Cromwell Property Group (CMWCF) Earnings Call Transcript & Summary

Welcome to the 2025 Annual General Meeting of Cromwell Property Group. My name is Gary Weiss, and I am the Chair of Cromwell Property Group. I'm also the Chair of today's Annual General Meeting. I warmly welcome all Cromwell securityholders to the meeting, whether you're joining in person here at 308 Queen Street or through the online platform provided by our registry MUFG Corporate Markets. The Cromwell Board thanks all security holders for their participation. Today's Annual General Meeting is held as a hybrid meeting. Cromwell is deeply committed to diversity and inclusion, and we believe the hybrid meeting format creates the most inclusive meeting environment for our very diverse security holders and stakeholders. To further promote engagement and transparency, we will upload an archived copy of the webcast to our website after the meeting. To begin, I acknowledge the Traditional Custodians of the lands on which we meet today, and pay my respects to their Elders, past and present. I would now like to introduce my fellow directors. Joining me here in Brisbane, we have, to my left, our Managing Director and Chief Executive Officer at Jonathan Callaghan. Next to Jonathan, we have Independent Nonexecutive Director, Lisa Scenna. And next to Lisa is Independent Nonexecutive Director, Joseph Gersh AM. And on my right, we have Independent Nonexecutive Director, Tanya Cox; and next to me, our Independent Lead Deputy Chair, Eng Peng Ooi. Via our conference call, we have Nonexecutive Director, Jialei Tang, who is joining from Hong Kong. Our Company Secretary, Michael Foster is here in Brisbane to coordinate the virtual component of our meeting. Mr. Nicholas Rozario is also present today. Nick is a partner of Deloitte Touche Tohmatsu, which is Cromwell Property Group's auditor. Later in the meeting, you will have the opportunity to ask questions about the financial statements and the independence of the auditor in relation to the conduct of the audit. As a matter of housekeeping for everyone here at the Brisbane meeting location, in the unlikely event that we need to evacuate the building, please follow the emergency exit signs and directions of staff to safely move down the stairs and towards our assembly area and Post Office Square. Please do not use the lifts. Now I would like to formally open the meeting. I've been informed that a quorum for the meeting is present, and I formally declare the meeting open. To those here in person and those who have dialed in today, thank you and we welcome you to Cromwell Property Group's 2025 Annual General Meeting. I will give a brief introduction before handing over to Jonathan to provide some remarks. The 2025 financial year marked a pivotal chapter in Cromwell's transformation. Thanks to the dedication and focus of our team, we have made substantial progress in simplifying the business and strengthening our financial position. The successful divestment of $1.6 billion of noncore assets, including a complete exit from our European platform, was a major milestone. These actions have significantly reduced group gearing and position Cromwell for sustainable long-term growth. Before we get started, I would like to acknowledge Rob Blain, who stepped down from the Board in August. Rob has played a key role in Cromwell's evolution since 2021. And we thank him for his leadership and outstanding contribution. Pleasingly, Rob will continue to support the group and then advisory capacity. In line with our streamlined operational model, we have elected not to replace Rob's position. And following a Board-level review, Board fees have been reduced by 22.9% in FY '26. In June, ESR exited Cromwell's register, selling its 30.69% stake in 2 tranches. The first 10.8% was placed with a mix of institutional and high net worth investors. We thank you for your support and Cromwell strategy. The second 19.9% was acquired by Brookfield, and we welcome Brookfield on to the register and view their investment as an endorsement of Cromwell's direction and the significant progress we have made over the last few years. Cromwell Property Group manages assets valued at $4.2 billion at 30 June 2025. Our in-house team looks after more than 170 tenants in Australia across 16 properties. Cromwell's investment portfolio continues to lead the sector with occupancy at 97.6%. Valuations are showing signs of stabilization, supported by proactive asset management and ESG enhancements to drive positive leasing outcomes, which underpin security holder returns. Following our simplification, Cromwell's growth strategy is clearly defined. We are focused on core markets and sectors while diversifying our capital partnerships. Execution of that strategy is already underway, highlighted by 2 major initiatives. First, our office development in Barton and the ACT, which we plan to sell to a Cromwell managed vehicle. Secondly, the conditional acquisition of the Straits Industrial portfolio and management platform which we announced earlier today. Jonathan will share more details on these shortly. These initiatives mark important steps in strengthening Cromwell's investment management business. Cromwell is now a well-capitalized business with a clear vision. We are well positioned to pursue value-accretive growth opportunities as market conditions continue to improve. Once again, thank you for your continued support and & in Cromwell Property Group. I will now hand over to Jonathan for a business update.

Thank you, Gary. Good afternoon, and thank you for joining us today. Operationally, our investment portfolio is performing exceptionally well. Occupancy is at a sector-leading 97.6%, and our weighted average lease expiry sits at 5 years. The team leased over 51,000 square meters during the 2025 financial year, including a 15-year pre-lease of the Commonwealth government at our Barton ACT development. As Gary mentioned, FY '25 was a transformative year for Cromwell. We simplified our business and strengthened our financial position, completing $1.6 billion in noncore asset sales. This reduced group gearing from 38.9% to 28.2% in the 12 months to 30 June 2025. This strong foundation allows us to provide a distribution guidance for the first time in several years of $0.03 per security for FY '26, underpinned by secure stable income streams. Notably, 69% of our portfolio income is derived from government, Qantas and metro trains. As Gary noted, following several years of transformation, the group's balance sheet is now well positioned to support upcoming growth initiatives. With low gearing at 28.2%, $504 million in deployable liquidity and streamlined funding structures, Cromwell is equipped to transition toward a capital-light investment management model. Financially, Cromwell delivered an operating profit of $108.6 million, down 20% from FY '24 due to the European exit and a one-off fee in the prior year. Funds from operations were $105.7 million, equating to $0.04 per security with a payout ratio of 74.2%, up from 59.8% in FY '24. Net tangible assets were $0.56 per security, impacted by $97.4 million fair value decline in the investment portfolio valuations in the first half of the 2025 financial year, which was partially offset by a $3.5 million uplift in the second half. Australian earnings remained strong with $157.4 million generated from the investment portfolio income and $8.4 million from the investment management fees. We also made significant progress in cost management. Corporate costs were reduced by 14.5%, and net financing costs were down 40%. In June, we renegotiated our bilateral debt facilities, securing more favorable terms, greater covenant flexibility and extended duration. Our weighted average drawn credit margin improved from 1.8% to 1.3%, while our cost of debt remained stable at 4.9%. We're proud of our ESG achievements with an 11% reduction in absolute emissions meeting our Scope 2 net zero targets and renewable energy targets. We maintain high NABERS rating across our investment portfolio and Cromwell Direct Property Fund. We have also launched our reflect reconciliation action plan, reinforcing our commitment to First Nations engagement. Cromwell's investment portfolio comprises 8 assets valued at $2.1 billion. It is performing strongly as valuations across the market are stabilizing. The investment portfolio saw $3.5 million uplift during the second half of the 2025 financial year. Occupancy is at 97.6%, the highest in our peer group, up 3.5% compared to the 2024 financial year. The portfolio WALE sits at a healthy 5 years. The top 5 tenants heavily weighted to government anchors the portfolio and contributed 69% of income. Leasing momentum continues with activity totaling more than 51,000 square meters over the financial year. We have announced the start of our development of a new office asset in Barton, ACT, for a commonwealth government tenant. The government tenant has committed to a 15-year lease with an option to extend for another 5 years. The building will be a 19,800 square meters, fully electric and designed to achieve 6-star environmental ratings. We're targeting completion in 2027. This will be a very attractive project to bring in capital partners when the time is right. In more recent news, Cromwell has entered into a conditional agreement to acquire a 19.9% interest in the Straits Real Estate industrial portfolio and its associated management platform, Terre Property Partners. This portfolio comprises 7 high-quality industrial assets valued at approximately $480 million located in key logistic hubs across Victoria and South Australia. The acquisition valued at approximately $48 million will be funded from existing group liquidity. It is expected to deliver stable recurring income to the group through distributions from our partial fund ownership and from management fees. We anticipate group income contribution of approximately 1% to FY '26 earnings with further upside as portfolio growth is achieved. This strategic acquisition aligns well with Cromwell's existing portfolio, enhancing asset and income diversification while strengthening our position through new capital partnerships. As you may be aware, we recently announced the expected wind up of the Cromwell Direct Property Fund. The responsible entity for this fund has commenced the process of winding up the fund following the conclusion of its recent liquidity event. With withdrawal -- withdrawal requests exceeding 50% of units on issue, the fund will progressively realize its assets and distribute net proceeds to unitholders. The wind-up is not expected to materially impact Cromwell's FY '26 operating earnings, and the group distribution guidance of $0.03 per security remains unchanged. Unitholders of Cromwell River Park Trust, which owns Energex House in Brisbane, voted in favor of a 2-year extension on 6 December 2024. Similarly, unitholders of Cromwell Property Trust 12, which owns 19 George Street in Dandenong in Victoria, voted in favor of extending the trust for a further 2 years to December 2027. Looking ahead, our growth strategy is clear and will be executed with discipline. We will continue to expand our funds management platform through 3 channels: organic fund creation, scaling existing products and strategic acquisitions or mergers. We remain focused on traditional sectors of office, industrial and retail, where we have expertise and a strong track record of performance. In the year ahead, Cromwell will leverage its strong capital position and improving market conditions to accelerate growth in our funds management business, driving recurring fee income through organic expansion and strategic acquisitions with capital partners. We remain committed to maintaining high occupancy across the investment portfolio through active asset management and tenant engagement, while ensuring prudent capital management to support strategic growth and long-term value creation. The group's expected annual distribution guidance of $0.03 per security for the 2026 financial year remains unchanged. And I'll hand back to Gary now to undertake the formal part of the meeting.

Thank you, Jonathan. We now move to the formal part of the meeting. Cromwell Property Group is a stapled enterprise consisting of Cromwell Corporation Limited, which is referred to as the company, and the Cromwell Diversified Property Trust, the responsible entity of which is Cromwell Property Securities Limited. Cromwell Property Group securities are stable so meetings will be held concurrently. I will now address some meeting formalities. Shortly, security holders will be asked to vote on 4 ordinary resolutions to be put to the meetings. In accordance with the Corporations Act, voting on each resolution will be conducted by a poll. I appoint Rachel Teo of MUFG Corporate Markets as the returning officer to conduct the polls. I address the following comments to attendees here at the Brisbane meeting location. Security holders and proxy holders who have registered to vote will have received a yellow voting card. You'll be asked to complete your voting card, and they will be collected at the end of the meeting. Only security holders or their duly appointed corporate representatives or attorneys and proxy holders are entitled to vote. For proxy holders, the for, against and abstained boxes will only be used to record open or discretionary votes that you represent. Directed votes will be counted as further the voting direction lodged. Nonvoting security holders will have received a blue nonvoting card, and visitors will have received a white visitor card. Turning now to those attendees participating online, I make the following comments for your reference. Security holders and any proxy holders holding open proxies who registered to vote at today's meeting will need to click on the Get a Voting Card button and follow the prompts to receive an electronic voting card for each of your holding proxy holder appointment to enable you to cast your vote. In line with statutory requirements, details of all proxies in respect of each resolution will be recorded in the minutes. Each Nonexecutive Director who holds Cromwell Property Group Securities has voted in favor of resolutions 2, 3 and 4. They have not voted on resolutions 5 and 6 because they are excluded from doing so by the provisions of the Corporations Act. As Chair of the meeting, I intend to vote undirected proxies in favor of each of the resolutions. The first item of business is advisory only, and you will not be able to cast a vote against resolution 1. Resolutions 2, 3, 4 and 5 relate to the company only. Resolution 6 relates to both the company and the Cromwell Diversified Trust. Cromwell's security holders, proxy holders and security holder representatives will be provided with an opportunity to ask questions or comment on the resolutions. For security holders and proxy holders here at the Brisbane meeting, please signal for the microphone. Before asking a question, please do show your yellow voting card or blue nonvoting card, state your name and, if applicable, the name of each security holder you represent. For security holders and proxy holders participating online, you can ask a question by clicking on the Ask a Question button within the online platform and typing your question or comment on the box provided. Security holders and proxy holders can also ask questions verbally by phone. Information about asking a question by phone, including the number to dial to access the facility, is contained in the virtual meeting online guide. Please note that you may not vote by phone. Visitors are not entitled to ask questions, make comments or vote. The business of today is set out in the notice of meeting sent to security holders. I will take that notice and all resolutions proposed today as having been read. The minutes of the 2024 Annual General Meeting of the company were approved by the Board and have been signed as a true and correct record. Those minutes are available for inspection by security holders if required. The first item on the agenda is the consideration of reports. Cromwell's 2025 annual report has been made available to security holders. It contains the financial report, director's report and auditors report for the year ended 30 June 2025. This item of business for consideration by the meeting is intended to provide an opportunity for security holders to raise questions on the report and on the performance of the group, generally. There is no vote on this item. As I mentioned at the start of the meeting, Mr. Nicholas Rozario is present in Brisbane today. Nick as a partner of Deloitte Touche Tohmatsu, the financial auditor of the company for the 2025 financial year. Security holders have the opportunity to ask questions that are relevant to the conduct of the audit of the company, the preparation and content of the auditor's report, the accounting policies adopted by the company in relation to the preparation of the financial statements or the independence of the auditor in relation to the conduct of the audit of the company. I confirm that we did not receive any written questions on these matters prior to the meeting. I now invite discussion and questions in relation to Cromwell's 2025 annual report and any questions for Nick as the company's auditor in relation to any of the matters mentioned. So does anyone have any question on resolution 1? Noel? Noel, I think just wait for the microphone so we can hear you.

Noel Ambler from the Australian Shareholder Association today, representing 16 shareholders and about 2 million shares. Question really is for Jonathan. He gave a very interesting chat on what has happened in the past. But is it possible to expand upon what your plans for the future are. You've got to the stage now where you can do that. So something to interest us apart from what you've already told us.

Yes, sure. I mean thanks for the question, Noel. The strategy of the group is pretty clear. I think that what we want to do is really focus and use any capital that we have available to us to grow our investment management platform. So what does that mean? It means sort of a couple of things. The ways in which we use that capital, we can use it in a couple of ways. One, we could use some capital to co-invest or to see a fund for another client or another product for clients. So for example, we could put $20 million in our $500 million -- $20 million in a $500 million fund and manage that $500 million fund and raise the other $480 million. That's one way in which we could use it. The other way in which we could use it would be to acquire small unlisted platforms. This -- a deal that we announced this morning at the acquiring the management platform Terre Property Partners is a good example of that. And what that does is that it brings -- that these acquisitions bring, it really brings a few things. One is it brings an earnings profile because the businesses you acquire have management fees that they receive for managing their existing clients, but it also gives us a skill set. And what Terre Property Partners, in particular, brings us is really deep industrial experience that we're kind of lacking at the moment in this business. So it's a wonderful addition to our business, that particular skill set. So that's what we're looking to use our capital for. What we're not probably going to do with it is really just buy an investment property and put it on our balance sheet and manage it for ourselves. That's probably not what we're going to do with our capital.

Thank you. Any other questions in the room?

No other questions.

Any online questions? No? And no phone-in questions?

Okay. So we'll now move to the second item of business. As this item of business relates to my reelection as a director of the company, I will vacate the chair in favor of our Independent Nonexecutive Deputy Chair, Eng Peng Ooi. Thank you.

Thanks, Gary. Before proceeding with Gary's reelection on behalf of the rest of the Board, we'd like to address comments we are aware of regarding overboarding concerns relating to Gary. The Cromwell Board has full faith in Gary's leadership and time commitment to his role as Chair. This commitment is demonstrated by Gary's professional and productive working relationship with Cromwell's CEO and deep engagement on strategic opportunities for Cromwell. Over the last 3 years, Gary has attended 57 out of 58 Board meetings -- Board and committee meetings and only having missed a single 20-minute management update during that period due to being in transit at that time. In unanimously supporting the reelection of Gary as a director of the company, the directors acknowledge Gary's current directorship aside from Cromwell and are of the view that they actually benefit Cromwell. In the director's view, Cromwell's benefit from the wide deep and contemporary government experience that Gary brings to bear on his role at Cromwell, given his current directorship as well as his extensive previous Board and Board commitments roles. Moving on, the resolution relates to the reelection of Dr. Gary Weiss AM as a Director of the company. Dr. Weiss is Cromwell's Independent Nonexecutive Chair, and the notice of the meeting contains Gary biographical details. And resolution reads that Dr. Gary Weiss AM, who retires by rotation in accordance with the constitution of the Cromwell Corporation Limited and offers himself for reelection, is reelected as a director of Cromwell Corporation Limited. The proxy count so far are displayed on the screen. I now invite Gary to give some comments to the meeting.

Thank you very much, Eng. Let me say that the journey that we've been on at Cromwell since I was first appointed to the Board has indeed been challenging. As unfortunately, many of you will be only too well aware, at the time I joined this Board, Cromwell had very significant debt. Indeed, going back as far as financial year '21 and '22 Cromwell owed $2 billion. Its gearing was well above the stated target ratio that had been announced to the market. And Cromwell also found itself in the position where 1/3 of its balance sheet was exposed to investments in Europe. I'm very pleased to say that working closely as I have with my fellow Board colleagues and with Jonathan and all the team at Cromwell, we see Cromwell today having been substantially transformed. We have sold over $1.6 billion worth of assets over this time. We have reduced our debt down to just over $500 million. Our gearing today stands below 30%. We have a strong balance sheet, the envy of many other players in the property sector in Australia. We have a first-class management team. And I'm very excited about the opportunities that lie before Cromwell. Today's announcement is but one example of, hopefully, more of these types of transactions that we're now able to do in the Australian market and our home market where we do believe we have a competitive position. And we look forward to -- and I look forward to playing a part in restoring the value that had been lost over the last few years and to try and restore not only security holders' asset position, but to grow distributions again over time.

Thank you, Gary. Are there any questions or comments on this resolution? Yes.

Noel, Australian Shareholders' Association again. The ASA is always concerned about the workload of our Chairman and directors generally. Gary, can you please reassure us of your workload responsibilities?

Reassured accordingly. Noel, thank you.

Any further questions? Okay.

No other questions, Eng.

Thank you. Cromwell directors unanimously recommend that security holders vote in favor of the resolution. Dr Weiss abstain from voting on the recommendation. If there is no further questions, please cast your vote. [Voting]

There's another question. Sorry.

[indiscernible] shareholders. I'm a shareholder from homebuilt, and I have to express my disappointment. When you said you have any progress, what I see is a net [indiscernible] stopped down the last 2 years from $0.84 to $0.56 a share. And that's the reason a lot of people jumping out. I was too late for it.

Sorry. I appreciate the erosion of value. A significant proportion of the write-down in value related to the carrying value of assets in Europe. And we simply had to recognize that the assets on the open market were not worth the book value that they were carried at. Secondly, as you would appreciate, with the increase in interest rates that we experienced post the COVID period, capitalization rates have expanded, and it's led to an overall decline in valuation through all properties of Australia, Cromwell included.

Would be nice if you kept it because the Australian dollar is nothing worse anymore, and you saw a nice European currency.

You raise a very good question, but fundamentally, the view of the Board was that Cromwell should never have been in Europe in the first place. So -- and over the period of involvement in Europe, the currency has swung around quite dramatically over that period, both positively and negatively. But thank you.

Any further questions? If not, please cast your vote. Thank you. I will now give the chair back to you, Gary.

Thank you, Eng. So we'll move to resolution 3, the reelection of Joseph Gersh as a director. The resolution set out in the notice of meeting. and details of Joe's biography are contained in the notice of meeting. The proxies are displayed on the screen. I now invite Joe to give some comments to the meeting.

Thank you, Gary. I won't detain the shareholders for too long by repeating what the Chair and Jonathan have said about the past several years. I'm very, very pleased that we've found the company now in the position that it's in. The reason for nominating for a further period is that having been actively involved in what's going on in the past and responding to questions about the future, I would very much like to be involved in what happens in the future because I think it does have the potential to restore substantial value. I think it has the potential to be very interesting and hopefully, we'll achieve for the company and particularly for its shareholders, all that they would expect the Board to be able to do, given the opportunities which have now been created. So if I'm reelected, I look forward to participating in that process. Thank you.

Thank you, Joe. Any questions or comments on the resolution?

No online questions or comments.