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Moody's assigns Growthpoint Baa2 rating

Posted On Tuesday, 20 October 2009 02:00 Published by eProp Commercial Property News
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Moody's Investors Service has assigned Growthpoint Limited, the largest listed property company in South Africa by total assets, first time long-term and short-term Issuer Ratings of Baa2 and P2 and long-term and short-term National Scale Ratings of 'A1.za and P1.za'.

Norbert SasseAt the same time Moody's has assigned provisional long-term and short-term NSRs to the Domestic Medium Term Note Programme of (P) A1.za and (P) P1.za. The outlook on the ratings is stable.

Moody's said the Baa2 Issuer Ratings reflect Growthpoint's strong market position as the largest property loan stock company in South Africa.

The ratings are also based on the size and quality of the company's property portfolio that benefits from an active internal property management team and produces a solid, recurring rental income stream underpinned by:

  1. medium- to long-term leases,
  2. contractual annual rent escalation clauses,
  3. low vacancy rates, and
  4. a diversified tenant base.

The properties are further diversified by sector, retail, office and industrial; however, the portfolio is geographically concentrated in the province of Gauteng, South Africa.

The ratings also incorporate Growthpoint's relatively strong credit metric, with low leverage at 30 June 2009 as measured by adjusted net debt/EBITDA of 3.6x and adjusted total debt/gross property assets at 34% with good fixed charge coverage of 2.8x.

The ratings also factor in the fact that Growthpoint has only a moderate exposure to development risk, which is limited to letting risk on predominantly pre-let development projects.

The company recently acquired a listed property trust in Australia, which is characterized by good quality industrial properties, strong tenants and an experienced internal property management team.

A constraining factor on the rating is the possible extent to which this distant overseas acquisition will distract senior management from the core business in South Africa.

Another constraining factor is the high proportion of debt that is secured; Growthpoint's secured loan to value of 34% and this is the highest level of its similarly-rated peer group. Moody's nevertheless does not expect it to rise materially above current levels.

"Moody's considers Growthpoint's liquidity risk profile to be good.

"Cash flow from operations and available credit facilities cover cash outflows and debt maturities over the next 12 months. We note that a large amount of debt, R3.17 billion, matures over the course of 2011.

"Management has already begun to address the refinancing and Moody's assumes that this will be accomplished in a timely manner, particularly as Growthpoint has continued good access to both debt and equity capital.

"The company's credit facilities are provided by a variety of leading South African banks and are subject to relatively few covenants and a continuing MAC clause; however, the MAC clause has a 30 day remedy period. At present there is ample headroom between the company's
credit metrics and the loan covenant ratios.

"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.

"The stable outlook also assumes that management will complete the refinancing of the debts maturing in 2011 at least twelve months before the respective maturity dates and will continue its financial policy to keep secured debt to total property assets close to current levels.

"Moody's notes that the company has grown quickly but that acquisitions have been in sizes that the company could relatively easily digest, such as the recent acquisition in Australia. The stable outlook assumes the absence of large, transformational future acquisitions," Moody's stated.

Last modified on Tuesday, 29 April 2014 10:23

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