Real estate investor and manager Cromwell Property Group reported full-year (FY19) statutory profit of $159.9 million (FY18 $204.1 million).
Operating profit, considered by the Directors to best reflect the underlying earnings of Cromwell, was up 11.1% from the prior year to $174.2 million (FY18 $156.8 million). Post Cromwell’s institutional and retail capital raisings during the year, distributions met guidance at 7.25 cps.
As at 30 June 2019, Cromwell had more than 3,800 tenant customers in 15 countries, leasing over 3.7 million sqm of space.
Total assets under management (AUM) were $11.9 billion.
Cromwell launched its ‘Invest to Manage’ strategy in August 2018. The strategy involves investing capital where Cromwell can leverage returns from additional management revenues and create value. The initiatives identified as part of the strategy are intended to build enterprise value, add to mediumterm earnings and generate higher total securityholder return.
“It has been 12 months since we first announced our ‘Invest to Manage’ strategy,” stated Cromwell CEO Paul Weightman.
“Since then we have been focused on execution. This has included two large, multi-country transactions on behalf of the Cromwell European REIT (CEREIT). One for 23 assets in five different countries and one for six assets in two countries, for a combined €471 million ($775 million).”
“CEREIT’s portfolio has grown more than 50% since its IPO in November 2017 and comprises 102 properties in seven different European countries. CEREIT is a great example of our strategy in action and I think it’s fair to say the business is established,” he said.
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.
“As per our stated strategy, we are continuing to recycle capital from assets where we have already added significant value such as Northpoint Tower, to new opportunities such as 400 George Street. This enables us to add asset value through active asset management and repositioning initiatives and add enterprise value through the creation of new funds with capital partners,” said Mr Weightman.
Cromwell has identified a c.$1 billion pipeline of value-add development opportunities. This includes the ongoing Seniors’ Living redevelopment at Greenway, previously flagged developments at Chatswood and 700 Collins Street and a number of other confidential projects in negotiation.
“We have previously announced $600 million of projects and there is an additional $500 million of projects in negotiation which should keep the team busy,” he added.
Yesterday, Cromwell exercised a pre-emptive right to acquire third party investor interests in the Cromwell Polish Retail Fund. The Fund contains seven catchment dominating shopping centres 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.
Gross Domestic Product in Poland has grown by 4.20% on average over the last 25 years. It has been 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.
Mr Weightman commented, “Poland is Europe’s success story. It is a market we know well and are very positive about. We have 34 professionals on the ground, managing 21 assets with more than 660 tenant customers and over 758,000 sqm of space.”
“We propose to rollover the acquired interests into a new fund which will be offered to capital partners and we intend to initially underwrite the fund for the purposes of taking a co-investment stake.”
“We have two months in which to conclude the acquisition and a further update will be provided in due course,” he concluded.
FY20 operating profit is affirmed at the upper end of previous guidance at 8.30 cps and distributions at 7.25 cps. Cromwell’s securities closed at $1.24 on 28 August 2019 which means this represents an operating profit per security and distributions per security yield of 6.69% and 6.05% respectively.
Full details of the FY19 Results are available here.
