High-growth retail portfolio underpins strong Synergy performance
Retail-focused Synergy Income Fund today announced full year distribution growth of 5% for its A linked unitholders and 12% for its B linked unitholders for the year to 30 June 2014.
CEO William Brooks attributes the strong performance to Synergy's unique market position as a pure retail fund with focused exposure to the high-growth lower LSM market; full financial year inclusion of its acquisitions; and an improved portfolio performance, driven by direct active management.
He says Synergy's sixth set of results as a listed company extends a track record of delivering on commitments and creating value for investors. "As a specialised fund, we have strategically grown our focused portfolio of retail assets tenfold over the past three years – from R240 million to R2,4 billion, Brooks adds."
During the year, Synergy's combined market capitalisation grew by R52 million, to R1.3 billion.
Brooks notes that despite a continued challenging operating environment during the year, Synergy grew revenue by 26% to R303 million and increased distributable income by 9% to R102 million. Importantly, it achieved this growth while maintaining a low expense ratio of around 20%.
"We are still in an extremely tough macro-economic and social environment, which is characterised by subdued economic growth; rising inflation and interest rates; high unemployment; overly indebted consumers; labour unrest; and increasing pressure on consumer spending," says Brooks.
"But this is not a new phenomenon to us. We have faced these challenges for some time now and have built operational capabilities to deal with them to the extent that we can," he adds.
Brooks confirms that, against this backdrop, Synergy's B linked unit distributions for 2015 are expected to increase by approximately 6% compared to 2014 – in line with the South African listed sector average. This assumes the prime interest rate increases by no more than 1% during its 2015 financial year, a stable macro-economic environment and no major corporate failuresSynergy is a specialist retail property fund with a specific focus on medium-sized community and small regional shopping centres in high-growth rural and township nodes – targeting the high-growth mass consumer market in South Africa.
Synergy was listed on the JSE in December 2011 with an initial portfolio of three small shopping centres. Today it owns 15 centres in seven South African provinces, spanning some 200,000sqm.
While its rental reversions trended upwards by 4.5%, Synergy achieved a noteworthy tenant retention ratio of 71%. Its national tenant ratio has increased to 89% from 86% a year ago, indicating a further improvement in the quality of its rental income, with its largest tenants being the Spar Group, Massmart, Pepkor and Shoprite. From 1 July 2014, Synergy had already extended its average lease expiry from 3.2 years to 3.5 years. It is also focused on utilities management to optimise recovery ratios.
In line with its policy of value-enhancing redevelopments and upgrades to centres in its portfolio, Synergy upgraded the Gugulethu Square, Highland Mews and Sediba shopping centres during the year.
Meanwhile, the R10 million redevelopment of Ruimsig Shopping Centre in Roodepoort, Gauteng, is scheduled for completion next month. It is also upgrading Phase 3 at Richdens Village Shopping Centre in Hillcrest, KwaZulu-Natal for completion in November 2014. Furthermore, Synergy recently acquired a strategic property adjacent to the Ermelo Game Shopping Centre in Mpumalanga.
Furthermore, a further R10 million of capital expenditure projects are planned for 2015.
Synergy's loan-to-value ratio was a conservative 37.6% at year end, down from 40.8% at the half year, with interest rates hedged on 51% of its total borrowings at a weighted average rate of 8.99%. Synergy's total weighted average cost of borrowings at 30 June 2014 was 8.48%.
"Synergy recently negotiated improved lending margins with current loan facility providers. As a consequence, the weighted average cost of borrowings reduced to 8.32% with a weighted average cost of fixed debt funding of 8.76% with effect from July 2014," says Brooks.
"We are confident that our differentiated positioning, investment focus and operational capabilities will drive future growth and further our track record of delivering investor value," he concludes.