Cromwell FY19 Results Extend Global Ambitions

29 August 2019

Real estate investor and manager Cromwell Property Group is pushing further into Europe announcing further plans to expand the platform as part of its annual results announcement. Cromwell reported a full-year (FY19) statutory profit of $159.9 million, down -22% (FY18 $204.1 million), with Operating Profit up 11.1% from the prior year to $174.2 million (FY18 $156.8 million) enabling the group to meets its distribution target of 7.25cps. As part of the announcement, Cromwell also announced that it was pushing ahead with a Retail Shopping Centre fund in Polland after exercising a pre-emptive right to acquire third party investor interests in an existing Fund. The Fund is a closed ended fund invested in shopping centres and hypermarket retail assets in Poland, comprising seven assets covering approximately 250,000 sq m of space with a Gross Asset Value of approximately €600 million ($990 million). Cromwell’s Polish team have been managing and developing the assets for over a decade. Cromwell described Polland as Europe’s fastest growing economy over the past five years, and has one of the highest expected growths in disposable income, consumer spending and retail sales globally. The global push to build a global platform comes as global real estate markets remain highly liquid boosted by lower bond rates and the hunt for yield. Office, logistics and specialist sectors are popular while e-commerce and changing consumer tastes are causing disruption in retail. CEO Paul Weightman said “Europe remains the most liquid real estate market in the world for foreign capital. Total office stock for example is approximately 350 million sqm, more than 14 times the volume in Australia. There are 34 different, distinct locations, each with more than 2 million sqm of office space, and some countries like Poland with substantially better fundamentals than Australia. If you have the local expertise and know where to go, when and why, there is a lot of opportunity to find value for our capital partners,” Mr Weightman stated. The Group now manages $11.9bn of assets across 15 countries. FY19 Highlights Statutory profit of $159.9 million (FY18 $204.1 million); Operating profit up 11.1% to $174.2 million (FY18 $156.8 million); NTA of $0.97 (FY18 $0.96) post a 12.7% increase in the number of securities on issue; Gearing of 35.0% with look-through gearing of 42.3% (pro-forma gearing of 23.9%); Weighted Average Lease Expiry (WALE) of 6.9 years; Total AUM of $11.9 billion up $400 million; FY19 operating profit 0.21 cps ahead of guidance at 8.21 cps (FY18 8.36 cps); and FY19 distributions per security met guidance at 7.25 cps (FY18 8.34 cps). Trading Cromwell sold $64 million of balance sheet assets during the financial year. On 1 July 2019, Cromwell exchanged contracts to sell its 50% interest in Northpoint Tower to Early Light International, subject to Foreign Investment Board Approval. Cromwell will retain asset management responsibilities and this will bring the total value of capital recycled from the start of FY18 to date to $520 million. Last week, Cromwell announced the acquisition of 400 George Street in Brisbane for $524.75 million. The 35-level building, in the prestigious North Quarter precinct, has a total net lettable area of 43,978 sqm spread across office, retail and childcare. A 4.9-year Weighted Average Lease Expiry (WALE) and 99.8% occupancy rate are underpinned by blue-chip corporate and government tenants. Direct Property Cromwell’s direct property investment segment reported operating profit of $136.1 million, a 12.8% increase on the prior year. The portfolio had like-for-like Net Operating Income (NOI) growth of 5.5%, a WALE of 6.9 years and occupancy of 91.7%. The portfolio consists of 21 assets, valued at $2.5 billion, divided into three components: The Core portfolio comprises ten assets, representing 69% of the portfolio by value ($1.7 billion), and has a WALE of more than 9.4 years. It has 99.2% occupancy and NOI growth of 3.3%; The Core+ portfolio comprises six assets, or 28% of the portfolio ($700 million), has a WALE of 3.1 years and NOI growth of 5.3%. It has occupancy of 95.4%; and The Active portfolio consists of five assets or 3% of the portfolio ($81 million) and has a WALE of 0.6 years, occupancy of 52.7% and NOI growth of 120.1%. Valuations for the direct portfolio increased by $74.9 million during the year (2018: $85.7 million), net of property improvements, leasing incentives and lease costs. This was equivalent to an increase in value of approximately 3.1% or 3.3 cents per stapled security from June 2018 valuations. Indirect Property The indirect property investment segment contains earnings from Cromwell’s warehousing of assets or investments in mandates or trusts as part of its ‘Invest to Manage’ strategy. Segment profit, after finance costs, was $45.4 million, up 95% from $23.3 million in the prior year. Nearly all of this was attributed to Cromwell’s 35.8% interest in CEREIT. Cromwell’s share of CEREIT operating profit recorded for the year was $44.6 million (2018: $23.2 million). CEREIT’s distribution per unit for the first half of the 2019 calendar year was €2.04 cents per unit which was 4.6% above IPO forecasts. Funds Management Funds and asset management segment operating profit, after finance costs, was $28.5 million (FY18: $35 million). Total segment AUM increased 3.2% to $9 billion, driven by an increase in retail AUM to $2.3 billion (FY18: $2 billion) while wholesale AUM was unchanged at $6.7 billion versus the prior year. Guidance FY20 operating profit is affirmed at the upper end of previous guidance at 8.30 cps and distributions to at 7.50 cps. Cromwell’s securities closed at $1.24 on 28 August 2019 meaning this represents an operating profit per security and distributions per security yield of 6.69% and 6.05% respectively. CMW Trading Chart vs ASX200 AREIT Blue – CMW, Purple ASX200 AREIT Last 12 months #Cromwell