A Review of the Nigerian Energy Industry

South Africa: Moody’s upgrades growthpoint’s rating


17 May 2015, Johannesburg – Moody’s Investors Service has upgraded Growthpoint Properties’ [JSE:GRT] global scale issuer and senior unsecured ratings to Baa2/P-2 from Baa3/P-3.

Moody’s announced that Growthpoint’s national scale issuer ratings was changed to A1.za/P-1.za from A2.za/P-2.za and its national scale senior unsecured Medium Term Note Programme (MTN) ratings to (P)A1.za/(P)P-1.za from (P)A2.za/(P)P-2.za.

The outlook on all ratings has been changed to stable from positive.

Ratings rationale

“The upgrade recognises Growthpoint’s sizable property portfolio of around R95bn – after its Acucap Properties/Sycom Property Fund acquisition, track record of sound liquidity management and strong financial metrics combined with the expectation that Growthpoint intends to maintain group leverage levels – as measured by total debt to gross property assets – below 40%,” explained vice president and senior analyst Dion Bate.

As of the last twelve months to December 31 2014, total debt to gross assets of 29.3% was well below Moody’s upward guidance levels of 40%, with fixed charge cover of 3.0x – as measured by Ebitda to interest expense – remaining above its guidance level of 2.7x for upward rating pressure.

The recent acquisition of Acucap and Sycom (effective 1 April 2015) further strengthens Growthpoint’s portfolio quality, giving it increased exposure to the relatively resilient and defensive nature of the retail property sector.

However, Acucap’s and Sycom’s combined credit metrics are weaker than Growthpoint’s, which will result in a slight weakening of Growthpoint’s consolidated credit metrics, but Moody’s expects Growthpoint’s consolidated credit metrics to remain within its current rating guidance.

Growthpoint’s secured debt to gross assets will also increase given close to 100% of Acucap’s and Sycom’s debt is secured. Moody’s does expect Growthpoint to reduce its exposure to secured debt over time as these secured debt obligations mature.

The Baa2/A1.za issuer ratings are supported by Growthpoint’s strong market position as the largest Reit (Real Estate Investment Trust) company in South Africa (Baa2 stable). The ratings are also based on the property portfolio’s size and quality.

Secured debt

A constraining factor on the ratings is the high proportion of debt that is secured – 71% of total gross debt – as well as the low level of unencumbered assets.

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 and will continue to maintain conservative credit metrics within our current rating guidance levels.

Furthermore, Moody’s would expect Growthpoint to continue to manage its liquidity profile by addressing approaching debt maturities 12 to 18 months ahead of time.

Further positive rating action would depend on strengthening financial metrics such as leverage as measured by debt to gross assets being around 30% on a sustainable basis, fixed charge cover trends towards 3.5x and the level of unencumbered assets to gross assets improves towards 60%, while maintaining the level of secured debt to gross assets below 20%.

Moody’s does not expect any further upward rating action as Growthpoint’s rating is likely to be constrained at the same level as South Africa’s government bond rating (Baa2 stable) given the bulk of Growthpoint’s cash flows and property exposure are derived in South Africa.


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