Cromwell sells Polish retail portfolio for €285 million

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16/05/2024

Real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell or Group) today announced the sale of six retail centres across Poland, held by the Cromwell Polish Retail Fund (CPRF), to Star Capital Finance for €285 million.

The portfolio totals more than 219,000 sq m and includes rights in six shopping centres: Janki in Warsaw, Kometa in Toruń, Korona in Wrocław, Tulipan in Łódź, Ster in Szczecin and Rondo in Bydgoszcz. The occupancy of the portfolio exceeds 95%, with anchor tenants including Auchan, Bi1, LPP Group, Inditex Group, CCC Group, Rossmann, RTV EURO AGD and Cinema City.

Since acquiring the portfolio in 2019, Cromwell has implemented extensive asset management initiatives across the properties, significantly improving occupancy and footfall levels. The Group will continue to act as asset manager of the shopping centres on behalf of Star Capital Finance.

Cromwell has also exercised ambitious sustainability programmes at the assets, with the portfolio achieving a record overall GRESB score of 90 and a five-star rating in November 2023.

Andrew Creighton, Head of Investment Management, Europe at Cromwell Property Group, commented: “This sale concludes our strategy to sell these assets to achieve our strategic target of being a capital-light fund manager, with our asset management programmes successfully boosting the performance of each shopping centre and notably enhancing the sustainability credentials of the portfolio.

“We are looking forward to continuing to execute our ambitious investment strategies across Europe, focusing on strategically located, high-quality assets with excellent sustainability features”.

Josef Malir, Managing Director at Star Capital Finance, commented: We have bought a high-quality portfolio of shopping centers with a great potential for further development. Entering the Polish market is a milestone and a huge challenge for us, which we intend to take full advantage of. We would like to thank all our partners who assisted us to make one of the largest real estate transactions of the CEE region a reality”.

JLL, BNP Paribas RE, Greenberg Traurig, PwC Polska and CBRE Project Management & Building Consultancy advised Cromwell Property Group on this transaction.

Half-Year Results For Period Ended 31 December 2023

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29/02/2024

Overview

  • Statutory loss of $271.4 million (HY23 $129.5 million loss), impacted by a $240.2 million decline in property valuations
  • Operating profit of $83.7 million (HY23 $87.1 million), equivalent to 3.2 cents per security, was marginally down as a result of asset sales
  • On a like-for-like basis, Net Operating Income of the Australian Investment Portfolio was up 1%
  • HY24 distributions of 1.58 cents per security, reflects a payout ratio on adjusted funds from operations (‘AFFO’) of 62.6%
  • Net Tangible Assets per security of $0.72 (FY23 $0.84), with gearing at 44.7% (FY23 42.6%)
  • Total assets under management of $11.4 billion (FY23 $11.5 billion)
  • Investment portfolio occupancy of 93.4%, with a WALE of 5.3 years
  • Leasing markets remain active, with key leasing initiatives keeping occupancy strong

Continued focus on debt reduction and delivering stable income returns.


Cromwell Property Group (ASX:CMW) (Cromwell)
, today announces its results for the half-year ending 31 December 2023.

Persistent pressure on valuations both locally and in Europe was the major contributor to the statutory performance of the business and the decline in net tangible assets. In the six months to 31 December 2023, there were unrealised fair value reductions of $195.7 million (-7.5%) across the Australian Investment Portfolio and $44.5 million (-8.1%) for the Cromwell Polish Retail Fund (CPRF) Sale Portfolio1.

Cromwell commenced its asset sale programme in late 2021, prior to the expansion of capitalisation rates. Since then, we have completed or contracted over $584 million of asset sales, largely at or above book value, with a further $528 million anticipated to complete by June 2024, totalling $1.1 billion.

At the commencement of Cromwell’s asset sale programme, gearing was outside target range at 41.8%. The $584 million of completed or contracted assets sales has mitigated the impact of market valuation declines, however gearing still sits outside target range at 44.7%. On completion of the sale of CPRF, gearing is expected to return to within target range at 34.1%.

Dr Gary Weiss, Cromwell Chair, commented: “The current operating environment continues to be challenging with higher interest rates impacting the real estate sector. We remain focused on strengthening our balance sheet through prudent capital management and lowering our net debt position.

Despite the challenges, we continue to drive positive like-for-like net operating income growth and maintain solid occupancy rates across Cromwell’s Australian Investment Portfolio. In Europe, the funds management business contributed to earnings growth through mandate investments, notwithstanding restrained transaction volumes.”

The Australian Investment Portfolio

Like-for-like net operating income in the Australian Investment Portfolio was up 1%, reinforcing the ongoing income stability of the portfolio through the current market cycle. Operating earnings were down 3.2% on the prior corresponding period to $78.0 million, driven by asset sales, which was partially offset by an uplift in rental income.

Occupancy and weighted average lease expiry remained healthy at 93.4% and 5.3 years respectively. This high-quality portfolio offers attractive sustainability credentials and strong tenant relationships, which resulted in continued leasing success with approximately 12,000 sqm leased over the period.

While the trend towards flexible working arrangements has presented a challenge for landlords of office property, the market shows signs of stabilising, with evidence of stronger leasing demand from small to medium-sized occupiers, who made up the bulk of the new leases signed throughout the period.

Fund and Asset Management

Third party assets under management were $8.3 billion made up of $5.9 billion assets under management in Europe and $2.4 billion in Australia and New Zealand.

In Europe, earnings were up 36.2% on HY2023 due to higher leasing fees and positive foreign exchange impacts. Cromwell remains an active buyer, with new mandates from institutional capital partners for logistics assets, while the Cromwell European REIT (CEREIT) continues its pivot to owning majority logistics assets, leveraging continued tenant demand for this asset class.

Locally, Australian and New Zealand fund management activities slowed somewhat, with more limited inflows and valuation declines impacting Cromwell’s fund management fees.

Co-investments

The Cromwell Direct Property Fund has been impacted by 8.4% valuation headwinds, with Cromwell’s 4.2% position in the fund valued at $13.6 million. Distributions for the period remained consistent at $0.5 million.

The share of operating profit from Cromwell’s 27.8% holding in CEREIT was marginally up at $20.3 million. Over the 6 months, the value of CEREIT’s portfolio was down marginally to €2.3 billion
(-1.5%). Income grew 4.1% over the prior corresponding period on a like-for-like basis and leasing renewals drove a 5.7% increase in total portfolio rent reversion.

The Cromwell Italy Urban Logistics Fund continues to provide stable returns from the sole tenant, DHL, returning a $1.0 million share of earnings for the half-year, following the completion of a 50% sale to a joint venture partner.

CPRF portfolio income was up 31.3%, underpinned by higher rental income and positive foreign exchange movements over the six months. The sale of the CPRF Sale Portfolio2 is ongoing with a letter of intent signed and the purchaser having made a binding commitment to complete the deal on agreed terms subject to finance and no material adverse changes, backed by a material deposit. Cromwell anticipates completion on agreed terms in fourth quarter of financial year ended 30 June 2024.

Outlook

Commenting on the outlook Jonathan Callaghan, Cromwell Chief Executive Officer, said: “The remainder of the financial year will focus on business simplification and completing the current stage of our asset sale programme, including the sale of CPRF.

“We remain committed to preserving and growing securityholder value over time. Our core priority is to have a strong balance sheet by continuing to reduce debt to alleviate gearing pressures, along with ensuring we can continue to deliver stable income from our investments.

“As the market starts to recover, we anticipate being in a position to explore value accretive opportunities to provide longer term growth for our securityholders,” he said.

To view the HY24 Results Presentation, click here.

1 Represents CPRF assets for sale, excluding Ursynów.
2 Represents Cromwell Polish Retail Fund assets for sale, excluding Ursynów.

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February 14, 2024

Cromwell’s European Market Monitor – Q1 2024

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers ECB rates, credit standards and rate decline indicators.

View the full report here.

Cromwell releases full scope 3 inventory, sets short and long-term emission reduction targets

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22/01/2024

Real estate investor and fund manager Cromwell Property Group (ASX:CMW) has today released for the first time its full scope 3 emissions inventory, becoming one of the few Australian commercial property organisations to publish its emissions footprint across 100% of its global network and supply chain.

The inventory release covers all Cromwell scope 3 emissions across upstream and downstream activities, covering its entire supply chain of tenant activities; funds under management; joint ventures; and embodied carbon sources. It goes further than general sector reporting practices, where disclosure is often limited to scope 3 emissions where a company possesses operational control.

Alongside the disclosure of its scope 3 emissions inventory, Cromwell has today also released new short and long-term emission reduction targets which will help underpin future decarbonisation efforts.

This includes a net zero target across Cromwell’s entire portfolio for scope 1, 2, and 3 emissions by 2045, which includes tenant emissions and embodied carbon. In addition, Cromwell has also set a short-term target of a 42% reduction in scope 1, 2 and 3 emissions by 2030, along with a net zero target for new developments by 2030 and 2035 for all assets under Cromwell’s operational control.

Group Head of ESG, Lara Young, said: “Developing a full scope 3 inventory provides us with an accurate and meaningful picture of all emissions across our supply chain for the first time. It enables us to make more informed investment decisions on decarbonisation activities, working with our partners.

“Specifically, we have now shifted our focus to asset-level decarbonisation. In the last year, we have started to undertake assessments at specific sites to identify emissions sources and create bespoke plans to reduce these emissions, which we will do working in partnership with our service providers. We’ll continue this process going forward.”

Case studies

Cromwell has recorded positive progress across its current decarbonisation and emissions reduction activities, with scope 1 and 2 emissions reducing by 44% since FY22 and a 19% reduction across scope 1, 2, and 3 emissions since FY22. Examples of initiatives include:

  • The large-scale electrification upgrade of the 24-storey McKell Building, converting the existing commercial gas-fired heating system to an electric heat recovery reverse cycle heating, ventilation, and air conditioning (HVAC) system. This was a first of its size for the Sydney CBD and will achieve a 5% reduction in total building electricity consumption.
  • Cromwell’s solar programme which now includes 502kw of solar installation in Australia, which has reduced annual emissions by 538tCO2e, or up to 52% at each site. Cromwell is planning an additional five solar projects in Australia and three in Europe in FY24 to further reduce emissions.
  • Investing in sustainable technology and materials, including the refurbishment of CEREIT Nervesa 21 in Italy, where innovative and low-carbon glass was used instead of standard glass, which helped to record a significant reduction in the building’s embodied emissions.

ESG Report

The information above has been released today as part of Cromwell’s FY23 ESG Report. The full report can be found here.
In summary, the ESG Report highlights Cromwell’s long-term targets which include:

  • Achieve net zero operational emissions (scope 1 & 2) by 2035.
  • Achieve net zero operational emissions for the entire portfolio (scopes 1, 2, & 3) including tenant and embodied carbon by 2045.
  • Significantly reduce our gender pay gap year on year.
  • Achieve 40:40:20 workplace gender diversity at all levels.
  • Integrate ESG into risk registers and business strategy, including objectives and key results.

“Cromwell recognises the challenges that the property industry faces; however, we also recognise the opportunity to deliver tangible positive impacts. The Group has a global in-house ESG team and dedicated Australian and European teams that support all Cromwell activities,” said Ms. Young.

Cromwell reorganises European operations

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07/12/2023

Real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell or Group) today announced the reorganisation of its European operations to be more aligned with its investors’ strategies, and to improve efficiency in the current challenging market environment.

The reorganisation involves the creation of a regional structure comprising two European regions, which will be headed by Pontus Flemme Gärdsell for Northern Europe, and by Michael Bohde for Southern Europe, both reporting directly to Andy Creighton, Head of Investment Management, Europe. These two regions will replace the former structure, where each country had its own country head.

Pontus will be responsible for managing Cromwell’s investment and asset management activities in the Nordics, the Netherlands, the UK and CEE while Michael will be responsible for managing Germany, France and Italy.

Commenting on the changes, Pertti Vanhanen, Managing Director, Europe at Cromwell Property Group, said: “By streamlining our European business, we will be able to provide a greater focus on the countries our investors are showing most interest in. It will also enable us to improve operational efficiencies in the current challenging macro-economic environment, providing our clients with more integrated cross-border investment and asset management services”.

In the past 18 months, Cromwell has been active across Europe and the UK servicing longstanding mandates with clients such as CEREIT, the Singapore-listed REIT, as well as several new international mandates and marketing new strategies to investors.

Vanhanen, added: “Since the onset of higher interest rates, the market has changed significantly as investors and managers adjust strategies to cope with the higher cost of finance and structural changes impacting the sector. Foremost among these are how we improve the sustainability and carbon footprint of real estate assets and how we reposition buildings in sectors like offices where behaviours have changed”.

Cromwell has made significant progress in these areas, implementing a sustainable finance framework to support the transition to more sustainable borrowing across its portfolio and is currently premarketing a value-add office repositioning strategy in the UK.

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November 7, 2023

Cromwell’s European Market Monitor – Q4 2023

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers ECB rates, credit standards and rate decline indicators.

View the full report here.

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August 18, 2023

ESG and Investment Strategy: a virtuous relationship

Environmental, social and governance (ESG) is a high priority for real estate investors, but there is no agreed industry position on what ESG means in practice for investment strategy. In Cromwell’s latest analysis, Tom Duncan and the team review the ESG landscape and provide strategy-related advice on macro-sector allocations through asset selection and management to occupier profile.

View the full report here.

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August 18, 2023

Cromwell’s European Market Monitor – Q3 2023

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers tightening credit standards, bank liquidity and green financing.

View the full report here.

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August 3, 2023

Greenwashing: transparency is everything

Many companies have publicly declared their environmental, social and governance (ESG) strategies to formalise a commitment to net zero and align to the UN’s sustainable development goals. However, if these strategies are not backed up by solid, auditable data and acted upon in a meaningful way, then they are pointless. Making empty or misleading statements about the sustainability of a company’s products or services, whether intentional or not, is known as greenwashing.

Our latest briefing note looks closely at what greenwashing within real estate looks like in its many forms, and the steps businesses need to take to avoid significant reputational damage.

The full research briefing note can be found by clicking here.

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March 15, 2023

Timber buildings – Cost-competitive sustainable real estate

In 2022 we released our report on timber construction titled “Timber Buildings – Truly sustainable real estate”. This demonstrated the many benefits of construction using mass timber (short for massive timber) when compared to traditional steel and concrete.

To recap, the benefits of using mass timber include:

  • Energy efficiency: manufacturing mass timber materials uses significantly less energy than steel and concrete production;
  • Faster construction: prefabricated timber panels enable shorter construction timetables than building with steel and concrete thereby reducing construction-based emissions;
  • Less disruptive: fewer delivering trucks are needed resulting in less disruption to communities around building sites;
  • Resistant: mass timber is fire-resistant and avoids moisture damage when built correctly; and
  • Financially attractive: rising occupier demand for greener buildings led to a 9% rental premium for timber buildings.

This report seeks to look more closely at the amount of carbon reduction during the building development and lifecycle. It also explores how the cost implications of timber buildings compare to steel and concrete.

The full report can be found by clicking here.

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