| Tue 22 May 2012, 15:57 | | SGA/SGB - Synergy Income Fund Limited - Revised forecast and financial |
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SGA SGB
SIFL
SGA/SGB - Synergy Income Fund Limited - Revised forecast and financial
effects, posting of circular and Notice of General Meeting
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 Code: ZAE000161550
JSE share code for B linked units: SGB ISIN Code: ZAE000162293
("Synergy" or "the company")
REVISED FORECAST AND FINANCIAL EFFECTS IN RESPECT OF THE SETSING CRESCENT
AND GUGULETHU SQUARE ACQUISITIONS, UP-TO-DATE FORECAST OF SYNERGY`S COMBINED
PROPERTY PORTFOLIO, POSTING OF CIRCULAR AND NOTICE OF GENERAL MEETING
INTRODUCTION
Unitholders are referred to the announcements released on SENS on 28
February 2012, 15 March 2012 and 30 April 2012 in respect of the acquisition
of the Setsing Crescent Shopping Centre ("Setsing Crescent") and the
Gugulethu Square Shopping Centre ("Gugulethu Square")(each an "acquisition"
and together "the acquisitions") and are advised that a circular ("the
circular") relating to the acquisitions, together with revised listings
particulars, was posted to Synergy unitholders today, Tuesday, 22 May 2012.
The purpose of this announcement is to present the revised forecasts for and
financial effects of the acquisitions, including the effects of the
placement and debt funding, present an up-to-date forecast for Synergy`s
combined property portfolio, including the acquisitions and furnish the
salient dates in regard to implementation of the acquisitions.
FORECAST FINANCIAL INFORMATION
Set out below are:
- the updated summarised forecast statements of comprehensive income (the
"acquisition forecasts") of the Setsing Crescent and Gugulethu Square
acquisitions, on a stand-alone basis, for the ten months ending 30 June
2013 and the year ending 30 June 2014; and
- together with the existing Synergy property portfolio, a full forecast
statement of comprehensive income (the "combined property portfolio
forecast") for the year ending 30 June 2013 and the year ending 30 June
2014, collectively the "forecasts".
The financial effects announcement released on SENS on 15 March 2012
included acquisition forecasts which were prepared on the assumption that
the acquisitions would be implemented on 1 July 2012. The acquisition
forecasts set out below have been prepared on the revised assumption that
the acquisitions will be implemented on 1 September 2012.
The forecasts, including the assumptions on which they are based and the
financial information from which they are prepared, are the responsibility
of the directors of Synergy. The forecasts have been reported on by the
independent reporting accountants and their report is set out in the
circular.
The forecasts presented in the tables below have been prepared in accordance
with the company`s accounting policies and in compliance with IFRS.
Summarised forecast in respect of the Setsing Crescent acquisition:
Forecast Forecast
for the for the
ten months year ending
ending 30 June
30 June 2014
2013
R`000 R`000
Recoveries and contractual rental revenue 27 579 36 584
Straight-line rental income accrual (net of 5 662 1 681
deferred tax)
Total revenue 33 241 38 265
Net property income 26 800 26 638
Net operating profit* 25 479 25 029
Total profit and comprehensive income for 16 742 1 634
the year after debenture interest*
Distributable earnings attributable to 9 720 13 184
linked unitholders
Summarised forecast in respect of the Gugulethu Square acquisition:
Forecast Forecast
for the for the
ten months year ending
ending 30 June
30 June 2014
2013
R`000 R`000
Recoveries and contractual rental revenue 38 387 51 003
Straight-line rental income accrual (net of 5 063 3 707
deferred tax)
Total revenue 43 450 54 710
Net property income 30 324 34 714
Net operating profit* 28 621 32 633
Total profit and comprehensive income for 15 609 3 650
the year after debenture interest*
Distributable earnings attributable to 12 128 16 088
linked unitholders
* Includes the effects of straight-lining rental income and the related
deferred taxation charge and asset management fees.
The combined property portfolio forecast:
Forecast Forecast
for the for the
year year ending
ending 30 June
30 June 2014
2013
R`000 R`000
Rental income 172 209 195 730
Recoveries 60 413 74 850
Straight line rental income accrual 27 278 11 990
Revenue 259 900 282 570
Property expenses (81 048) (98 278)
Administration costs and corporate costs (10 571) (11 747)
Asset management fee (8 411) (9 414)
Annual listing costs (2 160) (2 333)
Tenant installation and letting commissions (3 322) (3 698)
Profit from operations 164 959 168 847
Finance costs (56 404) (59 979)
Interest (56 018) (59 569)
Amortisation of debt raising fee (386) (410)
Interest received on linked units issued cum 4 707 -
distribution
Interest received on call 1 917 2 575
Profit before debenture interest 115 179 111 443
Debenture interest (88 287) (99 863)
Profit after debenture interest 26 892 11 580
Capital and other items not distributed 26 635 -
Change in fair value of investment 26 635 -
properties
Profit before taxation 53 527 11 580
Taxation (12 452) (3 242)
Net profit after taxation for the year 41 075 8 338
attributable to Synergy shareholders
Reconciliation between earnings, headline
earnings and distributable earnings
Net profit after taxation for the year 41 075 8 338
attributable to Synergy shareholders
Adjusted for:
Debenture interest 88 287 99 863
Earnings attributable to linked unitholders 129 362 108 201
Adjusted for:
Change in fair value of investment (21 713) -
properties (net of deferred tax)
Headline earnings attributable to linked 107 649 108 201
unitholders
Adjusted for:
Amortisation of debt raising fee 278 295
Straight-line rental income accrual (net of (19 640) (8 633)
deferred tax)
Distributable earnings attributable to 88 287 99 863
linked unitholders
Estimated number of A linked units in issue 37 543 718 37 543 718
Estimated number of B linked units in issue 109 378 109 378
074 074
Weighted average number of A linked units in 35 434 624 37 543 718
issue
Weighted average number of B linked units in 103 333 109 378
issue 907 074
Basic and diluted earnings per A linked unit 121.35 94.67
(cents)
Basic and diluted earnings per B linked unit 95.63 69.39
(cents)
Headline earnings per A linked unit (cents) 102.15 94.67
Headline earnings per B linked unit (cents) 76.43 69.39
Distributable earnings per A linked unit 82.66 86.79
(cents)
Distributable earnings per B linked unit 56.65 61.51
(cents)
The forecasts incorporate the following material assumptions in respect of
revenue and expenses that can be influenced by the directors:
1. Synergy management`s forecasts are based on information derived from
the property manager, historical information and work performed by the
independent property valuer.
2. Contracted revenue is based on existing lease agreements. Uncontracted
revenue amounts to 1.3% and 4.7% for Setsing Crescent and Gugulethu Square
respectively for the ten months ending 30 June 2013 and 21.1% for the
combined property portfolio for the year ending 30 June 2013. Uncontracted
revenue amounts to 58.2% and 10.7% for Setsing Crescent and Gugulethu Square
respectively for the year ending 30 June 2014 and 42.0% for the combined
property portfolio for the year ending 30 June 2014.
3. All existing lease agreements are valid and enforceable.
4. Turnover rental (rental income based on the actual turnover of the
tenant) has only been forecast for those tenants who have previously paid
turnover rental.
5. Current vacant space has been forecast on a property-by-property basis
and has been assumed to remain vacant unless it is deemed probable that such
space will be let. Vacant space has been assumed to be let during the
forecast periods only if management are at an advanced stage of discussions
with prospective tenants and where offers to tenants have been made.
6. Leases expiring during the forecast periods have been forecast on a
lease-by-lease basis, and in circumstances where discussion with the lessee
has proven positive, are forecast to be let at current market rates.
7. Synergy management`s forecast property operating expenditure has been
determined based on management`s review of historical expenditure, where
available, and discussion with the property manager.
8. Properties will be paid for as and when they are transferred. The dates
of the transfers are assumed to be 1 September 2012 in respect of both
acquisitions.
9. It has been assumed that with regard to the vendor consideration
placement, new A and B linked units will be issued in the same ratio as the
capital raised in terms of the private placement at the time of listing and
that new A and B linked units will be issued at market prices (estimated
using the 30 day VWAP prior to the date that the financial effects
announcement was released on SENS, being 15 March 2012). Accordingly, it has
been assumed that 12 654 562 A linked units will be issued at R8.79 per A
linked unit and 36 265 004 B linked units will be issued at R5.46 per B
linked unit, raising gross proceeds of R309.2 million.
10. Transaction costs are assumed to be approximately R13.7 million. Of the
R13.7 million in transaction costs, R6.4 million are assumed to arise and be
expensed in the financial year ending 30 June 2012.
11. In terms of the acquisition agreements, if the transfer date for
Setsing Crescent is after 31 August 2012, then the purchase price will
increase by an amount equivalent to 0.02739726% in respect of each day by
which the transfer date is delayed beyond that date. If the transfer date
for Gugulethu Square is after 31 August 2012, then 75% of the purchase price
will increase by 0.02739726% in respect of each day by which the transfer
date is delayed beyond that date. The balance of the purchase price of
Gugulethu Square (being 25% thereof) shall increase by 0.02739726% in
respect of each day by which the transfer date is delayed beyond 13 July
2012. The escalation of the purchase price in respect of Setsing Crescent is
as per the Setsing acquisition agreement. The escalation of the purchase
price in respect of Gugulethu Square is as agreed in correspondence between
the parties and will in due course be recorded in an appropriate addendum to
the Gugulethu Square acquisition agreement.
12. Setsing Crescent is assumed to be acquired with effect from 1 September
2012 for a purchase consideration of R243.4 million (including capitalised
transaction costs of R3.3 million). Gugulethu Square is assumed to be
acquired with effect from 1 September 2012 for a purchase consideration of
R295.0 million (including capitalised transaction costs of R4.0 million).
The total purchase consideration amounts to R538.4 million and is inclusive
of capitalised transaction costs of R7.3 million and exclusive of costs to
be expensed of R6.4 million.
13. R304.5 million of the proceeds of the vendor consideration placement
are assumed to be utilised to partially fund the Setsing Crescent
acquisition and the Gugulethu Square acquisition, the balance of R4.7
million will be recognised as interest received on linked units issued cum
distribution.
14. The balance of the purchase consideration of R240.3 million is assumed
to be funded through new debt facilities from Rand Merchant Bank ("RMB"), a
division of FirstRand Bank Limited, and Nedbank Limited ("Nedbank").
15. Interest is assumed to be payable on the debt funding at a melded fixed
and variable rate of 8.7% per annum, in accordance with the relevant loan
agreements with RMB and Nedbank.
16. Synergy is assumed to have a loan-to-value ratio of approximately 40%
(R685 million) once all properties that have been contracted for, have been
transferred, including Setsing Crescent and Gugulethu Square and the
properties being acquired from SA Corporate Real Estate Fund (as disclosed
in the pre-listing statement issued by Synergy on 30 November 2011).
17. Setsing Crescent and Gugulethu Square have been valued at R257 million
and R308 million respectively, by Mills Fitchet Magnus Penny (Proprietary)
Limited ("Mills Fitchet"), as set out in the summary valuation report which
is presented in the circular. The properties have been revalued to their
fair values in terms of IFRS for the ten months ending 30 June 2013. No fair
value adjustments have been provided for either Setsing Crescent or
Gugulethu Square in the year ending 30 June 2014.
18. The SA Corporate Real Estate Fund portfolio one acquisition and the SA
Corporate Real Estate Fund portfolio two acquisition (further details of
which are set out in the pre-listing statement issued by Synergy on 30
November 2011) are assumed to transfer on 1 June 2012 for purposes of the
combined property portfolio forecast.
The forecasts incorporate the following material assumptions in respect of
revenue and expenses that cannot be influenced by the directors:
19. There will be no unforeseen economic factors that will affect either
the lessees` ability to meet their commitments in terms of the existing
lease agreements or the forecast future profitability of these properties.
20. In terms of the asset management agreement with Capital Land Asset
Management, Synergy shall pay the asset manager:
a. an asset acquisition fee of 1% of the aggregate purchase price;
b. a monthly fee equivalent to 1/12th of 0.5% of the aggregate of the
market capitalisation and the borrowings of Synergy; and
c. for all property management services a monthly fee equivalent to 4% of
gross monthly income collected.
21. No future properties will be acquired and no properties will be
disposed of during the forecast periods other than those being acquired in
terms of the acquisitions.
22. Debenture interest will be paid to A and B linked unitholders in
accordance with the provisions of the debenture trust deed.
23. Consumptions based recoveries are consistent with the independent
property valuer`s property income statements.
Material items of expenditure within the property expenses line items
include:
1. In respect of the forecast for Setsing Crescent, R1.1 million in
property management expenses, R5.1 million in electricity costs and R0.7
million in rates for the ten months ending 30 June 2013 and R1.5 million in
property management expenses, R7.6 million in electricity costs and R0.9
million in rates for the year ending 30 June 2014.
2. In respect of the forecast for Gugulethu Square, R1.5 million in
property management expenses, R8.4 million in electricity expenses and R1.9
million in rates for the ten months ending 30 June 2013 and R2.0 million in
property management expenses, R12.6 million in electricity expenses and R2.4
million in rates for the year ending 30 June 2014.
3. In respect of the forecast for the combined property portfolio, R9.3
million in property management expenses, R34.4 million in electricity
expenses and R16.5 million in rates for the year ending 30 June 2013 and
R10.8 million in property management expenses, R45.3 million in electricity
expenses and R18.5 million in rates for the year ending 30 June 2014.
Property expenses, straight-line line adjustments, the asset management fee
and the administrative expenses for the forecast for Setsing Crescent and
for the forecast for Gugulethu Square are not expected to change by more
than 15% between the historical and forecast expenditure. Electricity
expenses have been assumed to increase in line with guidance issued by Eskom
and taking into account guidance from the relevant municipalities.
Property expenses, straight-line line adjustments, the asset management fee
and the administrative expenses for the forecast for the combined property
portfolio are expected to increase by more than 15% from historical costs
due to the increase in the size of the company as a result of the
acquisitions. In addition, electricity expenses have been assumed to
increase in line with guidance issued by Eskom and taking into account
guidance from the relevant municipalities.
UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITIONS
The table below sets out the unaudited pro forma financial effects of the
acquisitions based on Synergy`s reviewed interim results for the six months
ended 31 December 2011. These financial effects are the responsibility of
the directors of Synergy and have been prepared for illustrative purposes
only, in order to provide information about the financial position of
Synergy only, assuming that the acquisitions had been implemented on 31
December 2011 for purposes of the statement of financial position.
The unaudited pro forma statement of financial position of Synergy at 31
December 2011 and the explanatory notes thereto will be provided in the
circular to Synergy linked unitholders. The unaudited pro forma financial
effects have been reported on by the independent reporting accountants and
their report is set out in the circular.
Due to their nature, the unaudited pro forma financial effects may not
fairly present Synergy`s financial position subsequent to the acquisitions.
The unaudited pro forma financial effects have been prepared in accordance
with the accounting policies of Synergy that were used in the preparation of
the reviewed interim results for the six months ended 31 December 2011.
As forecast financial information for the acquisitions has been prepared and
presented above, financial effects in respect of an unaudited pro forma
statement of comprehensive income have not been presented.
The table below reflects the unaudited pro forma financial effects of the
acquisitions on a Synergy linked unitholder:
Before the Acquisitio Acquisitio After the Change
acquisitio n of n of acquisition after
ns Setsing Gugulethu s the
Note 1 Crescent Square Note 3 acquisi
tions
(%)
Net asset value
and net tangible
asset value per
linked unit
(cents)
- A linked units 875.64 933.88 6.7%
- B linked units 522.13 587.16 12.5%
- combined 611.91 679.55 11.1%
linked unit
Net asset value
and net tangible
asset value per
linked unit
(excluding
deferred
tax)(cents)
- A linked units 881.82 952.80 8.0%
- B linked units 528.30 606.09 14.7%
- combined 618.09 698.48 13.0%
linked unit
Actual number of 24 889 156 5 719 867 6 934 695 37 543 718 50.8%
linked units in 73 113 070 16 391 795 19 873 209 109 378 074 49.6%
issue
- A linked units
- B linked units
Notes and assumptions:
1. The figures set out in the "Before the acquisitions" column above have
been extracted, without adjustment, from the published reviewed results of
the company for the six months ended 31 December 2011.
2. The acquisitions are assumed to have been implemented on 31 December
2011 for net asset value and tangible net asset value per linked unit
purposes.
3. The "After the acquisitions" column above includes the effect of the
following:
3.1 The King Senzangkhona Shopping Centre ("KSSC") (full details of which
are set out in the pre-listing statement issued by Synergy on 30 November
2011) in Ulundi transferred on 16 February 2012 and has been accounted for
post 31 December 2011. R96 million of the purchase consideration of the
KSSC
was funded through the proceeds raised from the private placement which
took
place prior to the listing of Synergy and the balance of the purchase
consideration of R90 million was funded through bank debt.
3.2 The SA Corporate portfolios (full details of which are set out in the
pre-listing statement issued by Synergy on 30 November 2011) are assumed
to
transfer on 31 December 2011 for purposes of the unaudited pro forma
financial effects. The purchase consideration of R494.2 million includes
capitalised transaction costs of R2.2 million. R140 million of the
purchase
consideration of the SA Corporate portfolios will be funded through the
proceeds raised from the private placement which took place prior to the
listing of Synergy and the balance of the purchase consideration of R354
million will be funded through a combination of existing and new debt
facilities from Standard Bank, RMB and Nedbank, details of which are set
out
in Annexure 11 of the revised listings particulars.
3.3 The SA Corporate portfolios and KSSC have been valued at R772.0 million
by Mills Fitchet (full details of the valuations were set out in the pre-
listing statement issued by Synergy on 30 November 2011). The properties
have been revalued to their fair values in terms of IFRS. Accordingly, the
difference of R91.1 million between the aggregate purchase consideration
of
R680.9 million and the fair value of R772.0 million has been recorded as a
fair value adjustment and is included as part of accumulated profit.
Deferred tax has been provided for on the fair value adjustment at a rate
equivalent to 66.6% of the corporate tax rate of 28%.
4. Although for purposes of the unaudited pro forma financial effects, the
Setsing Crescent acquisition and the Gugulethu Square acquisition are
assumed to be implemented on 31 December 2011, the acquisitions will in fact
be implemented after 1 September 2012. In terms of the acquisition
agreements, the full purchase consideration of R240 million in respect of
Setsing Crescent will increase at a rate of 0.02739726% per day from 31
August 2012 until the transfer date. With regard to Gugulethu Square, 75% of
the purchase consideration of R290 million will increase at a rate of
0.02739726% per day from 31 August 2012 until the transfer date. The balance
of the purchase consideration of Gugulethu Square (being 25% thereof) shall
increase by 0.02739726% in respect of each day by which the transfer date is
delayed beyond 13 July 2012.
5. Setsing Crescent is assumed to be acquired with effect from 31 December
2011 for a purchase consideration of R243.4 million (including capitalised
transaction costs of R3.3 million). R134.7 million of the purchase
consideration will be funded through the vendor consideration placement;
refer to Note 10. The balance of the purchase consideration of R108.7
million for the Setsing Crescent acquisition is assumed to be funded through
new debt facilities from Nedbank.
6. Gugulethu Square is assumed to be acquired with effect from 31 December
2011 for a purchase consideration of R295.0 million (including capitalised
transaction costs of R4.0 million). R163.3 million of the purchase
consideration will be funded through the vendor consideration placement;
refer to Note 8. The balance of the purchase consideration of R131.7 million
for the Gugulethu Square acquisition is assumed to be funded through new
debt facilities from RMB.
7. Setsing Crescent and Gugulethu Square have been valued at R257 million
and R308 million respectively, by Mills Fitchet, as set out in the summary
valuation report which is presented in the circular. The properties have
been revalued to their fair values in terms of IFRS. Accordingly, the
difference of R26.6 million between the aggregate purchase consideration of
R538.4 million (including capitalised transaction costs of R7.3 million) for
Setsing Crescent and Gugulethu Square and the fair values of Setsing
Crescent and Gugulethu Square of R565 million has been recorded as a fair
value adjustment and is included as part of accumulated profit. Deferred tax
has been provided for on the fair value adjustment at a rate equivalent to
66.6% of the corporate tax rate of 28%.
8. It has been assumed that with regard to the vendor consideration
placement, new A and B linked units will be issued in the same ratio as the
capital raised in terms of the private placement at the time of listing and
that new A and B linked units will be issued at market prices (estimated
using the 30 day VWAP prior to the date that the financial effects
announcement was released on SENS, being 15 March 2012). Accordingly, it has
been assumed that 12 654 562 A linked units will be issued at R8.79 per A
linked unit and 36 265 004 B linked units will be issued at R5.46 per B
linked unit, raising gross proceeds of R309.2 million. R304.5 million of the
proceeds of the vendor consideration placement are assumed to be utilised to
partially fund the acquisitions of Setsing Crescent and Gugulethu Square.
Transaction costs are assumed to be approximately R13.7 million and include,
inter alia, debt raising fees, capital raising fees and a once-off asset
acquisition fee. R6.4 million of the transaction costs are to be expensed
(deducted against reserves) with the balance of R7.3 million capitalised to
the acquisitions.
9. Synergy is assumed to have a loan-to-value ratio of approximately 40%
(R685 million) once all properties that have been contracted for, have been
transferred, including Setsing Crescent and Gugulethu Square and the
properties being acquired from SA Corporate Real Estate Fund (as disclosed
in the pre-listing statement issued by Synergy on 30 November 2011).
NOTICE OF GENERAL MEETING
A general meeting is to be held at 10h00 on Thursday, 21 June 2012 at the
registered office of Synergy (23rd Floor, Triangle House, 22 Riebeeck
Street, Cape Town, 8000) to consider and, if deemed fit, pass with or
without modification the resolutions set out in the notice of general
meeting attached to the circular which resolutions are necessary to
implement the acquisitions.
Unitholders will also be asked to approve an amendment to clause 28 of the
memorandum of incorporation and an amendment to clause 8.5 of the debenture
trust deed further details of which are provided in the circular.
SALIENT DATES AND TIMES
The salient dates and times relating to the acquisitions are set out below.
Words and expressions in the timetable shall have the same meanings as
assigned to them in the circular.
2012
Circular posted on Tuesday, 22 May
Last day to trade in order to be eligible to vote at Friday, 8 June
the general meeting
Record date in order to vote at the general meeting Friday, 15 June
Receipt of forms of proxy by 10h00 on Tuesday,19 June
General meeting of Synergy unitholders at 10h00 on Thursday, 21 June
Results of general meeting released on SENS on Thursday, 21 June
Results of general meeting published in the press on Friday, 22 June
Anticipated date for listing of linked units issued Monday, 20 August
in terms of placement
Anticipated date for transfer of acquisition Friday, 31 August
properties and implementation of acquisitions
Note: All dates and times in this announcement and the circular are local
times in South Africa. Any changes will be released on SENS and published in
the press.
22 May 2012
Corporate advisor and sponsor
Java Capital
Independent Sponsor
Deloitte & Touche Sponsor Services (Proprietary) Limited
Independent reporting accountants and auditors
Moore Stephens BKV Inc
www.synergyincomefund.com
Date: 22/05/2012 15:57:01 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.
