Increased investment focus to drive future growth


  • Statutory profit of $204.1 million (FY17 $277.5 million);
  • Operating profit of $156.8 million up 3.0% (FY17 $152.2 million);
  • NTA up 7.9%, or $0.07 per unit to $0.96 (FY17 $0.89);
  • Group gearing of 37%, at bottom of target range (FY17 45%);
  • WALE of 7.2 years;  Debt refinanced with tenor extended to 5.2 years;
  • Total AUM of $11.5 billion up 14%, or $1.4 billion;
  • FY18 distributions per security meet guidance at 8.34 cps (FY17 8.34 cps);
  • FY18 earnings per security ahead of guidance at 8.36 cps (FY17 8.65 cps).

Real Estate Investor and Manager Cromwell Property Group (ASX:CMW) today reported full-year (FY18) statutory profit of $204.1 million (FY17 $277.5 million).

Operating profit, considered by the Directors to best reflect the underlying earnings of Cromwell, was $156.8 million up 3.0% from the prior year (FY17 $152.2 million). Post Cromwell’s institutional and retail capital raisings, distributions met guidance at 8.34 cps.

Total assets under management (AUM) increased by 14% to $11.5 billion.

“The success of Cromwell European REIT (CEREIT), the growth in our Funds Management platform, the support we have from a range of new capital partners and the opportunities we have identified give us the confidence to invest further in the future growth of the platform,” said Mr Weightman.

“We started investing in building the funds management platform in 2014 and set ourselves a target of generating 20% of earnings from that source,” said Mr Weightman.

“Having now achieved 25%, eclipsing our previous target, the Board has set new targets and we have adopted a new strategy of increased investment to drive further growth.”

“Our strategy is to invest where we can leverage returns from additional management revenues or ‘Invest to Manage’ and create value,” he declared.

Cromwell is positioned to deliver its new ‘Invest To Manage’ strategy by utilising existing balance sheet liquidity and asset recycling to fund a range of initiatives that are intended to build enterprise value, add to medium term earnings and generate higher total shareholder return.

“We have also reviewed our distribution policy,” said Mr Weightman.

“We will reinvest some distributable cash back into the business to accelerate growth.”

Mr Weightman highlighted how the ‘Invest To Manage’ strategy would connect Cromwell’s existing and new capital sources to opportunity across its growing platform.

“We now have a much wider range of capital sources and an ability to connect them to investment opportunities in Europe, Australia and New Zealand,” he said.

“Where appropriate, we will look to fund the seeding and warehousing of some of these upcoming opportunities and co-investment in funds to further accelerate AUM growth. We have already demonstrated our ability to execute this concept with the warehousing of Dutch office assets to seed the successful IPO of CEREIT,” he added.

During FY18 Cromwell continued its recycling and reinvestment strategy and capital management initiatives. More than $154 million of balance sheet property assets were sold, $205 million in new capital was raised, €230 million in convertible bonds issued and all debt refinanced.

“Net Tangible Assets (NTA) are up, gearing is at the bottom of our target range, our Weighted Average Lease Expiry (WALE) is over seven years and our debt tenor over five.”

“Our future lease expiry profile is favourable and we have low upcoming incentive and maintenance capex requirements. Overall, we have a strong, secure balance sheet with liquidity and optionality,” he concluded.


Cromwell’s property investment segment reported operating profit of $115.0 million, a 7.8% decrease on the prior year due in part to $154 million in asset sales. The portfolio itself which is valued at $2.45 billion has three components.

The Core portfolio comprises nine assets representing 58% of the portfolio by value ($1.4 billion) and has a WALE of more than 11 years. It has full occupancy and Net Operating Income (NOI) growth of 4.6%.

The Core+ portfolio comprises seven assets or 36% of the portfolio ($0.9 billion), has a WALE of 3.8 years and NOI growth of 1.6%.

The Active portfolio consists of seven assets and the WALE is 2.9 years, occupancy 79.8% and, as might be expected for assets to be repositioned, the NOI decreased 14.8%.

There were strong leasing outcomes during the year in the portfolio with a total of 100 transactions over 75,000 sqm. Cromwell’s WALE is 7.2 years due in part to the commencement of the new Department of Social Services lease at Soward Way. The lease expiry profile is also favourable.

“There are only four individual expiries which represent more than 1% of income over the next three years,” said Mr Weightman.

“We are in active negotiations with three of the four. The fourth lease is in an active portfolio asset for which we are examining other options.”

Both Soward Way and Northpoint Tower, representing a combined investment of $300 million in value add activity, reached practical completion during the year.

“We have talked a lot about both these assets but I think they are a great testament to Cromwell’s ability to reposition and add value to properties,” said Mr Weightman.

“We have two new value add projects to keep us busy in FY19,” said Mr Weightman.

Cromwell submitted a development application in April to add a new four storey office building, hotel, retail and other amenity to Victoria Avenue, Chatswood. The result of the DA is expected in November, with construction, subject to Council approval, starting in early 2019.

The office buildings at Tuggeranong Office Park are now being repositioned to Aged Care.

Cromwell has invested in a 50% ownership interest in LDK Healthcare, led by LDK Managing Director and industry veteran Paul Browne. LDK will be the operator of a planned 350-apartment, 500 resident, aged care and retirement community at Tuggeranong, which is the seed asset for a new aged care Fund.

“Activity has commenced on site and the first sales suite is due to open next year. This is an investment theme which we believe has great potential and we are actively looking for further development sites and conversion opportunities,” said Mr Weightman.

“The opportunity has attracted strong interest from potential capital partners,” he added.


Total funds management operating profit was $39.6 million up 43% on the prior year (FY17 27.7 million).

CEREIT has now announced two quarters of results to the Singapore Exchange Securities Trading Limited (SGX-ST), and a maiden distribution of €0.253 cents per unit will be paid next month.

Mr Weightman reflected on the IPO, “CEREIT debuted at €0.55 per unit, valuing our stake at €303 million and, even though it is early days, I’m delighted to see that it is trading at a premium to its IPO price and ahead of the S&P Singapore REIT Index.”

Cromwell opened a management office in Singapore, the largest wealth management centre in Asia last year. The CEREIT IPO has increased exposure to institutional investors and allowed the business to identify new capital providers interested in both Australian and European opportunities.

“I have said this before but CEREIT is just beginning to transform our business and I expect there will be more substantive transactions involving CEREIT in FY19,” said Mr Weightman.

Cromwell’s wholesale funds management business deploys capital into Europe, Australia and New Zealand. Wholesale Funds Management operating profit was $16.4 million.

“Over one third of the capital deployed into Europe is now longer dated and it is our desire, and stated strategy, to see this proportion continue to increase,” said Mr Weightman.

Two large mandates in Europe, representing €1.1 billion of AUM are in the process of being wound down. One fund is expected to settle before the end of the calendar year while the other will continue into 2019. Further progress updates will be provided at the appropriate time.

Retail funds management contributed operating profit of $3.8 million.

“Patience is everything in property. There is demand from retail investors to support acquisitions by our Cromwell Direct Property Fund and new Syndicates but we always put the interests of our retail unitholders first. We must be satisfied with the fundamentals and long-term performance of any acquisition. Asset pricing in the current market does not give us that confidence.”

“We are happy to wait for the right opportunities to present themselves and be more active when we see value for investors,” he said.

In New Zealand, Oyster Group AUM reached NZ $1.4 billion with the settlement of the 6.2-hectare Central Park Corporate Centre for NZ $209 million. The purchase with global investment firm KKR is one example of Cromwell being able to connect capital to opportunity across its platform.


While the Australian economy remains broadly neutral, commercial real estate markets are close to their peaks. Cromwell’s strategy remains to seek diversification and some measured, low risk exposure to Asian capital flows and European economic growth.

“Having a local, on the ground presence in Singapore and in 12 different European countries means we are well placed to provide capital partners with valuable insight and identify the right investment opportunities,” said Mr Weightman.

“Cromwell is in a very favourable position and we are very positive about the future.”

“The balance sheet is strong with low gearing and an extended debt tenor coupled with long WALE and low future incentive and maintenance capex requirements. The Core portfolio will drive NOI, there is leasing upside on the Core+ assets and the Active portfolio will provide future value add opportunities.”

“We are excited about our ‘Invest To Manage’ strategy. Our new capital partners are encouraging us to grow and we have a pipeline of accretive opportunities,” said Mr Weightman.

“This year we paid out 100% of operating earnings.”

“We would like to take some of those funds and reinvest them into the exciting growth opportunities we have identified. In doing so we are very conscious that this represents dollars and cents that would otherwise be sitting in securityholders’ bank accounts.”

“We will work very hard to use the funds to drive future operating earnings growth and total shareholder return.”

FY19 guidance assumes maintainable transactional and funds management revenues consistent with historical performance. It does not include the potential impact of investments into the platform, the ‘Invest to Manage’ strategy or application of existing balance sheet liquidity. Updates will be provided on these items when they occur.

Guidance does assume reinvestment of some distributable cash back into the business for further growth with a distribution payout ratio of approximately 90% of operating earnings to be targeted in FY19.

Initial guidance is that FY19 operating profit is expected to be no less than 8.00 cps and distributions no less than 7.25 cps.

This represents an operating profit per security and distributions per security yield of 6.96% and 6.30% respectively based on closing price of $1.15 on 22 August 2018.