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Summarised audited condensed financial results for the period ended 30 September 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
(Synergy or the company)
Granted REIT status with the JSE
Summarised audited condensed financial results for the period ended 30 September 2016
- Successful repositioning of Synergy as GemGrow Properties Limited (GemGrow), a specialist,
high yielding, high growth fund^
- Property revenue for the period ended 30 September 2016 of R181.40 million*
- Dividends to A shareholders of 49.69 cents per share*
- Dividends to B shareholders of 29.67 cents per share*
- Net asset value per A share at 30 September 2016* of R9.97
- Earnings per A share of 64.74 cents
- Headline earnings per A share of 24.35 cents
- Net asset value per combined share at 30 September 2016* of R9.70
- Net asset value per B share at 30 September 2016* of R9.59
- Earnings per B share of 64.74 cents
- Headline earnings per B share of 24.35 cents
- Investment property valued at approximately R2.451 billion*
^ As communicated via SENS and in the press on 27 October 2016, and in terms of the circular dated 26 September 2016
and further announced on SENS on 25 October 2016, subject to, inter alia, applicable approval for the implementation
of the transaction having been obtained from the competition authorities.
* The financial information presented represents the six-month period ended 30 September 2016. The comparative period
where shown is for the year ended 31 March 2016. Results are presented at 30 September 2016 due to the change in
Synergy's year end, as a consequence of the transaction with Vukile Property Fund Limited (JSE: VKE) (Vukile) and
Arrowhead Properties (JSE : AWP) (Arrowhead). Accordingly, due to the change in the year-end, percentages and movements
between periods are not relevant and hence not disclosed.
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 14 shopping centres, currently valued at approximately
R2.451 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 (22 365 m2), Atlantis City Shopping
Centre in Atlantis, Western Cape (22 115 m2), Setsing Crescent Shopping Centre in Phuthaditjhaba, Free State (21 538 m2),
and Highland Mews Shopping Centre in Emalahleni, Mpumalanga (17 032 m2). The Newcastle Taxi City Centre (5 006 m²) was
sold in the current period.
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 dividends 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 dividends to A shareholders, accrues to
B shareholders. At 30 September 2016, there were 47.4 million A shares and 106.4 million B shares in issue.
2. Financial Results
Synergy has posted property revenue for the period to 30 September 2016 of R181.4 million, and distributable income
of R55.1 million. Vukile has provided asset management services together with outsourced property management services,
via Vukile Asset Management (Pty) Ltd for the period to 30 September 2016. Synergy's strategy for this period has been to
progress its proposed repositioning as a specialist, high yielding, high-growth fund with Vukile and Arrowhead, as
previously communicated via SENS and in the press.
The board of directors of Synergy (the board) is pleased to announce dividends of 49.69 cents per A share and
29.67 cents per B share for the period ended 30 September 2016.
At 30 September 2016, Synergy's property portfolio (the portfolio) comprised 14 shopping centres with a total market
value of R2.451 billion. The net asset value (NAV) per combined share has increased by 1.8% from 31 March 2016 to R9.70
at 30 September 2016. No new shares were issued during the period under review. The combined market capitalisation at
30 September 2016 decreased by 7.8%, relative to that at 31 March 2016, to R1.201 billion.
3. Borrowings
At 30 September 2016, Synergy's total borrowings amounted to R937.7 million (before amortised debt raising costs),
with available loan facilities totalling R1 021 million. Synergy's interest rates were hedged at 68% (31 March 2016: 66%)
of total borrowings, at a weighted average rate of 9.31% at 30 September 2016 (31 March 2016: 9.25%).
4. Corporate Action
Management has continued to engage with Vukile and Arrowhead to reposition Synergy as GemGrow in terms of which:
- Synergy's asset management will be internalised;
- Vukile will acquire all 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.
SENS and press announcements have been communicated as milestones have been reached. Shareholder approval for the
transaction has been obtained, with the only remaining condition precedent to be fulfilled being Competition Commission
approval, which is expected by mid December 2016.
5. Post period events - Declaration of dividend
In line with IAS10 - Events after the Reporting Period, the board of directors of Synergy (the board) have announced
a dividend of 49.68891 cents per A share and 29.67000 cents per B share for the period ended 30 September 2016 amounting
to R55.1 million which occurred after the reporting period, resulting in a non-adjusting event that is not recognised
in the financial statements.
6. Property Portfolio
Synergy's property portfolio is geographically diverse with shopping centres situated in the Western Cape,
KwaZulu-Natal, Gauteng, Mpumalanga, Free State, Limpopo and North West. 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 27.0
KwaZulu-Natal 43 765 22.5
Gauteng 24 475 12.6
Mpumalanga 23 671 12.1
Free State 21 538 11.0
Limpopo 17 994 9.2
North West 10 887 5.6
Total 194 948 100.0
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 305 49 347 701
Split (%) 75 5 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 30 September 2016
The expiry profile of leases as at 30 September 2016 is represented below:
Period GLA (m²) % composition
Current vacancy 8 614 4.4
March 2017 28 416 14.6
March 2018 28 669 14.7
March 2019 42 735 21.9
March 2020 40 102 20.6
March 2021 20 653 10.6
March 2022 and beyond 25 759 13.2
Total 194 948 100.0
7. Statement of Financial Position
30 September 31 March
2016 2016
R000 R000
Assets
Non-current assets 2 613 2 442 539
Investment properties and related receivables - 2 441 574
Investment properties - 2 371 602
Straight-line rental income adjustment - 69 972
Derivative financial instruments - 622
Deferred capital expenditure 601 -
Deferred tax asset 2 012 343
Current assets 64 357 53 055
Trade and other receivables 40 512 27 298
Derivative financial instruments 107 141
Cash and cash equivalents 23 738 25 616
Non-current assets held for sale 2 451 436 -
Investment properties and related receivables 2 451 436 -
Investment properties 2 397 868 -
Straight-line rental income adjustment 53 568 -
Total assets 2 518 406 2 495 594
Equity and liabilities
Shareholders' interest 1 491 493 1 463 357
Stated capital 942 472 953 410
Retained earnings 55 085 42 021
Other components of equity 493 936 467 926
Non-current liabilities 367 406 976 954
Borrowings 361 853 976 016
Derivative financial instruments 5 553 938
Current liabilities 659 507 55 283
Trade and other payables 84 340 55 283
Borrowings 575 047 -
Derivative financial instruments 120 -
Total equity and liabilities 2 518 406 2 495 594
Total number of shares in issue 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)* 970 952
Net asset value per A share (cents)^ 997 1 169
Net asset value per B share (cents) 959 855
Fair value per share represented by market price
Fair value per A share 965 1 180
Fair value per B share 700 700
*Net asset value includes total equity attributable to equity holders where applicable.
^Calculated based on the 60-day volume weighted average trading price at 30 September 2016 (31 March 2016)
limited to the combined net asset value in accordance with the provisions of Synergy's Memorandum of Incorporation.
8. Statements of Profit or Loss and Other Comprehensive Income
Six months 12 months
ended ended
30 September 31 March
2016* 2016
R000 R000
Property revenue 181 404 347 654
Straight-line rental income adjustment (16 404) 51 845
Gross property revenue 165 000 399 499
Property expenses (80 010) (148 380)
Net profit from property operations 84 990 251 119
Corporate administrative expenses (1 708) (3 210)
Finance income 1 229 1 628
Operating profit before finance costs 84 511 249 537
Finance costs (46 221) (84 908)
Operating profit after finance costs and before capital items 38 290 164 629
Loss on sale of investment properties (2 397) -
Cost of strategic repositioning (971) -
Gain on the ineffective portion of fair value of
derivative financial instruments - 225
Net change in fair value of investment properties 64 483 (57 699)
- Fair value adjustment 48 079 (5 854)
- Straight-line rental income accrual 16 404 (51 845)
Profit before taxation 99 405 107 155
Taxation 110 61
Profit for the period/year 99 515 107 216
Other comprehensive income
Items that will be reclassified subsequently to profit or loss
Cash flow hedges - current period (losses)/gains (net of taxation) (3 833) 609
Total comprehensive income for the period/year 95 682 107 825
Earnings and diluted earnings per combined share (cents) 64.74 69.75
Earnings and diluted earnings per A share (cents) 64.74 69.75
Earnings and diluted earnings per B share (cents) 64.74 69.75
Headline earnings per combined share (cents) 24.35 107.29
Headline earnings and diluted headline earnings per A share (cents) 24.35 107.29
Headline earnings and diluted headline earnings per B share (cents) 24.35 107.29
Total weighted average number of shares in issue 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
*Current period information is presented for the six months to 30 September 2016 due to the change in Synergy's
year end, as a consequence of the repositioning of Synergy as GemGrow. The comparative period is presented for
12 months to 31 March 2016.
9. Reconciliation of Profit/(Loss) to Headline Earnings and to Profit Available for Distribution
Six months 12 months
ended ended
30 September 31 March
2016 2016
R000 R000
Profit for the period/year 99 515 107 216
Earnings 99 515 107 216
Loss on sale of investment properties 2 397 -
Net change in fair value of investment properties (64 483) 57 699
Headline earnings 37 429 164 915
Adjusted for:
Cost of strategic repositioning 971 -
Amortisation of loan raising costs 391 754
Straight-line rental income accrual 16 404 (51 845)
Deferred taxation (110) (61)
Gain on the ineffective portion of fair value of
derivative financial instruments - (225)
Profit available for distribution for the period/year 55 085 113 538
10. Statement of Changes in Equity
Other
Stated Retained components
capital earnings of equity Total
R000 R000 R000 R000
Balance at March 2015 1 537 459 054 - 460 591
Profit for the year - 107 216 - 107 216
Dividends paid - (56 932) - (56 932)
Change in fair value of investment properties - 5 854 (5 854) -
Transfer to other components of equity - (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/(loss)
Revaluation of cash flow hedges - - 609 609
Balance at March 2016 953 410 42 021 467 926 1 463 357
Profit for the period - 99 515 - 99 515
Dividends paid - (56 608) - (56 608)
Change in fair value of investment properties - (48 079) 48 079 -
Transfer from other components of equity - 18 236 (18 236) -
Costs of strategic repositioning (10 938) - - (10 938)
Other comprehensive income
Revaluation of cash flow hedges - - (3 833) (3 833)
Balance at September 2016 942 472 55 085 493 936 1 491 493
11. Cash Flow statement
Six months 12 months
ended ended
30 September 31 March
2016 2016
R000 R000
Cash flows from operating activities
Cash generated from operations 103 479 204 466
Finance income 1 229 1 628
Interest paid (45 830) (109 461)
Dividends paid (56 608) (56 932)
Net cash inflow from operating activities 2 270 39 701
Cash flows from investing activities
Additions to investment properties (17 627) (25 528)
Proceeds on disposals of investment properties 53 447 -
Deferred capital expenditure (601) -
Net cash inflow/(outflow) from investing activities 35 219 (25 528)
Cash flows from financing activities
Financial liabilities raised (39 367) 6 521
Costs of conversion of debentures - (1 098)
Net cash (outflow)/inflow from financing activities (39 367) 5 423
Net cash (outflow)/inflow for the year (1 878) 19 596
Cash and cash equivalents at the beginning of the period/year 25 616 6 020
Cash and cash equivalents at the end of the period/year 23 738 25 616
12. Operational Performance
Synergy continues to operate in a challenging macro-economic environment with highly indebted consumers operating in
a stagnant economy.
An overall vacancy of 4.4% existed at 30 September 2016, compared to 4.5% at 31 March 2016. Rental reversions of 5.6%
have been achieved across the portfolio. Synergy maintained a national tenant ratio of 80% at 30 September 2016 in line
with Synergy's target ratio. 79% (20 555 m2) of leases to be renewed during the period ended 30 September 2016 were
renewed, or are in process of being renewed (March 2016: 84% (33 023 m2). The weighted average lease expiry profile for the
property portfolio at 30 September 2016 was 2.9 years (31 March 2016: 2.6 years).
13. Directorate
At the date of this report the following directors held office. There were no changes in directors for the period
under review.
Non-executive
MJ Kuscus@, LX Mtumtum@, LG Rapp, MJ Potts, SJ Segar@, I Zwarenstein@
Executive
GS Moseneke, RC Hawton
@Independent non-executive director
14. Prospects
On the assumption that Competition Commission approval is obtained, Synergy (to be renamed GemGrow) is set to be a
consolidator in the market and will create a compelling and differentiated prospect for investors as a specialist,
high growth, high yield, internally managed, diversified real estate fund. In the proposed GemGrow, a vehicle has been created
that offers shareholders exposure to a unique dual-class share structure with a focus on acquiring assets at attractive
yields that will enhance earnings and growth prospects for the company.
15. Payment of dividends
The board has approved and notice is hereby given of gross dividends of 49.68891 cents per A share and 29.67000 cents
per B share for the six months ended 30 September 2016.
In accordance with Synergy's status as a REIT, shareholders are advised that the dividend meets the requirements of a
"qualifying dividend" for the purposes of section 25BB of the Income Tax Act, 58 of 1962 (Income Tax Act). The dividend
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 dividend 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
dividend 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 dividend 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 dividend, if such documents have not already been submitted.
Dividends 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 dividends received by non-residents from a REIT were not
subject to dividend withholding tax. Since 1 January 2015, any dividend 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
42.23557 cents per A share and 25.21950 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 dividend if such documents have not already been submitted, if applicable.
The salient dates for the dividend will be as follows:
2016
Last day to trade cum dividend Tuesday, 6 December
Last day to trade ex dividend Wednesday, 7 December
Record date Friday, 9 December
Payment date Monday, 12 December
Shareholders may not dematerialise or rematerialise their shares between Wednesday, 7 December 2016 and
Friday, 9 December 2016, both days inclusive. Payment of the dividend will be made to shareholders on Monday, 12 December 2016.
In respect of dematerialised shares, the dividend will be transferred to the CSDP/broker accounts on Monday, 12 December 2016.
Certificated shareholders' dividend payments will be paid to certificated shareholders' bank accounts on
Monday, 12 December 2016.
A shares in issue at the date of declaration of the dividend: 47 352 203
B shares in issue at the date of declaration of the dividend: 106 352 670
Synergy's income tax reference number: 9068723171
16. Preparation, accounting policies and audit opinion
These summarised audited condensed financial statements for the period ended 30 September 2016 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 audited financial statements for the period ended 30 September 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, the statement of comprehensive income,
statement of changes in equity and statement of cash flows for the six 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 audited annual financial statements and the auditor's report thereon are available for
inspection at the company's registered office situated at Ground Floor, One-on-Ninth, corner Glenhove Road and Ninth Street,
Melrose Estate. This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34.
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.
The directors are not aware of any matters or circumstances arising subsequent to 30 September 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
21 November 2016
JSE sponsor: Java Capital, 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: 21/11/2016 05:32:00 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.
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