Synergy Income Fund delivers strong results and portfolio growth

Posted On Monday, 26 August 2013 14:04 Published by Commercial Property News
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Synergy Income Fund today reported a strong set of results for its financial year ended on 30 June 2013, delivering on its forecast distribution growth to unitholders.

William BrooksSynergy announced full-year distributions of 82.66 cents per Synergy A linked unit, up 5.0% in line with forecasts, while distributions to Synergy B linked unitholders of 51.38 cents per unit grew a remarkable 78.0%.

Synergy Income Fund CEO William Brooks says: "We're pleased to report these results for our first full year of operation as a listed company. We have met our targets and delivered the distribution growth we promised our investors. Furthermore, we have positioned the company well for future growth in the near term, despite a very challenging operating environment"

Brooks attributes the strong growth in distributions to the positive effect of Synergy's acquisitions in the prior financial year, with 12 of Synergy's 14 property assets on its balance sheet for the full financial year.

"Our acquisition of Gugulethu Square and Setsing Crescent shopping centres, which transferred to Synergy in late August 2012, also contributed strongly to Synergy's favourable annual results," notes Brooks.

In line with this, Synergy's investment property portfolio increased by 60.0% during the year. Its property assets totalled R1,9 billion at year end. Its revenue also grew by R192 million, to R240 million.

Brooks adds: "Synergy's net asset value per combined linked unit grew 15.0%, indicating good future growth from our properties."

Synergy began trading as a REIT on the JSE from 1 July 2013. It 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's investment favours commuter-oriented centres located in township areas and rural towns.

During the year, Synergy successfully completed a unit placement of R376 million in equity. Its market capitalisation doubled to R1,3 billion on 30 June 2013. It also reported a conservative loan-to-value ratio of 30.4% with interest rates hedged on 73% of its total borrowings at a weighted average rate of 9.11% and a total weighted average cost of borrowings of 8.7%.

Despite the rapid growth of its property portfolio, Synergy kept tight control of its properties and improved portfolio fundamentals, lowering its vacancy levels and improving its tenant mix.

It reduced vacancies by 28%, from 4.6% to 3.3%. It also improved its national tenant ratio by 6.0% from 81.0% to 86.0%, meeting its strategic target of 85.0% or higher. Synergy's leasing team achieved positive rental reversions of 6.9% and a tenant retention ratio of 88% during the year.

"Our directly managed integrated asset and property management operation enables a focused approach to improving portfolio performance," says Brooks. "We have invested heavily in building our operational capability and this is yielding good results."

Brooks notes that operating conditions are likely to remain challenging for retailers, who continue to face pressure from increasing occupation costs, especially electricity and rates and taxes.

Despite this, Synergy is well positioned to deliver above average growth underpinned by its specialised focus on the high-growth retail market and its strong operational capability. It's R334 million acquisition of Atlantis City Shopping Centre, which has a market value of R353,8 million, comes into effect from 1 September 2013 and will boost its property portfolio to 15 assets across South Africa with a combined value of R2,231 billion.

The company forecasts growth in B linked units of between 12.0% and 16.0% for its 2014 financial year, with A linked unit distributions growing at the 5% preferential entitlement.

"Synergy is well positioned to perform in a difficult market, as reflected in our results and forecasts. We are achieving significant growth on sector benchmarks and will continue to grow the Synergy portfolio through value-enhancing acquisitions, developments and by extracting value from our portfolio with proactive management and redevelopments," says Brooks.

Last modified on Monday, 26 August 2013 14:09

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