Cromwell Group An opportunity to capitalise on the Australian Commercial Property Market 1
Important Information and Disclaimer 2
Content Cromwell Group Overview...4 Australian Focus..8 Cromwell s Property Portfolio 14 Strategy and Outlook...17 Appendix - Core Properties 22 3
Cromwell Group Overview 4
Cromwell Group Overview Cromwell Group (ASX code: CMW) is an internally managed Australian Real Estate Investment Trust (A-REIT) with a funds management business that promotes and manages unlisted property investments. Assets under management of approximately AUD $2 billion AUD$1.5b in Group assets AUD$0.4b in unlisted property funds managed by the Group for external investors 2011 Financial Year Guidance Forecast AUD7.3 7.8 cents per security (cps) earnings in FY11, distributing AUD7.0 7.4 cps Security price of $0.72 1 represents approximately 10% pa distribution yield High level of tax deferral expected to continue Cromwell intends to pursue opportunities for corporate activity which add to the quality of the Group s earnings and medium term growth potential. 1] As at 14 October 2010 5
Property Portfolio Overview Defensive Australian portfolio with strong cash flow No debt facilities expiring until March 2011 NTA per security of AUD$0.71, with valuations widely expected to have bottomed Portfolio will benefit from continuing economic recovery Perth WA 1% SA 7% Adelaide QLD 13% Brisbane NSW 20% ACT 24% Sydney Albury Canberra VIC 32% Melbourne TAS 3% Hobart * Map shows geographic diversification by gross income as at 30 Jun 2010 6
Management Overview Paul Weightman CEO / Executive Director Since inception has actively managed the Group s strategic direction Daryl Wilson CFO / Executive Director Primary responsibility for the finance and funds management functions Noel Woodward Head of Property Services Provides strategic leadership for the effective operation of the property portfolio Jodie Clark Director - Cromwell Property Services Licensee for property management and transactions David Gippel Director - Cromwell Capital Responsible for Treasury and debt management Paul McDonnell National Asset Manager Responsible for maximising income from all properties 7
Australian Focus 8
The Australian Economy Rich in natural resources major exporter of minerals such as iron-ore and gold, and energy in the form of liquefied natural gas and coal Major exporter of agricultural products, particularly wheat and wool. Fared better than many of the major world economies during past 3 years High level of commodity exports Continuing demand for its products due to close proximity to major Asian economies Strong, well regulated financial sector Unemployment rate only 5.1% (September 2010) 9
The Australian Commercial Property Cycle Valuations for quality property expected to have bottomed Peak to trough fall of 23.1% reported by IPD Opportunities to buy well below replacement cost Source: BIS Shrapnel 10
The Australian Commercial Property Market Cap rates for office now slightly above long-term averages Significant rental growth expected once limited supply is absorbed Office vacancy peaking in most CBD markets Source: IPD Research 11
Non Resident Taxation of Cromwell Group Investment As a stapled security, Cromwell Group is made up of Cromwell Corporation Limited (the Company) and Cromwell Diversified Property Trust (the Trust), each with different taxation treatments 12
Non Resident Taxation of Australian Property Investment Tax structuring vital to maximise after tax returns For further details, refer to Cromwell s Taxation Fact Sheet provided in the delegate packs 13
Cromwell s Property Portfolio 14
Portfolio Diversification No offshore assets Strong office focus Weighted towards Melbourne and Canberra office markets 15
Quality Income Stream Focus on quality tenants 52% of next rent reviews are fixed, with an average increase of 3.95% 27% of next rent reviews are CPI Minimal future impact from softening rentals only 17% subject to market reviews 16
Strategy & Outlook 17
Long Term Focus Aim is to deliver outperformance through the cycle Cromwell Group has significantly outperformed over short, medium and long term Direct property outperformance independently verified by IPD Property Securities Fund outperformance over all periods 18
Earnings and Distributions Guidance FY11 Operating Earnings Expect operating earnings of AUD 7.3 7.8 cps Assumes no further transactional income at low end of range FY11 Distributions Distributions of AUD 7.0 7.4 cps (paid quarterly) Distribution policy of 90-95% of operating earnings High level of tax deferral expected to continue FY12 and beyond Return to EPS growth Property earnings expected to continue to be resilient due to favorable lease expiry profile. Some impact from rising interest rates and refinancing but less severe than most peers Funds management and development opportunities provide potential for future growth 1] As at 14 September 2010. Source: Reuters Consensus Forecasts. 2] Source: IBES 19
Cromwell Group Strategy Short Term (FY11) Continue to focus internally on releasing and portfolio improvement opportunities Renegotiate FY11 and FY12 debt expiries and extend debt expiry profile Launch next generation of funds management products Continue to consider opportunities for corporate or property portfolio transactions Focus on opportunities which protect or enhance EPS and NTA per security Will continue to divest smaller/non-core assets Medium Term Improve liquidity targeting inclusion in ASX 200 A-REIT index Diversify debt sources and reduce gearing level as portfolio grows and valuations improve Target additional assets with core plus attributes in attractive markets as economy recovers Focus funds management business on targeting recurring rather than transactional income 20
An Attractive Play on a Recovering Economy Solid earnings base Recurring earnings currently >95% WALT of 6 years, quality tenant base Minimal lease expiries in next 5 years Targeting 4% growth in annual net property income Focus on cash flow DPS yield of 9.9 10.4% 1 based on guidance range Simple balance sheet and minimal development exposure allows for high payout ratio Targeting growth in NTA and EPS over medium term Have continued to expand AUM over last 3 years Will benefit from improving valuations History of outperformance over peers Will continue disciplined approach to transactional activity Ability to leverage existing skills over a much larger asset base 1] Based on closing price of $0.72 on 14 October 2010. 21
Appendix: Core Properties (valued over $50m) 22
Tuggeranong Office Park, Greenway ACT The property comprises five individual buildings of up to three stories linked by enclosed walkways. The basement area includes both service areas and 291 car parks with a further 469 open car parks on-site. It is fully leased to the Commonwealth Government until 2016. Address Sector Land Area Lettable Area Acquisition Date Athllon Drive, Tuggeranong ACT Commercial 80,780 sqm 30,757 sqm Jun-08 External Valuation $167.5m (June 2010) Book Value $167.5m Occupancy 100% Cap Rate 8.88% WALT Major Tenants 6.44 years Govt Department of Families, Housing, Community Service & Indigenous Affairs. 23
700 Collins Street, Melbourne VIC The property comprises 12 levels of office accommodation, 3 levels of car parking and various retail areas. 700 Collins Street is located in the Docklands Precinct at the western end of the Melbourne CBD. Tenants enjoy uninterrupted views and direct access to the city. Address 700 Collins Street, Melbourne VIC 3008 Sector Land area Lettable area Acquisition date Commercial 4,836 sqm 33,835 sqm Dec-04 External valuation $156.0 million (Nov 2009) Book value $160.0 million Occupancy 99.80% Cap rate 8.00% WALT Major tenants 5.02 years Bureau of Meteorology and Medibank Private 24
475 Victoria Avenue, Chatswood NSW The complex comprises two 13-level office buildings complete with ground floor retail and 3 levels of basement car parking. There is also a freestanding annexe building and well maintained gardens separating the 2 office towers. Office space in the complex comprises a net lettable area of 24,131 sqm while the retail space covers an area of approximately 832 sqm. Address Sector Land area Lettable area Acquisition date 475-501 Victoria Ave, Chatswood NSW Commercial 6,030 sqm 24,963 sqm Mar-06 External valuation $127.5million (June 2010) Book value $127.5 million Occupancy 98.32% Cap rate 8.00% WALT Major tenants 5.31 years Reed Elsevier Australia, Evans & Peck and Leighton Contractors 25
AWB Building, Melbourne VIC The La Trobe Street property is a modern A grade office complex with approximately 22,000 sqm of office accommodation. The 18 level building has 2 separate foyers fronting La Trobe Street providing a separate entry point for the major tenant AWB, who solely occupy the upper portion of the building. Address 380-390 LaTrobe St, Melbourne VIC 3000 Sector Land area Lettable area Acquisition date Commercial 2,899 sqm 21,983 sqm Dec-05 External valuation $94.5 million (June 2010) Book value Occupancy 100% $94.5 million Cap rate 8.50% WALT Major tenants 4.26 years AWB Services Limited and Australian Taxation Office 26
200 Mary Street, Brisbane QLD Cromwell House at 200 Mary Street is strategically located in Brisbane s CBD, just 125 metres from the GPO and in an area known as Brisbane s Golden Triangle. The 19 level office tower serves as the head office of Cromwell Group. Parts of the building enjoy views over the Brisbane River to Moreton Bay as well as Brisbane s hinterland. Address 200 Mary Street, Brisbane QLD 4000 Sector Land area Lettable area Acquisition date Commercial 1,834 sqm 13,841 sqm Jun-01 External valuation $85.5 million (June 2010) Book value $85.5 million Occupancy 98.14% Cap rate 8.50% WALT Major tenants 3.60 years Queensland Department of Public Works, Commonwealth Government, QER Pty Ltd 27
Synergy, Kelvin Grove QLD Synergy, completed in November 2008, is located within Kelvin Grove Urban Village, Brisbane s newest masterplanned inner-city precinct merging business, technology, education and the arts. It is a state of the art A-grade building which has been awarded a 5 Star Green Star As designed Rating under the Green Building Council of Australia s (GBCA) Green Star rating system. A 5 Star rating recognises and rewards Australian Excellence in building design. Address Sector Land area Lettable area Acquisition date 76-88 Musk Ave, Kelvin Grove QLD Office 3,878 sqm 14,144 sqm Jun-07 External valuation $82.0 million (Nov 2009) Book value $78.0 million Occupancy 71.78% Cap rate 7.75% WALT Major tenants 6.39 years Queensland University of Technology 28
TGA Complex, Symonston ACT The Therapeutic Goods Administration (TGA) complex at Symonston consists of 2 separate buildings on a 17.35 hectare site approximately 8 kilometres from the Canberra CBD. The main building is a world class office and laboratory facility which is leased to the TGA until 2017. There is scope for significant expansion of the existing facilities. Address 136 Narrabundah Lane, Symonston ACT Sector Commercial Land area 173,500 sqm Lettable area 18,524 sqm Acquisition date Jun-02 External valuation $75.0 million (Mar 2010) Book value $75.0 million Occupancy 100% Cap rate 8.50% WALT 6.77 years Major tenants Therapeutic Goods Administration 29
Qantas Global Headquarters- Sydney Superbly positioned within immediate proximity of Mascot- Kingsford Smith International and Domestic Airports a modern campus style business park comprising three multi-level office buildings and an office warehouse building, all with extensive basement parking. Address Sector Land Area Lettable Area 203 Coward Street, Mascot NSW Commercial 27,160 sqm 46,546 sqm Acquisition Date August 2010 External Valuation $169.1 million (May 2010) Occupancy 100% Cap Rate 8.30% WALT Major Tenant 10.49 years Qantas Airlines Limited 30
Exhibition Property, Melbourne VIC The property will be refurbished over the next 12 months, and will provide significant exposure to the improving Melbourne CBD commercial market Address Sector Land area Lettable area 321 Exhibition Street, Melbourne VIC Commercial 2,914 sqm 30,915 sqm Acquisition Date July 2010 External valuation Book value Occupancy Cap rate 8.00% WALT Major tenants $155.0m (Mar 2010)on completion of refurbishment $90.2 million Currently Vacant ( 78% under Heads of Agreement) 11.1 years (includes Origin lease effective 1 Aug 2011) Origin Energy pre-committed to lease 78 % of Building post refurbishment. 31
Thank you for your time Paul Weightman CEO / Executive Director Cromwell Group David Gippel Director Cromwell Capital Limited Jodie Clark Director Cromwell Property Services To book a meeting with Cromwell, speak to one of the ASX staff or visit the Registration Desk 32