Growthpoint Properties Limited reduces risk

Posted On Tuesday, 19 June 2007 02:00 Published by eProp Commercial Property News
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In a tactical transaction which has already proven beneficial to its linked unitholders, Growthpoint Properties Limited fixed interest rates for a total of R1,3 billion of floating rate debt the week prior to Reserve Bank Governor Tito Mboweni's announcement of a 0,5% interest rate increase

Norbert SasseThe interest rate fix, which comprised a transaction with Rand Merchant Bank and another with Investec Bank, takes Growthpoint’s total fixed-rate debt to just over 93% of the company’s total debt, successfully mitigating interest rate risk. These interest rate fixes have reduced Growthpoint’s weighted average fixed interest rate from 9,6% to 9,4%. The interest rate saving in the first year should equate to some R10 million.

Growthpoint is the largest JSE-listed South African property holding and investment company. At 31 May 2007, the nominal value of Growthpoint's long-term borrowings was R8,2 billion, giving a loan to property value ratio of approximately 40%.

Growthpoint has, over the past six years, grown from R90 million in assets to the sector-leading property company it is today with over R20 billion in assets. The company is approaching its long expressed vision of inclusion in the JSE Alsi Top 40 Index.

“The favourable terms on which these fixes were achieved reflects a vote of confidence in Growthpoint’s strong balance sheet, with tangible net assets, after borrowings, of over R12 billion,” says Norbert Sasse, CEO of Growthpoint Properties Limited.
                                                                                                                             Growthpoint has recently fixed interest rates for a total of R1,3 billion of floating rate debt, taking the total fixed rate debt to just over 93% of it's total debt.                                                                                                                                           
In terms of the first transaction, concluded with Rand Merchant Bank, R650 million was fixed at 8.56% for 12 years to 31 May 2019.  “We are delighted to have been able to assist Growthpoint in achieving its strategic fixed interest rate hedging targets,” comments Craig Williamson of RMB Treasury Debt Capital Markets – Structuring.

Investec Bank was the counter-party in the second transaction, in terms of which R658 million was fixed at 8.465% for 13 years, starting on 31 December 2007. In addition to the above, Growthpoint also managed to extend the expiry date of R501 million of interest rate fixes that were due to expire in 2009 and have now been extended to expire in 2021.

As a consequence of these fixes and the extension, Growthpoint now carries insignificant interest rate refinancing risk for the next three years.

“Growthpoint has once again demonstrated why it is one of the top performers in the property sector with its proactive approach to interest rate risk management. In today’s economic climate this is vital and being able to recognise and execute yield curve opportunities where and when they occur can give a fund such as Growthpoint a significant advantage over the market,” says Ryan Tholet of Investec Capital Markets – Structuring

Tholet explains that, with a view toward further short-term rate rises over the  next year -- of between 50bps-100bps -- as well as a similar movement in longer-term rates, Growthpoint has minimised the substitution effect that higher interest rates can have on property stocks thereby ensuring that its long-term yields remain intact.

“With global benchmark rates still on the rise, continued pressure on our Current Account and the inflationary impact of food, oil and wages lurking in the wings, the one risk Growthpoint do not have to concern itself with over the medium term is interest rates. Not too many companies can easily say that, ” Tholet points out.

CFO of Growthpoint Stuart Snowball notes that “it is the policy of the Growthpoint to have at least 75% of its debt at fixed interest rates. In practice, we seek to have interest rates over 90% of our debt fixed in the long term and strive to limit the company's exposure to interest rate fluctuations as much as possible”.

Snowball emphasises that Growthpoint is not a speculator in the interest rate market. “If enhancing acquisitions can be made at a given cost of capital, we would look to fix rates on the required debt for periods of between five to 10 years,” Snowball notes.

Sasse notes that there has been a substantial increase in long-term rates in the week after the fixed rate swaps were concluded. In addition, it was very pleasing that Investec Bank and RMB had granted facilities to enter into swap contracts with Growthpoint going out for 12 to 14 years on an unsecured basis.       

Last modified on Thursday, 24 April 2014 11:58

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