Cromwell Group post half yearly profits of over $155 million
The Cromwell Property Group today reported half-year (HY18) statutory profits, before the write down of intangibles, of $155.5 million up 1.5% on the prior comparable period (HY17 $153.2 million).
Net Tangible Assets (NTA) was up, gearing was down, and its Weighted Average Lease Expiry (WALE) has been extended with leasing activity described as being strong.
In December 2017, Cromwell completed the $170 million strategic placement to SingHaiyi Group Ltd and Haiyi Holdings Pte. Ltd.
A $30 million securities purchase plan, which gave retail securityholders the opportunity to acquire securities on similar terms closed earlier this month, oversubscribed at $35 million.
“Our ability to grow our funds management business is directly linked to our ability to connect capital to opportunity. We now have many more established capital sources, a blue-chip roster of private equity and capital partners in Europe, and significantly more depth and relationships in Asia," said Cromwell CEO Paul Weightman.
Having increased short term gearing, Cromwell was now operating with gearing towards the lower end of our target range, he said.
Total assets under management (AUM) increased by 11%, or $1.1 billion, to a total of $11.2 billion in the six months to 31 December 2017.
Cromwell’s business segments reported the following earnings:
Property Investment segment earnings were $58.2 million, a 6.9% decrease on the prior comparable period, mainly due to asset sales and the vacancy at Tuggeranong Office Park;
Asset services earnings increased on the back of higher project management fees;
Retail Funds Management earnings were $2.1 million, down $3.9 million from the prior corresponding period which saw $4.1 million in fees from the Cromwell Riverpark Trust extension; and
- Wholesale Funds Management earnings increased 14% on the back of the successful listing of CEREIT
- A total of 11 property assets were externally revalued at 31 December 2017, representing approximately 48% of the property portfolio by value. Valuations for investment properties increased by $32.8 million during the half-year net of property improvements, leasing incentives and lease costs.
The weighted average capitalisation rate (WACR) was 6.34% across the portfolio, compared to 6.56% as at 30 June 2017.
Tenant quality remains strong with Government and Government related entities contributing nearly two fifths (39.6%) and the top 5 tenants three fifths (59.7%) of gross income.
The portfolio weighted average lease expiry (WALE) is 7.2 years.
“The WALE has increased from 6.35 years in HY17, in part due to the commencement of the new lease with DSS at Soward Way,” said Mr Weightman.
“The headline vacancy rate of 12.1% reflects the move by DSS out of their old building. Portfolio vacancy excluding the active assets is 2.6%,” he added.
Cromwell’s lease expiry profile is favourable with less than 20% of leases expiring in the next three years. A third of these expiries are in the Sydney office market which is showing increased demand and rental growth over that period.”
“There are only three expiries which represent more than 1% of income in this period,” said Mr Weightman.
“Two of these are in assets which we are proposing to redevelop and reposition and we are in active negotiations with the tenant in the third asset,” he concluded.
Cromwell had strong leasing activity in the half, executing 67 transactions on over 43,300 sqm of space. 58 of these were new leases on over 15,600 sqm of space including:
Northpoint had 25 new leases signed in the retail precinct and seven office leases;
Bechtel signed a new lease at HQ North in Brisbane for 1,300 sqm;
Nine leases were signed over spaces in which speculative fit-outs were underwritten at 200 Mary street. Pro-forma occupancy is now 85%; and
Leases of 3,900 sqm have been signed at 207 Kent Street. The most recent transactions have achieved rentals over $1,000 per sqm gross.
There were nine renewals for 27,700 sqm with nearly 90% of this being in two deals:
- Therapeutic Goods Administration (TGA Complex) for five years over 18,500 sqm; and
- Australian National Audit Office (ANAO) at 19 National Circuit, ACT have signed a Heads of Agreement for 12 years over 5,600 sqm
Shareholders were told Cromwell continues to recycle capital from assets that have reached the end of their optimal investment term.
Health & Forestry House, twin interconnected towers in Brisbane, were sold for $69 million in the half.
Post balance date Huntingfield Avenue, TAS was sold for $4.5 million completing in January 2018 and Musk Avenue, Kelvin Grove is currently under contract.
“Northpoint will reach practical completion on 19 March on budget and time,” said Mr. Weightman.
“25 new retail leases have been signed and fit-outs have commenced in most tenancies. Woolworths have finished stocking shelves, the rooftop bar provider has submitted a DA and the Vibe Hotel, a 4.5 Star, 187 room hotel with conference facilities and swimming pool is due to open after Easter.”
“Having completed the development of the podium and new hotel, we will now turn our attention to leasing opportunities in the commercial office tower, where significant interest is being shown in areas with speculative fit-outs in the 100 to 500 sqm range,” he added.
Construction of the new property at Soward Way, ACT was completed in September, creating a new fully leased commercial office building at Tuggeranong Office Park.
The total cost of construction was $170 million, funded from cash reserves and a $159.5 million loan facility. The building is now valued at $260 million, leased for 15 years to the Commonwealth of Australia and will add to income growth in the core portfolio in FY19.
“I mentioned previously that the old buildings at Tuggeranong Office Park, ACT are now vacant following DSS’ move to their new premises,” said Mr. Weightman.
“We have been progressing plans to transform the old buildings into between 330 to 350 retirement or assisted living units plus communal areas.”
“Careful analysis has been conducted into the supply and demand of retirement and independent living units in the Tuggeranong area.”
“We know there is a marked undersupply, with strong demand and minimal competition in the local market.”
“The ACT government has also earmarked Tuggeranong as one of their three aged care hot spots,” he confirmed.
