| Wed 7 Mar 2012, 13:35 | | SGA/SGB - Synergy Income Fund Limited - Reviewed interim results for the six |
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SGA SGB
SIFL
SGA/SGB - Synergy Income Fund Limited - Reviewed interim results for the six
months ended 31 December 2011
SYNERGY INCOME FUND LIMITED
(formerly Capital Land Retail Fund Limited)
(Incorporated in the Republic of South Africa on 13 November 2007)
(Registration number 2007/032604/06)
JSE share code for A linked units: SGA ISIN: ZAE000161550
JSE share code for B linked units: SGB ISIN: ZAE000162293
("Synergy" or the "Fund")
REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2011
Condensed statement of comprehensive income
Reviewed Unaudited Audited
Six months ended Six months ended Year ended
31 December 31 December 30 June
2011 2010 2011
R R R
REVENUE
Property portfolio 8 198 590 - -
Recoveries and 7 564 978 - -
contractual rental
revenue
Straight-line rental 633 612 - -
income accrual
Rental revenue 8 198 590 - -
Property operating costs (2 557 946) - (78 125)
Administration costs (1 845 678) (14 375) (22 256)
Net operating 3 794 966 (14 375) (100 381)
profit/(loss)
Changes in fair value of 32 143 979 - -
investment properties
Adjustment resulting from (633 612) - -
straight-lining of rental
revenue
Profit/(Loss) from 35 305 333 (14 375) (100 381)
operations
Listing expenses (8 799 307) - -
Net finance income 3 828 717 - 523 150
Profit/(Loss) before 30 334 743 (14 375) 422 769
debenture interest and
taxation
Debenture interest (6 990 071) - (422 769)
Profit/(Loss) before 23 344 672 (14 375) -
taxation
Taxation (6 053 464) - -
Profit/(Loss) for the 17 291 208 (14 375) -
period attributable to
Synergyshareholders
Other comprehensive - - -
income/(loss) for the
period, net of taxation
Total comprehensive 17 291 208 (14 375) -
income/(loss) for the
period
Reconciliation of
earnings/(loss), headline
earnings/(loss) and
distributable earnings
Profit/(Loss) for the 17 291 208 (14 375) -
period attributable to
Synergy shareholders
Debenture interest 6 990 071 - 422 769
Basic earnings/(loss) 24 281 279 (14 375) 422 769
attributable to linked
unitholders
Changes in fair value of (25 456 903) - -
investment properties
(net of deferred
taxation)
Changes in fair value of 31 510 367 - -
investment properties
Deferred taxation (6 053 464) - -
Headline (loss)/profit to (1 175 624) (14 375) 422 769
linked unitholders
Listing expenses 8 799 307 - -
Straight-line rental (633 612) - -
income accrual
Distributable earnings 6 990 071 (14 375) 422 769
Six months ended 31 6 990 071 - -
December
Distributed to B linked 5 577 231 - -
units**
To be distributed to A 970 826 - -
linked units***
To be distributed to B 442 014 - -
linked units***
Six months ended 30 June - - 422 769
Distributed - - 422 769
Total distributions 6 990 071 - 422 769
Actual number of A linked 24 889 156 - -
units in issue*
Actual number of B linked 73 113 070 - 12 696 170
units in issue*
Weighted number of A 2 434 809 - -
linked units in issue
Weighted number of B 53 340 548 - 2 052 258
linked units in issue
Earnings per A share 31.00 - -
(cents)
Earnings per A linked 70.87 - -
unit (cents)
Earnings per B share 31.00 - -
(cents)
Earnings per B linked 42.29 - 21
unit (cents)
Headline loss per A share (14.64) - -
(cents)
Headline earnings per A 25.23 - -
linked unit (cents)
Headline (loss)/earnings (14.64) - 21
per B share (cents)
Headline (loss)/earnings (3.36) - 21
per B linked unit (cents)
Distribution per A linked 3.90 - -
unit payable (cents)
Distribution per B linked 9.30 - -
unit paid (cents)
Distribution per B linked 0.6046 - 21
unit payable (cents)
* The first issue of linked units was on 3 May 2011. Prior to this there were
no linked units in issue.
** This distribution was made to the holders of B linked units prior to 14
December 2011 (listing date).
*** This amount will be distributed with the next distribution made.
The distribution per B linked unit paid was paid to holders of 60 million B
linked units for the period to 13 December 2011.
This distribution payable to A and B linked unitholders in the current period is
for the 18 days to 31 December 2011.
The Fund has no dilutionary instruments in issue.
Condensed statement of financial position
Reviewed Unaudited Audited
as at as at as at
31 December 31 December 30 June
2011 2010 2011
R R R
ASSETS
Non-current assets 368 624 168 - -
Investment property 367 800 000 - -
Fair value of property portfolio 367 166 388 - -
for accounting purposes
Straight-line rental income accrual 633 612 - -
Other financial assets 815 243 - -
Property, plant and equipment 8 925 - -
Current assets 241 481 139 496 63 916 413
Trade and other receivables 4 054 675 426 769 939
Cash and cash equivalents 237 426 464 70 63 146 474
Total assets 610 105 307 496 63 916 413
EQUITY AND LIABILITIES
Stated capital and reserves 18 271 230 (14 305) 127 031
Stated capital 980 022 70 127 031
Reserves 17 291 208 (14 375) -
Non-current liabilities 587 865 139 - 63 353 889
Debenture capital 581 412 553 - 63 353 889
Interest-bearing liabilities 399 122 - -
Deferred taxation 6 053 464 - -
Current liabilities 3 968 938 14 801 435 493
Trade and other payables 2 556 098 14 801 435 493
Debenture interest payable 1 412 840 - -
Total equity and liabilities 610 105 307 496 63 916 413
Net asset value per combined linked 6.12 - 5.00
unit*
Net asset value per A linked unit* 8.76 - -
Net asset value per B linked unit* 5.22 5.00 -
* Net asset value includes total equity attributable to equity holders and
linked debentures.
Condensed statement of changes in equity
Reviewed Unaudited Audited
Six months Six months Year ended
ended ended
31 December 31 December 30 June
2011 2010 2011
R R R
Balance at the beginning of the 127 031 70 70
period
Repurchase of shares (70) - -
Issue of linked units 853 061 - 126 961
Total comprehensive income/(loss) 17 291 208 (14 375) -
for the period
Total stated capital and reserves 18 271 230 (14 305) 127 031
Condensed statement of cash flow
Reviewed Unaudited Audited
Six months Six months Year ended
ended ended
31 December 31 December 30 June
2011 2010 2011
R R R
Cash flows from operating
activities
Cash generated from operations (6 127 896) - (434 827)
Net finance income 3 828 717 - 523 150
Linked unit distributions paid (5 577 231) - (422 769)
Net cash outflow from operating (7 876 410) - (334 446)
activities
Net cash outflow from investing (336 298 - -
activities 816)
Net cash inflow from financing 518 455 216 70 63 480 850
activities
Net movement in cash and cash 174 279 990 70 63 146 404
equivalents
Cash and cash equivalents at 63 146 474 - 70
beginning of the period
Cash and cash equivalents at the 237 426 464 70 63 146 474
end of the period
Commentary
Profile
Synergy Income Fund Limited ("Synergy" or the "Fund") is a specialised retail
property fund with a specific focus on medium-sized community and regional
shopping centres located in high-growth lower LSM nodes. There is a portfolio
emphasis on commuter oriented centres located in township and rural areas.
Synergy`s property portfolio as at 31 December 2011 consisted of four properties
with a total market value of R367.8 million ("the initial portfolio").The
initial portfolio and the portfolios in respect of which acquisition agreements
have been signed but where conditions remain unfulfilled were assembled during
2011 by Capital Land Asset Management (Proprietary) Limited ("Capital Land"),
Synergy`s appointed asset manager.
Listing on the JSE Limited and unit structure
Synergy was listed on the main board of the Johannesburg Stock Exchange ("JSE")
on 14 December 2011.
Synergy has separately listed A and B linked units each offering investors a
different risk and reward profile. The A linked units have a preferential
entitlement to distributions with an initial one-year forward distribution yield
of 9.4% and with annual distributions which escalate at 5% until 30 June 2017
and thereafter at the lower of 5% and CPI. The remaining distributable income,
after the payment of distributions to A linked unitholders, accrues to B linked
unitholders. At 31 December 2011 there were 24.9 million A linked units in issue
and 73.1 million B linked units in issue.
Financial results
Synergy took transfer of the initial portfolio during the period October 2011 to
December 2011. Prior to the transfer of the first property on 7 October 2011 the
only asset of the Fund was cash, which was held against guarantees issued in
respect of the properties to be acquired by the Fund. Income reflected for the
six months ended 31 December 2011 comprised interest earned on cash deposits as
well as property income from the initial portfolio.
The initial portfolio was externally valued as at 1 December 2011 by an
independent valuer, Mills Fitchet Magnus Penny (Proprietary) Limited at R367.8
million, resulting in a fair value gain of R32.1 million in the reporting
period.
Administration costs consist primarily of asset management fees and due
diligence costs on acquisitions with which Synergy did not proceed.
Synergy declared a pre-listing distribution for the period ended 13 December
2011 of 9.3 cents per B linked unit. This distribution was paid out to the
holders of the 60 million B linked units in issue prior to listing. The
distribution accrued for the 18 days ended 31 December 2011 will be paid out
with the next distribution made.
Property portfolio
The initial portfolio as at 31 December 2011
Property Location Transfer Capitalised Valuation
date cost
R R
Sediba Plaza North- 7 October 125 828 015 133 600 000
Shopping Centre West 2011
KwaMashu KwaZulu- 25 October 104 190 153 108 400 000
Shopping Centre Natal 2011
Ruimsig Gauteng 22 December 73 313 225 88 300 000
Boulevard 2011
Taxi City KwaZulu- 6 December 32 324 628 37 500 000
Shopping Natal 2011
Centre
335 656 021 367 800 000
Properties transferred after 31 December 2011
Property Location Transfer date Consideration Valuation
R R
King KwaZulu- 16 February 186 000 000 210 000 000
Senzangakhona Natal 2012
Shopping Centre
186 000 000 210 000 000
Properties pending transfer
Property Location Consideration Valuation
R R
The Village KwaZulu-Natal 79 631 713 93 000 000
Centre
(Richdens)
Hubyeni Limpopo 80 792 806 106 000 000
Shopping Centre
Nzhelele Valley Limpopo 30 575 481 33 000 000
Shopping Centre
Van Western Cape 38 000 000 44 000 000
Riebeeckshof
Shopping Centre
Highland Mews Mpumalanga 130 000 000 150 000 000
Shopping Centre
Ermelo Game Mpumalanga 26 000 000 28 000 000
Shopping Centre
Renbro Shopping Gauteng 107 000 000 108 000 000
Centre
Setsing Free State 240 000 000 257 000 000
Crescent
Shopping Centre
Gugulethu Western Cape 290 000 000 308 000 000
Square Shopping
Centre
1 022 000 000 1 127 000 000
Total property 1 543 656 021 1 704 800 000
portfolio
Initial portfolio
As at 31 December 2011 Synergy`s property portfolio consisted of four properties
with a total market value of R367.8 million. Details of these properties and
their respective transfer dates are given in the table above.
Properties transferred to Synergy after 31 December 2011
Synergy took transfer of King Senzangakhona Shopping Centre in Ulundi ("KSSC")
on 16 February 2012, bringing the Fund`s current portfolio to five properties
with an aggregate market value of R577.8 million.
Properties pending transfer to Synergy
As disclosed in the pre-listing statement dated 30 November 2011, Synergy has
contracted to acquire a further two property portfolios (comprising seven
properties in total) from SA Corporate Real Estate Fund for an aggregate
purchase consideration of R492 million and with an aggregate market value of
R562 million ("the SAC acquisitions"). The SAC acquisitions remain subject to
receipt of approval from the Competition Authorities.
On 28 February 2012, Synergy concluded agreements for the acquisition of the
Setsing Crescent Shopping Centre ("Setsing Crescent") and the Gugulethu Square
Shopping Centre ("Gugulethu Square") for an aggregate purchase consideration of
R530 million and with an aggregate market value of R565 million. These two
properties formed part of the Old Mutual Life Assurance Company (South Africa)
Limited portfolio of assets known as The Ideas Managed Fund. These acquisitions
remain subject to various conditions precedent including:
- obtaining the requisite resolutions by the vendors/vendors` directors and
shareholders approving each acquisition by Synergy;
- the securing of the appropriate regulatory approvals, including that of the
JSE and the Competition Authorities, for the implementation of the
acquisitions;
- the linked unitholders of Synergy approving each acquisition in a general
meeting;
- the company successfully placing sufficient Synergy linked units for cash
with third party placees in terms of a vendor placement in order to fund up
to a maximum of 70% of the purchase price payable to the vendor/s in
respect of each acquisition; and
- Synergy securing debt funding of not less than 30% of each acquisition or
such greater amount as makes up the shortfall between the money raised
pursuant to the placement and the purchase price payable to the vendor/s.
The acquisitions are not inter-conditional. On transfer of all properties
comprising the contracted acquisitions described above (collectively, "the
contracted acquisitions") the estimated aggregate market value of Synergy`s
property portfolio is expected to be R1.7 billion.
Borrowings
The proceeds from the listing were utilised to pay down bank borrowings in full,
leaving the Fund with no bank borrowings at 31 December 2011.
The purchase consideration in respect of KSSC was discharged through a drawdown
of R90 million on the available loan facility and the balance was funded through
existing capital.
Funding of the portfolio
The contracted acquisitions will be funded through a combination of bank debt
and the issue of new Synergy linked units in terms of vendor placements. It is
expected that, subsequent to the conclusion of the contracted acquisitions,
Synergy`s loan to value ratio will be in the region of 41%, in line with its
gearing strategy as set out in the pre-listing statement.
Directorate
William Brooks was appointed as Chief Executive Officer of the Fund on 13
November 2007. Martin Kuscus was appointed as Chairperson on 1 October 2011 and
Uys Meyer was appointed as Financial Director with effect from 17 November 2011.
Craig Coetzee (appointed 13 September 2010), Sean Segar (appointed 1 January
2011), Maurice Mdlolo (appointed 1 August 2011), Amanda Ramsden (appointed 1
October 2011) and Lizwi Mtumtum (appointed 1 October 2011) are non-executive
directors of Synergy.
As previously detailed in the pre-listing statement, Craig Coetzee tendered his
resignation as a director of Synergy effective 29 February 2012. Craig has
completed his role in the assembly and listing of Synergy. Craig will remain a
member of the investment committee of Synergy and a director of Capital Land.
Prospects
The properties acquired to date have been performing in line with projections
made at the time of acquisitions. Whilst it is the Fund`s intention to continue
to grow its portfolio through well-considered, value-enhancing acquisitions, the
board is also mindful of the need for a period of post-acquisition consolidation
where management attention is focused on the continued maintenance and
enhancement of value through strong operational strategy and control. Strategies
in this regard have been implemented and portfolio performance is continually
assessed.
Preparation, accounting policies and review opinion
These reviewed interim results for the six months ended 31 December 2011 have
been prepared in accordance with International Financial Reporting Standards,
the AC 500 standards as issued by the Accounting Practices Board, the JSE
Listings Requirements and the requirements of the South African Companies Act,
2008. This report has been prepared in terms of IAS 34 - "Interim Financial
Reporting". The interim results for the six months ended 31 December 2011 have
been reviewed by the Fund`s independent external auditors, Moore Stephens BKV
Inc., and their review opinion is available for inspection at the Fund`s
registered office.
This report was compiled under the supervision of Uys Meyer, BAcc (Hons), the
Financial Director.
The accounting policies adopted are consistent with those applied in the prior
periods.
The directors are not aware of any matters or circumstances arising subsequent
to 31 December 2011 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
Cape Town
7 March 2012
Directors: M Kuscus* (Chairperson), W Brooks (CEO), U Meyer (FD), C Coetzee, S
Segar*, M Mdlolo, A Ramsden*, L Mtumtum* *Independent non-executive
Registered office: 23rd Floor, Triangle House, 22 Riebeeck Street, Cape Town,
8001 (Postnet Suite 33, Private Bag X3, Roggebaai, 8012)
Transfer secretaries: Computershare Investor Services (Proprietary) Limited
Sponsor: Java Capital
Company secretary: Probity Business Services (Proprietary) Limited
www.synergyincomefund.com
Date: 07/03/2012 13:35:01 Produced by the JSE SENS Department.
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