Written on the 24 February 2017


CROMWELL Property Group has maintained a steady operating profit at $0.045 per security in the first half of FY17, but profits overall were down following what CEO Paul Weightman (pictured) says was a jackpot prior corresponding period.

First half operating profit was down 11.37 per cent at $78.7 million, from $88.8 million the previous corresponding period, while statutory profit was down 22 per cent at $153.2 million.

During the previous financial year, the business realised $169 million from asset sales, says Cromwell CEO Paul Weightman.

"We had a lot of one off transactional items last year, principally out of the EU, and some out of Australia, that inflated the profit, but the underlying profit of the business continues to track upwards," says Weightman.

The asset sales allowed the business to recycle capital and invest in several key strategic growth opportunities.

Cromwell now has $9.8 billion assets under management in its fund management business, plus 340 properties with 4.1 million square metres of space and 3,600 tenants in its property portfolio.

The company has increased its distribution to 4.2 cents per share for the half, compared to 4 cents per share in 1H16.

Operating earnings guidance for the full year is 8.40 cents per share, while distributions guidance is 8.34 cents per share.

"Strong and stable cash flows from our portfolio, recurring revenues from our funds management business and income streams from the assets we are developing and repositioning give us the confidence to maintain our track record of consistently increasing distributions to securityholders," says Weightman.

The company's property portfolio is worth around $2.4 billion, has an occupancy rate of 92.3 per cent and a weighted average lease expiry of 6.4 years.

Fair value of the portfolio increased by $41.4 million net of property improvements, lease costs and incentives, and the weighted average cap rate improved to 6.69 per cent.

The property segment operating profit was $62.5 million, which comprises 79 per cent of the total operating profit of Cromwell.

Three major renewals included the Therapeutic Goods Administration (TGA), which took up a five-year renewal option at the TGA complex in the ACT, the Bureau of Meteorology, which renewed its lease, and QUT at Kelvin Grove. Those three renewals accounted for 43,000 sqm.

There has been improved take-up and demand on the Gold Coast, where excitement is building ahead of the 2018 Commonwealth Games and Cromwell expects to see stronger tenant demand and net effective rental growth in NSW and Victoria in the new future.

"With limited opportunities to acquire assets in a highly competitive market, we are focused on creating value in our existing portfolio, and managing the $300 million investments we are making into Northpoint Tower in North Sydney and the new Department of Social Services national headquarters at Tuggeranong Office Park in the ACT," says Weightman.

The funds management business made an operating profit of $16.4 million, down from $18.5 million in the first half of FY16. Total assets under management decreased by 5 per cent to $9.8 billion primarily due to substantial trading activity in Europe where 1.8 billion euros worth of assets were sold and 1.4 billion euro of assets were acquired.

Cromwell has cash of $80.2 million, gearing was at 43.8 per cent and net tangible assets per security increased by $0.05 to $0.86.

Average interest rate of the group's debt was 4.03 per cent, down from 5.27 per cent for the year ending 30 June 2016.

"We will continue to focus on capital management, gearing levels, and cash reserves and manage our overall position to both the cycle and strategic opportunity," says Weightman.

The group predicts operating profit of not less than 8.40 cents per share and a distribution of not less than 8.34 cents per share for the full year.

"We are continuing to make progress on our strategic business plan and there are a few moving parts in the business. Our portfolio continues to perform strongly and continue to hit milestones on the lease renewal program, funds management business continued to grow its value and asset portfolio which provides continued upside to the business.

"We are comfortable and in a very good position and will continue that growth, particularly in expanding the funds business."

Cromwell remains open to continuing discussions with ILFML and its advisors with a view to putting forward an increased cash offer to all IOF security holders.

It has permission from the Foreign Investment Review Board to increase its holding in IOF above the 10 per cent mark.

Cromwell says it wants the same standstill agreements as IOF agreed to with Dexus Property Group in 2015.

Cromwell says it sees value for IOF at up to $4.75 per IOF security. IOF is currently trading at $4.675 per share.

This afternoon at 3pm AEDT, Cromwell is trading steady at $1.102 per share on the ASX.

Business News Australia






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