Specialised retail property fund Synergy Income Fund’s R334-million acquisition of Atlantis City Shopping Centre came into effect earlier this month, which will boost the fund’s property portfolio to 15 assets across South Africa with a combined value of R2.2-billion.

The fund reported full-year distributions of 82.66 cents per Synergy A-linked unit for its financial year ended June 30, up 5% and in line with forecasts, while distributions to Synergy B-linked unit holders increased by 78%.

“We are 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. Further, we have positioned the company well for future growth in the near term, despite a very challenging operating environment,” says Synergy Income Fund CEO William Brooks.
Brooks attributes the strong growth in distributions to the positive effect of Synergy’s acquisitions in the previous financial year, with 12 of Synergy’s 14 property assets on its balance sheet for the full financial year.

“Our acquisition of the Gugulethu Square and Setsing Crescent shopping centres, which transferred to Synergy in August last year, also contributed strongly to Synergy’s favourable yearly results,” notes Brooks.

In line with this, Synergy’s investment property portfolio increased by 60% during the financial year. Its property assets totalled R1.9-billion at year-end. Its revenue increased by R192-million to R240-million and its net asset value per combined linked unit increased 150%, indicating good future growth from its properties.

Synergy began trading as a real estate investment trust on the JSE on July 1 and focuses specifically on medium-sized community and small regional shopping centres in high-growth nodes. Synergy’s investment favours commuter-orientated centres in township areas and rural towns.

Synergy successfully completed a unit placement of R376-million in equity this year. Its market capitalisation doubled to R1.3-billion at financial year-end in June. It also reports 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 port- folio, Synergy kept tight control of its properties and improved portfolio fundamentals, lowering its vacancy levels and improving its tenant mix.
It reduced vacancies from 4.6% to 3.3%, of which 1% is structural vacancies. It also improved its national tenant ratio by 6%, meeting its strategic target of 85% or higher. Synergy’s leasing team achieved positive rental reversions of 6.9% and a tenant retention ratio of 88% during its financial year.
“Our directly managed integrated asset and property management operation enables a focused approach for improving portfolio performance. “We have invested heavily in building our operational capability and this is yielding good results,” notes Brooks.
Despite challenging operating conditions for retailers, Brooks says the company is well positioned to deliver above-average growth.