In September 2009 Growthpoint acquired a 76.2% interest in an Australian ASX listed property fund that has been rebranded as Growthpoint Properties Trust Australia. GPT Australia has a quality portfolio of 23 warehousing and distribution properties valued at approximately AUD660 million.
Growthpoint’s initial issue on the Johannesburg Stock Exchange of South Africa of R360 million 3-month fixed notes and R140 million 6-month floating notes linked to the 3-month JIBAR (Johannesburg Inter Bank Agreed Rate) is a first for a South African listed property company.
Working with ratings adviser and sole lead arranger for Growthpoint’s CP issue, Absa Capital, the investment banking division of Absa Bank Limited, this is also the first time that a South African listed property company has deployed its corporate credit rating to issue CP.
Moody's Investors Service recently assigned Growthpoint Properties investment-grade ratings on both a global and national scale, with a stable outlook, increasing its global and local competitiveness and recognition. Moody's assigned Growthpoint Global Scale long-term and short-term Issuer Ratings of Baa2 and P2 respectively and South African National Scale Ratings (NSR) of A1.za long-term and P-1.za short-term.
“A total of 12 investors bid for the notes, resulting in significant demand and favourable pricing with a weighted average margin across the notes of 62 basis points,” explains Norbert Sasse, CEO of Growthpoint Properties Limited. “The CP market has provided Growthpoint with access to a more affordable source of funding and will contribute to continued distribution growth for Growthpoint’s investors.”
Growthpoint has previously obtained funding from traditional sources, typically mortgage bonds from banks, as well as funding from the Commercial Mortgage-Backed Securitisation (CMBS) market. Its investment-grade credit ratings have now allowed Growthpoint to diversify funding sources into new markets such as CP and potential longer-term corporate bonds.
Prasanna Nana, Head of Debt Capital Markets (South Africa) at Absa Capital notes that “It is always a privilege to be associated with a company of such calibre and credit quality as Growthpoint. The level of auction oversubscription is a notable reflection of Growthpoint’s reputation in the market”.
Growthpoint Financial Director Stuart Snowball explains that tapping into capital markets through CP holds further advantages for Growthpoint, including the lowered average cost of borrowings and diversification of borrowing sources.
Snowball says that Growthpoint intends to continue, and possibly expand, its issues in the CP market as long as the appetite for the paper remains favourable. “In line with our conservative financial management, Growthpoint has adequate unutilised loan facilities in place,” says Snowball. “However, right now the cost of short-term funding is cheaper than long-term funding as 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”.
The favourable Moody’s 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. The stable outlook reflects Moody’s view that despite a weakening economic climate in South Africa, Growthpoint will continue to produce steady revenues and operating profits.
“We are pleased with the success of our initial CP issue, which we believe reflects both the quality of Growthpoint’s credit ratings as well as the efficient manner in which the transaction was executed by the Absa Debt Capital Markets team,” concluded Sasse.
