews, Ermelo Game Centre and The Village
Centre (Richdens), which are undergoing refurbishment and redevelopment.
SEE PRESS FOR GRAPH
Improvement in the overall tenant mix is a key focus area. Since December 2011 the ratio of national tenants in the
portfolio has increased from 80.4% to 81.1%. Synergy's target national tenant ratio is 85.0% or higher.
The pie chart below shows Synergy's current tenant profile by GLA. Tenant categories are defined as follows:
Category A includes large listed national tenants, government and major franchisees;
Category B includes national tenants, franchisees and medium to large professional firms; and
Category C includes all other tenants classified as independent retailers.
SEE PRESS FOR GRAPH
The portfolio has been actively managed with the total expense to income ratio of 23.9% being within industry
standards although further improvements are targeted.
Property portfolio
Property portfolio
At 30 June 2012 Synergy's property portfolio comprised 12 properties with a total market value of R1.171 billion.
Details of these properties and their respective transfer dates are set out in the table below.
Property portfolio as at 30 June 2012
GLA Effective date Valuation
Property Location m2 of transfer R
Sediba Plaza Shopping Centre Hartbeespoort, North West 10 886 7 October 2011 121 200 000
KwaMashu Shopping Centre KwaMashu, KwaZulu-Natal 11 144 25 October 2011 111 400 000
Ruimsig Boulevard Roodepoort, Gauteng 11 117 22 December 2011 98 200 000
Taxi City Shopping Centre Newcastle, KwaZulu-Natal 5 006 6 December 2011 40 700 000
King Senzangakhona Shopping Ulundi, KwaZulu-Natal 22 325 16 February 2012 212 700 000
Centre
The Village Centre (Richdens) Hillcrest, KwaZulu-Natal 10 203 24 May 2012 102 700 000
Hubyeni Shopping Centre Elim, Limpopo 12 685 1 June 2012 115 100 000
Nzhelele Valley Shopping Makhado, Limpopo 5 309 1 June 2012 39 300 000
Centre
Van Riebeeckshof Shopping Welgedacht, Western Cape 5 067 1 June 2012 44 000 000
Centre
Highland Mews Shopping Witbank, Mpumalanga 17 112 1 June 2012 150 000 000
Centre
Ermelo Game Shopping Ermelo, Mpumalanga 5 669 1 June 2012 28 000 000
Centre
Renbro Shopping Centre Hammanskraal, Gauteng 13 353 1 June 2012 108 000 000
129 876 1 171 300 000
Properties transferred to Synergy post 30 June 2012
GLA Effective date Valuation
Property Location m2 of transfer R
Setsing Crescent Shopping Phuthaditjhaba, Free State 21 542 23 August 2012 257 000 000
Centre
Gugulethu Square Shopping Gugulethu, Western Cape 25 338 30 August 2012 308 000 000
Centre
46 880 565 000 000
Total property portfolio 176 756 1 736 300 000
Properties transferred to Synergy post 30 June 2012
On 28 February 2012, Synergy concluded agreements to acquire 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 a combined 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 transferred to Synergy during August 2012.
Following the implementation of these acquisitions Synergy's portfolio consists of 14 shopping centres situated in
Gauteng, KwaZulu-Natal, North West, Western Cape, Limpopo, Mpumalanga and Free State illustrated graphically
below.
SEE PRESS FOR GRAPH
New developments and upgrades
Synergy has identified, and is evaluating, further opportunities to improve its portfolio through redevelopment and
refurbishment. Several projects have been identified through our relationship with SPAR Group Limited ("SPAR").
Borrowings
Total loan facilities of R745 million were contracted during the period to June 2012 with Standard Bank, Nedbank
and Rand Merchant Bank.
The Fund had total borrowings of R426 million at 30 June 2012. At the end of June 2012 interest rates were
hedged on 35.0% of total borrowings at a weighted average rate of 9.14% with a weighted average maturity of
4.2 years. Synergy's average cost of borrowings at 30 June 2012 was 8.5%.The loan to value ratio of the Fund at the
end of June 2012 was 36.0%. At year-end, Synergy had unutilised long-term facilities of R319 million. Most of this has
since been utilised to partially fund the acquisitions of Gugulethu Square and Setsing Crescent during August 2012.
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. Non-executive Directors of Synergy are: Craig Coetzee (appointed 13 September 2010,
resigned 29 February 2012), 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).
Prospects
The Synergy portfolio is a specialised retail property portfolio with a specific focus on medium-sized community
and regional shopping centres in high-growth nodes. Most of the shopping centres in the Synergy portfolio are
commuter centres located in township areas and rural towns. Accordingly, the portfolio is well positioned to benefit
from structural socio-economic growth in the lower LSM and middle market sector in South Africa.
The properties acquired to date have performed in line with projections made at the time of acquisitions. While
the Fund intends to continue growing its portfolio through strategic 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 in the existing Synergy portfolio through strong operational
strategy and control. Synergy operates closely with SPAR, one of South Africa's leading retail groups, and this
association is delivering additional growth opportunities.
Real growth in distributions is expected to be delivered through value extraction in the current portfolio. This will
be achieved through further tenancy optimisation, rental escalations, reduction of vacancies and the benefits of a
lower interest rate environment. A number of redevelopments in the current portfolio are being considered.These
include the refurbishment of Sediba in Hartbeespoort, redevelopments for Ermelo Game Centre and Highland
Mews in Witbank where Synergy and SPAR are collaborating to create a SPAR co-anchor; Richdens Centre in
Hillcrest where a refurbishment of Phase 1 is being planned in conjunction with a centre upgrade, and a Phase 3
extension at King Senzangakhona.
The forecast distributions for Synergy's A and B linked units for the 2013 and 2014 financial years, as published on
SENS on 6 June 2012 and 31 July 2012, respectively, remain achievable.The forecast information has been reported
on by the independent reporting accountants, Moore Stephens BKV Inc.
Preparation, accounting policies and review opinion
The summarised financial statements for the year ended 30 June 2012 have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and presented in accordance with the minimum content,
including disclosures, prescribed by IAS 34 applied to year-end reporting and AC 500 series or its successor issued
by the Accounting Practices Board, the JSE Listings Requirements and the requirements of the South African
Companies Act, 2008. The summarised financial statements are prepared on a going concern basis and Synergy's
accounting policies have been applied consistently to all periods presented. The summarised financial statements,
which comprise the statement of financial position as at 30 June 2012 and the statement of comprehensive income,
statement of changes in equity and statement of cash flows for the year then ended, have been audited by the
Fund's independent external auditors, Moore Stephens BKV Inc., and their unmodified audit report 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 30 June 2012 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
5 September 2012
Directors: M Kuscus* (Chairperson), W Brooks (CEO), U Meyer (FD), S Segar*, M Mdlolo, A Ramsden*,
L Mtumtum* *Non-executive independent
Registered office: 3rd Floor, 200 on Main, Cnr Main & Bowwood Roads, Claremont, 7708
Transfer secretaries: Computershare Investor Services (Proprietary) Limited
Sponsor: Java Capital
Company secretary: Probity Business Services (Proprietary) Limited
Condensed statement of comprehensive income
Audited Audited
Year ended Year ended
30 June 30 June
2012 2011
R R
REVENUE
Property portfolio 53 062 853
Recoveries and contractual rental revenue 48 345 736
Straight-line rental income accrual 4 717 117
Rental revenue 53 062 853
Property operating costs (15 406 778) (78 125)
Administration costs (4 746 371) (22 256)
Net operating profit/(loss) 32 909 704 (100 381)
Changes in fair values of investment properties 153 134 246
Adjustment resulting from straight-lining of rental revenue (4 717 117)
Changes in fair value of swaps (4 595 141)
Profit/(Loss) from operations 176 731 692 (100 381)
Listing expenses (10 744 308)
Net finance income 2 520 789 523 150
Finance income 8 799 045 523 150
Finance costs (6 126 456)
Amortisation of loan raising costs (151 800)
Profit before debenture interest and taxation 168 508 173 422 769
Debenture interest (30 865 174) (422 769)
Profit before taxation 137 642 999
Taxation (28 140 834)
Profit for the period attributable to Synergy shareholders 109 502 165
Total comprehensive income for the period 109 502 165
Reconciliation of earnings, headline earnings and distributable earnings
Profit for the period attributable to Synergy shareholders 109 502 165
Debenture interest 30 865 174 422 769
Basic earnings attributable to linked unitholders 140 367 339 422 769
Changes in fair values of investment properties (net of deferred taxation) (119 419 393)
Changes in fair value of investment properties 148 417 129
Deferred taxation (28 997 736)
Headline profit to linked unitholders 20 947 946 422 769
Listing expenses 10 744 308
Amortisation of loan raising costs 151 800
Straight-line rental income accrual (4 717 117)
Changes in fair value of swaps (net of deferred taxation) 3 738 239
Changes in fair value of swaps 4 595 141
Deferred taxation (856 902)
Distributable earnings 30 865 176 422 769
12 months ended 30 June 30 865 176 422 769
Distributed to B linked units** 5 577 231 422 769
To be distributed to A linked units*** 11 006 010
To be distributed to B linked units*** 14 281 935
Total distributions 30 865 176 422 769
Actual number of A linked units in issue* 24 889 156
Actual number of B linked units in issue* 73 113 070 12 696 170
Weighted number of A linked units in issue 13 600 632
Weighted number of B linked units in issue 63 101 129 2 052 258
Earnings per A share (cents) 142.76
Earnings per A linked unit (cents) 223.69
Earnings per B share (cents) 142.76
Earnings per B linked unit (cents) 174.24 21
Headline loss per A share (cents) (12.93)
Headline earnings per A linked unit (cents) 67.99
Headline (loss)/earnings per B share (cents) (12.93) 21
Headline earnings per B linked unit (cents) 18.54 21
Distribution per A linked unit payable (cents)^^ 44.22
Distribution per B linked unit paid (cents)^ 9.30
Distribution per B linked unit payable (cents)^^ 19.53 21
*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 was distributed on 13 August 2012.
^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 period from 14 December 2011 (listing date) to 30 June 2012.
The Fund has no dilutionary instruments in issue.
Condensed statement of financial position
Audited Audited
as at as at
30 June 30 June
2012 2011
R R
ASSETS
Non-current assets 1 171 300 000
Investment properties 1 171 300 000
Fair value of property portfolio for accounting purposes 1 166 582 883
Straight-line rental income accrual 4 717 117
Current assets 8 173 613 63 916 413
Tenant and related receivables 898 053
Trade and other receivables 3 117 847 769 939
Cash and cash equivalents 4 157 713 63 146 474
Total assets 1 179 473 613 63 916 413
EQUITY AND LIABILITIES
Stated capital and reserves 110 482 187 127 031
Stated capital 980 022 127 031
Reserves 109 502 165
Non-current liabilities 1 038 220 654 63 353 889
Debenture capital 581 412 553 63 353 889
Interest-bearing liabilities 424 072 126
Interest rate swap 4 595 141
Deferred taxation 28 140 834
Current liabilities 30 770 772 435 493
Trade and other payables 5 482 827 435 493
Debenture interest payable 25 287 945
Total equity and liabilities 1 179 473 613 63 916 413
Net asset value per linked unit* 7.06 5.00
Net asset value per A linked unit*^ 8.79
Net asset value per B linked unit* 6.47 5.00
*Net asset value includes total equity attributable to equity holders and linked debentures.
60-day volume weighted average trading price at 30 June 2012, limited to combined net asset value, in accordance with the provisions of the
company's debenture trust deed.
Condensed statement of changes in equity
Audited Audited
Year ended Year ended
30 June 30 June
2012 2011
R R
Balance at the beginning of the period 127 031 70
Repurchase of shares (70)
Issue of linked units 853 061 126 961
Total comprehensive income for the period 109 502 165
Total stated capital and reserves 110 482 187 127 031
Condensed statement of cash flow
Audited Audited
Year ended Year ended
30 June 30 June
2012 2011
R R
Cash flows from operating activities
Cash generated from operations 44 537 597 (434 827)
Net financing income 2 672 588 523 150
Linked unit distributions paid (30 865 176) (422 769)
Net cash inflow/(outflow) from operating activities 16 345 009 (334 446)
Net cash outflow from investing activities (1 022 912 692)
Net cash inflow from financing activities 947 578 922 63 480 850
Net movement in cash and cash equivalents (58 988 761) 63 146 404
Cash and cash equivalents at beginning of the period 63 146 474 70
Cash and cash equivalents at the end of the period 4 157 713 63 146 474
www.synergyincomefund.com
Date: 05/09/2012 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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