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SYC
SYC
SYC - Sycom Property Fund - Unaudited condensed interim financial statements for
the six months ended 30 September 2010
SYCOM PROPERTY FUND
Share Code: SYC
ISIN : ZAE000019303
A Collective Investment Scheme in property registered in terms of the Collective
Investment Schemes Control Act, No. 45 of 2002 and managed by Sycom Property
Fund Managers Limited (Registration number 1986/002756/06)
("Sycom" or "the fund")
UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30
SEPTEMBER 2010
CONDENSED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2010
Unaudited six Unaudited Audited
months to six twelve
30 Sep 2010 months to months to
30 Sep 31 Mar
2009 2010
(R`000) (R`000) (R`000)
Rental Revenue 243 242 446
852 800 732
Contractual Rental revenue 244
and recoveries 851 231 130 462 879
Straight-line rental
revenue adjustment (999) 11 670 (16 147)
Property operating (41 (40 (71
expenses 534) 439) 838)
Net rental and related 202 202 374
revenue 318 361 894
Investment 4
income 523 5 359 9 793
Fair value (deficit) / (46 (59 175
gain on investment 228) 937) 148
property and investments
Fair value gain / (11 277
(deficit) on investment 999 670) 382
property
Fair value deficit on (47 (48 (102
listed investments 227) 267) 234)
Administrative expenses (14 (11 (22
160) 668) 687)
Service charge (12 (10 (21
786) 045) 163)
Other net administrative (1
expenses 374) (1 623) (1 524)
Profit before net finance 146 136 537
costs 453 115 148
Net finance (35 (21 (57
costs 001) 516) 658)
Interest
income 4 864 6 871 12 162
Interest (31 (33 (63
expense 688) 028) 484)
Fair value adjustment on (8
interest rate swaps 177) 4 641 (6 336)
Profit before income tax 111 114 479
452 599 490
Taxation
- - -
Profit and total 111 114 479
comprehensive income for 452 599 490
the six months
Basic earnings per unit -
cents 51.55 55.87 233.78
Weighted average basic
earnings per unit - cents 52.17 55.87 233.78
RECONCILIATION OF EARNINGS TO HEADLINE EARNINGS AND DISTRIBUTABLE
EARNINGS
Earnings 111 114 479
452 599 490
Unrealised (surplus) / (277
deficit on revaluation of (999) 11 670 382)
investment property
Unrealised deficit on 47 102
revaluation of listed 227 48 267 234
investments
Headline 157 174 304
Earnings 680 536 342
Taxation
- - -
Straight-line rental (11
income accrual 999 670) 16 147
Unrealised defecit/
(surplus) on interest rate 8 177 (4 641) 6 336
swaps
Distributable earnings 166 158 326
856 225 825
cents cents cents
Earnings per
unit 51.55 55.87 233.78
Weighted average earnings
per unit 52.17 55.87 233.78
Headline earnings per unit
72.94 85.10 148.38
Weighted headline earnings
per unit 73.81 85.10 148.38
Distributable earnings per
unit 77.18 77.14 159.34
Distribution
per unit 77.18 77.14 159.34
Number of units in issue 216 205
(`000) 182 205 107 107
Number of weighted average 213 205
units in issue (`000) 622 205 107 107
CONDENSED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2010
Unaudited at Audited
Unaudited at
at
30 Sep 2010 30 Sep 31 Mar
2009 2010
(R`000) (R`000) (R`000)
ASSETS
Non-current 5 430 4 954 5
assets 015 533 364 734
Investment 5 171 4 648 5
property 320 688 150 956
Investment property under
development - 38 100 -
Listed 258 213
Investment 695 267 745 778
Current assets 185 193
486 174 704 577
Rental and other 53
receivables 148 36 357 41 374
Cash and cash equivalents 132 152
338 138 347 203
Total assets 5 615 5 129 5 558
501 237 311
UNITHOLDERS` FUNDS AND LIABILITIES
Unitholders`
funds
Unitholders` 1 863 1 661 1
capital 845 828 661 615
Non-distributable reserves 2 690 2 549 2
192 305 745 596
Total unitholders` funds 4 554 4 211 4
037 133 407 211
Non-current liabilities
Unsecured 788 714
borrowings 019 709 423 424
Current 273 436
liabilities 445 208 681 676
Trade and other payables 69 239
668 32 690 328
Other financial 36
liabilities 921 17 766 28 743
Unitholders for 166 168
distribution 856 158 225 605
Total unitholders` funds 5 615 5 129 5 558
and liabilities 501 237 311
Net asset value per unit -
cents 2 107 2 053 2 149
CONDENSED STATEMENT OF CHANGES IN UNITHOLDERS` FUNDS FOR THE SIX
MONTHS ENDED 30 SEPTEMBER 2010
Capital Non Retained Total
distributable earnings
reserves
(R`000) (R`000) (R`000) (R`000)
Balance at 31 1 661 2 592 931 4 254
March 2009 828 - 759
Total 114
comprehensive - - 114 599 599
income for the
period
Transfer from (43
non- - 626) 43 626 -
distributable
reserve
Unitholders (158 (158
distribution - - 225) 225)
Balance at 30 1 661 2 549 305 4 211
September 2009 828 - 133
Capital Issue - -
Costs (213) (213)
Total 364
comprehensive - - 364 891 891
income for the
period
Transfer to 196 (196
non- - 291 291) -
distributable
reserve
Unitholders (168 (168
distribution - - 600) 600)
Balance at 31 1 661 2 745 596 4 407
March 2010 615 - 211
Total 111
comprehensive - - 111 452 452
income for the
period
Transfer from (55
non- - 404) 55 404 -
distributable
reserve
Unitholders (166 (166
distribution - - 856) 856)
New Unit - - 202
issues 202 230 230
Balance at 30 1 863 2 690 4 554
September 2010 845 192 - 037
CONDENSED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30
SEPTEMBER 2010
Unaudited at Audited
Unaudited at
at
30 Sep 2010 30 Sep 31 Mar
2009 2010
(R`000) (R`000) (R`000)
Cash generated from
operating activities
Cash generated from 190 375
operating activities 852 179 297 361
Interest
received 4 864 5 000 12 162
Interest paid (33 (31 (65
242) 157) 726)
Dividend
received - 6 350 11 708
Distribution (175 (162 (320
paid 912) 521) 741)
Taxation paid
- (231) (231)
Net cash (outflow)/inflow (13
from operating activities 438) (3 262) 12 533
Cash flows from investing
activities
Additions to investment (34 (21 (42
and development property 372) 750) 185)
Subscription to rights (92
issue- SESCF 144)
Net cash outflow from (21 (42
investing activities (126 516) 750) 185)
Cash flows from financing
activities
Proceeds on issue of new 47
units 957 - -
Capital Issue (1
Costs 463) - (213)
Increase in 73
borrowings 595 23 544 28 545
Net cash inflow from 120
financing activities 089 23 544 28 332
Net decrease in cash and (19 (1 (1
cash equivalents 865) 468) 320)
Cash and cash equivalents 152 153
at the beginning of the 203 139 815 523
period
Cash and cash equivalents 132 138 152
at the end of the period 338 347 203
NOTES
1. ACCOUNTING POLICIES
The unaudited financial report has been prepared in accordance with
the International Financial Reporting Standards (IFRS) and `IAS 34,
the JSE Limited Listings Requirements and the Collective Investment
Schemes Control Act of 2002. The accounting policies are consistent
with those applied in the prior year.
2. PRIMARY OPERATIONAL SEGMENTS FOR THE SIX MONTHS ENDED 30
SEPTEMBER 2010
Retail Office Fund Total
(R`000) (R`000) (R`000) (R`000)
Rental income 111 244
133 299 552 - 851
Straight-line
rental income (1 841) 842 - (999)
accrual
Dividend
income 4 523 - - 4 523
Total revenue 112 248
135 981 394 - 375
Expenditure (19 (22 (14 (55
449) 085) 160) 694)
Net finance (35 (35
cost 436 112 549) 001)
Net operating 90 (49 157
income 116 968 421 709) 680
Fair value (46
adjustments 228)
Earnings 111
452
Investment in 3 069 2 360 5
property and 591 424 - 430 015
securities
Current assets 13 185
2 379 270 169 837 486
3 071 2 373 5
970 694 169 837 615 501
Unsecured 788
Borrowings - - 788 019 019
Current 16 106
liabilities 2 639 337 87 613 589
Unitholders 166
distribution - - 166 856 856
16 1 042 1
2 639 337 488 061 464
Total capital 3 069 2 357 (872 4
and reserves 331 357 651) 554 037
3PRIMARY OPERATIONAL SEGMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER
2009
Retail Office Fund Total
(R`000) (R`000) (R`000) (R`000)
Rental income 104 230
126 398 577 - 975
Straight-line 11
rental income 2 949 8 721 - 670
accrual
Dividend
income 5 359 - - 5 359
Total revenue 113 248
134 706 298 - 004
Expenditure (15 (11 (51
(24 700) 584) 668) 952)
Net finance (22 (21
cost 347 450 313) 516)
Net operating 98 (33 174
income 110 353 164 981) 536
Fair value (59
adjustments 937)
Earnings 114
599
Investment in 2 806 2 148 4
property and 004 529 - 954 533
securities
Current assets 14 174
1 219 170 159 315 704
2 807 2 162 5
223 699 159 315 129 237
Unsecured 709
Borrowings - - 709 423 423
Current 22
liabilities 5 128 357 22 971 50 456
Unitholders 158
distribution - - 158 225 225
22 918
5 128 357 890 619 104
Total capital 2 802 2 140 (731 4
and reserves 095 342 304) 211 133
4. MAJOR PROFIT GENERATING PROPERTIES*
Rental Income Net Income
(R`000) % (R`000) %
Somerset Mall 13.9% 13.5%
(50% undivided 34 007 27 493
share)
The Woodlands 13.0% 13.5%
Office Park 31 786 27 425
(40% undivided
share)
Vaal Mall 12.5% 13.0%
(77.86% 30 594 26 408
undivided
share)
Harrowdene 10.7% 10.1%
Office Park 26 166 20 638
Other 49.9% 50.0%
122 298 101 899
Total 100.0% 100.0%
244 851 203 863
* Properties contributing more than 10% to Rental Income
COMMENTARY
1. REVIEW OF RESULTS AND OPERATIONS
The board of Sycom Property Fund Managers Limited (`SPFM`) reports a
distribution of 77.18 cents per unit (cpu) for the six months ended 30
September 2010.
Office market
Continued weakness in the office market resulted in a persistent office
vacancy of over 10% throughout the period under review, peaking in
September 2010 at 11.1%, compared with a much lower average vacancy of 4.3%
for the six months ended September 2009. This reduced distributions by
approximately 2.7 cpu or 3.5%. The weaker office market also resulted in
negative rental reversions on leases renewed, with average net rentals
declining from R108.16/m2 on expiry to R106.33/m2 on renewal.
There are positive signs that the office market is entering a recovery
phase. The level of interest from potential tenants has increased sharply,
and management is presently dealing with 18,900m2 of enquiries. There has
also been an improved retention ratio for leases expiring. In the year to
March 2010, Sycom retained 60% of tenants whose leases expired in that
period, whereas in the six months to September 2010, 78% of tenants were
retained.
The board is also encouraged by the sharp decline nationally in the GLA of
office building completions. According to Statistics SA, the area of
offices completed peaked at 160,000m2 at the end of the first quarter of
2009, compared with only 45,000m2 completed at the end of the second
quarter of 2010, a decline in new office supply of over 70%. As demand
begins to firm, this bodes well for potential vacancy take-up.
Retail
Sycom`s South African retail portfolio performed well in the reporting
period, with tenant turnovers increasing by 8.42% in nominal terms, and
retail inflation significantly lower over the period, currently reported by
Stats SA to be a mere 0.66%. Vaal Mall showed the strongest turnover growth
at just over 11%, with Fourways Crossing at 10.6%, N1 City at just over 9%,
Somerset Mall at 6% and Paarl Mall at 5.3%. The turnover growth at Somerset
Mall and Paarl Mall was accelerating towards the end of the reporting
period, with both centres showing over 7% turnover growth for the July to
September quarter.
Durable goods discounters and the electronics and homeware segments
performed well in the six months to September 2010, showing a strong
resurgence in discretionary spending, but certain casual dining restaurant
franchises remained under pressure, resulting in this segment showing the
highest level of tenant failure in Sycom`s retail portfolio. Renewals
across all of Sycom`s retail centres except Paarl Mall reflected sound
rental growth. Paarl showed an average negative reversion of approximately
7%, a reflection of its first five years of contractual rental growth
marginally exceeding the underlying growth in market rentals.
Service fees
The market value of Sycom has shown significant appreciation as the unit
price strengthened over the reporting period. The average monthly closing
price for the six months ended September 2010 was some 24% higher than the
comparable average for the six months to September 2009, and the service
fee payable by Sycom to its manager (SPFM) reflected the same trend, since
the charge is based on Sycom`s enterprise value, as stipulated by the
fund`s Trust Deed. As a result of the increased service fee, the September
2010 distribution was reduced by 1.25cpu or 1.6% compared with the same six
month period last year.
2. BORROWINGS
Sycom has an approved facility of R950 million. The facility is subject to
renewal in November 2014. At 30 September 2010, R788 million of this
facility had been utilised, with 63.5% of borrowings subject to interest
rate swaps. This level of interest rate hedging is in line with board
policy. The weighted average borrowing cost is 8.95%. Sycom`s gearing level
is presently 15.2%. Including the effects of its investment in SESCF,
Sycom`s `see-through` gearing level is 16.2%, and the board would be
comfortable to increase the overall level of gearing to a maximum of 30%,
subject to securing suitable acquisition opportunities.
3. STENHAM EUROPEAN SHOPPING CENTRE FUND (`SESCF`)
The performance of SESCF`s Nova Eventis shopping centre in Leipzig,
Germany, has shown modest income growth, although dividends were negatively
affected by costs associated with the rights issue referred to below,
including provisions to settle portion of SESCF`s debt from the rights
issue proceeds. Compounded by the effect of Rand strength against the Euro,
the investment in SESCF has continued to underperform in rand terms, with a
15.5% decline in dividends for the six months to September 2010. SESCF
undertook a rights issue during the period to raise new capital and retire
debt, and the issue was fully subscribed, with Sycom`s share amounting to
R92m. This took Sycom`s total investments in SESCF to R350m. An impairment
of R44.5m was recognised against this investment at 31 March 2010, and in
the six months to 30 September 2010, a further impairment charge of R47.2m
has been raised, leaving the fair value of Sycom`s investment in SESCF at
R258m.
Led by strong export growth, German economic growth is gathering momentum,
and unemployment is close to its lowest level in the last decade. Nova
Eventis has come through the downturn of the last two years with a vacancy
of only 2.9%, and the centre is thus well positioned to benefit from the
expected growth of the German economy.
4. SOUTH AFRICAN RETAIL PORTFOLIO PERFORMANCE
The eight defined segments in Sycom`s South African retail portfolio
contributed to total retail turnover as shown in the table below, with food
and apparel making up 56.5% of all turnover. Together, these two categories
contribute 48.5% of Sycom`s rental income from its retail portfolio :
Segment % of
Turnover
Food Majors 25.70%
Apparel 30.80%
Home & Furniture 4.80%
Electronics & Music 11.40%
Mass Discounters 5.30%
Health & Beauty 9.30%
Food Service & Entertainment 7.30%
Other 5.40%
100.00%
The segmental mix of Sycom`s retail portfolio remained weighted towards
apparel, which showed good growth, particularly in the last quarter. The
strong recovery in discretionary spend, as shown in the growth of the
homeware, electronics and mass discounters segments, also contributed to
the pleasing reported turnover growths for the six months. Further details
of segmental performance are shown in the table below :
Segment Quarter-on-6 months
Quarter to Sep
09/10
Total Turnover 8.3% 8.4%
Food Majors 2.8% 3.0%
Apparel 9.3% 7.7%
Home 12.7% 14.8%
Electronics 11.7% 12.5%
Mass Discounters 10.5% 14.4%
Health & Beauty 8.2% 7.0%
Food Service 7.5% 6.1%
Rent to turnover ratios remained fairly constant over the year. This acid
test of rental affordability is one of the measures used by the fund to
form a view on the sustainability of rental levels. In only two of the
seven reported segments was there an increase in the rent to turnover
ratio, namely food majors and electronics, but both segments remain
comfortably within the norms for these segments.
Segment Rent Ratio Rent Ratio Quarter-on-
2010 2011 Quarter
change
Food Majors 1.9% 1.9% 3.5%
Apparel 6.4% 6.3% -2.3%
Home 10.5% 10.0% -4.4%
Electronics 2.7% 2.8% 4.6%
Mass Discounters 3.9% 3.7% -5.7%
Health & Beauty 2.6% 2.6% 0.1%
Food Service 8.7% 8.6% -1.1%
5. LEASE EXPIRY AND RENEWALS OVER THE LAST 12 MONTHS
In the office portfolio, renewals and new leases for 10,285m2 were
concluded, and vacancies increased from 16,209m2 on 1 April 2010 to
17,606m2 at 30 September 2010, representing 11.1% of office GLA. The
expiring leases terminated at an average rental of R101.76/m2, and were let
or renewed at an average of R105.86/m2 (including parking in both cases).
In the retail portfolio, 17,672m2 or 11% of that portfolio expired during
the year at an average rental of R113.76/m2, and 18,393m2 was let or
renewed at an average of R124.32/m2, with the retail vacancy decreasing
marginally from 1.7% to 1.3% by GLA.
Offices Retail Total
31-Mar- Let m2
10 142 232 158 450 300 682
Vacant m2
16 209 2 773 18 982
Total m2
158 441 161 223 319 664
Expiries m2
11 682 17 672 29 354
Average R/m2
101.76 113.76 108.98
New lets m2
& 10 285 18 393 28 678
renewals
R/m2
105.86 124.32 117.70
30-Sep- Let m2
10 140 835 159 171 300 006
Vacant m2
17 606 2 052 19 658
Total m2
158 441 161 223 319 664
6. FORWARD LEASE EXPIRIES
The forward lease expiry profile shows relatively high levels of renewal
activity ahead in the 2012 financial year, principally due to the renewal
of two large office tenants. Renewal discussions are already advanced with
both of them. Vaal Mall also goes through a major renewal period in 2012,
and expectations are for a meaningful upward rental reversion, as well as
full tenant retention.
For the March 2011 financial year, 8.4% of retail leases by rental income
are shown as expiring, but renewals for 3.9% have already been concluded,
leaving a retail expiry of only 4.5% for the remainder of the current
financial year.
After 2012, lease expiries diminish substantially. The expiry profile by
rental income is shown below:
Mar-11 Mar-12 Mar- Mar-14 Mar-15 thereafter
13
Retail 8.4% 13.3% 7.9% 8.1% 4.5% 10.9%
Offices 5.5% 18.8% 3.8% 2.6% 5.3% 10.9%
Combined 13.9% 32.1% 11.7% 10.7% 9.8% 21.8%
7. VACANCIES AND BAD DEBTS
The table below provides details of Sycom`s vacancies at March and
September 2010, expressed by area.
Mar-10 Sep-10
Retail vacancy 1.7% 1.3%
Office vacancy 10.2% 11.1%
Total vacancy 5.9% 6.1%
The impairment provision at 30 September 2010 amounted to R2m compared to
R4.9m at 31 March 2010, with the difference of R2.9m utilized to write off
bad debts. As a result, additional bad debts written off or provided for
amounted to only R184,000 for the six months to September 2010.
8. UNITHOLDER SUMMARY
Sycom`s major unitholders at 30 September 2010 are shown below, with a
comparison to the prior year.
Major unitholders
30-Sep-10 31-Mar-10
Hyprop 34.8% 36.7%
Acucap 17.4% 18.3%
PIC 5.6% 4.2%
Attfund 4.1% -
Redefine 2.9% 3.2%
Nedbank 2.7% 2.8%
RMB Securities 2.6% -
Stanlib 2.4% 3.0%
Old Mutual 2.0% 2.6%
74.5% 70.8%
Subsequent to the end of September 2010, Redefine Income Fund disposed of
its entire shareholding in Sycom.
9. PROSPECTS
Sycom remains focussed on opportunities to enhance shareholder value
through the acquisition of high quality retail and office properties, the
active redevelopment of existing assets, and the disposal of properties
which are no longer fit with the fund`s long-term objectives.
Although there are pleasing signs of recovery in the office market, tenants
who have not already committed to new space at this late stage in the year
are generally reluctant to do so until the new year. Accordingly, the board
of Sycom does not expect to see a meaningful reduction in the office
vacancy before the end of the financial year in March 2011, and the final
distribution is therefore likely to remain relatively flat compared to the
prior year. However, once the office market recovery gains traction,
possibly towards the second half of 2011, the take-up of Sycom`s vacancy in
its high quality office portfolio will provide a strong boost to
distribution growth. Much hinges on the growth of the SA economy, and the
medium term budget policy statement gave encouraging revised economic
growth forecasts of 3% for 2010 and 3.5% for 2011.
The prospects for retail are also positive, with household consumption
expenditure expected to increase by 4% next year. Evidence of improved
consumer confidence is already showing in Sycom`s retail turnover growth
numbers, and the board expects this trend to steadily continue.
The above information has not been reviewed or reported on by Sycom`s
auditors
10. PAYMENT OF INTEREST
Notice is hereby given of the declaration of distribution number 51 in
respect of the six months to 30 September 2010. The interim distribution of
77.18 (seventy seven comma one eight) cents per unit has been approved in
respect of the six month period ended 30 September 2010. The last date to
trade the units cum distribution is Friday, 3 December 2010 and the record
date will be Friday, 10 December 2010. The units will start trading ex-
distribution from Monday, 6 December 2010. Distributions will be made to
unit holders on Monday, 13 December 2010.
Unit certificates may not be dematerialised or rematerialised between
Monday, 6 December and Friday ,10 December 2010, both days inclusive.
On behalf of the Board
G K EVERINGHAM PA THEODOSIOU
Chairman CEO
Sycom Property Fund Managers Ltd Sycom Property Fund Managers Ltd
17 November 2010
Registered Office
Suite A11 Westlake Square
Westlake Drive
Westlake
CAPE TOWN
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
70 Marshall Street
JOHANNESBURG
http://www.sycom.co.za
Directors: GK Everingham (Chairman), MS Moloko (Deputy Chairman), FM Berkeley,
JPD Flanagan,
BM Stocks, PA Theodosiou*# (CEO), CB Marlow*, GR Jones*
* Executive # British
Date: 17/11/2010 08:48:01 Produced by the JSE SENS Department.
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