Fitch Ratings has for the first time assigned SA’s largest listed property company, Growthpoint, with a long-term foreign-currency issuer default rating.
The BB+ rating, which is one rung below investment grade, comes with a stable outlook.
Growthpoint also received a BB+ rating for its ability to honour senior unsecured financial obligations in foreign currency.
The stable outlook is likely to remain over the next two years based on Fitch’s current expectations of the company and industry developments.
Growthpoint could get a positive outlook if there is improvement in the SA operating environment and property market, especially the office sector where the company is battling high vacancy rates, said Fitch.
A negative outlook could result if there is further deterioration of the property market and operating environment, which could potentially weaken the company’s operational and financial metrics. A significant weakening of dividends from international investments could also lead to a drop in outlook.
Fitch said the ratings are reflective of Growthpoint’s large diverse property portfolio in SA. It owns a 50% stake in the V&A Waterfront, as well as international investments in Australia, the UK and Eastern and Central Europe.
The company’s growth has mainly been through mergers and acquisitions, and in the current tough environment it is focused on balance sheet and liquidity management. It has a healthy liquid and debt structure with R709m in cash, undrawn committed facilities of R6.5bn from several banks, and free cash flow of R253m, all of which could comfortably cover debt of R2.3bn maturing in the 2022 financial year.
During the 2021 financial year, development capex was R1bn and acquisitions were R309m with the group selling R559m in assets. It boosted its liquidity through a R4.3bn equity raise, a R557m dividend reinvestment plan and a reduced dividend payout ratio of 80%, compared with historical levels of 100%. SA real estate investment trusts (Reits) must pay a minimum dividend of 75% of distributable earnings.
Fitch said similar to many of its SA peers, Growthpoint has gone offshore to reduce exposure to the volatile rand. However, it is unlikely to expand into other countries beyond its current exposure to Australia, the UK and Eastern Europe. Growthpoint is expected to focus on refining and optimising its current portfolio.
“The overseas dividends are positive for Growthpoint’s credit profile, contributing stable and predictable income streams with no correlation to the volatile SA economy,” said Fitch.
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