Ger­man ex­po­sure takes a beat­ing

Finweek English Edition - - Companies & Market -

THE AGE-OLD IN­VEST­MENT adage – tim­ing is ev­ery­thing – comes to mind with Sy­com’s en­try into Ger­many’s re­tail prop­erty mar­ket at the height of the global real es­tate boom in June 2007. Sy­com then bought a 22,5% stake in Sten­ham Euro­pean Shop­ping Cen­tre Fund, a Chan­nel Is­land Stock Ex­change-listed prop­erty fund whose sole as­set is the 96 000sq m Nova Even­tis shop­ping cen­tre near Leipzig.

Sy­com made me­dia head­lines at the time, as it was the first South African-based listed prop­erty fund to ven­ture off­shore. Lit­tle did any­one know back then how quickly and dra­mat­i­cally the global real es­tate land­scape would change. Al­though two years have passed since the credit cri­sis hit world­wide, Sy­com’s re­sults for the year to end-March 2010 show the Euro­pean prop­erty mar­ket is still feel­ing the pain.

About R102m was wiped off Sy­com’s in­vest­ment in the Ger­man shop­ping cen­tre fund in the 12 months to 31 March. Its an­nual re­port shows the value of the Nova Even­tis cen­tre was marked down by 6,5% over the past fi­nan­cial year. The cap­i­tal reval­u­a­tion, cou­pled to euro cur­rency weak­ness, means Sy­com’s in­vest­ment in Sten­ham is now val­ued at R213,8m, down from R316m in March 2009. Sy­com paid R258,311m for its Sten­ham stake in 2007.

The Ger­man in­vest­ment has also taken a beat­ing on the in­come front, with its div­i­dend from Sten­ham drop­ping by a sub­stan­tial 20% – from R11,5m to R9,2m. Man­age­ment says that was pri­mar­ily due to a stronger rand, as the div­i­dend was down only 3% in euro terms.

A fur­ther worry is there’s a pos­si­bil­ity Sten­ham’s bal­ance sheet may have to be re­cap­i­talised within the next few months by way of a rights is­sue to re­duce the fund’s gear­ing ra­tio. Sy­com’s share of the re­cap­i­tal­i­sa­tion would be R90m, which man­age­ment say will be funded from Sy­com’s ex­ist­ing debt fa­cil­i­ties. Says man­age­ment: “Re­sults in the year ahead may be af­fected by the pos­si­ble early re­cap­i­tal­i­sa­tion of its in­vest­ment in Sten­ham.”

Not sur­pris­ingly, man­age­ment has put any off­shore ex­pan­sion plans on hold. “Our at­ten­tion will for the present be fo­cused on op­por­tu­ni­ties lo­cally rather than abroad,’’ reads the re­port.

Al­though the per­for­mance of its Ger­man in­ter­ests (around 4% of to­tal as­sets) marred Sy­com’s over­all per­for­mance for the year to March, the fund’s SA prop­erty port­fo­lio con­tin­ues to de­liver solid re­sults. The fund owns 15 re­tail and of­fice prop­er­ties worth R5,15bn.

Its shop­ping cen­tres in SA ap­pear to be in pretty good shape, with va­can­cies still be­low 2% and turnover up 6,13% on an an­nual ba­sis. Sy­com’s re­tail port­fo­lio, which con­trib­utes 56% of to­tal rental in­come, com­prise mostly re­gional malls, such as Som­er­set Mall, Paarl Mall and N1 City Mall in the Western Cape, Vaal Mall in Van­der­bi­jl­park and South­gate Mall and Four­ways Cross­ing in Jo­han­nes­burg. Vaal Mall posted the strong­est per­for­mance among all Sy­com’s cen­tres, with a 10% in­crease in re­ported turnover.

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