Cromwell Property Group Daryl Wilson Chief Financial officer
Cromwell Prospering in a low growth world New York - February 2013 2
Important Information & Disclaimer This presentation and its appendices ("Presentation") are dated 20 February 2013 and have been prepared by the Cromwell Property Group, which comprises Cromwell Corporation Limited (ACN 001 056 980) and Cromwell Diversified Property Trust (ARSN 102 982 598) of which Cromwell Property Securities Limited (ACN 079 147 809; AFSL 238052) is the responsible entity. 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). Financial Information This Presentation contains summary information about Cromwell Property Group as at 31 December 2012. Statutory financial information has been reviewed by Cromwell Property Group's auditors. Operating financial information has not been subjected to audit review. All information is in Australian dollars and all statistics are as at 31 December 2012 unless otherwise stated. The pro forma historical financial information included in this Presentation does not purport to be in compliance with Article 11 of Regulation S-X of the rules and regulations of the U.S. Securities and Exchange Commission. Investors should also be aware that certain financial data included in this Presentation are "non-ifrs financial information" under ASIC Regulatory Guide 230 Disclosing non-ifrs financial information published by the Australian Securities and Investments Commission ("ASIC") and "non-gaap financial measures" under Regulation G of the U.S. Securities Exchange Act of 1934. These measures include distributions per Security, gearing, EPS yield, DPS yield, cap rates and distribution yield. The disclosure of such non-gaap financial measures in the manner included in this Presentation would not be permissible in a registration statement under the U.S. Securities Act of 1933 as amended ("Securities Act"). Cromwell Property Group believes this non-ifrs financial information provides, and these non-gaap financial measures provide, useful information to users in measuring the financial performance and conditions of Cromwell Property Group. The non- IFRS financial information and these non-gaap financial measures do not have a standardised meaning prescribed by Australian Accounting Standards and, therefore, may not be comparable to similarly titled measures presented by other entities, nor should they be construed as an alterative to other financial measures determined in accordance with Australian Accounting Standards. Investors are cautioned, therefore, not to place undue reliance on any non-ifrs financial information or non-gaap financial measures and ratios included in this Presentation. Not an Offer This Presentation is not an offer or an invitation to acquire securities in Cromwell Property Group or securities in Cromwell Box Hill Trust, Cromwell Riverpark Trust, Cromwell Ipswich City Heart Trust and Cromwell Phoenix Property Securities Fund or any other financial products and is not a prospectus, product disclosure statement or other offering document under Australian law or any other law. It is for information purposes only. This Presentation may not be distributed or released in the United States. This Presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the United States. Securities have not been, and will not be, registered under the Securities Act or the securities laws of any state or other jurisdiction of the United States, and may not be offered or sold directly or indirectly in the United States unless they have been registered under the Securities Act or are offered and sold in a transaction exempt from, or not subject to, the registration requirements of the Securities Act and any other applicable US state securities laws. The contents of this Presentation have not been reviewed or approved by any regulatory authority in Australia, United States, United Kingdom, the Netherlands or elsewhere. Cromwell Property Group does not intend to offer any stapled securities or securities to the public in any country outside of Australia. Summary Information The information in this Presentation is subject to change without notice and does not purport to be complete or comprehensive. It does not purport to summarise all information that an investor should consider when making an investment decision. It should be read in conjunction with Cromwell Property Group's other periodic and continuous disclosure announcements lodged with the Australian Securities Exchange, which are available at www.asx.com.au. Past Performance Cromwell Property Group does not guarantee any particular rate of return or the performance of Cromwell Property Group or any other financial product nor do they guarantee the repayment of capital from Cromwell Property Group, any other financial product or any particular tax treatment. Past performance information given in this Presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. Actual results could differ materially from those referred to in this Presentation. Future Performance This Presentation contains certain "forward looking" statements. Forward looking statements, opinions and estimates are based on assumptions and contingencies which are subject to change without notice. Forward-looking statements, including projections, indications or guidance on future earnings or financial position and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. There can be no assurance that actual outcomes will not differ materially from these statements. To the fullest extent permitted by law, Cromwell Property Group and its directors, officers, employees, advisers, agents and intermediaries disclaim any obligation or undertaking to release any updates or revisions to the information to reflect any change in expectations or assumptions. Reliance The information in this Presentation has been obtained from or based on sources believed by Cromwell Property Group to be reliable. To the maximum extent permitted by law, Cromwell Property Group, their officers, employees, agents and advisors do not make any warranty, express or implied as to the currency, accuracy, reliability or completeness of the information in this Presentation and disclaim all responsibility and liability for the information (including without limitation, liability for negligence). Not financial product advice This Presentation is not financial product advice or a recommendation to acquire securities. The information in this Presentation does not take into account your individual objectives, financial situation or needs. Before making an investment decision, Investors should consider, with or without a financial or taxation adviser, the relevant information (including the information in this Presentation) having regard to their own objectives, financial situation and needs. Investors should also seek such financial, legal or tax advice as they deem necessary or consider appropriate for their particular jurisdiction. Cromwell Corporation Limited is not licensed to provide financial product advice in respect of Cromwell Property Group securities. To the extent that general financial product advice in respect of Cromwell Property Group stapled securities is provided in this Presentation. It is provided by Cromwell Property Securities Limited. Cromwell Property Securities Limited and its related bodies corporate, and their associates, will not receive any remuneration or benefits in connection with that advice. Directors and employees of Cromwell Property Securities do not receive specific payments of commission for the authorised services provided under its Australian financial services licence. They do not receive salaries and may also be entitled to receive bonuses, depending upon performance. Cromwell Property Securities Limited is a wholly owned subsidiary of Cromwell Corporation Limited. NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES 3
Cromwell Property Group Cromwell has evolved organically over 13 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: $1.3 bn 1 Security price: $0.92 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 Investment portfolio 4 Portfolio value: $1.9 bn # Assets: 25 Weighted average cap rate: 8.4% Weighted average lease expiry: 6.0 yrs Funds management platform Assets under management: $718 m 5 Number of Funds: 4 Capital employed: $15 m 6 1) As at 20 February 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 announced in December 2012 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 4
Current Cromwell Property Portfolio Exhibition St, VIC Collins St, VIC HQ North, QLD Qantas HQ, NSW 475 Victoria Avenue, NSW Synergy, QLD 5
Property portfolio 1 Approximately 69% of gross portfolio income growing by an average minimum of 3.8% over FY13 Geographic Diversification 2 Sector Diversification 2 Tenant Classification 2 23.4% 25.0% VIC 4.5% 4.1% 15.6% 39.3% 20.4% 28.2% 1.4% 1.6% TAS SA QLD NSW ACT 91.4% Retail Commercial Industrial 45.1% Government Authority Listed Company/Subsidiary Private Company Australian portfolio, with 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 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 % 84% of rental income from government 3 or listed companies 4 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 6
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 7
Disciplined capital management strategy Debt diversified amongst five lenders and seven facilities Structure provides most cost effective form of funding and is well suited to nature of portfolio Long term quality cashflow enables gearing of 40-50% to be carried comfortably All four major Australian banks participating Weighted average debt maturity of 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 96% 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 after scale-back Capital will also be realised through recycling of non core assets Provides significant funds for future acquisition and funds management initiatives 8
Consistent outperformance vs. market Cromwell has consistently outperformed the S&P/ASX 300 A-REIT Accumulation Index since stapling in 2006 Outperformance of 6.6%, 14.8% and 37.0% per annum over 3, 5 and 10 years respectively Direct property performance in top quartile of managers rated by IPD since inception in 1999 Cromwell Performance to December 2012 (Annualised Total Securityholder Return) 1 50% 40% 30% 20% 10% 0% -10% -20% 15.7% 9.1% 6.6% 6.1% -8.7% 14.8% 39.4% 2.4% 37.0% 3 year 5 year 10 year Source: IRESS 1) Includes distributions and change in price, annualised amount CMW Return S&P / ASX 300 A-REIT Accumulation Index Excess Performance Direct Property Returns (to 31 December 2012 Annualised) 14% 12% 10% 8% 6% 4% 2% 0% Source: IPD 11.7% 9.8% 1.9% 7.6% 5.1% 2.5% 11.3% 9.7% 1.6% 3 Years 5 Years 10 Years Cromwell Property Group IPD Australian All Fund Universe Excess Returns 9
Superior yields to peer group Cromwell offers superior yields and growth compared to its peer group 100bps premium to average FY13 EPS yield of peer group 180bps 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 EPS yield 1 FY13 DPS yield 1 10% 100bps premium 10% Peer average 7.2% 8% 8% Peer average 6.1% 180bps premium 6% 6% 4% 2% 6.1% 7.1% 7.2% 7.5% 7.7% 7.8% 8.2% 4% 2% 5.5% 5.7% 5.8% 6.1% 6.5% 7.0% 7.9% 0% BWP IOF DXS SCP CPA CQR CMW 0% DXS CPA IOF BWP SCP 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 EPS and DPS yields are FY13 EPS and FY13 DPS as at 20 February 2013 (closing price of $0.92) Source: Broker earnings and distributions consensus estimates; company filings. Pricing as at 20 February 2013 10
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 yield Property yield vs. 10 year bond rate 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 (3.5%) Source: IRESS; BofA Merrill Lynch Global Research 11
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 on overall demand for office assets minimal supply in most markets which is expected to drive significant rental appreciation over 2 5 years Retail property remains subject to weak consumer spending Rolling capital return indicies to December 2012 30% 20% pressure on rents not abating and traditional retailers continuing to face challenges of lower spending growth and increased online sales 10% Industrial in demand, but limited scope for a further reduction in yields 0% Residential still a challenging sector, particularly in Victoria where significant supply is available in coming years -10% -20% -30% All Property Retail Office Industrial Source: IPD Research 12
Funds Management Funds Management Summary 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 $47m N/A 0.82% N/A Phoenix Mandates Listed property Wholesale $264m N/A Variable N/A Total $718m 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 Focusing on boutique advisors, many of whom are long term supporters Larger groups are showing interest in direct property again Over 4,000 are current fund investors Initiatives in place to add 5,000 plus new prequalified investors in next 12 months Can bring significant volume once they commit to the sector Need a combination of product approval and platform inclusion to maximise inflows Wholesale clients 1) Forecast completion value Investigating opportunities on a case by case basis Likely to be targeting for core plus property assets 13
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 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 Fund Syndicate equity to be raised $67m 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 20% of excess above 10% IRR, payable on sale and any extension of the term 1) For further details on the Box Hill Trust, see the PDS dated 18 December 2012. 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. 14
Future growth drivers Cromwell is able to benefit from a number of organic growth factors Average fixed property rental growth of 3.8% for FY13 Underpins property income in current soft market Growth in earnings from increased activity in funds management business Property yield premium to bond / cash yields close to historical highs Strong appetite for yield with low volatility amongst retail investors Demand for current Box Hill equity raising exceeding Ipswich City Heart Trust Actively sourcing product for next unlisted fund launch Earnings upside potential from lower base interest rates Current average cost of debt of 6.4% based on existing hedged rates Cost of new debt approximately 5.25% Majority of hedges expire over the next 3 years, leading to potential lowering of interest costs over this period In addition to these organic factors, growth potential through accretive opportunistic acquisitions Capital available through recent equity raisings and continued recycling of non-core assets Will maintain a disciplined approach to new acquisitions Seeking to deploy further funds during 2013 15
Near term outlook Continued focus on maximising cash flow to securityholders Operating earnings expected to be at least 7.5 cps in FY13, 8.2% yield 1 Distributions expected to be 7.25 cps in FY13, 7.9% yield 1 Simple balance sheet and minimal development exposure 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 Will continue disciplined approach to transactions Continued sale of assets with low growth potential Targeting improvement in debt profile over next 1-2 years Exploring cost effective alternatives to extend debt expiry profile Targeting index inclusion in S&P / ASX 200 and 300 over time Currently ranked 123th largest entity by free float market cap 2 Cromwell believes liquidity has built to levels which enable qualification for S&P/ASX 300 1) Based on closing price of $0.92 on 20 February 2013 2) Bloomberg, 20 February 2013 16
Presented by: Daryl Wilson CFO Ph: +61 402 046 883 daryl.wilson@cromwell.com.au Discover what we re about www.cromwell.com.au/in-a-nutshell 17
Cromwell Property Group Daryl Wilson Chief Financial officer