Synergy Income Fund Ltd HY 2014 results

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Synergy Income Fund Ltd HY 2014 results

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Synergy Income Fund Ltd HY 2014 results

  1. 1. www.synergyincomefund.com CONDENSED INTERIM FINANCIAL STATEMENTS for the six months ended 31 December 2013
  2. 2. Condensed statement of comprehensive income Unaudited Six months ended 31 December 2013 R REVENUE Property portfolio Recoveries and contractual rental revenue Straight–line rental income accrual Rental revenue Property operating costs Administration costs Net operating profit Fair value adjustments Changes in fair value of investment properties Adjustment resulting from straight–lining of rental revenue Changes in fair value of swaps Profit from operations Non–recurring capital raising expenses Net finance (expense)/income Finance income Finance costs Interest received on linked units issues cum distribution Amortisation of loan raising costs Profit before debenture interest and taxation Debenture interest Profit before taxation Taxation Profit for the period attributable to Synergy shareholders Total comprehensive income for the period Reconciliation of earnings, headline earnings and distributable earnings Profit for the period attributable to Synergy shareholders Debenture interest Basic earnings attributable to linked unitholders Changes in fair values of investment properties (net of deferred taxation) Changes in fair value of investment properties Deferred taxation Headline profit to linked unitholders Non–recurring capital raising expenses Amortisation of loan raising costs Straight–line rental income accrual Changes in fair value of swaps (net of deferred taxation) Changes in fair value of swaps Deferred taxation Distributable earnings Distribution for the period Distributed to A linked units Distributed to B linked units To be distributed to A linked units* To be distributed to B linked units* Total distributions Actual number of A linked units in issue Actual number of B linked units in issue Weighted number of A linked units in issue Weighted number of B linked units in issue Earnings per A share (cents) Earnings per A linked unit (cents) Earnings per B share (cents) Earnings per B linked unit (cents) Headline earnings/ loss per A share (cents) Headline earnings per A linked unit (cents) Headline earnings/ loss per B share (cents) Headline earnings per B linked unit (cents) Distribution per A linked unit paid (cents) Distribution per A linked unit payable (cents) Distribution per B linked unit paid (cents) Distribution per B linked unit payable (cents) *This amount will be distributed on 17 March 2014 The Company has no dilutionary instruments in issue Audited Year ended 30 June 2013 R Unaudited Six months ended 31 December 2012 R 154 378 525 147 659 651 6 718 874 154 378 525 (57 714 441) (6 739 045) 89 925 039 7 640 897 14 398 101 (6 718 874) (38 330) 97 565 936 – (34 146 459) 468 312 (34 342 318) – (272 453) 63 419 477 (49 332 159) 14 087 318 7 192 14 094 510 14 094 510 253 366 497 240 010 489 13 356 008 253 366 497 (90 732 526) (12 875 626) 149 758 345 149 862 250 160 657 440 (13 356 008) 2 560 818 299 620 595 (2 500 954) (43 110 632) 1 597 227 (48 096 897) 3 884 150 (495 112) 254 009 009 (93 786 818) 160 222 191 28 520 195 188 742 386 188 742 386 114 069 485 111 941 552 2 127 933 114 069 485 (41 376 428) (6 210 353) 66 482 704 21 206 159 26 230 076 (2 127 933) (2 895 984) 87 688 863 (2 500 954) (19 188 713) 1 101 328 (23 924 600) 3 884 150 (249 591) 65 999 196 (45 415 650) 20 583 546 (4 351 340) 16 232 206 16 232 206 14 094 510 49 332 159 63 426 669 (7 679 227) (7 679 227) – 55 747 442 – 272 453 (6 718 874) 31 138 38 330 (7 192) 49 332 159 49 332 159 – – 20 046 792 29 285 367 49 332 159 47 352 203 106 352 670 47 352 203 106 352 670 9.17 51.51 9.17 36.71 4.17 46.51 4.17 31.71 – 42.34 – 27.54 188 742 386 93 786 818 282 529 204 (176 299 168) (147 301 432) (28 997 736) 106 230 036 2 500 954 495 112 (13 356 008) (2 083 276) (2 560 818) 477 542 93 786 818 93 786 818 19 092 408 26 322 286 20 048 923 28 323 201 93 786 818 47 352 203 106 352 670 44 705 871 102 436 772 128.27 215.82 128.27 181.62 8.46 96.01 8.46 61.80 40.32 42.34 24.75 26.63 16 232 206 45 415 650 61 647 856 (19 210 759) (24 102 143) 4 891 384 42 437 097 2 500 954 249 591 (2 127 933) 2 355 941 2 895 984 (540 043) 45 415 650 45 415 650 – – 19 092 171 26 323 479 45 415 650 47 352 203 106 352 670 42 102 687 98 584 720 11.54 56.88 11.54 38.24 (2.12) 43.23 (2.12) 24.58 – 40.32 – 24.75
  3. 3. Condensed statement of financial position ASSETS Non-current assets Investment property Fair value of property portfolio for accounting purposes Straight-line rental income accrual Deferred taxation Current assets Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Stated capital and reserves Stated capital Reserves Non-current liabilities Debenture capital Interest-bearing liabilities Derivative financial instruments Deferred taxation Current liabilities Trade and other payables Debenture interest payable Unaudited As at 31 December 2013 R Audited As at 30 June 2013 R Unaudited As at 31 December 2012 R 2 233 143 504 2 232 756 951 2 207 964 952 24 791 999 386 553 33 070 751 24 158 185 8 912 566 1 877 453 361 1 877 074 000 1 859 000 875 18 073 125 379 361 29 293 927 23 989 593 5 304 334 1 738 146 021 1 738 146 021 1 731 300 971 6 845 050 – 18 298 604 10 403 635 7 894 969 2 266 214 255 1 906 747 288 1 756 444 625 313 876 110 1 537 049 312 339 061 1 865 138 845 952 971 381 910 094 811 2 072 653 – 87 199 300 37 867 142 49 332 158 299 781 600 1 537 049 298 244 551 1 525 892 224 952 971 381 570 886 520 2 034 323 – 81 073 464 32 701 340 48 372 124 127 271 420 1 537 049 125 734 371 1 562 307 999 952 971 381 569 353 318 7 491 125 32 492 175 66 865 206 21 449 556 45 415 650 Total equity and liabilities 2 266 214 255 1 906 747 288 1 756 444 625 Net asset value per linked unit * 8.24 8.15 7.03 Net asset value per A linked unit * ^ 9.41 11.58 10.38 Net asset value per B linked unit * 7.72 6.62 5.54 * Net asset value includes total equity attributable to equity holders and linked debentures. ^ 60-day volume weighted average trading price at 31 December 2013, limited to combined net asset value, in accordance with the provisions of the Company’s Debenture Trust Deed. Condensed statement of changes in equity Balance at the beginning of the period Issue of linked units Total comprehensive income for the period Total stated capital and reserves Condensed statement of cash flows Cash flows from operating activities Cash generated from operations Interest income Interest paid Net cash inflow from operating activities Net cash outflow from investing activities Net cash inflow from financing activities Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Unaudited Six months ended 31 December 2013 R 299 781 600 – 14 094 510 313 876 110 Audited Year ended 30 June 2013 R 110 482 187 557 027 188 742 386 299 781 600 Unaudited Six months ended 31 December 2012 R 110 482 187 557 027 16 232 206 127 271 420 Unaudited Six months ended 31 December 2013 R Audited Year ended 30 June 2013 R Unaudited Six months ended 31 December 2012 R 88 203 375 468 312 (82 714 443) 5 957 244 (341 284 850) 338 935 838 3 608 232 5 304 334 8 912 566 141 146 202 5 481 377 (118 799 535) 27 828 044 (545 116 560) 518 435 137 1 146 621 4 157 713 5 304 334 71 432 811 4 985 478 (49 212 543) 27 205 746 (540 615 945) 517 147 455 3 737 256 4 157 713 7 894 969
  4. 4. Highlights •  Distributions to A linked unitholders of 42.34 cents per unit 5% •  Distributions to B linked unitholders of 27.54 cents per unit 11% •  Investment property valued at R2.233 billion 19% •  Reduction in retail vacancies from 3.3% to 3.2% 0.1% improvement •  Increase in national tenant ratio from 86% to 88% 2% improvement COMMENTARY Lease expiry profile by % retail GLA 17.9% 11.2% 11.8% The trading period to 31 December 2013 takes into account 15  properties, 14 of which were on the statement of financial position for the full period. The acquisition of Atlantis City Shopping Centre (“Atlantis”) was effective from 1  September  2013 and is therefore included for 4 months of the interim trading period. Operational performance Vacancy ratios of retail gross lettable area (“GLA”) amounted to 3.2% at 31 December 2013, representing a marginal improvement from the 3.3% vacancy at 30 June 2013. Atlantis is considered fully let due to the existence of a rental guarantee for all vacancies which existed at the effective date of transfer.  Rental reversions across the portfolio have trended upwards by 6.2%. Synergy has succeeded in further improving the overall quality of the tenant mix during the interim period with an increase in the national tenant ratio from 86% at 30 June 2013 to 88% at 31  December  2013. This national tenant ratio is in line with Synergy’s target of 85% or higher. A tenant retention ratio of 76% was achieved during the period under review, partially due to optimisation of the tenant mix across the portfolio. The weighted average lease expiry period for the Synergy retail portfolio is 3.9 years. In the June 2015 financial year, 22.5% of leases (by lettable area) are due to expire. A large proportion of these expiring leases are the result of 2015 being the fifth anniversary of the opening of Gugulethu Square Shopping Centre (“Gugulethu Square”) (100% occupied), and are predominantly national tenancies. These expiries are not viewed as high risk due to a high demand for space at Gugulethu Square. June 2019+ June 2018 June 2017 June 2016 June 2015 4.8% June 2014 3.2% 3.8% Financial results The board of directors of Synergy (“the Board”) is pleased to announce a distribution of 42.34 cents per A linked unit and 27.54  cents per B linked unit for the six months ended 31 December 2013. The distribution to B linked unitholders represents an increase of 11.27% compared to the corresponding interim period ended 31 December 2012. 24.8% 22.5% Vacant 50 000 45 000 40 000 35 000 30 000 25 000 20 000 15 000 10 000 5 000 – Monthly Synergy Income Fund Limited (“Synergy” or “the Company”) is a specialised retail property fund with a specific focus on medium sized community and small regional shopping centres located in high-growth nodes. Synergy has an investment bias towards commuter-orientated centres located in township areas and rural towns. The investment objective of Synergy is to generate sustainable total returns for unitholders, in excess of inflation, through value enhancing investments in retail property assets located in high growth nodes. Retail GLA (m2) Profile Property portfolio Synergy’s property portfolio currently comprises 15 properties in South Africa with a total GLA of 198  767m2 and a market value of R2.233 billion as at 31 December 2013. Atlantis was acquired during the interim period ended 31 December 2013. The salient details relating to this acquisition are as follows: Property Location Atlantis City Atlantis, Shopping Centre Western Cape Effective date of transfer Latest valuation R 22 077 1 September 2013 353 800 000 GLA m2 Atlantis was externally valued at R353.8  million by an independent valuer, Mills Fitchet Magnus Penny Proprietary Limited, on the effective date of transfer being 1  September 2013. The balance of the portfolio is carried at the 30 June 2013 valuation plus capital expenditure incurred, the aggregate of which is considered to be a reasonable approximation of their value at 31 December 2013. The acquisition of Atlantis, together with some minor capital expenditure on the rest of the portfolio, has led to an increase in Synergy’s property portfolio from R1.877 billion at 30 June 2013 to R2.233 billion at 31 December 2013. The recognition of Atlantis at fair value on acquisition resulted in a fair value gain of R14.4 million over the purchase consideration. New developments and upgrades Synergy is currently in negotiations with a second anchor for the Ermelo Game Shopping Centre in Ermelo, Mpumalanga which, if successful, will result in the need to extend the centre. A minor cosmetic upgrade, which could have a positive impact on vacancies, is also under investigation at Richdens Village Shopping Centre in Hillcrest, KwaZulu-Natal. A refurbishment at Ruimsig Shopping Centre in Roodepoort, Gauteng is planned to begin in March 2014.
  5. 5. Borrowings Synergy had loan facilities totalling R946 million in place as at 31 December 2013 following the approval of a new R201 million facility from Nedbank Limited to fund the acquisition of Atlantis. The Company had total borrowings of R910 million at 31 December 2013, leaving unutilised long-term facilities of R36 million at this date. At the end of December 2013, interest rates were hedged on 51% of total borrowings at a weighted average rate of 9.11% for these facilities. Synergy’s total weighted average cost of borrowings at 31 December 2013 was 8.27%. The Company’s loan to value ratio in relation to its property portfolio at the end of December 2013 was 40.8%. Following the announcement on 29 January 2014 of a 50 basis point increase in interest rates, Synergy’s total weighted average cost of borrowings has increased to 8.51%. Prospects Linked unitholders are referred to the announcement published on SENS on 29 January 2014 which disclosed that discussions have commenced in respect of a potential transaction between Vukile Property Fund Limited and Synergy linked unitholders. Accordingly, Synergy linked unitholders are advised to continue to exercise caution when dealing in their linked units until a further announcement is made. The Board confirms the guidance previously provided in Synergy’s June 2013 results announcement published on SENS on 26 August 2013. The forecast full year distributions for 2014 for Synergy’s A linked units are expected to be 86.79 cents per unit. The Board expects Synergy’s B linked unit distributions for 2014 to increase by between 12% and 16% compared to June 2013. This forecast assumes that the current economic and interest rate environment will remain stable, no major corporate failures will occur and tenants will be able to absorb increases in municipal and utility costs. This forecast information has not been reviewed or reported on by the Company’s independent external auditors, Moore Stephens BKV Inc. Payment of interim distributions Notice is hereby given that the Board has declared an interim distribution of 42.34 cents per A linked unit and 27.54 cents per B linked unit for the period 1 July 2013 to 31 December 2013 (collectively, “the Interim Distributions”). The issued linked unit capital at the declaration date comprises 47 352 203 A linked units and 106 352 670 B linked units. As Synergy has Real Estate Investment Trust (“REIT”) status with the JSE Limited (“JSE”), linked unitholders are advised that the distributions meet the requirements of a “qualifying distribution” for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 (“Income Tax Act”). The distributions on the linked units will be deemed to be dividends, for South African tax purposes, in terms of section 25BB of the Income Tax Act. The distributions received by or accrued to South African tax residents must be included in the gross income of such linked unitholders 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 they are dividends distributed by a REIT. These distributions are, however, exempt from dividend withholding tax in the hands of South African tax resident linked unitholders, provided that the South African resident linked unitholders provided the following forms to the Central Securities Depository Participant (“CSDP”) or broker, as the case may be, in respect of uncertificated linked units, or the Company, in respect of certificated linked units: a) declaration that the distribution is exempt from a dividends tax; and b) written undertaking to inform the CSDP, broker or the a 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. Linked unitholders are advised to contact the CSDP, broker or the Company, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution, if such documents have not already been submitted. Distributions received by non-resident linked unitholders will not be taxable as income and instead will be treated as ordinary dividends which are 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 2013 distributions received by non-residents from a REIT were not subject to dividend withholding tax. From 1 January 2014, any distribution 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 linked unitholder. Assuming dividend withholding tax will be withheld at a rate of 15%, the net dividend amount due to non-resident linked unitholders is 35.99 cents per A linked unit and 23.41 cents per B linked unit. A reduced dividend withholding rate, in terms of the applicable DTA, may only be relied on if the non-resident linked unitholder has provided the following forms to the CSDP or broker, as the case may be, in respect of uncertificated linked units, or the Company, in respect of certificated linked units: a) declaration that the dividend is subject to a reduced a rate as a result of the application of a DTA; and b) written undertaking to inform the CSDP, broker or the a 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 linked unitholders are advised to contact the CSDP, broker or the Company, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution if such documents have not already been submitted, if applicable. The salient dates in relation to the Interim Distributions will be as follows: 2014 Last day to trade cum distribution Friday, 7 March Linked units trade ex distribution Monday, 10 March Record date Friday, 14 March Payment date Monday, 17 March Linked unitholders may not dematerialise or rematerialise their linked units between Monday, 10 March 2014 and Friday, 14 March 2014, both days inclusive. A linked units in issue at the date of declaration of interim distribution: 47 352 203
  6. 6. B linked units in issue at the date of declaration of interim distribution: 106 352 670 Synergy income tax reference number: 9068723171 Preparation and accounting policies The condensed interim financial statements for the six months ended 31 December 2013 have been prepared and presented in accordance with International Financial Reporting Standards, which include IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Board, the JSE Listings Requirements and the requirements of the Companies Act 71 of 2008.The accounting policies adopted are consistent with those applied in the prior period. These interim results have not been audited or reviewed by the Company’s independent external auditors, Moore Stephens BKV Inc. This report was compiled under the supervision of Anton Raubenheimer CA (SA), the Company’s Financial Director. The Board is not aware of any matters or circumstances arising subsequent to 31 December 2013 that require any additional disclosure or adjustment to the interim financial statements and which are not disclosed in this announcement. By order of the Board Synergy Income Fund Limited Cape Town 20 February 2014 M Kuscus* (Chairman), W Brooks (CEO), A Raubenheimer (FD), U Meyer^, S Segar*, M Mdlolo*, A Ramsden*, L Mtumtum* Directors: * Independent Non-executive ^ Non-executive Director effective 1 August 2013. U Meyer retired as an Executive A Raubenheimer was appointed as the new Financial Director effective 1 August 2013. Registered office: 3rd Floor, 200 on Main, Cnr Main and Bowwood Roads, Claremont, 7708 Transfer secretaries: Computershare Investor Services Proprietary Limited Sponsor: Java Capital Company secretary: Probity Business Services Proprietary Limited SYNERGY INCOME FUND LIMITED  3rd Floor, 200 on Main, Cnr Main and Bowwood Roads, Claremont, 7708. Postnet Suite I, Private Bag X1005, Claremont, 7735 www.synergyincomefund.com (Incorporated in the Republic of South Africa) (Registration number 2007/032604/06) www.synergyincomefund.com JSE share code for A linked units SGA JSE share code for B linked units SGB ISIN ZAE000161550 ISIN ZAE000162293 (Approved as a REIT by the JSE) (“Synergy” or “the Company”) Managed by Capital Land Asset Management Proprietary Limited

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