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GROWTHPOINT PROPERTIES LIMITED - COVID19 Impact on Growthpoints business, confirmation of HY20 dividend payment and withdrawal of FY20 guidance

Release Date: 26/03/2020 17:15
Code(s): GRT     PDF:  
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COVID–19 Impact on Growthpoint’s business, confirmation of HY20 dividend payment and withdrawal of FY20 guidance

Growthpoint Properties Limited
Approved as a REIT by the JSE
(Incorporated in the Republic of South Africa)
Registration number 1987/004988/06
ISIN: ZAE000179420
JSE Share code: GRT
("Growthpoint” or "the Company")

COVID–19 IMPACT ON GROWTHPOINT’S BUSINESS, CONFIRMATION OF HY20 DIVIDEND
PAYMENT AND WITHDRAWAL OF FY20 GUIDANCE

This announcement is intended to provide information to all our stakeholders and attempts
to address key concerns and questions raised over the past two weeks.
We are all navigating through unchartered territory, however as a business and a responsible
landlord, we can assure you that we are doing our best to ensure the continued effective,
proactive and sustainable management of Growthpoint, while at the same time focusing on
the health and well-being of our employees, tenants, customers, and other stakeholders.

Given the fluidity of the situation, it is not currently possible to quantify with any degree
of certainty, the magnitude, duration and full impact that the Covid-19 pandemic may have
on Growthpoint’s operations.
The quality of Growthpoint’s property and investment portfolio, dispersed by both
geography and sector, coupled with the diversity in our tenant base, strong balance sheet
and healthy cash flows, should provide a stable foundation for us to manage through this
very uncertain and difficult time.

International investments
As an international business, Growthpoint has significant investments in Growthpoint
Properties Australia (GOZ), Globalworth Real Estate Investments (GWI) and Capital &
Regional plc (C&R), all of which are separately listed entities. Shareholders are encouraged
to refer to market update announcements from these entities directly for more specific
information as it relates to the impact of Covid-19 on their businesses.
Capital management
Managing our cash flow and liquidity is a priority. As a business, we have always had a strong
balance sheet, as evidenced by our Aaa.za Moody’s national scale rating, which should
benefit us over the next few months. Over the last three years, we have shifted our sources
of debt in favour of the debt capital markets, which accounted for 47.4% of our R39.9bn
total debt at HY20 (versus 40% at FY18), with traditional bank loans making up the balance
of our funding sources. We have excellent relationships with all the major South African
banks with a well-diversified debt book per financier.
As reported at 31 December 2019, 8% of outstanding debt (R3.2bn) expires in the period 1
January 2020 to 31 December 2020. As of 23 March 2020, we have committed revolving
credit facilities of R3.2bn which are undrawn and cash balances of R1.1bn. We have already
refinanced c. R1.5bn of the 2020 expiries early and have approximately R1bn of bonds
maturing before the end of June 2020. We are currently in the process of refinancing this
with the banks directly or will consider undertaking a private placement. Growthpoint has
debt maturities of R735m due in Q4 of the calendar year which we will also seek to refinance
early.
Maturities of foreign exchange denominated loans on the SA balance sheet are set out below:

 Loan                   Amount                  Maturity
 EUR loan               EUR50m                  Dec 2021
 GBP loan               GBP78m                  Jan 2021
 USD loan               USD425m                 May 2023


The strictest loan covenants that apply to our bank facilities are a loan-to-value (LTV) ratio
at 55% (this was increased from 50% as reported at 30 June 2019) and an interest cover ratio
(ICR) of 2x. We are well within these at 33.3% LTV and 3.8x ICR for the South African business
and 38.2% and 3.5x respectively for the Group, providing significant headroom in an
environment where property values are expected to come under pressure. Some covenants
included in our loan agreements are based on the consolidated Group balance sheet, while
others are based on South Africa only. Furthermore, LTV calculations are not impacted by
the market value or share prices of our investments. For the South African LTV calculations
our investments in GOZ, GWI, C&R and the V&A Waterfront are included at NAV in the
denominator with the debt that Growthpoint has against these investments included in the
numerator. The Group calculation is based on consolidated numbers with GOZ and C&R
consolidated at 100%, with our equity investments in GWI and the V&A Waterfront included
as per the South African LTV calculation.
As far as our cross-currency interest rate swaps (CCIRS) are concerned, we have no
requirements to post collateral/cash in circumstances where we experience significant
currency fluctuations. It is also important to note that we have no form of margin loans on
the balance sheet for any of our investments as we have not in any instance borrowed
against any of the shares in our investments. The impact of a weaker ZAR on our CCIRS
would only be evident upon refinancing, where we could be required to “top up” the ZAR
borrowings leg to get the same amount of foreign currency debt. The ZAR has not really
weakened against the AUD in the recent past as the AUD itself has been weak. Currently
“top-ups” would only be expected for our EUR CCIRS (note: we have no GBP CCIRS, only a
GBP loan). We have limited CCIRS maturing between now and the end of the calendar year:
 CCIRS              Amount             Maturity
 ZAREUR CCIRS       EUR39m             May 2020
 ZARAUD CCIRS       AUD100m            September 2020


Total CCIRSs with weighted average maturities are set out below:
 CCIRS          Total         Weighted average maturity (at 31
               amount                     Dec 19)
 ZARAUD       AUD970m                    2.3 years
 ZAREUR        EUR86m                    1.4 years
 ZARUSD        USD14m                    4.4 years
 USDEUR       EUR326m                    3.3 years


Structure of our RSA leases
Growthpoint’s income is contractual in nature and at 31 December 2019 our weighted
average lease period was 3.5 years. The vast majority of our leases prohibit tenants from
withholding rental under any circumstances. Therefore, for so long as Growthpoint provides
occupancy to a tenant, the tenant is obliged to pay rent. Our current focus is on supporting
all our tenants through this time. We are performing a detailed analysis of our tenant base
to assess where the most significant pressure points are, and we are dealing with all requests
for rental relief and other concerns on a case-by-case basis. We are considering a range of
options to provide short term cash-flow support to our tenants including rent deferrals and
reductions where appropriate. We would seek to recover any rent deferrals or reductions
over a period of time, whilst assisting our tenants to navigate through the next couple of
months with them being able to trade again when the 21-day lockdown period expires.


RSA portfolio
We have significantly increased our focus on hygiene and cleanliness across all our buildings
in all three sectors.
Out of necessity, many tenants in our office portfolios have moved to a work-from-home
environment to adhere to the social distancing directive and lockdown provisions.
Our industrial portfolio has a diverse tenant base and whilst tenants in the logistics business
and those classified as critical services will be less impacted, like the other two sectors,
many will be unable to operate during the lockdown.
Our retail business no doubt faces the most uncertainty at present. As we move into
lockdown, our grocery, pharmacy and other tenants who fall within the Government's
definition of critical services will be staying open, and our shopping centres will support
their trading. These tenants will likely benefit from consumers who are stocking up. Sadly,
restaurants, personal care retailers, independents and line shops will be impacted the most,
and our focus will be on finding ways to support them in the short term.
It is very early days, and we are yet to see the full extent of trends in key metrics such as
footfall, which will only become more evident over time. Indicatively, however, at this stage
foot counts are 5% to 10% down, however we expect this to deteriorate materially as we go
into lockdown.
We have minimal exposure to turnover rental levels. While all leases have turnover clauses,
turnover rentals make up less than 1% of our retail sector's gross property income currently.
Confirmation of HY20 dividend and withdrawal of FY20 guidance
Growthpoint is pleased to confirm the payment of its HY20 dividend of 106.0 cents per share
on 6 April 2020, however, given the uncertainty of all of the above, withdraws its dividend
guidance previously provided for FY20.


Sandton
26 March 2020


Sponsor: Investec Bank Limited

Date: 26-03-2020 05:15:00
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