Cromwell Prospering in a low growth world Hong Kong & Singapore May 2013 Cromwell Property Group 1
Important Information & Disclaimer Purpose This presentation is dated 9 May 2013 and is made on behalf of the Cromwell Property Group Cromwell Corporation Limited (ACN 001 056 980) and Cromwell Diversified Property Trust (ARSN 102 982 598) by Cromwell Property Securities Limited (ACN 079 147 089; AFSL 238052). Units in the Cromwell Diversified Property Trust are stapled to shares in Cromwell Corporation Limited. The stapled securities are listed on the ASX (ASX Code:CMW). All statistics, data and financial information in this presentation are current as at 31 December 2012 unless otherwise indicated. All dollar figures shown are in Australian dollars. The contents of this presentation have not been reviewed or approved by any regulatory authority in Hong Kong or Singapore. Recipients of this presentation are advised to exercise extreme caution in relation to the content of this presentation. If recipients are in any doubt about any of the contents of this presentation, they should obtain independent professional advice. This presentation is for information purposes only. It has been prepared for, and is delivered to: a) "professional investors" in Hong Kong (as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that ordinance); b) institutional investors under section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA ) or any rules made under the SFA or to a relevant person pursuant to section 275 of the SFA, or to any person pursuant to section 275(1A) of the SFA and in accordance with the conditions specified in section 275 and any rules made under the SFA. This presentation does not constitute investment, accounting, financial, legal or tax advice and does not constitute an offer or invitation to the public in Hong Kong or Singapore to subscribe for or purchase any stapled securities or other securities of the Cromwell Property Group. It is not Cromwell Property Group s intention to offer stapled or any other securities for sale to the public in Hong Kong or Singapore. The information contained in this presentation may not be used other than by the persons to whom it is addressed and may not be reproduced in any form, or transferred to any person, in Hong Kong, Singapore or elsewhere without the prior consent of Cromwell Property Group. Further, no person shall issue or have in its possession for the purpose of issue, whether in Hong Kong, Singapore or elsewhere, any advertisement, invitation or document relating to Cromwell Property Group, its stapled securities, or the contents of this presentation, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong or Singapore, without the prior written consent of Cromwell Property Group. No Representation or Warranty No representation or warranty (either express or implied) is given by Cromwell Property Group (including without limitation its officers, employees, agents, associates and advisors) as to the quality, accuracy, reliability, reasonableness or completeness of the information contained in this presentation or any part of it or any other information supplied by or on behalf of Cromwell Property Group (collectively the Information) to recipients of this presentation, or that reasonable care has been taken in compiling or preparing the Information or this presentation. Forward Looking Statements Certain statements in this presentation are forward looking statements. These statements are not guarantees of future performance. Actual results could differ materially from those referred to in this presentation and no representation is made that any forward looking statement will be achieved. Cromwell Property Group 2
Cromwell Property Group Cromwell has evolved organically over 15 years Listed fund manager recapitalised by existing management in 1998 REIT structure created through stapling and merger of unlisted funds in 2006 Focused and clear strategic direction Cromwell Property Group Market cap: $1.5 bn 1 Security price: $1.06 1 Gearing: 44.0% 2 Operating earnings: 7.50 cps 3 Distributions: 7.25 cps 3 Conservatively opportunistic investment style Innovative and considered product creation Disciplined and diligent operations Property Portfolio 4 Portfolio value: $1.9 bn Number of buildings: 25 WACR: 8.4% WALT: 6.0 yrs 1) As at 6 May 2013 2) Calculated as net debt to total assets less cash, as at 31 December 2012 adjusted for subsequent sale of 101 Grenfell Street, Adelaide and settlement of security purchase plan 3) FY13 guidance 4) As at 31 December 2012 adjusted for subsequent sale of 101 Grenfell Street, Adelaide 5) Includes value of Ipswich City Heart and Box Hill properties as if complete 6) As at 30 June 2012 Funds Management Business Assets under management: $822 m 5 Number of Funds: 4 Capital employed: $15 m 6 Cromwell Property Group 3
Current Cromwell Property Portfolio Exhibition St, VIC Collins St, VIC HQ North, QLD Qantas HQ, NSW 475 Victoria Avenue, NSW Synergy, QLD Cromwell Property Group 4
Property portfolio 1 Australian portfolio Geographic Diversification 2 Sector Diversification 2 Tenant Classification 2 91.4% 2 Office Balanced allocation to Brisbane, Sydney, Melbourne, Canberra 69% of portfolio subject to fixed or minimum rent reviews in FY13 Average minimum increase of 3.8% in FY13 83% of rental income from government 3 or listed companies 4 Next Review Type Total Gross Income Cumulative Fixed (avg 3.8% FY13) 69.3 % 69.3 % CPI 22.0 % 91.3 % Market / Expiring 8.7 % 100.0 % 1) Statistics as at 31 December 2012 adjusted for sale of 101 Grenfell Street, Adelaide 2) By income 3) Includes Government owned and funded entities 4) Includes subsidiaries of listed companies Cromwell Property Group 5
Clear strategy and investment philosophy Consistent, focused strategy Complementary asset acquisitions Value adding co-investment and funds management opportunities Focus on CBD, CBD fringe and established suburban markets Maintain defensive portfolio characteristics of strong tenant covenant, long WALE and fixed growth Active recycling programme to secure returns, improve portfolio quality and fund investment opportunities Seek acquisitions that offer superior returns (yield and value upside) within a defensive portfolio strategy Leverage property expertise and distribution base to expand funds management platform, boosting profitability and growth Differentiated strategy provides access to a greater opportunity set and potential for outperformance Cromwell intends to continue to seek acquisition opportunities which complement its investment strategy and existing portfolio Typical acquisition targets must complement existing portfolio: initial acquisition yield of 8% pa + total return targets of 12% pa + focus on markets which Cromwell consider will outperform In line with expansion of the funds management platform, where appropriate, Cromwell will seek to warehouse and sell down new retail funds generating targeted 20-35% IRR s on Cromwell s committed equity On a case by case basis, Cromwell will consider co-investment opportunities with key wholesale partners to increase overall income and generate additional fund and property management fee revenue Cromwell Property Group 6
Disciplined capital management strategy Debt diversified amongst five lenders and seven facilities Structure provides cost effective form of funding and is well suited to nature of portfolio Long term quality cash flow enables gearing of 40-50% to be carried comfortably All four major Australian banks participating Weighted average debt maturity of approximately 2 years with no material maturities until May 2014 Gearing to moderate over the medium term through the cycle Aim to maintain gearing around 45% over FY13 Growth in asset base due to yield compression across investment portfolio expected to reduce gearing FY13 payout ratio of 97% appropriate given long WALE and nature of underlying portfolio Limited maintenance capital and lease costs required Recent equity raisings provide capacity for growth Institutional placement of $143m in December 2012 materially oversubscribed Security purchase plan for retail securityholders raised $39m in February 2013 after scale-back Capital will also be realised through recycling of non core assets Provides significant funds for future acquisition and funds management initiatives Cromwell Property Group 7
Consistent outperformance vs. market Cromwell has consistently outperformed the S&P/ASX 300 A-REIT Accumulation Index since stapling in 2006 Outperformance of 21.9%, 6.5% and 15.2% per annum over 1, 3 and 5 years respectively Direct property performance in top quartile of managers rated by IPD since inception in 1999 Cromwell Performance to April 2013 (Annualised Total Securityholder Return) 1 Direct Property Returns (to 31 December 2012 Annualised) 60% 55.8% 14% 50% 12% 11.7% 11.3% 40% 30% 20% 10% 0% (10%) 33.9% 21.9% 19.5% 13.1% 6.5% 15.2% 12.2% (3.0%) Cromwell Property Group S&P / ASX 300 A-REIT Accumulation Index Relative Performance 10% 8% 6% 4% 2% 9.8% 1.9% 7.6% 5.1% 2.5% 9.7% 1.6% Cromwell Property Group IPD Australian All Fund Universe Excess Returns (20%) 1 year 3 year 5 year 0% 3 Years 5 Years 10 Years Source: IRESS 1) Includes distributions and change in price, annualised amount Source: IPD Cromwell Property Group 8
Superior yield to peer group Cromwell offers superior distribution yield and growth compared to its peer group 125bps premium to average FY13 DPS yield of peer group Focus on long-term leases and quality tenants represents best risk-adjusted return on equity in current environment Funds management earnings can grow with minimal committed equity FY13 DPS yield 1 10% 8% 125bps premium 6% Peer average 5.6% 4% 2% 5.1% 5.4% 5.5% 5.7% 5.7% 6.2% 6.8% 0% DXS IOF BWP SCP CPA CQR CMW BWP: BWP Trust; CPA: Commonwealth Property Office Fund; CQR: Charter Hall Retail REIT; DXS: Dexus Property Group; IOF: Investa Office Fund; SCP: SCA Property Group 1) Cromwell DPS yield is FY13 DPS as at 6 May 2013 (closing price of $1.06) Source: Broker earnings and distributions consensus estimates; company filings. Pricing as at 6 May 2013 Cromwell Property Group 9
Australian property sector poised for capital growth Significant opportunity for capital upside as property yields expected to tighten Continuing strong investor preference for high quality long term Property yield vs. 10 year bond rate yield 10% Australian bond yields and interest rates close to historic lows, but still one of the highest of the developed economies 8% Cromwell cap rate (8.4%) Low interest rate environment offering significant yield arbitrage vs. property and A-REIT yields 6% Increased investor focus expected to force up pricing and lead to 4% overall cap rate compression 2% 0% 2000 2002 2004 2006 2008 2010 2012 Office cap rate (7.7%) 10-year bond (3.1%) Source: IRESS; BofA Merrill Lynch Global Research Cromwell Property Group 10
Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Office assets seeing increased buyer demand Cromwell is well placed to benefit from an upturn in commercial property values Investor focus on high quality yield now impacting positively on demand for office assets Retail property remains subject to weak consumer spending and traditional retailers continuing to face challenges of lower spending growth and increased online sales Rolling capital return indices to December 2012 30% 20% Industrial in demand, but limited scope for a further reduction in yields Residential still a challenging sector, particularly in Victoria where significant supply is available in coming years Rentals remain flat across all sectors and limited growth is expected in the next 2 years 10% 0% -10% -20% -30% All Property Retail Office Industrial Source: IPD Research Cromwell Property Group 11
Funds Management Fund Sector Investors Total Assets Number of Properties Ongoing Fees Initial Fees Cromwell Box Hill Trust Direct property Retail $117m 1 1 0.60% 3.0% Cromwell Riverpark Trust Direct property Retail $197m 1 0.60% 3.0% Cromwell Ipswich City Heart Trust Direct property Retail $93m 1 1 0.60% 3.0% Cromwell Phoenix Property Securities Fund Listed property Retail $65m N/A 0.82% N/A Phoenix Mandates Listed property Wholesale $350m N/A Variable N/A Total $822m Focus on retail distribution Larger dealer groups and financial advisors Over 12,000 Cromwell securityholders, many of whom invested in our products originally and continue to do so Over 20,000 prequalified potential retail investors Over 4,000 are current fund investors Initiatives in place to add 5,000 plus new prequalified investors in next 12 months Focusing on boutique advisors, many of whom are long term supporters Larger groups are showing interest in direct property again Can bring significant volume once they commit to the sector Need a combination of product approval and platform inclusion to maximise inflows Wholesale clients Investigating opportunities on a case by case basis Likely to be targeting for core plus property assets 1) Forecast completion value Cromwell Property Group 12
Why target retail investors? Significant cash on the sidelines Over 496,000 self managed super (pension) funds (Dec 12) with $136 billion in cash and term deposits Majority of new inflows to super and retail investment platforms is being retained in cash Bank funding from customer deposits has risen significantly since 2008 Investors are at an inflection point Cash returns have reduced significantly over past 18 months Large number of term deposits taken out during GFC beginning to mature Have seen a significant increase in investment inflows and enquiries Product quality and structure remains key to securing retail demand Cromwell has limited competitors with scale in the market Most new entrants are smaller scale or targeting wholesale funds Box Hill Trust Key Statistics 1 Equity raised $63m Gearing 48% Initial Distribution 7.75% 2 Box Hill Trust Fee Structure Fee Type Amount Acquisition & project management $3.5m (3%) 3 Ongoing funds management (annual) $0.7m (0.6%) 4 Property asset management (annual) $0.25m (0.15%) 4 Performance Fee 1) For further details on the Box Hill Trust, see the PDS dated 18.12.12. 2) Initial yield, expected to increase to 8.00% post practical completion 3) Payable as the equity is raised (2.5%) and the building is constructed (0.5%) 4) Payable from the date of practical completion. 20% of excess above 10% IRR, payable on sale and any extension of the term Cromwell Property Group 13
Future growth drivers Cromwell is able to benefit from a number of organic growth factors 1. Property income remains resilient in current soft market 3. Earnings upside potential from lower base interest rates Average fixed property rental growth of 3.8% for FY13 Current average cost of debt of 6.4% based on existing hedged rates Minimal vacancy and very low lease expiries in next 2 years 2. Growth in earnings from increased activity in funds management business Cost of new debt approximately 5.0% Majority of hedges expire over the next 3 years, leading to potential lowering of interest costs over this period Property yield premium to bond / cash yields close to historical highs 4. Growth potential through accretive acquisitions Strong appetite for yield with low volatility amongst retail investors Capital available through recent equity raisings and continued recycling of non-core assets Demand for Box Hill Trust significantly exceeded Ipswich City Heart Trust Will maintain a disciplined approach to new acquisitions Actively sourcing product for next unlisted fund launch Seeking to deploy surplus funds during 2013 Cromwell Property Group 14
Near term outlook Continued focus on maximising cash flow to securityholders Targeting improvement in debt profile over next 1-2 years Operating earnings expected to be at least 7.5 cps in FY13, 7.1% EPS yield 1 Exploring cost effective alternatives to extend debt expiry profile Distributions expected to be 7.25 cps in FY13, 6.8% DPS yield 1 Recent inclusion in S&P / ASX 300 now targeting S&P / ASX 200 Simple balance sheet and minimal development exposure Currently ranked 110th largest entity by free float market cap 2 Enables payout ratio of 90% plus Targeting growth in NTA and operating earnings per security Minimum rental increases will underpin property earnings Will benefit significantly from improving valuations if yield compression occurs Significant increase in liquidity following December 2012 capital raising, resulting in inclusion in S&P / ASX 300 in March 2013 rebalance Continuation of liquidity increase can lead to inclusion in S&P / ASX 200 over time Will continue disciplined approach to transactions Continued sale of assets with low growth potential 1) Based on closing price of $1.06 on 6 May 2013 2) Bloomberg, 6 May 2013 Cromwell Property Group 15
Presented by: Paul Weightman CEO / Managing Director Ph: +61 411 111 028 paul.weightman@cromwell.com.au Daryl Wilson Director - Finance & Funds Management Ph: +61 402 046 883 daryl.wilson@cromwell.com.au Cromwell Property Group 16
Appendix 1 Case Studies Cromwell Property Group 17
Qantas Global Headquarters, Mascot, NSW Since acquisition Cromwell has agreed with Qantas Lease extension to 2032 A $131m refurbishment and expansion programme Average return on cost of 8.7% expected in first financial year after completion Debt facility in place to fund 100% of additional works (if required) Completion value of $308m, representing approximately 16% of portfolio Project on time, on budget First of four buildings delivered in April 2012 Second building completed September 2012 Third building completed March 2013 Balance of $131m programme proceeding as planned Qantas will bear any cost overruns not covered under building contract Artists impression of completed refurbishment Qantas Global Headquarters Expansion Jun-12 ($ 000) Jun-13 ($ 000) Jun-14 ($ 000) Jun-15 ($ 000) Actual/Forecast Cost 1 25,316 64,575 41,572 - Additional Rental 126 1,911 7,037 9,208 Refurbished tenancy 1) Includes $25.6m incentive agreed under original 10 year lease, already generating rental income. Timing of forecast costs is subject to change, however timing of rental increases will also change proportionately. Cromwell Property Group 18
Bundall Corporate Centre, Gold Coast, QLD Cromwell originally acquired the asset for $52.9m in December 2005 and sold for $106m in October 2007 Since the sale the asset has been further improved by the development of a further 8,000 m 2 5 star green star building Passing income is approximately $7.4m (11.5% yield on purchase price) Site has approved master plan in place, with over 15,000m 2 of land available for future development Opportunistic acquisition with substantial upside in the Gold Coast market expected in lead up to Commonwealth Games in 2018 Property Details Statistics Address Corporate Court, Bundall, QLD Valuation $68.0m Sector Commercial Lettable area 21,103m 2 Acquisition date Major tenants Feb-12 Wyndham Resorts, Professional Investment Services, Corp Executive Offices Book value1 $68.0m Occupancy 88.6% Cap rate 11% WALT 4.8yrs Cromwell Property Group 19
Cromwell Ipswich City Heart Trust Cromwell Ipswich Trust closed over subscribed Over 850 retail investors with an average investment size of ~$55,000 *Artist s impression only >50% of funds raised from direct retail (unadvised) for the first time ever Significant increase in demand during last 6 weeks (weekly inflows >$3m) Significant future revenues with minimal ongoing cost Construction on target to be completed by September 2013 Key Statistics Cromwell Fee Structure Metric Amount Fee Type Amount (% assets) Equity raised $49m Debt $49m Time taken to complete raising 8 months Initial distribution yield 8.00% 1 Acquisition & project management $2.79m (3.0%) 2 Ongoing funds management (annual) $0.55m (0.6%) 2 Property asset management (annual) $0.20m (0.2%) 2 Performance Fee 20% of excess above 10% IRR, payable on sale 1) Forecast to increase to 8.25% from July 2013 and 8.50% from July 2014 subject to risks and assumptions in PDS 2) Acquisition and project fees are payable from Jan-12 until practical completion (Sep-13) in proportion as construction is completed. Ongoing fund and property management fees are payable from practical completion Cromwell Funds Management Limited ABN 63 114 782 777 AFSL 333 214 (CFM) is the responsible entity of the Cromwell Ipswich City Heart Trust (ARSN 154 498 923) (ICH). PDS dated 16.12.11. Cromwell Property Group 20
Cromwell Box Hill Trust Box Hill Trust built on the momentum created by the Ipswich City Heart Trust Following launch in December 2012, completed early and oversubscribed in April 2013 raising $67 million Over 820 investors with an average investment size of ~$80,000 Attractive offering given initial yield of 7.75%, potential for growth, strong WALE and high quality tenant Expected increased fee flow to Cromwell over FY13 and FY14 *Artist s impression only Key Statistics Metric Amount Equity raised $63m Gearing 48% Time taken to complete raising 3 months Initial Distribution 7.75% 1 Cromwell Fee Structure Fee Type Amount Acquisition & project management $3.5m (3%) 2 Ongoing funds management (annual) $0.7m (0.6%) 3 Property asset management (annual) $0.25m (0.15%) 3 Performance Fee 20% of excess above 10% IRR, payable on sale and any extension of the term 1) Initial yield, expected to increase to 8.00% post practical completion 2) Payable as the equity is raised (2.5%) and the building is constructed (0.5%) 3) Payable from the date of practical completion. Cromwell Funds Management Limited ABN 63 114 782 777 AFSL 333 214 (CFM) is the responsible entity of the Cromwell Box Hill Trust (ARSN 161 394 243). PDS dated 18.12.12. Cromwell Property Group 21