Cromwell Property Group makes an acquisition

About the author:

Author name:

By Fiona Buchanan

Job title:

Co-Head of Research, Senior Analyst

Date posted:

10 December 2013, 8:31 AM

Sectors Covered:

Property, AREITS

Cromwell Property Group (CMW) has announced the acquisition of the Northpoint office asset in North Sydney for A$278.7m.

The new acquisition will seed a new unlisted wholesale fund, the Cromwell Partners Trust, which will be managed by CMW and initially owned 50/50 by CMW and Redefine (the major shareholder in CMW). Both parties will contribute A$80m equity with the balance funded by a new debt facility. We have adjusted our forecasts to incorporate the 50% income stream and acquisition fees.

Asset sales

CMW has also announced two asset sales totalling A$154m. Following the Northpoint acquisition and the two asset sales the CMW portfolio is valued at cA$2.4bn (across 32 properties). We expect further asset sales in the near term.

Reasons to buy CMW

• the funds management business continues to gain momentum on the back of strong retail fund flows;
• expectations of further accretive acquisitions given balance sheet capacity;
• expected cap rate compression (medium term);
• low lease expires (4.4% in FY14 amd 7.3% in FY15) which is attractive in a challenging office environment;
• a long WALE (c6 years); and
• an above average sector yield supported by secure rental income streams.

Following the Northpoint acquisition and asset sales, our SOTP valuation is A$0.96 (from (A$0.95). Our price target remains A$1.07 (implied yield of 7%) as we believe the above sector yield will continue to support the security price in the medium term.

More information

If you are interested in finding out more about Cromwell Property Group (CMW) please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.