Synergy declares profit delivering 218% growth in assets for year ended June 2012

CEO of Synergy Income Fund, William Brooks.

JSE Listed retail fund Synergy Income Fund‚ today reported its first condensed annual results, achieving distributions in line with its pre-listing projections and delivering 218% growth in its assets for the six-month trading period ended 30 June 2012.

Distributions of 44.22 cents per Synergy A linked unit and 19.53 cents per Synergy B linked unit were declared for the period from listing to 30 June 2012.

CEO of Synergy Income Fund, William Brooks, ascribes this strong performance to significant portfolio growth, the fund’s focused investment strategy, higher portfolio occupancy, increasing rental income and Synergy’s growing ability to attract capital.

Synergy listed on the JSE on 14 December 2011. It is a specialised retail property fund with an investment focus on medium-sized community and regional shopping centres in high-growth nodes. Synergy’s portfolio favours commuter centres in township areas and rural towns. Synergy operates closely with the Spar Group, one of South Africa’s leading retail groups.

“We are pleased to report this positive performance for our investors. We met original projections, despite considerable delays in the transfer of several properties to Synergy,” says Brooks. “However, our portfolio growth was significant and we added eight retail centres to the Synergy portfolio during the period.”

Investors can expect growing performance from Synergy for the year to June 2013. “We anticipate real growth in distributions for our investors driven by rental escalations, lower vacancies and the benefits of a lower interest rate environment,” says Brooks. “Our portfolio is well positioned to benefit from structural socio-economic growth in the lower LSM and middle market sector in South Africa.”

Synergy is wasting no time achieving its goals for the coming year. In August 2012, it took transfer of two further properties, growing the portfolio value to R1,7 billion. It also successfully closed a substantially oversubscribed vendor consideration placement of R376 million in new linked units, to fund new assets.

“The buoyant demand for Synergy linked units during the capital raising reflects the positive traction Synergy gained in the market since listing,” says Brooks.

Synergy enjoyed good access to finance during the year. The company showed a conservative loan-to-value ratio of 36.0% at 30 June 2012, with interest rates hedged on 35.0% of total borrowings at a weighted average rate of 9.14% with a weighted average maturity of 4.2 years. Synergy’s average cost of borrowings at 30 June 2012 was 8.5%.

At 30 June 2012 Synergy’s property portfolio comprised 12 geographically diverse properties, valued at R1.171 billion. Seven of these properties transferred to Synergy around 1 June 2012, three months later than expected, because of delays imposed by the Competition Authorities.

Direct active management reduced overall portfolio vacancies from 5.8% at the end of December 2011 to 4.6% at 30 June 2012, which represents a 21% improvement in the last 6 month period. Of this, 1.3% are strategic vacancies to facilitate refurbishment and redevelopment. 43.0% of Synergy’s portfolio leases expire in 2015 and beyond.

Positive rental reversions across the portfolio show 4.5% growth, driven by direct active management of leasing operations targeting under-let areas of the portfolio. Synergy’s total expense-to-income ratio of 23.9% is aligned with industry standards.  

Brooks notes that improving overall tenant mix is a key focus for Synergy. Already it has grown the ratio of national tenants in the portfolio from 80.4% to 81.1%, closer to its target of 85.0% or higher.

“We will continue to grow our portfolio through value-enhancing acquisitions and developments. We will also unlock growth by extracting value from our portfolio, optimising efficiencies in the existing asset base, and redevelopment opportunities. We’ve already identified several projects through our relationship with Spar, which is delivering added growth opportunities,” notes Brooks.