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Summarised audited financial results for the year ended 31 March 2016
Synergy Income Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2007/032604/06)
JSE share code: SGA ISIN: ZAE000202883
JSE share code: SGB ISIN: ZAE000202891
Granted REIT status with the JSE
(Synergy or the company)
Summarised audited financial results for the year ended 31 March 2016
Highlights
- Property revenue of R348 million*
for the year ended 31 March 2016
- Distributions to A shareholders of 94.65 cents per share*
for the year ended 31 March 2016
- Distributions to B shareholders of 64.62 cents per share*
for the year ended 31 March 2016
- Interest rates hedged at 66% of total borrowings
at 31 March 2016*
- Net asset value per combined share of R9.52
at 31 March 2016*
- Net asset value per A share of R11.69
at 31 March 2016*
- Net asset value per B share of R8.55
at 31 March 2016*
- Investment property valued at R2.442 billion
at 31 March 2016*
- Market capitalisation of R1.303 billion
at 31 March 2016*
* The financial information above represents the year ended 31 March 2016. The comparative period is for nine months
to 31 March 2015, following the change in Synergy’s financial year to align with that of its holding company Vukile
Property Fund Limited. Accordingly, percentages and movements between periods are not disclosed in this announcement.
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 322m2),
King Senzangakhona Shopping Centre in Ulundi, KwaZulu-Natal (22 365m2), Atlantis City Shopping Centre in Atlantis, Western Cape
(22 115m2), Setsing Crescent Shopping Centre in Phuthaditjhaba, Free State (21 538m2), and Highland Mews Shopping Centre in
Emalahleni, Mpumalanga (17 032m2).
Synergy has separately listed A and B shares, each offering investors a different risk and reward profile. The A shares 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 shareholders, accrues to B shareholders.
At 31 March 2016, there were 47.4 million A shares and 106.4 million B shares in issue.
2. Financial Results
Despite a continually challenging operating and economic environment, Synergy has posted property revenue for the
year to 31 March 2016 of R348 million, and distributable income of R114 million. Results are presented for the first full
12 month period to 31 March 2016, following the change of year-end to align with that of its holding company, Vukile
Property Fund Limited (JSE: VKE) (Vukile). Vukile continues to provide asset management services together with outsourced
property management services via Vukile Asset Management (Pty) Ltd (previously Capital Land Asset Management (Pty) Ltd),
following its acquisition of 100% of the shares on 1 May 2015. Synergy’s strategy for this year has been inwardly focused
on improving the capital structure, and evaluating options to rejuvenate the A and B share structure for a positive
growth trajectory, while actively pursuing planned, strategic transactions with suitable parties.
The board of directors of Synergy (the board) is pleased to announce distributions of 47.32 cents per A share and 32.16 cents
per B share for the six months ended 31 March 2016. Combined with the interim distributions of 47.32 cents per A share and
32.46 cents per B share, the total distributions for the 12 month period amount to 94.64 cents per A share, and 64.62 cents
per B share. This equates to a 5% and 13.4% comparable increase in distributions to A and B shareholders respectively.
At 31 March 2016, Synergy’s property portfolio (the portfolio) comprised 15 shopping centres with a total market value of
R2.442 billion. The net asset value (NAV) per combined share has increased by 3.5% to R9.52 at 31 March 2016. No new shares
were issued during the year under review. The combined market capitalisation at 31 March 2016 decreased by 5.0%, relative to
that at 31 March 2015.
3. Borrowings
At 31 March 2016, Synergy’s total borrowings amounted to R977 million (before amortised debt raising costs), with available
loan facilities totalling R996 million. Synergy’s interest rates were hedged at 66% (2015: 48%) of total borrowings, at a
weighted average rate of 9.25% at 31 March 2016 (2015: 8.22%). Synergy’s finance strategy is to minimise funding costs and
refinance risk, and increase the fixed portion of funding entered into.
4. Corporate Action
Management continues to engage with Vukile and Arrowhead Properties Limited (Arrowhead), in a due diligence process to further
the terms of a transaction in terms of which:
- Synergy’s asset management will be internalised;
- Vukile will acquire all or the bulk of Synergy’s retail assets in return for the sale by Vukile to Synergy of the majority
of Vukile’s office and industrial assets; and
- Synergy will acquire 100% of the shares in Cumulative Properties Limited, a subsidiary of Arrowhead that will house its
portfolio of higher yielding retail, office and industrial properties, in return for the issue of Synergy B shares to
Arrowhead.
Accordingly, a further cautionary announcement in respect of the proposed transaction was issued on 26 April 2016,
which advised Synergy shareholders to continue to exercise caution when dealing in the company’s securities until further
announcements were made.
5. 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 returns to investors. The cumulative fair value gain on the
portfolio, since listing, amounts to R451 million. The expiry profile of leases as at 31 March 2016 is represented below:
Period GLA (m2) % composition
Current vacancy 8 965 4.5
March 2017 47 113 23.6
March 2018 29 451 14.7
March 2019 39 519 19.8
March 2020 35 827 17.9
March 2021 20 246 10.1
March 2022 and beyond 18 843 9.4
Total 199 964
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. 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 52 617 26.3
KwaZulu-Natal 48 770 24.4
Gauteng 24 485 12.3
Mpumalanga 23 671 11.8
Free State 21 538 10.8
Limpopo 17 995 9.0
North West 10 888 5.4
Total 199 964
The split of tenants across the portfolio is represented by category in tabular format below:
Category A^ Category B# Category C• Total*
Number of tenants 312 57 357 726
Split (%) 74 6 20 100
^ Large national, listed tenants, major franchises and government
# National and listed tenants, franchised and medium to large professional firms
• Other tenants
* Figures calculated using GLA data as at 31 March 2016
As Synergy’s portfolio comprises retail assets which are regarded as one segment, no segmental report is prepared.
6. Statement of Financial Position
at 31 March 2016
2016 2015
R000 R000
Assets
Non-current assets 2 442 539 2 422 182
Investment properties and related receivables 2 441 574 2 421 900
Investment properties 2 371 602 2 403 773
Straight-line rental income adjustment 69 972 18 127
Derivative financial instruments 622 -
Deferred tax asset 343 282
Current assets 53 055 27 642
Trade and other receivables 27 298 21 622
Derivative financial instruments 141 -
Cash and cash equivalents 25 616 6 020
Total assets 2 495 594 2 449 824
Equity and liabilities
Shareholders’ interest 1 463 357 460 591
Stated capital 953 410 1 537
Retained earnings 42 021 459 054
Non-distributable reserves 467 926 -
Non-current liabilities 976 954 1 922 555
Borrowings 976 016 968 658
Linked debentures - 952 971
Derivative financial instruments 938 926
Current liabilities 55 283 66 678
Trade and other payables 55 283 41 288
Debenture interest payable - 25 307
Derivative financial instruments - 83
Total equity and liabilities 2 495 594 2 449 824
Total number of shares in issue at 31 March 153 704 873 153 704 873
A shares 47 352 203 47 352 203
B shares 106 352 670 106 352 670
Net asset value per combined share (cents)* 952 920
Net asset value per A share (cents)*^ 1 169 1 193
Net asset value per B share (cents)* 855 798
Fair value per share represented by the market price at 31 March (cents)
Fair value of A share 1 180 1 210
Fair value of B share 700 750
* The linked unit capital structure was converted to an all share structure during the year. Comparative figures
represent linked units where applicable. Net asset value includes total equity attributable to equity holders
and linked debenture holders (in respect of the former linked unit structure) where applicable.
^ Calculated based on the 60-day volume weighted average trading price at 31 March 2016 limited to combined net
asset value in accordance with the provisions of Synergy’s Memorandum of Incorporation.
7. Statements of Profit or Loss and Other Comprehensive Income
for the year/period ended 31 March 2016
12 months 9 months
2016 2015*
R000 R000
Property revenue 347 654 241 830
Straight-line rental income accrual 51 845 (505)
Gross property revenue 399 499 241 325
Property expenses (148 380) (93 693)
Net profit from property operations 251 119 147 632
Corporate administrative expenses (3 210) (14 515)
Finance income 1 628 915
Operating profit before finance costs 249 537 134 032
Finance costs (84 908) (58 761)
Operating profit after finance costs 164 629 75 271
Debenture interest - (76 332)
Profit/(loss) before capital items 164 629 (1 061)
Other capital items - (168)
Profit/(loss) before fair value adjustments 164 629 (1 229)
Gain on the ineffective portion of fair value of derivative
financial instruments 225 -
Gross change in fair value of swaps - (705)
Net change in fair value of investment properties (57 699) (33 878)
- Fair value adjustments (5 854) (34 383)
- Straight-line adjustment (51 845) 505
Profit/(loss) before taxation 107 155 (35 812)
Taxation 61 197
Profit/(loss) for the year/period 107 216 (35 615)
Other comprehensive income
Cash flow hedges - current period gains (net of taxation) 609 -
Total comprehensive income/(loss) for the year/period 107 825 (35 615)
Earnings/(loss) and diluted earnings/(loss) per combined share (cents)^ 69.75 (23.17)
Earnings/(loss) and diluted earnings/(loss) per A share (cents)^ 69.75 (23.17)
Earnings/(loss) and diluted earnings/(loss) per B share (cents)^ 69.75 (23.17)
Headline earnings per combined share (cents)^ 107.29 (1.13)
Headline earnings per A share (cents)^ 107.29 66.53
Headline earnings per B share (cents)^ 107.29 40.52
Total weighted average number of shares in issue at 31 March^ 153 704 873 153 704 873
A shares in issue^ 47 352 203 47 352 203
B shares in issue^ 106 352 670 106 352 670
* Prior period information is presented for the nine months to 31 March 2015, due to the change in year-end
to align Synergy with Vukile’s year-end following effective change of control.
^ The linked unit capital structure was converted to an all share structure during the year. Comparative
figures represent linked units where applicable.
8. Reconciliation of Profit/(Loss) to Headline Earnings and to Profit Available for Distribution
for the year/period ended 31 March 2016
12 months 9 months
2016 2015*
R000 R000
Profit/(loss) for the year/period 107 216 (35 615)
Adjusted for:
Debenture interest - 76 332
Earnings 107 216 40 717
Net change in fair value of investment properties 57 699 33 877
Headline earnings 164 915 74 594
Adjusted for:
Amortisation of loan raising costs 754 556
Straight-line rental income accrual (51 845) 505
Other capital items - 169
Deferred taxation (61) -
Gain on the ineffective portion of fair value of derivative financial
instruments (225) -
Net change in fair value of swaps - 508
Change in fair value of swaps - 705
Deferred taxation on change in fair value of swaps - (197)
Profit available for distribution for the year/period 113 538 76 332
* Prior period information is presented for the nine months to 31 March 2015, due to the change in year-end
to align Synergy with Vukile’s year-end following effective change of control.
9. Statement of Changes in Equity
for the year/period ended 31 March 2016
Non-
Stated Retained distributable
capital earnings reserves Total
R000 R000 R000 R000
Balance at 30 June 2014 1 537 494 668 - 496 205
Total comprehensive income for the period - (35 614) - (35 614)
Balance at 31 March 2015 1 537 459 054 - 460 591
Profit for the year - 107 216 - 107 216
Distribution paid - (56 932) - (56 932)
Change in fair value of investment properties - 5 854 (5 854) -
Transfer to non-distributable reserves - (473 171) 473 171 -
Capital conversion of debentures to stated capital 952 971 - - 952 971
Costs of conversion of debentures (1 098) - - (1 098)
Other comprehensive income
Revaluation of cash flow hedges - - 609 609
Balance at 31 March 2016 953 410 42 021 467 926 1 463 357
10. Cash Flow statement
for the year/period ended 31 March 2016
2016 2015
R000 R000
Cash flows from operating activities
Cash generated from operations 204 466 138 228
Finance income 1 628 915
Interest paid (109 461) (162 220)
Distribution paid (56 932) -
Net cash inflow/(outflow) from operating activities 39 701 (23 077)
Cash flows from investing activities
Additions to investment properties (25 528) (34 183)
Net cash outflow from investing activities (25 528) (34 183)
Cash flows from financing activities
Financial liabilities raised 6 521 59 058
Costs of conversion of debentures (1 098) -
Net cash inflow from financing activities 5 423 59 058
Net cash inflow for the year/period 19 596 1 798
Cash and cash equivalents at the beginning of the year/period 6 020 4 222
Cash and cash equivalents at the end of the year/period 25 616 6 020
11. Operational Performance
Synergy continues to operate in a challenging macro-economic environment with highly indebted consumers operating in
a stagnant economy, which has contributed to a poor trading environment.
An overall vacancy of 4.5% existed at 31 March 2016, compared to 5.6% at 31 March 2015. Rental reversions of 9.8%
have been achieved across the portfolio. Synergy maintained a national tenant ratio of 80% at 31 March 2016 in line with
Synergy’s target ratio. Eighty-four percent (33 023m2) of leases to be renewed during the period ended 31 March 2016 were
renewed, or are in the process of being renewed (2015: 67% (28 153m2)). The weighted average lease expiry profile for
the property portfolio at 31 March 2016 was 2.6 years (2015: 3.2 years).
12. Capital Conversion
The capital conversion of A linked units and B linked units to an all-equity capital structure, to ensure compliance with
REIT legislation, was fully implemented following shareholder approval on 22 June 2015.
13. Directorate
During the year under review, WM Brooks and AE Raubenheimer stepped down as chief executive officer and financial director on
1 May 2015 and 22 May 2015 respectively, following Vukile assuming control of Synergy. GS Moseneke and RC Hawton were appointed
as interim chief executive officer and financial director, effective 4 May and 22 May 2015 respectively. I Zwarenstein was
appointed as a non-executive director effective 1 December 2015.
14. Prospects
Management expects the tough conditions experienced in the financial year to March 2016 to continue into the next year, given
the economic environment in which Synergy operates. Notwithstanding this, Synergy’s A shareholders will continue to receive a 5%
growth in distributions, and B shareholders can expect a distribution per share in the range of 65.00 cents per share to
68.00 cents per share. This is derived after taking into account further efforts to increase the fixed percentage of Synergy’s
funding, in the face of an anticipated rise in interest rates. The company continues to focus inwardly on improving its financial
position and actively pursuing the planned strategic transaction with Vukile and Arrowhead.
The forecast growth in distribution is based on the assumptions that the macro-economic environment does not deteriorate further and
no major corporate failures will occur. Forecast rental income has been based on contractual escalations and market-related renewals.
This forecast has not been reviewed by the company’s auditors.
15. Payment of Final Distributions
The board has approved and notice is hereby given of final distributions of 47.32277 cents per A share and 32.15705 cents per B share
for the six months ended 31 March 2016.
In accordance with Synergy’s status as a REIT, shareholders are advised that the distribution meets the requirements of a “qualifying
distribution” for the purposes of section 25BB of the Income Tax Act, 58 of 1962 (Income Tax Act). The distribution on the shares
will be deemed to be a dividend, for South African tax purposes, in terms of section 25BB of the Income Tax Act.
The distribution received by or accrued to South African tax residents must be included in the gross income of such shareholders
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 it is a dividend distributed by a REIT. This distribution is, however, exempt
from dividend withholding tax in the hands of South African tax resident shareholders, provided that the South African resident
shareholders provided the following forms to their Central Securities Depository Participant (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; and
- 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 above mentioned documents to be submitted prior to payment of the
distribution, if such documents have not already been submitted.
Distributions received by non-resident shareholders will not be taxable as income and instead will be treated as an ordinary
dividend which is 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 2014 distributions received by non-residents from a REIT were not subject to dividend
withholding tax. Since 1 January 2015, 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 shareholder. Assuming dividend withholding tax will be withheld
at a rate of 15%, the net dividend amount due to non-resident shareholders is 40.22435 cents per A share and 27.33349 cents per
B share. A reduced dividend withholding rate in terms of the applicable DTA, may only be relied on 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 dividend is subject to a reduced rate as a result of the application of a DTA; and
- 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 above mentioned 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:
2016
Last day to trade cum distribution Friday, 3 June
Securities trade ex distribution Monday, 6 June
Record date Friday, 10 June
Payment date Monday, 13 June
Shareholders may not dematerialise or rematerialise their shares between Monday, 6 June 2016 and Friday, 10 June 2016, both days
inclusive. Payment of the distribution will be made to shareholders on Monday, 13 June 2016. In respect of dematerialised shares,
the distribution will be transferred to the CSDP/broker accounts on Monday, 13 June 2016. Certificated shareholders’ distribution
payments will be paid to certificated shareholders’ bank accounts on Monday, 13 June 2016.
A shares in issue at the date of declaration of final distribution: 47 352 203
B shares in issue at the date of declaration of final distribution: 106 352 670
Synergy income tax reference number: 9068723171
16. Preparation, accounting policies and audit opinion
These summarised audited financial statements for the year ended 31 March 2016 have been prepared in accordance with
International Financial Reporting Standards and are 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 audited
financial statements for the year ended 31 March 2016 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 2016 and the statement of comprehensive income,
statement of changes in equity and statement of cash flows for the 12 months then ended are extracted from audited information,
but are themselves not audited. The annual financial statements were audited by Grant Thornton, who expressed an unmodified
opinion thereon. The auditor’s report does not necessarily cover all of the information included in this announcement. Shareholders
are therefore advised that, in order to obtain a full understanding of the nature of the auditor’s work, they should obtain a copy
of the audit report together with the accompanying financial information from the registered office of the company situated at
Ground Floor, One-On-Ninth, Cnr Glenhove Road and Ninth Street, Melrose Estate.
The directors take 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 Robert Hawton CA(SA), the financial director of the company. Synergy seeks to
comply with the provisions of the SA Reit Best Practice Recommendations document.
The directors are not aware of any matters or circumstances arising subsequent to 31 March 2016 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
19 May 2016
JSE sponsor: Java Capital Trustees and Sponsors, 6A Sandown Valley Crescent, Sandown, Sandton, 2196
Executive directors: GS Moseneke, RC Hawton
Non-executive directors: LG Rapp, MJ Potts, LX Mtumtum*, SJ Segar*, I Zwarenstein*, MJ Kuscus*
*Independent non-executive director
Registered office: One-on-Ninth, corner Glenhove and Ninth Street, Melrose Estate, 2196
Company Secretary: J Neethling
Transfer secretaries: Link Market Services South Africa (Pty) Ltd, Johannesburg
Investor and media relations: Marketing Concepts, Telephone +27 11 783 0700, Fax +27 11 783 3702
www.synergyincomefund.com
Date: 19/05/2016 05:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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