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A leadership struggle at Cromwell Property Group (ASX: CMW) is heating up today after management berated Singapore-based suitor ARA Group over what they claim to be a "patently incorrect understanding" of the Brisbane-based company's earnings.
ARA is in the midst of a proportional takeover attempt which, if successful, would give it almost half of Cromwell's shares, in what current Cromwell leaders have repeatedly claimed is a takeover by stealth.
Cromwell shareholders are now just over two weeks away from an EGM that has been called for 18 September by ARA to try and secure more ownership and put its representatives Dr Gary Weiss and Joseph Gersh on the board.
On 1 September ARA sent out a second supplementary bidders statement making numerous claims against Cromwell, including that its operating earnings per share (EPS) has fallen 11.5 per cent when excluding an internal fee.
In contrast Cromwell reports its FY20 operating EPS is up 3.5 per cent on FY19, highlighting a strong result despite a challenging environment during the COVID-19 pandemic.
But ARA's claims do not end there; it has also claimed Cromwell's gearing has increased to a sector high of 47.5 per cent on a look-through basis, and that its distributions are in excess of cash flow.
ARA's criticisms also take aim at Cromwell's 5.3 per cent downward revaluation of its Polish shopping centre portfolio, which the suitor believes is understated given Poland's largest retail landlord is trading at more than a 70 per cent discount to net tangible assets.
Cromwell took umbrage with all these allegations today, and its shares rose slightly by 0.55 per cent to $0.91.
"Cromwell is concerned by the misleading nature of these statements and wishes to correct these statements to ensure that there is a fully informed market in relation to Cromwell securities," it said, calling on shareholders to reject ARA's proportional takeover and its nominated board appointments.
In its response to ARA, Cromwell issued the following five observations:
- Cromwell's operating earnings have always been derived from diversified sources including property rental income, fund and asset management fees, transactional and performance fees and development income. It is misleading and inappropriate to selectively exclude some earnings, from one particular year, from an audited set of results, in order to unjustifiably support a patently incorrect understanding about what reflects Cromwell's financial performance;
- Cromwell has always paid distributions that are fully covered by operating earnings. ARA's false assertions that distributions are not covered are simply inaccurate. This is in stark contrast to ARA-managed Suntec REIT having funded distributions with capital proceeds and asset sales since at least 2013;
- Cromwell notes that long-term total securityholder return is a widely accepted, fair and transparent method to evaluate a listed company's performance. Cromwell has consistently outperformed its relevant benchmark index, the ASX-200 REIT, over 3, 5 and 10 year periods. In comparison, the majority of ARA-managed listed REITs have significantly underperformed their respective benchmark indices over the same periods;
- Cromwell's balance sheet gearing at 30 June 2020 was 41.6%, only slightly above target 'through the cycle' gearing of 30% - 40%, with leverage capacity to be used on a short-term basis to execute the 'Invest to Manage' strategy. It is misleading to reference look-through gearing as the target gearing range has always been based on Group reported balance sheet gearing.ARA's comments compare starkly against ARA's US Hospitality Trust which required a loan covenant waiver from its Singapore based relationship banks and refused to undertake any property valuations on its portfolio in 1H2020, despite having a policy of conducting annual property valuations at each reporting period; and
- ARA's assertions about the value of the Cromwell Polish Retail Fund's assets by reference to the listed trading price of a Johannesburg and Luxembourg listed, Netherlands registered, diversified property company, as opposed to independent, third party expert valuations demonstrate a concerning lack of understanding about global real estate.
Business News Australia
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