Wrap Text
Summarised condensed audited financial results for the nine months ended 31 March 2015
SYNERGY INCOME FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2007/032604/06)
JSE share code: SGA ISIN ZAE000161550
JSE share code: SGB ISIN ZAE000162293
(Approved as a REIT by the JSE)
("Synergy" or "the Company" or "the Fund")
Managed by
Capital Land Asset Management Proprietary Limited
www.synergyincomefund.com
SUMMARISED CONDENSED AUDITED FINANCIAL RESULTS for the nine months ended 31 March 2015
Highlights*
* The financial information presented represents a period of nine months ended 31 March 2015.
Refer to financial results and commentary below for further information. Accordingly, percentages and
movements between periods are not disclosed in this announcement.
- Property revenue for the nine months ended 31 March 2015 of R241 million
- Distributions to A linked unitholders of 67.66 cents per unit
- Distributions to B linked unitholders of 41.65 cents per unit
- NAV per combined linked unit of R9.20 at 31 March 2015
- Investment property valued at R2.422 billion
- Market capitalisation of R1.371 billion
Commentary
1. Profile
Synergy is a specialised retail property fund with a specific focus on medium-sized community and small regional
shopping centres, located in high-growth rural and township nodes. Synergy was listed on the Johannesburg
Stock Exchange ("JSE") on 14 December 2011 with an initial portfolio of three small shopping centres valued at
approximately R280 million.
Since listing, Synergy has grown its property portfolio to 15 shopping centres valued at approximately R2.4 billion.
Key shopping centres in the Synergy portfolio include Gugulethu Square Shopping Centre in Gugulethu, Western
Cape (25 322 m2), King Senzangakhona Shopping Centre in Ulundi, KwaZulu-Natal (22 325 m2), Atlantis City
Shopping Centre in Atlantis, Western Cape (22 114 m2), Setsing Crescent Shopping Centre in Phuthaditjhaba,
Free State (21 538 m2), and Highland Mews Shopping Centre in Emalahleni, Mpumalanga (17 032 m2).
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 31 March 2018,
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 31 March 2015 there were 47.4 million A linked units and
106.4 million B linked units in issue.
2. Financial Results
Despite a continually challenging operating and economic environment the Fund has posted property revenue
for the nine months ended to 31 March 2015 of R241 million, and distributable income of R76 million. Results
are presented for the nine month period from 1 July 2014 to 31 March 2015 following a change of year end to
align with that of its holding company, Vukile Property Fund Limited (JSE: VKE)("Vukile") who acquired a majority
shareholding in Synergy during the year. Vukile will provide asset management services together with outsourced
property management services following its acquisition of Capital Land Asset Management Proprietary Limited
("CLAM") on 1 May 2015. Synergy's strategy for these nine months has been inwardly focused on value enhancing
redevelopments, and upgrading existing centres in the portfolio.
The board of directors of Synergy ("the Board") is pleased to announce a distribution of 23.21 cents per A linked
unit and 13.46 cents per B linked unit, for the three months ended 31 March 2015. Combined with the interim
distribution of 44.45 cents per A linked unit and 28.19 cents per B linked unit, the total distribution for the nine
month period amounts to 67.66 cents per A linked unit and 41.65 cents per B linked unit.
At 31 March 2015, Synergy's property portfolio ("the portfolio") comprised 15 shopping centres with a total
market value of R2.422 billion. The recognition of investment property at fair value at 31 March 2015 resulted in
a fair value loss of R34 million in the current financial year. The net asset value ("NAV") per combined linked unit
has reduced by 2.5% to R9.20 at 31 March 2015, following revaluation of investment properties. No new linked
units were issued during the year under review. The combined market capitalisation at 31 March 2015 increased
by 4.4% relative to that at 30 June 2014.
3. Borrowings
At 31 March 2015, Synergy's total borrowings amounted to R971 million (before amortised debt raising costs),
with available loan facilities totalling R996 million. The resultant loan to value ratio of the property portfolio
at 31 March 2015 was 40.1% (2014 – 37.6%). Synergy's interest rates were fixed and hedged on 48% of total
borrowings. The weighted average cost of total funding is 8.22% at 31 March 2015.
4. Property Portfolio
Since Synergy listed on the JSE in December 2011, the value creation and growth in the portfolio has been driven
by acquisitions and direct active management to deliver strong performance to investors. The cumulative fair
value gain on the portfolio, since listing, amounts to R457 million. The expiry profile of leases as at 31 March 2015 is
represented below:
Period GLA (m2) % composition
Current vacancy 11 127 5.6
Expired leases 10 849 5.4
March 2016 30 789 15.4
March 2017 36 299 18.1
March 2018 26 240 13.1
March 2019 34 965 17.5
March 2020 30 601 15.3
March 2021 and beyond 19 126 9.6
Total 199 996 100.0
Synergy's property portfolio is geographically diverse with shopping centres situated in Gauteng, KwaZulu-Natal, North
West, Western Cape, Limpopo, Mpumalanga and the Free State, as illustrated below. Most of the Synergy shopping
centres are located in township and rural locations targeting the high growth mass consumer market in South Africa.
The geographical profile of the portfolio is represented below:
Province GLA (m2) % composition
Western Cape 52 618 26.3
KwaZulu-Natal 48 803 24.4
Gauteng 24 486 12.2
Mpumulanga 23 670 11.8
Free State 21 538 10.8
Limpopo 17 994 9.0
North West 10 887 5.5
Total 199 996 100.0
These 15 properties had an average gross rental of R110 per m2 for March 2015 and average portfolio escalations
were 7.91%. The average annualised property yield on these 15 properties for the 9 months ended 31 March 2015
was 8.1%.
5. Statement of Comprehensive Income
9 months 12 months
ended ended
31 March 30 June
2015 2014
R R
Revenue
Property portfolio 241 324 416 303 670 446
Recoveries and contractual rental revenue 241 829 790 303 110 814
Straight-line rental income accrual (505 374) 559 632
Rental revenue 241 324 416 303 670 446
Property operating costs (93 693 148) (115 265 004)
Administration costs (14 514 711) (14 300 693)
Net operating profit 133 116 557 174 104 749
Changes in fair value of investment properties (34 382 818) 195 581 887
Adjustment resulting from straight-lining of rental revenue 505 374 (559 632)
Changes in fair value of derivative instruments (704 741) 1 730 672
Profit from operations 98 534 372 370 857 676
Other capital items (167 559) –
Net finance costs (57 846 386) (71 817 556)
Finance income 914 872 939 113
Finance costs (58 761 258) (72 756 669)
Profit before debenture interest and taxation 40 520 427 299 040 120
Debenture interest (76 331 901) (102 322 030)
(Loss)/profit before taxation (35 811 474) 196 718 090
Taxation 197 328 (294 339)
(Loss)/ profit for the period/year (35 614 146) 196 423 751
Other comprehensive income – –
Total comprehensive (loss)/income for the period/year (35 614 146) 196 423 751
CENTS CENTS
Basic and diluted (loss)/earnings per share (23.17) 127.79
Distribution per linked unit:
A linked units:
– interim 44.45 42.34
– final 23.21 44.45
Distribution per A linked unit 67.66 86.79
B linked units:
– interim 28.19 27.54
– final 13.46 30.03
Distribution per B linked unit 41.65 57.57
6. Reconciliation of Earnings to Headline Earnings and to Profit Available for
Distribution for the nine months ended 31 March 2015
9 months 9 months 12 months 12 months
ended ended ended ended
31 March 31 March 30 June 30 June
2015 2015 2014 2014
R cents R cents
Total comprehensive (loss)/income for
the period (35 614 146) (23.17) 196 423 751 127.79
Adjusted for:
Debenture interest 76 331 901 49.66 102 322 030 66.57
Earnings per combined linked unit 40 717 755 26.49 298 745 781 194.36
Adjusted for:
Fair value adjustments to investment
properties 33 877 444 22.04 (195 022 255) (126.88)
Headline earnings per combined unit 74 595 199 48.53 103 723 526 67.48
Adjusted for:
Amortisation of loan raising costs 556 356 0.36 594 469 0.39
Straight line rental income accrual 505 374 0.33 (559 632) (0.36)
Other capital items 167 559 0.11 – –
Change in fair value of swaps 704 741 0.46 (1 730 672) (1.13)
Deferred taxation on change
in fair value of swaps (197 328) (0.13) 294 339 0.19
Profit available for distribution 76 331 901 49.66 102 322 030 66.57
7. Statement of Financial Position
2015 2014
R R
Assets
Non-current assets 2 422 182 350 2 422 321 660
Investment properties and related receivables 2 421 900 000 2 422 100 000
Investment properties 2 403 772 617 2 403 467 243
Straight-line rental income accrual 18 127 383 18 632 757
Derivative financial instruments – 136 638
Deferred tax assets 282 350 85 022
Current assets 27 641 263 25 546 233
Trade and other receivables 21 621 520 21 324 146
Cash and cash equivalents 6 019 743 4 222 087
Total assets 2 449 823 613 2 447 867 893
Equity and liabilities
Shareholders' interest 460 591 205 496 205 351
Stated capital 1 537 049 1 537 049
Accumulated profit 459 054 156 494 668 302
Non-current liabilities 1 922 555 450 1 862 455 261
Debentures 952 971 381 952 971 381
Financial liabilities 968 658 115 909 043 591
Derivative financial instruments 925 954 440 289
Current liabilities 66 676 958 89 207 281
Trade and other payables 41 287 866 36 217 410
Debenture interest payable 25 306 654 52 989 871
Derivative financial instruments 82 438 –
Total equity and liabilities 2 449 823 613 2 447 867 893
Net asset value per linked unit* (Rand) 9,20 9,43
Net asset value per A linked unit*^ 11,93 10,99
Net asset value per B linked unit* 7,98 8,73
Fair value per linked unit represented by the market price
at 31 March (2014: 30 June) (Rand)
Fair value of A linked unit 12,10 11,00
Fair value of B linked unit 7,50 7,45
*Net asset value includes total equity attributable to equity holders and linked debentures.
^60-day volume weighted average trading price at 31 March 2015 limited to combined net asset value in
accordance with the provisions of the Company's Debenture Trust Deed.
8. Statement of Changes in Equity
Stated Accumulated
capital profit Total
R R R
Balance at 30 June 2013 1 537 049 298 244 551 299 781 600
Total comprehensive income for the year – 196 423 751 196 423 751
Balance at 30 June 2014 1 537 049 494 668 302 496 205 351
Total comprehensive loss for the period – (35 614 146) (35 614 146)
Balance at 31 March 2015 1 537 049 459 054 156 460 591 205
9. Statement of Cash Flows
9 months 12 months
ended ended
31 March 30 June
2015 2014
R R
Cash flows from operating activities
Cash generated from operations 138 227 454 179 726 634
Finance income 914 872 939 113
Interest and distributions paid (162 220 020) (169 866 483)
Net cash (outflow)/inflow from operating activities (23 077 694) 10 799 264
Cash flows from investing activities
Additions to investment properties (34 182 818) (349 444 113)
Net cash outflow from investing activities (34 182 818) (349 444 113)
Cash flows from financing activities
Financial liabilities raised 59 058 168 337 562 602
Net cash inflow from financing activities 59 058 168 337 562 602
Net cash inflow/(outflow) for the period/year 1 797 656 (1 082 247)
Cash and cash equivalents at the beginning of the period/year 4 222 087 5 304 334
Cash and cash equivalents at the end of the period/year 6 019 743 4 222 087
10. Operational Performance
Synergy continues to operate in a challenging macroeconomic environment with highly indebted consumers
operating in a stagnant economy. These challenges, coupled with African Bank Investments Limited's wholly owned
subsidiary Ellerine Furnishers Proprietary Limited ("Ellerines") going into business rescue, further exacerbated the
poor trading environment of the Fund.
An overall vacancy of 5.6% existed at 31 March 2015, compared to 5.2% at 30 June 2014. This increase is primarily
due to the Ellerines business rescue proceedings. The impact of these proceedings on lost rental is approximately
R1.3 million to March 2015. 67% of the ex-Ellerines occupied premises have now been re-let, which should result
in the vacancy percentage declining within the next few months as replacement tenants take occupation.
Rental reversions of 9.1% have been achieved across the portfolio. Synergy maintained a national tenant ratio of
83% at 31 March 2015 in line with Synergy's target ratio. A tenant retention ratio of 67% on GLA (or 28,153m2)
was achieved in the nine months ended 31 March 2015. The retention ratio was negatively impacted by the
Ellerines business rescue proceedings. The weighted average lease expiry profile for the property portfolio at
31 March 2015 was 3.2 years which is in line with the profile of 3.22 years at 30 June 2014.
Synergy upgraded Ruimsig Shopping Centre in Roodepoort, Gauteng and Richdens Village Shopping Centre in
Hillcrest KwaZulu-Natal during the nine months ended 31 March 2015 at a cost of R10.6 million and R10.4 million,
respectively. On 5 September 2014, Synergy took transfer of a property adjacent to the Ermelo Game Shopping
Centre in Ermelo, Mpumalanga ("Ermelo") at a cost of R6 million. These redevelopments and the acquisition of
the site adjacent to Ermelo will make the centres more dominant within their respective nodes. Administration
costs include a once off cost of R2.6 million attributable to the acquisition of Synergy by Vukile. The impact of this
on the distribution to B unitholders to 31 March 2015 is 2 cents per unit.
11. Capital Conversion
Synergy is in the process of converting the Company's current linked unit capital structure to an all share structure
("capital conversion"). The capital conversion circular was posted to linked unitholders on 20 May 2015.
12. Directorate and Company Secretary
At the date of this report the following directors held office:
Non-executive
MJ Kuscus MJ Potts#
LX Mtumtum* SJ Segar
LG Rapp#
Executive
AE Raubenheimer GS Moseneke^
* Replaced AS Ramsden as Chairman of the Audit and Risk Committee effective 27 August 2014
^ Appointed 4 May 2015
# Appointed 2 March 2015
The following directors held office during the period under review until their resignation dates shown below.
Non-executive Date of resignation
AS Ramsden 4 August 2014
MM Mdlolo 2 March 2015
U Meyer 2 March 2015
Executive Date of resignation
W Brooks 1 May 2015
During the period under review, Mr Kuscus stepped down as Chairman of the Board and Mr Rapp assumed
the role as non-executive chairman. Mr Kuscus has been appointed as a member of the Audit and Risk Committee.
The Board would like to thank Mr Kuscus for his leadership over the years. The Board further wishes to thank
Ms Ramsden and Messrs Mdlolo, Meyer and Brooks for their valuable contributions to Synergy. As Mr Rapp
is deemed to be non-independent in terms of King III, Mr Mtumtum, currently an independent non-executive
director, was appointed as the lead independent non-executive director of Synergy on 2 March 2015.
The Company Secretary, Johann Neethling was appointed on 2 March 2015, following the resignation of
CIS Company Secretaries effective 28 February 2015.
13. Prospects
Following the changes to the Board and Vukile's acquisition of CLAM we expect Synergy to return to a more
operational and acquisitive focus in the year ahead. The reconstituted Synergy Board is currently evaluating various
strategic options for the company, all with a view to reinvigorating the company and setting it on a new growth
path. Synergy's A unitholders will continue to receive a five percent growth in distribution, and B unitholders can
expect a distribution per unit between 64 and 66 cents per unit for the 12 months to 31 March 2016.
This view is premised on interest rates and the costs of interest rate swaps rising by no more than 40 basis points
over the course of the 2016 financial year, and there being no material deterioration in the macroeconomic
environment relative to current levels. Forecast rental is based on contractual lease terms and anticipated market
related renewals.
The forecast information contained in this paragraph has not been reviewed or audited by Synergy's auditors.
14. Payment of Final Distributions
Notice is hereby given that the Board has declared final distributions of 23.21000 cents per A linked unit and
13.46000 cents per B linked unit for the three months ended 31 March 2015. The issued linked unit capital at the
declaration date comprises 47 352 203 A linked units and 106 352 670 B linked units. The distributions meet the
requirements of a "qualifying distribution" for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962
("Income Tax Act"). The distributions on the linked units will be deemed to be dividends, for South African tax
purposes, in terms of section 25BB of the Income Tax Act.
The distributions received by or accrued to South African tax residents must be included in the gross income of
such linked unitholders and will not be exempt from income tax (in terms of the exclusion to the general dividend
exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act) because they are dividends
distributed by a Real Estate Investment Trust ("REIT"). These distributions are, however, exempt from dividend
withholding tax in the hands of South African tax resident linked unitholders, provided that the South African resident
linked unitholders provided the following forms to the Central Securities Depository Participant ("CSDP") or broker,
as the case may be, in respect of uncertificated linked units, or the Fund, in respect of certificated linked units:
(a) a declaration that the distribution is exempt from dividends tax; and
(b) a written undertaking to inform the CSDP, broker or the Fund, as the case may be, should the circumstances
affecting the exemption change or the beneficial owner cease to be the beneficial owner,
both in the form prescribed by the Commissioner for the South African Revenue Service. Linked unitholders
are advised to contact the CSDP, broker or the Fund, as the case may be, to arrange for the abovementioned
documents to be submitted prior to payment of the distribution, if such documents have not already been
submitted.
Distributions received by non-resident linked unitholders will not be taxable as income and instead will be
treated as ordinary dividends which are exempt from income tax in terms of the general dividend exemption in
section 10(1)(k)(i) of the Income Tax Act. It should be noted that up to 31 December 2013 distributions received
by non residents from a REIT were not subject to dividend withholding tax. Since 1 January 2014, any distribution
received by a non-resident from a REIT will be subject to dividend withholding tax at 15%, unless the rate is
reduced in terms of any applicable agreement for the avoidance of double taxation ("DTA") between South Africa
and the country of residence of the linked unit holder. Assuming dividend withholding tax will be withheld at a rate
of 15%, the net dividend amount due to non-resident linked unitholders is 19.72850 cents per A linked unit and
11.44100 cents per B linked unit. A reduced dividend withholding rate, in terms of the applicable DTA, may only
be relied on if the non-resident linked unit holder has provided the following forms to the CSDP or broker, as the
case may be, in respect of uncertificated linked units, or the Fund, in respect of certificated linked units:
(a) a declaration that the distribution is subject to a reduced rate as a result of the application of a DTA; and
(b) a written undertaking to inform the CSDP, broker or the Fund, as the case may be, should the circumstances
affecting the reduced rate change or the beneficial owner cease to be the beneficial owner, both in the form
prescribed by the Commissioner for the South African Revenue Service. Non-resident linked unitholders
are advised to contact the CSDP, broker or the Fund, as the case may be, to arrange for the abovementioned
documents to be submitted prior to payment of the distribution if such documents have not already been
submitted, if applicable.
The salient dates for the final distributions will be as follows:
2015
Last day to trade cum distribution Friday, 5 June
Linked units trade ex distribution Monday, 8 June
Record date Friday, 12 June
Payment date Monday, 15 June
Linked unitholders may not dematerialise or rematerialise their linked units between Monday, 8 June 2015 and
Friday, 12 June 2015, both days inclusive.
Payment of the distribution will be made to shareholders on Monday 15 June 2015. In respect of dematerialised
units, the distribution will be transferred to the CSDP/broker accounts on Monday, 15 June 2015. Certificated
linked unitholders distribution payments will be posted on or about Monday, 15 June 2015.
A linked units in issue at the date of declaration of final distribution: 47 352 203
B linked units in issue at the date of declaration of final distribution: 106 352 670
Synergy income tax reference number: 9068723171
15. Preparation, Accounting Policies and Audit Opinion
These summarised condensed audited financial statements for the nine months ended 31 March 2015 have
been prepared in accordance with International Financial Reporting Standards and presented in accordance with
the minimum content, including disclosures, prescribed by IAS 34 applied to year-end reporting, the SAICA
Financial Reporting Guides as issued by the Accounting Practices Board, the JSE Listings Requirements and the
requirements of the South African Companies Act, 2008. These summarised financial statements for the nine
months ended 31 March 2015 are prepared on a going concern basis and Synergy's accounting policies have been
applied consistently to all periods presented.
These statements, which comprise the statement of financial position at 31 March 2015 and the statement
of comprehensive income, statement of changes in equity and statement of cash flows for the nine months to
31 March 2015 are extracted from audited information, but is itself not audited. The annual financial statements
were audited by Grant Thornton, who expressed an unmodified opinion thereon. The auditor's report is available
for inspection at the company's registered office situated at Ground Floor, One-On-Ninth, Cnr Glenhove Road
and 9th Street, Melrose Estate.
The Board takes full responsibility for the preparation of this report and that the financial information has been
correctly extracted from the underlying financial statements.
This report was compiled under the supervision of Anton Raubenheimer CA(SA), the financial director of the
Fund.
The directors are not aware of any matters or circumstances arising subsequent to 31 March 2015 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
Johannesburg
22 May 2015
Registered office: Ground floor One-on-Ninth, Cnr Glenhove Road and Ninth Street, Melrose Estate, 2196
Transfer secretaries: Computershare Investor Services Proprietary Limited
Sponsor: Java Capital
Company secretary: Johann Neethling
Financial results at www.synergyincomefund.com
Date: 22/05/2015 02:35:00 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.
Sharenet Sites 
