CROMWELL PROFIT SLIDES AMID SOFT PROPERTY MARKET
Written on the 27 August 2015
CROMWELL Property Group's (ASX:CMW) bottom line has tumbled 18.5 per cent to $148.8 million compared to the previous year, as the real estate investor shifts its focus to fund management.
The result is down from $182.5 million in FY14, while profit from operations remained steady at $144.9 million.
The group's acquisition of Valad Europe in January has boosted total external assets under management (AUM) to $7.5 billion, up from $1.3 billion the previous year. A further $1.8 billion in investment security was also secured during the year.
Cromwell CEO Paul Weightman says the results reflect the group's strategy to focus on actively managing the core property portfolio and growing the funds management business.
"We believe some of the current sales activity represents peak of the cycle pricing for prime office assets, notably in Sydney and Melbourne," Weightman says.
"As stewards of our investor's capital, we will only invest where we believe we can deliver superior risk-adjusted returns through the cycle.
"We have also been working our other portfolio assets hard and believe our strategy of active management will enable us to continue to deliver secure, stable and growing returns for investors."
Cromwell settled 321 Exhibition Street in Melbourne in July last year for $206.9 million, and is expected to settle 43 Bridge Street in Hurtsville for $37 million by the end of FY16.
Earnings from the group's property portfolio lifted 2.2 per cent to $141.6 million on a like-for-like basis.
This was underpinned by a number of management opportunities and settlements, including the sale of Terrace Office Park in Brisbane for $31 million a 41 per cent premium to its previous valuation of $22 million.
Weightman says market conditions are expected to remain soft for the next 12 to 18 months, however property income is set to improve in larger assets.
"Our internal management model is a major reason we are able to maintain portfolio quality and strong future cash flows notwithstanding soft market conditions," he says.
Wholesale funds management earnings increased to $2.6 million, ensuring the group is on track to achieve 20 per cent of earnings from this side of the business.
Whereas retail funds management earnings were down from $3.5 million in FY14 to $1.4 million as a result of lower transaction fees.
"We will not be rushed into making acquisitions that do not measure up on a through-the-cycle basis," Weightman says.
"Though offshore capital continues to flow into Australia and push up prices, the property cycle is not dead."