Cromwell Prospering in a low growth world · initial acquisition yield of 8% pa + total return...

Cromwell Property Group 1

Cromwell – Prospering

in a low growth world

Hong Kong & Singapore – May 2013

http://www.cromwell.com.au/learnmore


Important Information & Disclaimer

Purpose

This presentation is dated 9 May 2013 and is made on

behalf of the Cromwell Property Group – Cromwell

Corporation Limited (ACN 001 056 980) and Cromwell

Diversified Property Trust (ARSN 102 982 598) – by

Cromwell Property Securities Limited (ACN 079 147

089; AFSL 238052). Units in the Cromwell Diversified

Property Trust are stapled to shares in Cromwell

Corporation Limited. The stapled securities are listed

on the ASX (ASX Code:CMW).

All statistics, data and financial information in this

presentation are current as at 31 December 2012

unless otherwise indicated. All dollar figures shown are

in Australian dollars.

The contents of this presentation have not been

reviewed or approved by any regulatory authority in

Hong Kong or Singapore. Recipients of this

presentation are advised to exercise extreme caution in

relation to the content of this presentation. If recipients

are in any doubt about any of the contents of this

presentation, they should obtain independent

professional advice.

This presentation is for information purposes only. It

has been prepared for, and is delivered to:

a) "professional investors" in Hong Kong (as defined

in the Securities and Futures Ordinance (Cap. 571)

of Hong Kong and any rules made under that

ordinance);

b) “institutional investors” under section 274 of the

Securities and Futures Act, Chapter 289 of

Singapore (the “SFA”) or any rules made under the

SFA or to a “relevant person” pursuant to section

275 of the SFA, or to any person pursuant to

section 275(1A) of the SFA and in accordance with

the conditions specified in section 275 and any

rules made under the SFA.

This presentation does not constitute investment,

accounting, financial, legal or tax advice and does not

constitute an offer or invitation to the public in Hong

Kong or Singapore to subscribe for or purchase any

stapled securities or other securities of the Cromwell

Property Group. It is not Cromwell Property Group’s

intention to offer stapled or any other securities for sale

to the public in Hong Kong or Singapore.

The information contained in this presentation may not

be used other than by the persons to whom it is

addressed and may not be reproduced in any form, or

transferred to any person, in Hong Kong, Singapore or

elsewhere without the prior consent of Cromwell

Property Group.

Further, no person shall issue or have in its possession

for the purpose of issue, whether in Hong Kong,

Singapore or elsewhere, any advertisement, invitation

or document relating to Cromwell Property Group, its

stapled securities, or the contents of this presentation,

which is directed at, or the contents of which are likely

to be accessed or read by, the public in Hong Kong or

Singapore, without the prior written consent of Cromwell

Property Group.

No Representation or Warranty

No representation or warranty (either express or

implied) is given by Cromwell Property Group (including

without limitation its officers, employees, agents,

associates and advisors) as to the quality, accuracy,

reliability, reasonableness or completeness of the

information contained in this presentation or any part of

it or any other information supplied by or on behalf of

Cromwell Property Group (collectively the Information)

to recipients of this presentation, or that reasonable

care has been taken in compiling or preparing the

Information or this presentation.

Forward Looking Statements

Certain statements in this presentation are forward

looking statements. These statements are not

guarantees of future performance. Actual results could

differ materially from those referred to in this

presentation and no representation is made that any

forward looking statement will be achieved.


Cromwell Property Group

1) As at 6 May 2013

2) Calculated as net debt to total assets less cash, as at 31 December 2012 adjusted for subsequent sale of 101

Grenfell Street, Adelaide and settlement of security purchase plan

3) FY13 guidance

4) As at 31 December 2012 adjusted for subsequent sale of 101 Grenfell Street, Adelaide

5) Includes value of Ipswich City Heart and Box Hill properties as if complete

6) As at 30 June 2012

Cromwell has evolved organically over 15 years

Listed fund manager recapitalised by existing

management in 1998

REIT structure created through stapling and

merger of unlisted funds in 2006

Focused and clear strategic direction

Conservatively opportunistic investment style

Innovative and considered product creation

Disciplined and diligent operations

Cromwell

Property

Group

Market cap: $1.5 bn1

Security price: $1.061

Gearing: 44.0%2

Operating earnings: 7.50 cps3

Distributions: 7.25 cps3

Property Portfolio4

Portfolio value: $1.9 bn

Number of buildings: 25

WACR: 8.4%

WALT: 6.0 yrs

Funds Management Business

Assets under management: $822 m5

Number of Funds: 4

Capital employed: $15 m6


Current Cromwell Property Portfolio

HQ North, QLD

475 Victoria

Avenue, NSW

Exhibition St, VIC Collins St, VIC

Qantas HQ, NSW

Synergy, QLD


Property portfolio1

Australian portfolio

91.4%2 Office

Balanced allocation to Brisbane,

Sydney, Melbourne, Canberra

69% of portfolio subject to fixed or

minimum rent reviews in FY13

Average minimum increase of

3.8% in FY13

83% of rental income from government3

or listed companies4

Tenant Classification2

1) Statistics as at 31 December 2012 adjusted for sale of 101 Grenfell Street , Adelaide

2) By income

3) Includes Government owned and funded entities

4) Includes subsidiaries of listed companies

Next Review Type Total Gross Income Cumulative

Fixed (avg 3.8% FY13) 69.3 % 69.3 %

CPI 22.0 % 91.3 %

Market / Expiring 8.7 % 100.0 %

Geographic Diversification2 Sector Diversification2


Clear strategy and investment philosophy

Consistent, focused

strategy

Focus on CBD, CBD fringe and established suburban markets

Maintain defensive portfolio characteristics of strong tenant covenant, long WALE and fixed growth

Active recycling programme to secure returns, improve portfolio quality and fund investment opportunities

Seek acquisitions that offer superior returns (yield and value upside) within a defensive portfolio strategy

Leverage property expertise and distribution base to expand funds management platform, boosting profitability and

growth

Differentiated strategy provides access to a greater opportunity set and potential for outperformance

Complementary

asset acquisitions

Cromwell intends to continue to seek acquisition opportunities which complement its investment strategy and

existing portfolio

Typical acquisition targets must complement existing portfolio:

initial acquisition yield of 8% pa +

total return targets of 12% pa +

focus on markets which Cromwell consider will outperform

Value adding

co-investment and

funds management

opportunities

In line with expansion of the funds management platform, where appropriate, Cromwell will seek to warehouse and

sell down new retail funds generating targeted 20-35% IRR’s on Cromwell’s committed equity

On a case by case basis, Cromwell will consider co-investment opportunities with key wholesale partners to

increase overall income and generate additional fund and property management fee revenue


Disciplined capital management strategy

Debt diversified amongst five lenders and seven facilities

Structure provides cost effective form of funding and is well suited to nature of portfolio

Long term quality cash flow enables gearing of 40-50% to be carried comfortably

All four major Australian banks participating

Weighted average debt maturity of approximately 2 years with no material maturities until May 2014

Gearing to moderate over the medium term through the cycle

Aim to maintain gearing around 45% over FY13

Growth in asset base due to yield compression across investment portfolio expected to reduce gearing

FY13 payout ratio of 97% appropriate given long WALE and nature of underlying portfolio

Limited maintenance capital and lease costs required

Recent equity raisings provide capacity for growth

Institutional placement of $143m in December 2012 materially oversubscribed

Security purchase plan for retail securityholders raised $39m in February 2013 after scale-back

Capital will also be realised through recycling of non core assets

Provides significant funds for future acquisition and funds management initiatives


Consistent outperformance vs. market

Cromwell has consistently outperformed the S&P/ASX 300 A-REIT Accumulation Index since stapling in 2006

Outperformance of 21.9%, 6.5% and 15.2% per annum over 1, 3 and 5 years respectively

Direct property performance in top quartile of managers rated by IPD since inception in 1999

Cromwell Performance to April 2013 (Annualised Total Securityholder Return)1

11.7%

7.6%

11.3%

9.8%

5.1%

9.7%

1.9% 2.5% 1.6%

0%

2%

4%

6%

8%

10%

12%

14%

3 Years 5 Years 10 Years

Cromwell PropertyGroup

IPD Australian AllFund Universe

Excess Returns

Direct Property Returns (to 31 December 2012 Annualised)

Source: IRESS Source: IPD

1) Includes distributions and change in price, annualised amount

55.8%

19.5%

12.2%

33.9%

13.1%

(3.0%)

21.9%

6.5%

15.2%

(20%)

(10%)

0%

10%

20%

30%

40%

50%

60%

1 year 3 year 5 year

Cromwell PropertyGroup

S&P / ASX 300 A-REITAccumulation Index

RelativePerformance


Superior yield to peer group

Cromwell offers superior distribution yield and growth compared to its peer group

125bps premium to average FY13 DPS yield of peer group

Focus on long-term leases and quality tenants represents best risk-adjusted return on equity in current environment

Funds management earnings can grow with minimal committed equity

FY13 DPS yield1

BWP: BWP Trust; CPA: Commonwealth Property Office Fund; CQR: Charter Hall Retail REIT; DXS: Dexus Property Group; IOF: Investa Office Fund; SCP: SCA Property Group

1) Cromwell DPS yield is FY13 DPS as at 6 May 2013 (closing price of $1.06)

Source: Broker earnings and distributions consensus estimates; company filings. Pricing as at 6 May 2013

5.1% 5.4% 5.5% 5.7% 5.7% 6.2%

6.8%

0%

2%

4%

6%

8%

10%

DXS IOF BWP SCP CPA CQR CMW

Peer average 5.6%

125bps premium


Australian property sector poised for capital growth

Continuing strong investor preference for high quality long term

yield

Australian bond yields and interest rates close to historic lows,

but still one of the highest of the developed economies

Low interest rate environment offering significant yield arbitrage

vs. property and A-REIT yields

Increased investor focus expected to force up pricing and lead to

overall cap rate compression

Significant opportunity for capital upside as property yields expected to tighten

Property yield vs. 10 year bond rate

Source: IRESS; BofA Merrill Lynch Global Research

0%

2%

4%

6%

8%

10%

2000 2002 2004 2006 2008 2010 2012

Office cap rate (7.7%) 10-year bond (3.1%)

Cromwell cap rate (8.4%)


Office assets seeing increased buyer demand

Investor focus on high quality yield now impacting positively on

demand for office assets

Retail property remains subject to weak consumer spending

and traditional retailers continuing to face challenges of lower

spending growth and increased online sales

Industrial in demand, but limited scope for a further reduction in

yields

Residential still a challenging sector, particularly in Victoria

where significant supply is available in coming years

Rentals remain flat across all sectors and limited growth is

expected in the next 2 years

Rolling capital return indices to December 2012

Cromwell is well placed to benefit from an upturn in commercial property values

-30%

-20%

-10%

0%

10%

20%

30%

Dec

-85

Dec

-87

Dec

-89

Dec

-91

Dec

-93

Dec

-95

Dec

-97

Dec

-99

Dec

-01

Dec

-03

Dec

-05

Dec

-07

Dec

-09

Dec

-11

All Property Retail Office Industrial

Source: IPD Research


Funds Management

Fund Sector Investors Total Assets

Number of

Properties Ongoing Fees Initial Fees

Cromwell Box Hill Trust Direct property Retail $117m1

1 0.60% 3.0%

Cromwell Riverpark Trust Direct property Retail $197m 1 0.60% 3.0%

Cromwell Ipswich City Heart Trust Direct property Retail $93m1 1 0.60% 3.0%

Cromwell Phoenix Property Securities Fund Listed property Retail $65m N/A 0.82% N/A

Phoenix Mandates Listed property Wholesale $350m N/A Variable N/A

Total $822m

1) Forecast completion value

Focus on retail distribution

Over 12,000 Cromwell securityholders,

many of whom invested in our products

originally and continue to do so

Over 20,000 prequalified potential retail

investors

Over 4,000 are current fund investors

Initiatives in place to add 5,000 plus new

prequalified investors in next 12 months

Larger dealer groups and financial advisors

Focusing on boutique advisors, many of whom are long

term supporters

Larger groups are showing interest in direct property again

Can bring significant volume once they commit to the sector

Need a combination of product approval and platform

inclusion to maximise inflows

Wholesale clients

Investigating opportunities on a case by case basis

Likely to be targeting for core plus property assets


Why target retail investors?

Significant cash on the sidelines

Over 496,000 self managed super (pension) funds (Dec 12)

with $136 billion in cash and term deposits

Majority of new inflows to super and retail investment

platforms is being retained in cash

Bank funding from customer deposits has risen significantly

since 2008

Investors are at an inflection point

Cash returns have reduced significantly over past 18

months

Large number of term deposits taken out during GFC

beginning to mature

Have seen a significant increase in investment inflows and

enquiries

Product quality and structure remains key to securing retail

demand

Cromwell has limited competitors with scale in the market

Most new entrants are smaller scale or targeting wholesale

funds

Box Hill Trust Key Statistics1

1) For further details on the Box Hill Trust, see the PDS dated 18.12.12.

2) Initial yield, expected to increase to 8.00% post practical completion

3) Payable as the equity is raised (2.5%) and the building is constructed (0.5%)

4) Payable from the date of practical completion.

Box Hill Trust Fee Structure

Equity raised $63m

Gearing 48%

Initial Distribution 7.75%2

Fee Type Amount

Acquisition & project management $3.5m (3%)3

Ongoing funds management (annual) $0.7m (0.6%) 4

Property asset management (annual) $0.25m (0.15%)4

Performance Fee

20% of excess above

10% IRR, payable on

sale and any

extension of the term


Future growth drivers

1. Property income remains resilient

in current soft market

Average fixed property rental growth of 3.8%

for FY13

Minimal vacancy and very low lease expiries in

next 2 years

2. Growth in earnings from increased activity

in funds management business

Property yield premium to bond / cash yields

close to historical highs

Strong appetite for yield with low volatility

amongst retail investors

Demand for Box Hill Trust significantly

exceeded Ipswich City Heart Trust

Actively sourcing product for next unlisted fund

launch

3. Earnings upside potential from

lower base interest rates

Current average cost of debt of 6.4% based on

existing hedged rates

Cost of new debt approximately 5.0%

Majority of hedges expire over the next 3

years, leading to potential lowering of interest

costs over this period

4. Growth potential through

accretive acquisitions

Capital available through recent equity raisings

and continued recycling of non-core assets

Will maintain a disciplined approach to new

acquisitions

Seeking to deploy surplus funds during 2013

Cromwell is able to benefit from a number of organic growth factors


Continued focus on maximising cash flow to

securityholders

Operating earnings expected to be at least

7.5 cps in FY13, 7.1% EPS yield1

Distributions expected to be 7.25 cps in

FY13, 6.8% DPS yield1

Simple balance sheet and minimal

development exposure

Enables payout ratio of 90% plus

Targeting growth in NTA and operating earnings

per security

Minimum rental increases will underpin

property earnings

Will benefit significantly from improving

valuations if yield compression occurs

Will continue disciplined approach to

transactions

Continued sale of assets with low growth

potential

Targeting improvement in debt profile over next

1-2 years

Exploring cost effective alternatives to extend

debt expiry profile

Recent inclusion in S&P / ASX 300 – now

targeting S&P / ASX 200

Currently ranked 110th largest entity by free

float market cap2

Significant increase in liquidity following

December 2012 capital raising, resulting in

inclusion in S&P / ASX 300 in March 2013

rebalance

Continuation of liquidity increase can lead to

inclusion in S&P / ASX 200 over time

Near term outlook

1) Based on closing price of $1.06 on 6 May 2013

2) Bloomberg, 6 May 2013


Daryl Wilson

Director - Finance & Funds Management

Ph: +61 402 046 883

[email protected]

Presented by:

Paul Weightman

CEO / Managing Director

Ph: +61 411 111 028

[email protected]

http://www.cromwell.com.au/learnmore


Appendix 1

Case Studies


Qantas Global Headquarters, Mascot, NSW

Since acquisition Cromwell has agreed with Qantas

Lease extension to 2032

A $131m refurbishment and expansion programme

Average return on cost of 8.7% expected in first financial year after

completion

Debt facility in place to fund 100% of additional works (if required)

Completion value of $308m, representing approximately 16% of

portfolio

Project on time, on budget

First of four buildings delivered in April 2012

Second building completed September 2012

Third building completed March 2013

Balance of $131m programme proceeding as planned

Qantas will bear any cost overruns not covered under building contract

Qantas Global Headquarters Expansion

Jun-12

($’000)

Jun-13

($’000)

Jun-14

($’000)

Jun-15

($’000)

Actual/Forecast Cost1 25,316 64,575 41,572 -

Additional Rental 126 1,911 7,037 9,208

1) Includes $25.6m incentive agreed under original 10 year lease, already generating rental income. Timing of forecast costs is subject to change, however timing

of rental increases will also change proportionately.

Artists impression of completed refurbishment

Refurbished tenancy


Bundall Corporate Centre, Gold Coast, QLD

Cromwell originally acquired the asset for $52.9m in December 2005 and sold

for $106m in October 2007

Since the sale the asset has been further improved by the development of a

further 8,000 m2 5 star green star building

Passing income is approximately $7.4m (11.5% yield on purchase price)

Site has approved master plan in place, with over 15,000m2 of land available

for future development

Opportunistic acquisition with substantial upside in the Gold Coast market

expected in lead up to Commonwealth Games in 2018

Address Corporate Court, Bundall, QLD

Sector Commercial

Lettable area 21,103m2

Acquisition date Feb-12

Major tenants

Wyndham Resorts, Professional

Investment Services, Corp

Executive Offices

Valuation $68.0m

Book

value1 $68.0m

Occupancy 88.6%

Cap rate 11%

WALT 4.8yrs

Property Details

Statistics


Cromwell Ipswich City Heart Trust

Cromwell Ipswich Trust closed over subscribed

Over 850 retail investors with an average investment size of ~$55,000

>50% of funds raised from direct retail (unadvised) for the first time ever

Significant increase in demand during last 6 weeks (weekly inflows >$3m)

Significant future revenues with minimal ongoing cost

Construction on target to be completed by September 2013

Key Statistics Cromwell Fee Structure

Metric Amount

Equity raised $49m

Debt $49m

Time taken to complete

raising 8 months

Initial distribution yield 8.00%1

Fee Type Amount (% assets)

Acquisition & project management $2.79m (3.0%) 2


Property asset management (annual) $0.20m (0.2%) 2

Performance Fee 20% of excess above 10%

IRR, payable on sale

1) Forecast to increase to 8.25% from July 2013 and 8.50% from July 2014 subject to risks and assumptions in PDS

2) Acquisition and project fees are payable from Jan-12 until practical completion (Sep-13) in proportion as construction is completed. Ongoing fund and property management fees are payable from practical completion

Cromwell Funds Management Limited ABN 63 114 782 777 AFSL 333 214 (CFM) is the responsible entity of the Cromwell Ipswich City Heart Trust (ARSN 154 498 923) (ICH). PDS dated 16.12.11.

*Artist’s impression only


Cromwell Box Hill Trust

Box Hill Trust built on the momentum created by the Ipswich City Heart Trust

Following launch in December 2012, completed early and oversubscribed in

April 2013 raising $67 million

Over 820 investors with an average investment size of ~$80,000

Attractive offering given initial yield of 7.75%, potential for growth, strong

WALE and high quality tenant

Expected increased fee flow to Cromwell over FY13 and FY14

1) Initial yield, expected to increase to 8.00% post practical completion

2) Payable as the equity is raised (2.5%) and the building is constructed (0.5%)

3) Payable from the date of practical completion.

Cromwell Funds Management Limited ABN 63 114 782 777 AFSL 333 214 (CFM) is the responsible entity of the Cromwell Box Hill Trust (ARSN 161 394 243). PDS dated 18.12.12.

Cromwell Fee Structure

Fee Type Amount

Acquisition & project management $3.5m (3%)2


Property asset management (annual) $0.25m (0.15%)3

Performance Fee

20% of excess above

10% IRR, payable on

sale and any

extension of the term

*Artist’s impression only

Key Statistics

Metric Amount

Equity raised $63m

Gearing 48%

Time taken to complete

raising 3 months

Initial Distribution 7.75%1

Cromwell Prospering in a low growth world · initial acquisition yield of 8% pa + total return...

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