Cromwells Reports Lower Profits in Turbulent year

26 August 2021

After a turbulent year for its management, real estate investor and fund manager, Cromwell Property Group today delivers its full year FY21 results confirming -13% lower earnings and a Total Securityholder Return of 5%.

The Groups Operating profit was $192.2 million, equivalent to 7.35 cents per security. This represents a reduction of -13% compared to the prior period. The prior period benefitted from a $32 million development fee from the sale of Northpoint Tower. Operating profit, excluding this fee, increased by $3.0 million (1.4%).

Full-year (FY21) statutory profit was $308.2 million, equivalent to 11.78 cents per security. This represents a 73% increase on the prior year, due in part to a $97.5 million increase in the fair value gain of investment properties (FY20 $17.5 million).

During the period, Cromwell faced significant upheaval as principle shareholder ARA Asset Management fought to gain control of the Trust. ARA Asset Management launched a proportional offer which was successfully supported by investors.

ARA Asset Management were also successful in replacing a number of Board members with their nominated members, Mr Joseph Gersh, AM and Dr Gary Weiss, AM. Cromwell also received a second strike on its Remuneration Report which results in investors voting in favour of, resulting in a Spill Resolution where Board members were forced to seek re-election. Mr Rob Blain and Mr Eng Peng Ooi joined the Board in March 2021 with Dr Weiss elected Chair on 17 March 2021. Long-standing Cromwell CEO Paul Weightman had earlier resigned in December 2020 with COO Jodie Clark also subsequently leaving in March 2021. Ms Jialei Tang was appointed as a non-independent Nonexecutive Director on 9 July 2021 and Jonathan Callaghan was appointed Cromwell’s new permanent CEO later in that month, with a commencement date of 5 October 2021.

Cromwell Chair Dr Gary Weiss, in commenting on the past year, said: “The process to renew the Cromwell Board is substantively complete, with a diversified Board with significant commercial, real estate and capital markets experience now in place.”

“The Board has been actively reviewing Cromwell’s strategy and business model. The aim is to simplify the Group structure with a view to improve capital efficiency using our existing portfolio assets to create new funds and accelerate the growth in our funds management and development businesses,” Dr Weiss added.

“We have initiatives underway which we believe will unlock value for securityholders, position Cromwell to grow and provide increased opportunities for our team. An update will be provided to the market as soon as a formal strategy has been approved by the Board,” Dr Weiss concluded.

Cromwell declines to provide guidance but expects to continue to pay distributions at the current quarterly rate of 1.625 cents per security until further notice. With a security price of $0.905 cents at the close of business on 25 August 2021 this represents an annualised distribution yield of 7.18%.

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The REIT commenced the year with a security price of $0.90 against a NAV of $1.02 (-14% discount to NAV) and closed the year at $0.88 against a NAV of $1.02 (-14% discount to NTA). The REIT provided a 7c distribution for FY21, equating to a 7.9% yield, which together with a -2.8% drop in unit price would provide investors with a total return of 5.0%.

Key financial and operational highlights for the period are:

Financial highlights:

  • Statutory profit of $308.2 million (FY20 $177.6 million) equivalent to 11.78 cents per security;
  • Operating profit of $192.2 million (FY20 $221.2 million) equivalent to 7.35 cents per security;
  • FY21 distributions per security of 7.00 cents (FY20 7.50 cents) for a payout ratio of 95.3%;
  • Net Tangible Assets of $1.02 (FY20 $0.99)
  • Gearing unchanged at 42% (FY20 42%)

Operating highlights:

  • Development pipeline: 29 projects across 10 countries, six at planning stage with four underway;
  • Total assets under management (AUM) increased to $11.9 billion (FY20 $11.5 billion);
  • Mr Jonathan Callaghan appointed as new Chief Executive Officer commencing 5 October 2021.
  • Property investment profit of $193.6 million (FY20 $196.1 million);
  • 31 assets. 18 Australian, seven Italian and six Polish valued at $3.9 billion (FY20 $3.7 billion);
  • Like-for-like Net Operating Income (NOI) growth in Australian portfolio of 2.8%; and
  • Cromwell European REIT (CEREIT) share of operating profit of $43.3 million (FY20 $48.7 million).

Portfolio update

Cromwell operates a mixed business across Property Investments and Funds Management in Australia and Europe.

Property Investment

Property investment comprises direct interests in 18 Australian primarily office assets, seven Italian logistics assets and six Polish shopping centres plus indirect interests in CEREIT (28% interest), LDK Seniors Living (50% interest) and a seventh Polish shopping centre, Ursynow (50% interest).

Total profit was $193.6 million, a small decrease of $2.6 million or 1.3% on the prior year. The assets have a combined value of $3.9 billion with fair value gains in investment property during the year of $101.2 million in Australia, $2.7 million in Italy and a reduction of $6.4 million in Poland.

Cromwell’s Australian assets benefitted from like-for-like Net Operating Income growth of 2.8%, 94.7% occupancy by gross passing income and a long weighted average lease expiry (WALE) of 6.1 years. The weighted average capitalisation rate (WACR) tightened to 5.4% (FY20 5.6%) in the year.

The portfolio is weighted to Government and ASX-listed tenants with only 10% of gross income coming from SME tenant-customers. Rental collection has been relatively unimpacted by COVID-19 to date.

In Italy the seven logistics assets fully let to DHL have seeded a pan-European logistics fund which is being offered to capital partners with Cromwell intending to retain up to a 20% interest. The assets have remained operational throughout the pandemic, experiencing increased trading volumes.

Poland has seen four separate lockdowns since the start of the pandemic and the shopping centres within the Cromwell Polish Retail Fund have remained open throughout given their focus on grocery, pharmacy and essentials. Other discretionary retail tenant-customers have been more impacted with a large number of leases having been renegotiated during FY21.

Total invoice collection for the year to 30 June 2021 was 89%. This is expected to increase given the normal collection lag and as outstanding invoices are pursued. The centres remain accretive to earnings and Cromwell will hold them until conditions allow for the original recycling strategy to occur.

Cromwell’s equity accounted share of CEREIT’s profit for the year, based on its 28% interest, was $43.3 million (FY20 $47.5 million), with its total stake valued at $621 million.

The CEREIT portfolio once again recorded a strong 3.2% uplift in value to €2.3 billion (FY20 €2.1 billion) with a 94.9% occupancy rate (by net lettable area). The 109 properties (108 as at 30 June 2021), are managed by Cromwell’s experienced local teams in Europe and showed their resilience to COVID-19 with an approximately 96% cash collection rate since February 2020.

CEREIT also expanded into new geographical markets in Slovakia and, earlier this month, announced its first acquisition in the UK, highlighting substantial future growth opportunities.

Fund & Asset Management

Cromwell’s fund and asset management profit of $41.7 million was 44.1% lower than the prior corresponding period due to the impact of COVID-19 on transactional activity, performance fees and development fees. Third party FUM increased to $7.6 billion driven by retail FUM growth.

In New Zealand, total AUM at Oyster Group (50% interest) grew by $150 million to NZ$2.1 billion (FY20 NZ$2.0 billion). Oyster now manages 37 commercial properties on behalf of fund investors and is currently marketing a new Large Format Retail Fund while continuing to grow both its Industrial Fund and Diversified Property Fund. FY21 share of operating profit was $3.7 million (FY20 $2.5 million).

During the year Cromwell focused on identifying possible development opportunities in its managed property portfolio to unlock any potential value to ensure a higher, and more consistent and regular flow of future development fees.

A total of 29 projects across 10 different countries have been identified. 19 of these projects are undergoing an initial assessment with six in planning or approval stages and four currently already underway. The ten projects that have progressed past the initial assessment stage have a combined estimated end development value of $2.2 billion covering gross floor area of c.329,000 sqm.


The total value of investment properties held on balance sheet rose to $3.9 billion as at 30 June 2021 reflecting positive valuation gains in Cromwell’s Australian office portfolio and contributing to Net Tangible Assets (NTA) increasing from $0.99 per security to $1.02 per security as at 30 June 2021.

Balance Sheet

Gearing of 42% is unchanged on the year and Cromwell maintains substantial liquidity and covenant headroom with a strong Interest Coverage Ratio (ICR) of 6.1x. Debt has been recently reprofiled and extended with a weighted average debt maturity of 3.2 years, providing Cromwell with time and contractual flexibility to execute the strategies it has identified to lower gearing.

FY22 Guidance

Cromwell declines to provide guidance but expects to continue to pay distributions at the current quarterly rate of 1.625 cents per security until further notice. With a security price of $0.905 cents at the close of business on 25 August 2021 this represents an annualised distribution yield of 7.18%.

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