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SYNERGY INCOME FUND LIMITED - Unaudited condensed interim results for the six months ended 30 September 2015

Release Date: 20/11/2015 16:48
Code(s): SGB SGA     PDF:  
Wrap Text
Unaudited condensed interim results for the six months ended 30 September 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”)

Unaudited condensed interim results for the six months ended 30 september 2015


Highlights
for the six months ended 30 September 2015

- Vacancies reduced to 4.5% from 5.6% with positive reversions of 5.9%
- Investment property valued at R2.448 billion
- Interim distributions to A shareholders of 46.21 cents per share
- Interim distributions to B shareholders of 32.46 cents per share
- 91% of leases renewed or in the process of being renewed 
   

Comments

 1.  Nature of operations 
     Synergy is a specialised retail property fund with a specific focus on medium-sized community and small
     regional shopping centres in high-growth rural and township nodes within South Africa. 
  
 2.  Basis of preparation 
     The unaudited condensed interim financial statements (interim financial statements) for the six months 
     ended 30 September 2015, and comparative information, have been prepared in accordance with and containing 
     the information required by IAS 34 (Interim Financial Reporting), International Financial Reporting 
     Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and 
     Financial Reporting Announcements as issued by the Financial Reporting Standards Council, the JSE Listings 
     Requirements and relevant sections of the South African Companies Act. Except for the amendments adopted 
     as set out below, all accounting policies applied by the company in the preparation of these condensed 
     interim financial statements are consistent with those applied by the company in its financial statements 
     as at and for the period ended 31 March 2015. 
 
     The following amendments to IFRS and/or IFRICs were effective for the first time from 1 April 2015: 
     - Amendments to IFRS 7 Financial Instruments: Disclosures 
     - Amendments to IFRS 9 Financial Instruments. 
 
     There was no material impact on the interim financial statements identified, based on management’s assessment 
     of these standards. 
                  
     The interim financial statements have been approved for issue by the board of directors on 20 November 2015. 
     The preparation of the financial results for the six months ended 30 September 2015 was supervised by Robert 
     Hawton, CA(SA), financial director. The condensed interim financial statements have not been reviewed or audited 
     by Synergy’s independent external auditors. 
                                                 
 3.  Significant events and transactions         
     At a general meeting of Synergy convened on 22 June 2015, Synergy received approval to convert its linked 
     unit capital structure to an all share structure, on a one for one basis. 
   
 4.  Summary of Financial Performance  
     The directors of Synergy are pleased to report a distribution for the six months ended 30 September 2015 of 
     46.21209 cents per A share, and 32.46180 cents per B share (interim period to December 2014 of 44.45225 cents 
     per A linked unit and 28.18559 cents per B linked unit). The financial position and results of operations are 
     presented below against the nine-month period from 1 July 2014 to 31 March 2015, following the change of year-
     end to align Synergy’s year-end to that of its holding company, Vukile Property Fund Limited (JSE share 
     code: VKE) (Vukile), who acquired a majority shareholding in Synergy during that period). 
  
     The company’s net profit available for distribution amounted to R56.99 million for the six months to 
     30 September 2015. Following the capital conversion process adopted at the general meeting of the company held 
     on 22 June 2015, the A and B linked units were converted from a linked unit capital structure to a share-only 
     capital structure at a cost of R1.1 million, in order to align the capital structure of the company with the 
     capital structures of REITs. The A and B units were delinked, and the debenture capital capitalised to stated 
     capital, such that the capital structure of the company comprises only A ordinary shares and B ordinary shares 
     going forward.                                                                                                                                                                                                                                                                                                                            

     Summary of financial performance                                                 
                                                                September      March  
                                                                     2015       2015  
                                                                 6 months*  9 months*  
     Net asset value per combined A and B share/(unit) (cents)        967        920  
     Interim/final distribution per A share/unit (cents)            46.21      67.66  
     Interim/final distribution per B share/unit (cents)            32.46      41.65  
     Total interim/final distribution (cents)                       78.67     109.31  
     Loan to value ratio net of available cash (%)(I)               38.21      39.75  
     (I) Based on directors’ valuation of the property portfolio.                         
     * Interim distributions are disclosed for the six months to 30 September 2015, in comparison to the full 
       distribution for the nine months to 31 March 2015 following the change in year-end to align with Vukile.                        


     A simplified income statement (which is not IFRS compliant) is set out below:                                                        
                                                                                                                                   
                                                               September      March    December    Paragraph   Variance   
                                                                    2015^      2015*       2014**  reference  (1) - (2)  
                                                                  R000(1)      R000      R000(2)                      %  
     Gross rental income and recoveries excluding straight                 
     line adjustments                                            167 481    241 830     160 920                    4.08  
     Property expenses                                           (68 145)   (93 693)    (62 670)                  (8.74) 
     Net profit from property operations                          99 336    148 137      98 250           (a)      1.11  
     Corporate administrative expenses                            (2 174)   (14 515)     (8 699)          (b)     75.01  
     Finance costs net of investment income                      (40 172)   (57 846)    (38 894)          (c)     (3.29) 
     Tax                                                              60        197         139           (d)    (56.84) 
     Profit for the year                                          57 050     75 973      50 796                   12.31  
     Less deferred tax on change in fair value of swaps              (60)      (197)       (139)                            
     Plus amortisation of debt raising costs                           -        555         368                              
     Available for distribution                                   56 990     76 331      51 025                           
     ^ Represents a six-month period from 1 April 2015 to 30 September 2015.                                                        
     * Represents a nine-month period from 1 July 2014 to 31 March 2015.                                                        
     ** Represents a six-month interim reporting period from 1 July 2014 to 31 December 2014.                                                        


 (a) Net profit from property operations                                                                                                                                                                                                                                                                                                                                                                                                  
     - The property portfolio has performed slightly ahead of expectations for the six months ended 
       30 September 2015, in a difficult economic environment.                                                                                                                                                                                                                                                                                                                                                            
     - Vacancy levels have improved to 4.5% on the retail portfolio from a level of 5.6% at 31 March 2015.                                                                                                     (b) Corporate administrative expenditure                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
     Corporate administration expenses are strictly controlled and lower than levels prior to Vukile’s 
     acquisition of Synergy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
 (c) Finance costs net of investment income                                                          
     Net finance costs are in excess of prior interim periods due to:                                                                                                                                                                                                                                                                                                                                                                                                                                                
     - The effect of recent extensions to Standard Bank and Nedbank interest rate swaps to extend the maturity 
       periods of such swaps, given prevailing rising interest rate sentiments and forecast economic conditions; 
       and                                                                                                                                                                                                                                                                                           
     - Additional borrowings of R17.5 million to fund distributions for the March 2015 final distribution payment.                                                                                                            
     Interest income is largely in line with prior interim periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
 (d) Taxation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
     Deferred tax is provided for six months based on the change in fair value of swaps as designated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
 5.  Borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
     Borrowings are largely unchanged from the prior reporting period to March 2015. The LTV of Synergy currently 
     stands at c. 38.21% net of cash on hand, with approximately 48% of borrowings fixed and hedged by way of 
     interest rate swaps.                                                                                                                                                                                                                                                                     
                                                                                                     
     The current all-in cost of finance, including margins and amortised debt raising fees, against the average of
     the opening and closing debt for the six months to 30 September 2015 equates to c. 8.2%. Swaps amounting to 
     R110 million have been extended to mature in June 2017 and July 2017 from June 2015 and July 2015, R40 million 
     extended to June 2016 from June 2015, and R80 million extended to June 2019 from June 2017. The weighted average 
     expiry of swaps at 30 September 2015 is two years.   
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
 6.  Swap maturity profile                                                                           
     The company’s fixed rate borrowing expiry profile is set out below:                                                                                                                                                                                                                                                                                                                                                                                                                                             

                                    Calendar year    
                   2015      2016       2017    2018      2019      Total  
                   R000      R000       R000    R000      R000       R000  
                                                                           
                      -    40 000    346 705       -    80 000    466 705  
       % maturing     0         9         74       0        17        100  


 7.    Developments, Acquisitions and Sales                                                                                                                                                                                                                                                                                                                                                      
       The portfolio of 15 retail assets has remained unchanged in the interim period to 30 September 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
 8.    Property Portfolio                                                                        
       The combined property portfolio currently comprises 15 properties with a gross lettable area of 199 922m².                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
       The sectoral spread by market value is entirely comprised of retail assets. During the six-month period under
       review, new leases and renewals with a total area of 17 251m² and a contract value of R96.7 million were 
       concluded.                                                                                                                                                                                                                                                                        
                                                                                                
       91% of leases to be renewed during the period ended 30 September 2015 were renewed or are in the process of 
       being renewed. The overall vacancy percentage (measured as a percentage of GLA) has decreased from 5.6% at 
       31 March 2015 to 4.5% at 30 September 2015.                                                                                                                                                                                                                                                                                                                                        
       The renewal escalations on expiry rentals are still positive compared to expiry rentals at 5.9%.                                                                                            
       New leases concluded on retail space are slightly below budgeted market rentals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
       The contracted rental escalation profile reflects a positive average escalation across the retail sector of 
       7.2%.                                                                           
 9.    Valuations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
       The directors have valued the company’s property portfolio at R2,448 million utilising the discounted cash flow 
       methodology for the company. In terms of the company’s accounting policies, approximately 50% of all properties 
       are valued every six months on a rotational basis by qualified independent external valuers. The external 
       valuations by Quadrant Properties (Pty) Ltd and Knight Frank (Pty) Ltd of eight of the 15 assets in the portfolio 
       are in line with the directors’ valuation.   
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
       Valuation assumptions                                                                     
       The range of the reversionary capitalisation rates applied to the portfolio are between 7.7% and 11.5% with the 
       weighted average being approximately 8.9%.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
       The discount rates applied range between 12.7% and 16.2% with the weighted average being approximately 13.8%.                                                                               
       In determining future cash flows for valuation purposes, vacancies are forecast for each property based on 
       estimated demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
 10.   Operating segment reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
       All Synergy’s investment property assets are classified as retail assets for operational reporting purposes, and 
       as such are regarded as a single segment. During the six-month period to 30 September 2015, there has been no 
       change from prior periods in the measurement methods used to determine operating segments and reported segment 
       profits.                                                                                                                                                                                                                                                     
 11.   Payment of interim distribution                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
       Shareholders are advised that the board of directors of Synergy has declared interim distributions of 46.21209 
       cents per A share and 32.46180 cents per B share out of distributable income for the six-month period ended 
       30 September 2015.                                                                                                                                                                                                                                                            
                                                                                                 
       Synergy was granted REIT status by the JSE Limited with effect from 1 July 2013 in line with the REIT structure 
       as provided for in the Income Tax Act, No 58 of 1962, as amended (the Income Tax Act) and section 13 of the JSE 
       Listings Requirements.                                                                                                                                                                                                                                                                                                                                                   
       The REIT structure is a tax regime that allows a REIT to deduct qualifying distributions paid to investors, in 
       determining its taxable income.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
       The distributions of 46.21209 cents per A share and 32.46180 cents per B share meet the requirements of a 
       “qualifying distribution” for the purposes of section 25BB of the Income Tax Act (a qualifying distribution) 
       with the result that:                                                                                                                                                                                                                                                             

       - Qualifying distributions received by resident Synergy shareholders must be included in the gross income of such 
         shareholders (as a non-exempt dividend in terms of section 10(1)(k)(i)(aa) of the Income Tax Act), with the effect 
         that the qualifying distribution is taxable as income in the hands of the Synergy shareholder. These qualifying 
         distributions are, however, exempt from dividends withholding tax, provided that the South African resident 
         shareholders provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated 
         shares, or the company, in respect of certificated shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                      
         - A declaration that the distribution is exempt from dividends tax                                                                                                                                                                                                   
         - A written undertaking to inform the CSDP, broker or the company, 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. Shareholders are advised to 
       contact their CSDP, broker or the company, 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                                                                                                                                                                                                                                            
       - Qualifying distributions received by non-resident Synergy shareholders will not be taxable as income and instead will 
         be treated as ordinary dividends but which are exempt in terms of the usual dividend exemptions per section 10(1)(k) 
         of the Income Tax Act. It should be noted that from 1 January 2014, any qualifying distributions are subject to 
         dividends 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 shareholder. Assuming dividends 
         withholding tax will be withheld at a rate of 15%, the net distribution amount due to non-resident shareholders is 
         39.28028 cents per A share and 27.59253 cents per B share cents per share. A reduced dividend withholding rate in 
         terms of the applicable DTA, may only be relied upon if the non-resident shareholder has provided the following 
         forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the company, in respect 
         of certificated shares:   
         - A declaration that the distribution is subject to a reduced rate as a result of the application of a DTA                                                                
         - A written undertaking to inform their CSDP, broker or the company, 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 shareholders are     
       advised to contact their CSDP, broker or the company, 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.   
                                                             
       Shareholders are further advised that:                
       - The issued share capital of Synergy is:             
         - 47 352 203 A shares   
         - 106 352 670 B shares 
                                                             
       Synergy’s tax reference number is 9068723171.         
                                                             
       This cash distribution may have tax implications for resident as well as non-resident shareholders. Shareholders         
       are therefore encouraged to consult their tax and/or professional advisors should they be in any doubt as to the         
       appropriate action to take.                                                                                              
                                                                                                                                
       Salient dates and times                                                                                                  
       The salient dates and times for the interim distribution are as set out below:                                           

                                                                                 2015  
       Last day to trade cum distribution                          Friday, 4 December  
       Securities trade ex distribution                            Monday, 7 December  
       Record date                                                Friday, 11 December  
       Payment date                                               Monday, 14 December  
                                                                
       Payment of the distributions will be made to shareholders on Monday, 14 December 2015. In respect of dematerialised 
       shares, the distributions will be transferred to CSDP accounts/broker accounts on Monday, 14 December 2015. 
       Certificated shareholders’ distribution payments will be posted on or before about Monday, 14 December 2015.   
                                                                
       Notes:                                                   
       - Shares may not be dematerialised or rematerialised between Monday, 7 December 2015 and Friday, 11 December 2015.  
       - The above dates and times are subject to change. Any changes will be released on SENS and if required, published 
         in the press.                       
 
 12.   Post period event               
       Declaration of distribution      
       In line with IAS 10 - Events after the Reporting Period, the declaration of the dividend of 46.21209 cents per A 
       share and 32.46180 cents per B share in respect of the six-month period to 30 September 2015 occurred after the 
       reporting period, resulting in a non-adjusting event that is not recognised in the financial statements. In the 
       prior period, the distribution consisted mainly of debenture interest which accrued on a daily basis, as well as a 
       distribution.    
                                        
 13.   Prospects                         
       Synergy remains on track to deliver distributions for the full year to 31 March 2016 for the B shares at the high 
       end of market guidance provided in the integrated report for the year ended 31 March 2015 of 64 to 66 cents per 
       share. Synergy’s A shareholders will continue to receive a five percent growth in distributions. The forecast 
       growth in distributions is based on the assumption that the macroeconomic environment does not deteriorate further, 
       no major corporate failures will occur and that tenants will be able to absorb rising electricity and municipal 
       costs. Forecast rental income has been based on contractual escalations and market related renewals. This forecast 
       has not been reviewed or reported on by the company’s auditors.  
    
       The board continues to investigate selective value add retail acquisitions, whilst strategically evaluating options
       to rejuvenate the A and B share structure for a positive growth trajectory.  
    
On behalf of the board

LG Rapp                     GS Moseneke                      
Chairman                    Interim chief executive officer  
                                            
Melrose Estate
20 November 2015


Unaudited condensed statement of financial position
as at 30 September 2015
                                                                   Unaudited          Audited        Unaudited          
                                                                30 September         31 March      31 December        
                                                                        2015             2015             2014               
                                                                           R                R                R                  
 Assets                                                                                                           
 Non-current assets                                            2 448 499 505    2 422 182 350    2 451 925 892    
 Investment properties and related receivables                 2 427 130 329    2 403 772 617    2 433 645 824    
 Investment properties                                         2 448 106 833    2 421 900 000    2 451 702 301    
 Straight-line rental income accrual                             (20 976 504)     (18 127 383)     (18 056 477)    
 Other non-current assets                                         21 369 176       18 409 733       18 280 068    
 Straight-line rental income asset                                20 976 504       18 127 383       18 056 477    
 Furniture, fittings, computer equipment and other assets             49 986                -                -    
 Deferred tax assets                                                 342 686          282 350          223 591     
 Current assets                                                   63 390 881       27 641 263       35 835 572    
 Trade and other receivables                                      27 011 550       21 621 520       23 578 197    
 Cash and cash equivalents                                        36 379 331        6 019 743       12 257 375    
 Total assets                                                  2 511 890 386    2 449 823 613    2 487 761 464    
 Equity and liabilities                                                                                           
 Shareholders’ interest                                        1 485 606 625      460 591 205      495 481 182    
 Stated capital                                                  953 409 806        1 537 049        1 537 049    
 Retained earnings                                                59 025 648      459 054 156      493 944 133    
 Other components of equity                                      473 171 171                -                -     
 Non-current liabilities                                         929 240 992    1 922 555 450    1 891 581 702    
 Financial liabilities                                           929 059 639      968 658 115      937 811 780    
 Debentures1                                                               -      952 971 381      952 971 382    
 Derivative financial instruments                                    181 353          925 954          798 540      
 Current liabilities                                              97 042 769       66 676 958      100 698 580    
 Trade and other payables                                         56 000 246       41 287 866       49 673 333    
 Interim distribution payable                                              -       25 306 654       51 025 247    
 Financial liabilities                                            40 000 000                -                -    
 Derivative financial instruments                                  1 042 523           82 438                -                                                                                                                     
 Total equity and liabilities                                  2 511 890 386    2 449 823 613    2 487 761 464    
 

1 Following the capital conversion process adopted at a general meeting on 22 June 2015, the A and B linked units 
   were converted from a linked unit capital structure to a share-only capital structure, in order to align the 
   capital structure of the company with the capital structures of REITs.                                                         
 

 The A and B units were delinked, and the debenture capital capitalised to stated capital, such that the capital 
 structure of the company comprises only A ordinary shares and B ordinary shares going forward. 
 
                                                                   Unaudited          Audited        Unaudited          
                                                                30 September         31 March      31 December        
                                                                        2015             2015             2014                                                                                                                                
 Net asset value per combined share/(unit)* (cents)                      967              920              942    
 Net asset value per A share*                                          1 153            1 193            1 064    
 Net asset value per B share*                                            747              798              888    
 *Net asset value includes total equity attributable to equity holders and linked debentures in respect of 
  comparative information.                                                         


Unaudited condensed statement of comprehensive income for the six months ended 30 September 2015

The unaudited statement of comprehensive income for the six-months ended 30 September 2015, is reflected against 
the audited nine months to March 2015 comprehensive income, following the change of year-end for Synergy, to 
align with Vukile post the acquisition of control. The unaudited six months ended 31 December 2014 is provided 
as a comparative in terms of IAS 34.

                                                          
                                                         Unaudited          Audited       Unaudited      
                                                          6 months         9 months        6 months       
                                                             ended            ended           ended          
                                                      30 September         31 March     31 December    
                                                              2015             2015            2014           
                                                                 R                R               R              
 Property revenue                                      167 481 228      241 829 790     160 919 516  
 Straight-line rental income accrual                     2 849 121         (505 374)       (576 280)  
 Gross property revenue                                170 330 349      241 324 416     160 343 236  
 Property operating costs                              (68 145 280)     (93 693 148)    (62 670 116)  
 Net profit from property operations                   102 185 069      147 631 268      97 673 120  
 Corporate administrative expenses                      (2 173 842)     (14 514 711)     (8 698 581)  
 Finance income                                            624 038          914 872         526 134  
 Operating profit before finance costs                 100 635 265      134 031 429      89 500 673  
 Finance costs                                         (40 796 132)     (58 761 258)    (39 419 555)  
 Profit before debenture interest                       59 839 133       75 270 171      50 081 118  
 Debenture interest                                              -      (76 331 901)    (51 025 247)  
 Profit/(loss) before capital items                     59 839 133       (1 061 730)       (944 129)  
 Other capital items                                             -         (167 559)              -  
 Profit/(loss) before fair value adjustments            59 839 133       (1 229 289)       (944 129)  
 Gross change in fair value of swaps                      (215 484)        (704 741)       (494 889)  
 Changes in fair value of investment properties         16 307 799      (34 382 818)              -  
 Straight-line rental income adjustment                 (2 849 121)         505 374         576 280  
 Profit/(loss) before tax                               73 082 327      (35 811 474)       (862 738)  
 Taxation                                                   60 336          197 328         138 569  
 Profit/(loss) for the period                           73 142 663      (35 614 146)       (724 169)  
 Other comprehensive income                                      -                -               -  
 Total comprehensive income/(loss) for the period       73 142 663      (35 614 146)       (724 169)  
 Earnings/(loss) per share/unit (cents)                      47.59           (23.17)          (0.47)  
 Diluted earnings/(loss) per share/unit (cents)              47.59           (23.17)          (0.47)  
 Number of A shares/units in issue                      47 352 203       47 352 203      47 352 203  
 Number of B shares/units in issue                     106 352 670      106 352 670     106 352 670  


Reconciliation of comprehensive income to headline earnings and to profit available for distribution for the six months ended 30 September 2015


                                                         Unaudited      Unaudited        Audited    Audited     Unaudited    Unaudited  
                                                          6 months       6 months       9 months   9 months      6 months     6 months   
                                                             ended          ended          ended      ended         ended        ended  
                                                      30 September   30 September       31 March   31 March   31 December  31 December  
                                                              2015           2015           2015       2015          2014         2014  
                                                                 R          cents              R      cents             R        cents  
 Total comprehensive income/(loss) for the period       73 142 663          47.59    (35 614 146)    (23.17)     (724 169)       (0.47)  
 Adjusted for:                                                                                                                          
 Debenture interest                                              -              -     76 331 901      49.66    51 025 247        33.20  
 Earnings per combined share                            73 142 663          47.59     40 717 755      26.49    50 301 078        32.73  
 Change in fair value of investment properties         (13 458 678)         (8.76)    33 877 444      22.04      (576 280)       (0.37)  
 Headline earnings per share                            59 683 985          38.83     74 595 199      48.53    49 724 798        32.36  
 Adjusted for:                                                                                                                          
 Amortisation of loan raising costs                              -              -        556 356       0.36       367 849         0.24  
 Straight-line rental income accrual                    (2 849 121)         (1.85)       505 374       0.33       576 280         0.37  
 Other capital items                                             -              -        167 559       0.11             -            -  
 Change in fair value of swaps                             215 484           0.14        704 741       0.46       494 889         0.32  
 Deferred taxation on change in fair value of swaps        (60 336)         (0.04)      (197 328)     (0.13)     (138 569)       (0.09)  
 Profit available for distribution for the period       56 990 012          37.08     76 331 901      49.66    51 025 247        33.20  


Unaudited condensed statement of changes in equity for the six months ended 30 September 2015

                                                                                                Other            
                                                                Stated        Retained     components            
                                                               capital        earnings      of equity           Total        
                                                                     R               R              R               R        
 Balance at 30 June 2014                                     1 537 049     494 668 302              -     496 205 351  
 Total comprehensive loss for the period                                      (724 169)                      (724 169)  
 Balance at 31 December 2014                                 1 537 049     493 944 133              -     495 481 182  
 Total comprehensive loss for the period                                   (34 889 977)                   (34 889 977)  
 Balance at 31 March 2015                                    1 537 049     459 054 156              -     460 591 205  
 Total comprehensive income for the period                           -      73 142 663              -      73 142 663  
 Transfer to other components of equity                              -    (473 171 171)   473 171 171               -  
 Capital conversion of debentures to stated capital        952 971 381               -              -     952 971 381  
 Costs of conversion of debentures                          (1 098 624)              -              -     (1 098 624)  
 Total stated capital and reserves at 30 September 2015    953 409 806      59 025 648    473 171 171   1 485 606 625  


Unaudited condensed statement of cash flows for the six months ended 30 September 2015

                                                             Unaudited          Audited         Unaudited      
                                                              6 months         9 months          6 months       
                                                                 ended            ended             ended          
                                                          30 September         31 March       31 December    
                                                                  2015             2015              2014           
                                                                     R                R                 R              
 Cash flows from operating activities                       41 005 708      (23 077 694)        9 237 248     
 Cash flows from investing activities                       (9 949 020)     (34 182 818)      (29 602 301)  
 Cash flows from financing activities                         (697 100)      59 058 168        28 400 341    
 Net cash inflow for the period                             30 359 588        1 797 656         8 035 288     
 Cash and cash equivalents at the beginning of the period    6 019 743        4 222 087         4 222 087     
 Cash and cash equivalents at the end of the period         36 379 331        6 019 743        12 257 375    


Notes to the condensed interim financial statements for the six months ended 30 September 2015


 1.   MEASUREMENTS OF FAIR VALUE                                                                                       
 1.1  Financial instruments                                                                                            
      The financial assets and liabilities measured at fair value in the statement of financial position are grouped into 
      the fair value hierarchy as follows:  
  
                                              September 2015                  March 2015               December 2014                  
                                        Level 1  Level 2    Total     Level 1  Level 2    Total     Level 1  Level 2  Total  
                                           R000     R000     R000        R000     R000     R000        R000     R000   R000  
      ASSETS                                                                                                                 
      Total                                   -        -        -           -        -        -           -        -      -  
      LIABILITIES                                                                                                            
      Derivative financial instruments        -   (1 224)  (1 224)          -   (1 008)  (1 008)          -     (799)  (799) 
      Total                                   -   (1 224)  (1 224)          -   (1 008)  (1 008)          -     (799)  (799) 
      Net fair value                          -   (1 224)  (1 224)          -   (1 008)  (1 008)          -     (799)  (799) 

      Measurement of fair value                                               
      The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the 
      previous reporting period.                                               
                                                                          
      Derivative financial instruments                                               
      The fair values of these swap contracts are determined by Nedbank, Rand Merchant Bank and Standard Bank, using a 
      valuation technique that maximises the use of observable market inputs. Derivatives entered into by the company are
      included in Level 2 and consist of interest rate swap contracts.                                               
                                                                          
 1.2  Non-financial assets                                                
      The following table reflects the levels within the hierarchy of non-financial assets measured at fair value at 
      30 September 2015:                                               
                                       September            March         December  
                                            2015             2015             2014  
                                         Level 3          Level 3          Level 3  
                                            R000             R000             R000  
      Assets                                                                        
      Investment properties        2 448 106 833    2 421 900 000    2 451 702 301  
 
 
      Fair value measurement of non-financial assets (investment properties)                                               
      The fair value of retail buildings is estimated using an income approach which capitalises the estimated rental 
      income stream, net of projected operating costs, using a discount rate derived from market yields. The estimated 
      rental stream takes into account current occupancy levels, estimates of future vacancy levels, the terms of 
      in-place leases and expectations of rentals from future leases over the remaining economic life of the buildings.      
                                                                          
      The most significant inputs, all of which are unobservable, are the estimated rental value, assumptions regarding 
      vacancy levels, the discount rate and the reversionary capitalisation rate. The estimated fair value increases 
      if the estimated rental increases, vacancy levels decline or if discount rates (market yields) and reversionary 
      capitalisation rates decline. The overall valuations are sensitive to all four assumptions. Management considers 
      the range of reasonable possible alternative assumptions is greatest for reversionary capitalisation rate rental 
      values and vacancy levels and that there is also an interrelationship between these inputs.    
                                                                          
      The inputs used in the valuations at 30 September 2015 were:                                               
      - The range of the reversionary capitalisation rates applied to the portfolio is between 7.7% and 11.5% with the 
        weighted average being approximately 8.9%.                                               
      - The discount rates applied range between 12.7% and 16.2% with the weighted average being approximately 13.81%.   
                                                                          
      Changes in discount rates attributable to changes in market conditions can have a significant impact on property 
      valuations.                                               
      - A 25 basis points increase in the discount rate will decrease the value of the investment property by R70 million 
        (2.9%).                                               
      - A 25 basis points decrease in the discount rate will increase the value of investment property by R74 million 
        (3.0%).                                               
                                                                          
      In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated
      demand.                                               
                                                                       

Sponsor: Java Capital 

20 November 2015

Executive directors: GS Moseneke (Interim CEO)*, RC Hawton (Financial director)**
Non-executive directors: LG Rapp (Chairman), MJ Potts, MJ Kuscus, SJ Segar, LX Mtumtum
* Dr GS Moseneke was appointed to the board with effect from 4 May 2015. 
** Mr RC Hawton was appointed as financial director with effect from 22 May 2015, following the resignation of Mr AE
   Raubenheimer with effect from 22 May 2015.

Registered office: Ground Floor, One-on-Ninth, Corner Glenhove Road and Ninth Street, Melrose Estate, 2196. 

Company secretary: J Neethling 

Transfer secretaries: Computershare Investor Services (Pty) Ltd, Johannesburg, 2001

Investor and Media Relations: Marketing Concepts, 10th Floor, Fredman Towers, 13 Fredman Drive, Sandton, Johannesburg,
South Africa 

Telephone: +27 11 783 0700
Fax: +27 11 783 3702

www.synergyincomefund.com
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