Cromwell Suffers from European fall outs

27 February 2023

Cromwell Property Group announced its results for the half-year period 31 December 2022 (HY23) reporting an operating profit of $87.1 million, down -9.6% on the prior corresponding period.

Cromwell also reported a HY23 statutory loss of -$129.5 million, a significant turnaround from the prior period profit of $132.5 million driven by $181.3 million in unrealised fair value losses on investment properties across Australia
and Poland with European office markets key detractors in the results.

Cromwell Chair Dr Gary Weiss said “In the face of challenging market conditions, the Cromwell team has made progress in the delivery of its strategy, with a series of key initiatives either completed or advanced: simplification of Cromwell’s operating structure, improved staff engagement and management of the balance sheet through non- core asset sales. This is reflective of Cromwell’s long-standing ability to adapt and manage complex market conditions.”

HY23 operating profit, which reflects the underlying performance of the business, was $87.1 million (HY22 $96.4 million), equivalent to 3.33 cents per security (HY22 3.68 cents per security).

In Australia, Cromwell continues to sell-down non-core assets, with $381 million sold during 2022 calendar year. Cromwell continues to test market conditions for a suitable opportunity to take its Australian Investment Portfolio off the balance sheet.

The funds and asset management platform contributed positively to HY23 operating profit, however this was offset by the decline in income from the company’s investment portfolio as Cromwell continues to dispose of its non-core assets.

Cromwell says it remains focused on balance sheet strength and continues to progress initiatives to reduce gearing, which is expected to be within target range of 30-40% once sale proceeds are received for Wollongong and full repayment of LDK loans.

Commenting on the outlook, Cromwell CEO Jonathan Callaghan said: “Through the remainder of FY23 we will continue our programme of non-core asset sales, applying proceeds to debt reduction in the first instance to ensure security through an ongoing difficult operating environment. Any redeployment will be measured and disciplined without unduly increasing gearing risks.

We will continue testing market conditions for a suitable opportunity to take the Australian asset portfolio off the balance sheet and possible reallocation of capital for appropriate growth opportunities, which continues to underpin our strategy of moving to a capital light fund manager.”

HY23 Results Overview

  • Statutory loss of $129.5 million (HY22 $132.5 million profit), due to a fall in property valuations;
  • Operating profit of $87.1 million (HY22 $96.4 million), equivalent to 3.33 cents per security;
  • HY23 distributions of 2.75 cents per security, for a payout ratio on operating profit of 82.6% and 103.4% of adjusted funds from operations (AFFO); and
  • Net Tangible Assets of $0.97 (FY22 $1.04), gearing at 41.8% (FY22 39.6%).

HY23 Operational Highlights

  • Total assets under management remain $12 billion, unchanged from 30 June 2022;
  • Market wide valuation impacts led to revaluations down 1.31%;
  • Occupancy is 95.1% by income with net property income growth of 2.7%;
  • Weighted average lease expiry of 5.6 years, with 51% of income weighted to Government tenants;
  • Cromwell becomes a member of the Dow Jones Sustainability Australia Index, 1 of only 6 property groups; and
  • Gearing 41.8% at the end of the period, attributed to the fall in property valuations.

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