Growthpoint to enter commercial paper market

Growthpoint Properties Limited is set to become the first South African commercial property company to enter the locally listed commercial paper (CP) market on the back of its investment-grade credit ratings assigned by Moody's Investors Service on a global and national scale and, in both cases, in the long- and short-terms.(See Moody's press release attached).

Growthpoint is the largest listed property company in South Africa with a portfolio of over 460 retail, office and industrial properties that are geographically diversified across South Africa, Namibia and Australia with a value of approximately R33.5 billion and producing gross revenues of some R3.8 billion.

Moody's has assigned Growthpoint global long-term and short-term Issuer Ratings of Baa2 and P2 respectively. These ratings represent Growthpoint's core credit quality on a globally comparable basis.

At the same time Moody's also assigned Growthpoint Properties long-term and short-term South African National Scale Ratings (NSR) of A1.za and P1.za respectively. The NSR P1.za rating is the best short-term rating achievable nationally from Moody's.

Moody's has assessed the outlook on these ratings as stable.

Moody's indicates that the globally comparable Baa2 Issuer Ratings, reflect Growthpoint's strong market position as the largest property loan stock company in South Africa. It also points to the size and quality of the company's property portfolio which benefits from an active internal property management team and produces a solid, recurring rental income stream underpinned by medium- to long-term leases, contractual annual rent escalation clauses, low vacancy rates, and a diversified tenant base.

Growthpoint Properties' relatively strong credit metrics, with low leverage and a total debt to gross assets of 34%, also contributed to the ratings.

The stable outlook on the Baa2 Issuer Rating reflects Moody's view that despite a weakening economic climate in South Africa, Growthpoint will continue to produce steady revenues and operating profits.

"Growthpoint is extremely pleased with the outcome of the ratings," notes Stuart Snowball, Financial Director of Growthpoint Properties Limited. "They will serve to increase Growthpoint Properties' global competitiveness and recognition. They also position the company ideally to enter the CP market".

To this end, Growthpoint is establishing an unsecured R5.0 billion Domestic Medium Term Note Programme. It plans to use this initially for the issuance of short term commercial paper. Snowball indicates that the company intends to undertake its first issue before year end and anticipates the issue to total in the region of R500 million.

Growthpoint Properties has previously obtained funding from traditional sources, typically mortgage bonds from banks, as well as funding from the Commercial Mortgage-Backed Securitisation (CMBS) market. Going forward, the ratings allow Growthpoint Properties as an investment grade company to diversify its funding sources into other markets such as CP and longer-term corporate bonds.

Moody's notes that it considers Growthpoint Properties' liquidity risk profile to be good. The company has good access to both debt and equity capital. To date during 2009 Growthpoint has raised some R3,5 billion in equity capital through a underwritten rights offer of R1,7 billon in January, a R1.3 billion vendor placement in September and furthermore, over 65% of Growthpoint's linked unitholders elected to re-invest their distributions, raising a further R540 million in September.

"Right now the cost of short-term funding is cheaper than long-term funding. This is a result of the greater availability of funds in the short-term space. It is our intention to prudently take advantage of this more affordable source of funding," explains Norbert Sasse, CEO of Growthpoint Properties Limited. "Securing funding from the cheaper short-term CP market will contribute to continued distribution growth for Growthpoint's investors."

Now, with its favourable Moody's NSR P1.za short-term rating, Growthpoint has earned its ticket into the CP market. Absa Capital was appointed by Growthpoint Properties as ratings advisor. "The Absa Capital team played an important role in facilitating this ratings process for Growthpoint," notes Snowball.

"We are excited about being the first South African listed property company to explore the CP market," says Sasse. "In keeping with Growthpoint's conservative financial management approach, the quantum of CP funding represents only about 5% of Growthpoint's total debt. Growthpoint has more than enough committed unutilised facilities in place to cover this should it be required".

Get commercial property news by email

Free alerts when we publish — pick a focus or get everything, unsubscribe in one click. Subscribe »