German exposure takes a beating
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.