Cromwell calls out ARA's incorrect claims

Cromwell has received a letter from representatives of ARA Asset Management (ARA) dated 7 November and a prefilled blue proxy form on 12 November 2019. ARA has indicated that it may send the letter and proxy form to securityholders prior to Cromwell’s 2019 Annual General Meeting (AGM).

The blue proxy form shows ARA currently is trying to influence the control of Cromwell including with the election of its nominee Dr Gary Weiss to the Cromwell Board.

As ARA intends to vote against the Cromwell Board’s recommendations on all other AGM Resolutions except one, the Cromwell Board has established an Independent Board Sub Committee (which does not include Ms Tanya Cox, Ms Lisa Scenna, Ms Jane Tongs and Mr Paul Weightman) to consider and address the matters raised by ARA.

Cromwell’s Independent Board Sub Committee has reaffirmed the Board’s recommendation to securityholders not to vote for Dr Weiss.

Having not contested the important issue of conflict of interest raised by Cromwell, ARA has instead chosen to make a number of incorrect claims about Cromwell’s performance and governance, which are addressed below.

1.Inappropriate directions to Cromwell:

Cromwell’s Board has been independently recognised by GRESB and MSCI for its good corporate governance, and fully complies with all ASX listing and corporate governance requirements. It is duty bound to act in the best interests of all securityholders.

Cromwell’s ‘Invest to Manage’ strategy was presented to the market in August 2018 with the approval of the Board, inclusive of ARA’s nominee, at the time. Cromwell has been concerned to see ARA subsequently attempt to influence the strategy and operations of the business including directions that:

1.Cromwell sell assets (including significant parts of its long WALE Government portfolio) to funds to be managed by Cromwell and/or ARA;
2.Cromwell not undertake any initiatives that involve a capital raising;
3.that the Chair step down and make such announcements to the ASX despite an ongoing Board renewal process being undertaken by the Nomination and Remuneration Committee (which comprises independent Directors);
4.dictate operating structure and costs without a sound understanding of the underlying business; and
5.cease strategic transactions which are consistent with Cromwell's announced strategy. 

Cromwell’s Board believes that these attempts are clearly not in the best interests of all securityholders but have been made with ARA’s own strategic objectives, including a proposed future IPO, in mind. Cromwell has raised with ARA a wide range of material governance considerations over ARA’s directions that it believes are inappropriate and do not comply with Australian legal requirements or good corporate governance practices in Australian, Singapore and Europe. This has been to no avail.

2.Clear conflict of interest:

It has also become evident that ARA is a direct competitor to Cromwell in Australia, where Cromwell and ARA have competed to acquire the same assets, and in Europe where ARA is also active.

Due to the frequency of potential conflict and subsequent application of Cromwell’s conflict of interest policy, nominees of ARA, as a direct competitor, are not able to participate in Board deliberations to the full extent required to discharge their duties and obligations to Cromwell and its securityholders.

Mr David Blight’s position, as ARA’s previous nominated Board representative, was clearly untenable and he subsequently resigned. Cromwell was subsequently disappointed to see that ARA has now chosen to nominate Dr Gary Weiss, a Board member of Straits Trading Company Limited (Straits Trading) a substantial shareholder in ARA. Dr Weiss is clearly similarly conflicted.

In addition to his position at Straits Trading, Dr Weiss is Chair of Estia Health Limited (a competitor of Cromwell’s joint venture entity, LDK Healthcare), which creates further conflict. Dr Weiss’s skills are also already represented on the Board and he is substantially over-committed with other directorships.

3.Unduly influencing the independent construct of the Board:

The Board has taken the view that the interests of all securityholders are best represented by a Board where all non-executive directors are free of any conflict, especially those presented by the nominee of a direct competitor. Accordingly, and after a lengthy and independent process, the Board has appointed two new suitably qualified independent non-executive directors.

According to ARA’s blue proxy form, ARA intends to vote against the election of the new independent non-executive directors. Cromwell is again surprised and disappointed by ARA’s attempts to circumvent the previously agreed, and independent, process.

Voting against the new directors and thus reducing the size of the Board by two independents, and its diversity by reducing the number of female directors from three to one, is not consistent with Cromwell’s FY20 diversity targets, good corporate governance nor is it in the best interests of securityholders.

4.Incorrect performance assertions:

Cromwell has demonstrated strong performance, having significantly outperformed the S&P/ASX 300 A-REIT index, over 1, 3, 5, 10 and 15 years as shown below. Cromwell’s proven performance track record validates its strategic direction, its Board and its Management team. The notion put forward by ARA that Cromwell’s long-term outperformance is due to ‘sector tailwinds’ is incorrect given its sustained long-term outperformance compared to the index.

Cromwell Total Securityholder Return (2019)

In contrast, a number of REITs managed by ARA have significantly underperformed their respective indices. It should be noted that ARA has enjoyed a c.30% return on its investment in Cromwell, far superior to the returns enjoyed by investors in any of the REITs that ARA actually manages.

ARA - Image OneARA - Image 2

5.Incorrect Distribution and Remuneration assertions:

ARA has also sought to imply that the CEO’s personal interests have been prioritised improperly.

Having had a nominee on the Board at the time, ARA was aware that the Invest to Manage strategy included a deliberate change in Cromwell's distribution policy to allow Cromwell to re-invest additional funds into further growing the business. 90% of operating profit was distributed to securityholders in FY19. This change in policy and the increased investment Cromwell has been able to make in its business has already paid benefits to Cromwell’s securityholders.

As per Cromwell’s audited remuneration report the CEO did not receive an increase in remuneration in FY19. The statement that his actual remuneration increased in the year is therefore factually incorrect.

During FY18, the CEO’s short-term incentives were reduced and his long-term incentives increased by a similar amount in the form of Performance Rights (right to buy securities) which may or may not vest in the future depending on performance hurdles set by the Board, and aligned to securityholder value.

The granting of these Performance Rights was not possible until the grant received approval from securityholders at Cromwell's 2018 AGM, meaning the statutory expense was recorded in FY19 i.e. a year later. Again, this change was made when ARA had a representative on the board and they were fully aware that this ‘catch-up’ provision technically needed to be included as a FY19 statutory expense.

6.Attempts to exert control without paying a control premium:

ARA has included Cromwell’s funds under management and operating platform in information on ARA’s website and other material and represents Cromwell as an “associate” implying its funds and operations are somehow indirectly managed by ARA.

It is clear from all of its actions that ARA has attempted to exert undue influence and control over Cromwell and where it has not been successful, continues to agitate in the media and attempt to disrupt the strategy and operations of the business including voting against all of the independent board recommendations at the upcoming AGM except one.

The Board will not allow a single securityholder to directly or indirectly exert undue influence and control of the Cromwell business, to the securityholder’s own benefit, without making an offer to all securityholders and without paying a premium for control.

The Board (re-affirmed by the Independent Board Sub Committee) has made clear and considered recommendations about the Resolutions to be voted on at the upcoming AGM. The rationale is fully detailed in the Notice of Meeting and Explanatory Memorandum and you are encouraged to read it before exercising your vote.

Cromwell’s Board will continue to act in the interests of all securityholders and is committed to Cromwell’s strategy and to continue building long term value for securityholders.

If you have any questions, please contact Cromwell’s Investor Services Team on 1300 268 078 (within Australia) or +61 7 3225 7777 (outside Australia) or email