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SYC
SYC
SYC - Sycom Property Fund - Audited group results and declaration of the final
distribution for the year ended 31 March 2011
Sycom Property Fund("Sycom")
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)
JSE Share code: SYC
ISIN: ZAE000019303
AUDITED GROUP RESULTS AND DECLARATION OF THE FINAL DISTRIBUTION FOR THE YEAR
ENDED 31 MARCH 2011
The directors of Sycom Property Fund Managers Limited, the management company of
Sycom Property Fund (Sycom) or (the Fund, submit their report on the audited
results of Sycom for the year ended 31 March 2011.
CONDENSED STATEMENT OF FINANCIAL POSITION
Audited at Audited at
31 Mar 2011 31 Mar 2010
(R`000) (R`000)
ASSETS
Non-current assets
Investment property 5570533 5150956
Investment in securities 213 803 213 778
Total non-current assets 5784336 5364734
Current assets
Rental and other receivables 58 991 41 374
Cash and cash equivalents 129 134 152 203
Total current assets 188 125 193 577
Total assets 5972461 5558311
UNITHOLDERS` FUNDS AND LIABILITIES
Unitholder`s funds
Unitholders` capital 1863856 1661615
Non-distributable reserves 3036451 2745596
Total capital and reserves 4900307 4407211
Non-current liabilities
Unsecured borrowings 800 902 714 424
Deferred Tax 1 498 -
Total non-current liabilities 802 400 714 424
Current liabilities
Trade and other payables 66 696 239 328
Other financial liabilities 31 212 28 743
Unitholders for distribution 171 846 168 605
Total current liabilities 269 754 436 676
Total liabilities 1072154 1151100
Total unitholders` funds and 5972461 5558311
liabilities
Net asset value per unit - cents 2 267 2 149
Audited twelve Audited twelve
months to 31 Mar months to 31 Mar
2011 2010
(R`000) (R`000)
CONDENSED STATEMENT OF
COMPREHENSIVE INCOME
Rental revenue 493355 446732
Contractual rental revenue and 493397 462879
recoveries
Straight-line rental income -42 -16147
accrual
Property operating expenses -85379 -71838
Net rental and related revenue 407976 374894
Investment income 10700 9793
Fair value gain on investment 294764 175148
property and investments
Fair value gain on investment 386297 277382
properties
Fair value deficit on listed -91533 -102234
investment
Administrative expenses -27683 -22687
Service charge -25998 -21163
Other administrative expenses -1685 -1524
Profit before net finance costs 685757 537148
Net finance costs -54701 -57658
Interest income 18449 12162
Interest expense -70781 -63484
Fair value adjustment on interest -2369 -6336
rate and cross currency swaps
Profit before income tax 631056 479490
Taxation -1498 0
Profit for the year 629558 479490
Number of units in issue (`000) 216182 205107
Number of weighted average units 214898 205107
in issue (`000)
Earnings per unit - cents 291.22 233.78
Weighted average earnings per 292.96 233.78
unit - cents
RECONCILIATION OF EARNINGS TO
HEADLINE EARNINGS AND
DISTRIBUTABLE EARNINGS
Total comprehensive income 629558 479490
Unrealised surplus on revaluation -384799 -277382
of investment properties, net of
deferred tax
Headline earnings 244759 202108
Straight-line rental income 42 16147
accrual
Unrealised deficit on swaps 2369 6336
Unrealised deficit on revaluation 91533 102234
of investment in securities
Distributable earnings 338703 326825
Annual Earnings per unit:
Basic earnings per unit- cents 291.22 233.78
Weighted average earnings per 292.96 233.78
unit
Headline earnings per unit - 113.22 98.54
cents
Weighted headline earnings per 113.9 98.54
unit
Annual distribution per unit - 156.67 159.34
cents
Distribution per unit for the six 77.18 77.14
months ended 30 September 2010:
Distribution per unit for the six 79.49 82.20
months ended 31 March 2011:
CONDENSED STATEMENT OF CASH FLOWS
Audited at Audited at
31 Mar 2011 31 Mar 2010
(R`000) (R`000)
Cash generated from operating
activities
Cash generated from operating 356481 375361
activities
Interest received 9582 12162
Interest paid -68329 -65726
Dividend received 8905 11708
Distribution paid -342776 -320741
Taxation paid 0 -231
Net cash (outflow)/inflow from -36137 12533
operating activities
Cash flows from investing
activities
Additions to investment property -28462 -42185
Subscription to rights issue- -91557 0
SESCF
Net cash outflow from investing -120019 -42185
activities
Cash flows from financing
activities
Proceeds on issue of new units 47957 0
Capital issue costs -1448 -213
Increase in borrowings 86578 28545
Net cash inflow from financing 133087 28332
activities
Net decrease in cash and cash -23069 -1320
balances
Cash and cash balances at the 152203 153523
beginning of the period
Cash and cash equivalents at the 129134 152203
end of the period
CONDENSED STATEMENT OF CHANGES IN UNITHOLDERS
FUNDS
Capital Non Retained Total
distributable earnings
reserve
(R`000) (R`000) (R`000) (R`000)
Balance at 31 March 1661828 2592931 - 4254759
2009
Capital issue costs (213) - - (213)
Total profit or loss - - 479 490 479 490
and comprehensive
income for the year
Transfer to non- - 152665 (152665) -
distributable reserve
Unitholders - - (326825) (326825)
distribution
Balance at 31 March 1661615 2745596 - 4407211
2010
Transactions with
owners, recorded
directly in equity
Issue of 8 897 297 157283 - - 157283
units in April 2010
Issue for acquisition 157286 - - 157286
of Tyger Hills Office
Park (Pty) Ltd
Capital issue costs (3) - - (3)
Issue of 1 396 657 28930 - - 28930
units in September
2010
Proceeds 29886 - - 29886
Capital issue costs (956) - - (956)
Issue of 780 078 16028 - - 16028
units in September
2010
Proceeds 16517 - - 16517
Capital issue costs (489) - - (489)
Total profit or loss - - 629558 629558
and comprehensive
income for the year
Transfer to non- - 290855 (290855) -
distributable reserve
Unitholders - - (338703) (338703)
distribution
Balance at 31 March 1863856 3036451 - 4900307
2011
BASIS OF PREPARATION AND AUDIT OPINION
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) and IAS 34 and interpretations adopted
by the International Accounting Standards Board (IASB) and the Collective
Investment Schemes Control Act, 2002.
The financial statements are prepared on the historical cost basis, except
for investment properties, investment properties held for sale, derivative
financial instruments, and financial assets carried at fair value through
profit and loss which are measured at fair value.
The financial statements are prepared on the going concern basis and Sycom`s
accounting policies have been applied consistently to all periods presented.
KPMG Inc. has audited the financial information set out above. Their
unmodified audit report is available for inspection at the company`s
registered office. The information contained in the commentary below does
not form part of the audit opinion.
COMMENTARY
1. REVIEW OF RESULTS AND OPERATIONS
The board of Sycom Property Fund Managers Limited (`SPFM`) reports a
distribution of 79.49 cents per unit (cpu) for the six months ended 31
March 2011. Together with the interim distribution of 77.18 cpu, this gives
unitholders an annual distribution of 156.67 cpu, in line with guidance
provided in the interim results announcement of 17 November 2010. Although
distributions were slightly lower than the prior year, the value of the
property portfolio grew by a pleasing 8.4%, underlining the long-term
quality of Sycom`s assets. The fund was adversely affected by a cyclical
rise in office vacancies, but as the office market improves and vacancies
gradually reduce to more normalised levels, unitholders can expect Sycom to
continue its long-term record of delivering real distribution growth on a
cumulative basis.
Office market
The office market remained under pressure during the period under review,
and as a result, a vacancy rate of over 10% persisted until the financial
year end. The average vacancy rate for the year ended 31 March 2011 was
10.9%, compared with a much lower average vacancy of 8.2% for the previous
year. The effect on distributions was a negative 2.5 cpu or 1.6%. The
cyclical downturn in the office market also resulted in negative rental
reversions on leases renewed, with average net rentals declining from
R108.99/m2 on expiry to R105.50/m2 on average across the 27,664m2 of
renewals that took place in the year to 31 March 2011.
There are, however, positive signs that the office market is entering a
recovery phase. The retention rate for leases that expired during the year
was 90%, compared to 60% in the prior year. Towards the end of the current
financial year, new leases for 4,960m2 were concluded, although the tenants
were not in occupation and paying rent by the year end. The financial
effects of these new deals will come through in the 2012 year. Subsequent
to the year end, a further 6,113m2 of leases were concluded, of which 5,365
m2 were renewals.
Retail
Sycom`s South African retail portfolio generated turnover growth of 6.5%
for the year to 31 March 2011. Vaal Mall once again showed the strongest
turnover growth at 8.7%, with Fourways Crossing at 6.3%, N1 City at 7.6%,
Somerset Mall at 4.5% and Paarl Mall at 5.7%. Although the quarter ended 31
March 2011 reflected a slow-down in turnover growth to 3.6% compared with
the same quarter last year, the month of April reversed this trend with an
exceptional 13.3% growth in turnover.
Segmental contribution to retail turnover for the year is shown in the
chart below. It reflects a combined contribution of 56.1% from supermarkets
(food majors) and apparel, down from 57.5% last year, and indicating a
slight shift in consumer spending to more durable goods.
Segment Segment: % of Turnover
Apparel 30.8%
Food Majors 25.3%
Electronics & Music 11.7%
Health & Beauty 9.3%
Food Service & Entertainment 7.1%
Other 5.7%
Discounters 5.2%
Home & Furniture 4.9%
100.0%
The homeware and electronics segments continued their resurgence,
delivering growth rates over the prior year of 16% and 9% respectively. The
apparel segment showed turnover growth of just under 7%, but supermarkets
gave a more modest performance, with growth of 2.7% for the year, slowing
to less than 1% for the last quarter, as shown in the chart below:
SYCOM: Turnover & Rent to Turnover Ratio by Segment
Segment Quarter-on-Quarter Year-on-Year
Total Turnover 3.6% 6.5%
Food Majors 0.8% 2.7%
Apparel 4.5% 6.9%
Home 20.4% 16.0%
Electronics 0.6% 9.0%
Discounters -5.9% 3.7%
Health & Beauty 4.7% 6.6%
Food Service 6.4% 6.6%
The major shift in the rent to turnover ratios was a positive change of
nearly 10% for the homeware segment, showing that the growth in tenant
turnovers exceeded the growth in their rentals paid. The ratios for food
majors and electronics deteriorated slightly, but still remain comfortably
within accepted norms for these segments. Overall, the picture emerging
from the analysis of these ratios is that tenant turnovers are growing
comfortably in line with rentals, and that rental affordability is
therefore not under any threat.
Segment Rent Ratio Rent Ratio Year-on-Year
2010 2011 Growth
Food Majors 1.7% 1.8% 3.5%
Apparel 5.6% 5.6% -0.6%
Home 9.5% 8.6% -9.4%
Electronics 2.4% 2.5% 4.6%
Discounters 3.3% 3.3% -0.3%
Health & Beauty 2.5% 2.5% 1.2%
Food Service 8.5% 8.5% -0.1%
During the year under review, leases totalling 36,410m2 terminated at an
average rental of R129.81/m2. Renewals were completed at an average rental
of R132.48/m2. The retail vacancy remained fairly constant in the year at
approximately 1.7%. Expiries in the 2012 financial year will amount to
40,500m2, terminating at an average rental of R147.80/m2. These leases are
expected to be renewed at an average rate of R156.30/m2.
2. BORROWINGS
Sycom has an approved facility of R950 million. The facility is subject to
renewal in November 2014. At 31 March 2011, R801 million of this facility
had been utilised, with 62% of borrowings subject to interest rate swaps,
as tabulated below. This level of interest rate hedging is in line with
board policy. The weighted average borrowing cost is 8.2%. Sycom`s gearing
level is presently 13.8%. Including the effects of its investment in SESCF,
Sycom`s `see-through` gearing level is 20.3%, and the board would be
comfortable to increase the overall level of gearing to approximately 30%,
subject to securing suitable acquisition opportunities.
Type Maturity Date Effective Value % of total
Rate R`m
SWAP 1 June 2011 8.90% 100 12.5%
SWAP 1 June 2012 8.77% 100 12.5%
SWAP 17 Mar 2014 11.15% 200 25.0%
SWAP 9 April 2014 10.86% 100 12.5%
500 62.4%
Floating 25 November 6.50% 301 37.6%
2014
8.21% 801 100.0%
3. STENHAM EUROPEAN SHOPPING CENTRE FUND (`SESCF`)
During the year, SESCF was re-capitalised by its shareholders through a
rights issue undertaken during September 2010. The funds raised were used
to settle debt and reduce the gearing level. Sycom followed its rights,
resulting in an additional investment of R91.5m in SESCF. The rights issue
was priced to yield 8%, and Sycom has subsequently entered into a Euribor-
based cross currency swap for the amount of its additional investment. At
year end, the all-in rate on the cross currency swap was 4%.
SESCF`s sole investment is the 96,000m2 Nova Eventis shopping centre in
Leipzig. The centre has started to show signs of the improving retail
climate in Germany, with low vacancies and stable rentals. With reduced
gearing in SESCF for the last quarter of the current financial year, the
dividend received from SESCF grew by just over 9% in Rand terms, even after
taking into account a modest strengthening in the exchange value of the
Rand against the Euro over the course of the year from March 2010.
At 31 March 2011, Nova Eventis was independently valued by BulweinGesa
Valuation at Euro300m, down from last year`s valuation of Euro339m. As a
result, Sycom`s investment in SESCF has been impaired by R91.5m. Had Sycom
not followed its rights under the rights issue referred to above, the
impairment would have been R156.8m, but there was an off-setting positive
adjustment of R65.3m on the value of the shares acquired in terms of the
rights issue, and this contained the net impairment to the R91.5m referred
to above.
SESCF has negotiated an option to extend its senior debt facility of
Euro209m, due to expire on 18 July 2011, by one year to 18 July 2012, on
the same credit margin as currently applies to the facility. The board of
SESCF has until 17 June 2011 to exercise this option.
4. 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.
After 2012, lease expiries diminish substantially. The expiry profile by
Rental Income is shown below:
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
Retail 14.6% 7.7% 8.9% 4.3% 8.6%
Offices 17.8% 3.5% 5.5% 5.6% 1.3%
Total 32.4% 11.1% 14.4% 9.9% 9.9%
5. VACANCIES AND BAD DEBTS
The table below provides details of Sycom`s vacancies at March 2010 and
March 2011, expressed by area.
Mar-11 Mar-10
Retail vacancy 1.7% 1.7%
Office vacancy 11.7% 10.2%
Total vacancy 6.6% 5.9%
By rental income, Sycom`s vacancies were 5.7% at 31 March 2011, with 4.5%
of the total attributable to offices and 1.2% to retail assets. The board
will continue to actively focus on new leasing deals to reduce the office
vacancy as quickly as possible, whilst maintaining its strategic emphasis
on securing good quality lease covenants of longer duration.
The impairment provision at 31 March 2011 amounted to R2.2m compared to
R4.9m at 31 March 2010, with the difference of R2.7m applied to write off
bad debts. The bad debt and tenant arrears positions have stabilized and
the board does not expect any abnormal provisions or write offs to become
necessary as the economic climate continues to slowly improve.
6. UNIT HOLDER SUMMARY
Sycom`s major unit holders at 31 March 2011 are shown below, with a
comparison to the prior year.
Major unitholders
31-Mar-2011 31-Mar-2010
Hyprop 34.8% 36.7%
Acucap 19.8% 18.3%
PIC (GEPF) 6.0% 4.2%
Attfund 4.1% -
Stanlib 3.9% 3.0%
Nedbank 2.7% 2.8%
Old Mutual 2.7% 2.6%
Redefine - 3.2%
74.0% 70.8%
7. PROSPECTS
The weak office cycle over the last 18 months, with rising vacancies, has
led to a short-term setback in Sycom`s growth, but as the recovery of the
`A` grade office market gathers momentum, the high office vacancy rate will
start to reverse. Rising consumer spending will also support improved
rental growth in Sycom`s retail portfolio. Together, these factors will
enhance Sycom`s revenue base and return the fund to solid distribution
growth.
In addition, in terms of its strategy, Sycom continues to seek
opportunities that will enhance shareholder value, including the expansion
of retail assets that are performing well and have further bulk rights, by
acquiring additional shares in co-owned assets as opportunities arise, and
by acquiring good quality office and retail properties that offer sound
long-term growth prospects.
The above information has not been reviewed or reported on by Sycom`s
auditors.
8. PAYMENT OF INTEREST
Notice is hereby given of the declaration of distribution number 52 in
respect of the six months to 31 March 2011. The final distribution of 79.49
(seventy nine comma four nine) cents per unit has been approved in respect
of the six month period ended 31 March 2011. The last date to trade the
units cum distribution is Friday, 24 June 2011 and the record date will be
Friday, 1 July 2011. The units will start trading ex-distribution from
Monday, 27 June 2011. Distributions will be made to unit holders on Monday
4 July 2011.
Unit certificates may not be dematerialised or rematerialised between
Monday, 27 June 2011 and Friday, 1 July 2011 both days inclusive.
On behalf of the Board
G K EVERINGHAM
Chairman
Sycom Property Fund Managers Ltd
PA THEODOSIOU
CEO
Sycom Property Fund Managers Ltd
9 June 2011
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
Share Code: SYC
ISIN: ZAE000019303
Directors: GK Everingham (Chairman), SM Moloko (Deputy Chairman), FM Berkeley,
JPD Flanagan,
BM Stocks, PA Theodosiou*# (CEO), CB Marlow*, GR Jones*
* Executive, # British
Sponsor:
Nedbank Capital
Date: 09/06/2011 08:05:01 Produced by the JSE SENS Department.
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