Cromwell Property Group

CMW Details

Agreement to Acquire Assets in Italy: Cromwell Property Group (ASX: CMW) is a diversified real estate investor and manager with operations on three continents and a global investor base. The company has recently signed a binding agreement with the Korean real estate investment manager, IGIS Asset Management, to purchase seven DHL logistics assets in Italy for $85.7 million. Settlement of the same is due in September 2020. The assets are being acquired to form the seed portfolio for a new Cromwell European Logistics Fund once launched. The Fund will have a target Gross Asset Value (GAV) of between $650 to $800 million and will be focused on core+ logistics assets throughout Benelux, France, Germany and Italy.

In another recent update, the company advised its investors to reject the Proportional Offer by ARA Asset Management Holdings Pte. Ltd. to acquire 29% of all Cromwell stapled securities that ARA does not already hold a relevant interest in. The company considers the offer to be an opportunistic attempt to take control of Cromwell without paying securityholders a premium for control.

Business Update: In the latest business update, the company notified that each of its business segments contributed to the strategy of minimising the financial impact of COVID-19 on the Group’s earnings and balance sheet. Under the Direct Investment segment, the company had a resilient Australian portfolio with 44% of gross passing income derived from government and government authorities, only 10% from small and medium-sized enterprises. Under Indirect Investment, the company reported strong performance by Cromwell European REIT (CEREIT), which provides recurring fees and hence, strengthens the European business. Under the Funds and Asset Management segment, the company has an ongoing COVID-19 engagement programme with 3,500+ tenant-customers to ascertain the level of assistance and support required. Below is a snapshot of the company’s performance in H1FY20:

H1FY20 Performance (Source: Company Reports)

Dividend: For the June quarter, the company announced a distribution of 1.875 cents per security, in line with the original guidance. The company also suspended its distribution reinvestment plan due to the security price being below the per unit NTA (net tangible assets), which is not in the interests of Cromwell’s securityholders as a whole for securities to be issued under the DRP.

Outlook: Due to the uncertainty regarding the impact of COVID-19, the company had withdrawn its FY20 guidance in April 2020. The company has carefully managed its expenses, reprioritised non-essential and discretionary expenditure, frozen non-critical hires and reviewed all non-essential projects, to maintain liquidity. The cost savings initiatives are expected to reflect in the last quarter of FY20 and then in FY21. Cromwell believes that the impacts of COVID-19 will be manifold and the business seems to be strongly positioned to take advantage of the opportunities that will emerge from market dislocation and maximise returns for securityholders and investors. The company expects to release its FY20 results on 24 August 2020.

Key Risks: The company’s performance can be impacted by the loss of AUM or lower than expected performance of investments which poses a challenge to the achievement of market guidance and target distributions. Inability to lease assets, in-line with asset management plans and forecasts can also impact operations. Moreover, the company should ensure complete information and data security because any loss of data or breach of confidentiality can impact business reputation.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company gave positive returns of 18.67% in the last 3 months and is currently trading below the average of its 52-week trading range. The company is well placed within its debt covenant limits with approximately $670 million of combined cash and available undrawn facilities as at 30^th June 2020. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Considering the decent financial position, log-term growth prospects, current trading levels, and valuation, we give a “Buy” rating on the stock at the current market price of $0.89 on 29^th July 2020.

CMW Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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