CROMWELL GROUP
Cromwell Delivers Strong Result
CMW - FY 2008 Results - Mr Paul Weightman, Managing Director and CEO
Wednesday, 20 August 2008 11:15am
Consensus Data
| Broker | EPS (A$) | Sales (A$) | ||||
|---|---|---|---|---|---|---|
| 2009 | 2010 | 2011 | 2009 | 2010 | 2011 | |
| RBS Morgans | 0.00 | 0.10 | 0.10 | 0.00 | 124.80 | 134.50 |
| Patersons | -0.16 | 0.05 | 0.00 | 105.73 | 114.55 | 0.00 |
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Audio Duration: 10:13
Mr Paul Weightman
Wed, 20 Aug 2008
11:15am Australia/Sydney
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CROMWELL GROUP (CMW)
ASX code: CMW
Website: http://www.cromwell.com.au
Industry: Real Estate
Principal Activities:
Property development, investment and management, including the promotion and management of property syndicates and property trusts.
Address:
, , 200 Mary Street,
BRISBANE
QLD
Phone: (07) 3225-7777
Fax: (07) 3225-7788
Executives & Directors
Mr Geoffrey Levy, AO , Non Exec. Chairman
Mr Paul L Weightman , CEO, Executive Director
Mr Daryl Wilson , Executive Director, Finance Director
Mr William Richard Foster , Non Exec. Director
Mr Marc Wainer , Non Exec. Director
Ms Michelle Ann McKellar , Independent Director
Mr Robert Pullar , Independent Director
Mr David Usasz , Independent Director
Mr Pat Howard , Chief Op. Officer
Ms Nicole Riethmuller , General Counsel
Mrs Melissa McLaughlin , Investor Relations
Ms Nicole Riethmuller , Company Secretary
Company Podcasts
Company ASX Announcements
Company ASX announcements can be viewed on the ASX website.
Announcements from the preceding six months are shown below.
Please refer to the relevant stock exchange if any of the above information is incorrect
CROMWELL GROUP (CMW) Events
Australia/Sydney
CROMWELL GROUP (CMW)
| Change of Director`s Interest Notice | Mon, 15 Mar 2010 |
| Cromwell Group - Half Year Update | Tue, 9 Mar 2010 |
| Change in substantial holding | Tue, 9 Mar 2010 |
| Change of Director`s Interest Notice | Fri, 26 Feb 2010 |
| Cromwell Property Portfolio Book | Thu, 18 Feb 2010 |
| Cromwell Diversified Prop Trust Half Year Financial Report | Thu, 18 Feb 2010 |
| Cromwell Group Half Year Financial Report 31 December 2009 | Thu, 18 Feb 2010 |
| Cromwell Half Year Results Presentation | Thu, 18 Feb 2010 |
| Cromwell Half Year Results Announcement | Thu, 18 Feb 2010 |
| Appendix 4D - Half Year Report | Thu, 18 Feb 2010 |
Please note: This company appears on this website as a result of its listing on the Australian Securities Exchange. Boardroom Radio does not claim any association with any company listed on this site.
INTERVIEW WITH PAUL WEIGHTMAN, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER OF CROMWELL GROUP (CMW)
“Cromwell Delivers Strong Result”
http://www.brr.com.au/event/49600
WEDNESDAY, AUGUST 20, 2008, 11:15 AM.
BRR Welcome to Boardroom Radio. Today, I am speaking with the Chief Executive Officer of the Cromwell Group, Mr. Paul Weightman. Paul, thanks
10 for joining us today.
CMW James, thanks for having me.
BRR Paul, congratulations on a good result.
CMW Thanks very much.
15
BRR We have seen a number of your listed properties just recently announced downgrades prior to forecast. Can you explain why Cromwell has been different and how you are able to achieve the forecast results?
CMW Yes, James, thanks for that. I think we differentiate ourselves from a number
20 of other trusts principally because of the risks associated with our earnings. I think as we have previously indicated, we regard ourselves as a fairly asset-rich and secure entity. Most of our cash flow comes from recurring earnings. In fact, in the 2008 year, 81% came from recurring rental and funds management earnings. We are a little bit different to a number of people that
25 we have not followed the market up. We do not rely to a large extent on development earnings or other transactional earnings which have a high risk profile. Last year, we were able to sell a number of assets at what was probably the peak of the market. We were able to de-risk and put more of our resources into good, solid cash flow and pay down some debt. So I think in
30 short, we have taken a very safe, secure, low risk position at a fairly high risk time in the market. As a result of that, we have not had as much of our earnings on the line or at risk this year and I think the results have shown because the recurring or secure part of our earning strength has been there when others who relied on more risk earnings have not been able to deliver
35 those earnings as part of their result.
BRR Now, Paul, a number of your competitors have announced changes to their distribution overseas. Cromwell stated in your announcement that yours remains unchanged. Is there a reason for this?
40 CMW Yes, James. We have always taken the view that we only distribute cash or up to a maximum of our cash operating earnings. In recent years, there has been a lot of smoke and mirrors in the sector where people have distributed more than they have earned basically. So they have borrowed to pay increases in capital values, and as a result of that have effectively paid more
45 out in distributions than they have received in cash. We think that is a crazy policy. We have always had the view that you only pay out what you earn and that would be our distribution policy going forward.
BRR Now, Paul, there is currently significant speculation about what will happen to Australian commercial property prices. Can you outline what you see happening and what impact that this is going to have on the Cromwell Property portfolio?
5 CMW James, we are at a very interesting time in the market at the moment. We are seeing a lack of investor confidence and limit to credit, principally bank debt, leading to the fact that very few people can borrow, very few people can buy. That has led to a tremendous slow down in the number of transactions in the commercial property market. Most common type of view is that there will be a
10 substantial blow out in cap rate that will lead to fairly significant decrease in commercial property values. We think that there will be an impact as a result of the fact that there are few buyers in the market at the present time. However, even if cap rates blow out, what we have seen in most commercial markets pretty substantial rental increases over the last 12 months and
15 leading into the next year. To a large extent, those rental increases offset softening cap rates. To give you an example, based on the rental increases we have in the bank for next year on fixed CPR reviews, we had made a 50-basis point blow out in cap rates across our portfolio before we started seeing any reduction in the value of our net tangible asset. So it would have to be
20 fairly significant. I think what is going to happen is that there is not going to be the degree of softening that the (inaudible) (0:04:30) predict and I think principally that is because of the fact that interest rate is coming down and you are seeing fairly substantial decreases in the long-term bond rate. Traditionally, over a long period of time, property values, particularly
25 commercial property values, track most closely to a 10-year bond rate.
BRR Now, Paul, coming back to the results you announced today, could you elaborate on the new debt facility that you have announced and can you explain why you have decided to refinance the facility that does not expire
30 until April of next year?
CMW James, we have taken the view that it is just prudent to do so as a matter of sort of trying to eliminate as much risk as we can and to maximize the degree of certainly that we have in our business. We want to know that we have got a long-term debt facility in place. Whilst our current CMBS does not expire for
35 another eight months, we have taken the view that the safest course of action is to reposition ourselves for the future. So we have negotiated and secured credit-approved terms for new facility which is more than we need to refinance the current CMBS facility that we have and we will draw that down as soon as reasonably practical so that we can ensure that degree of
40 certainly and provide maximum comfort to both our shareholders and the market that all of our debt facilities are secure and in place for long term.
BRR Now in the Financial Year 2009 Earnings Guidance, you have stated that of the 10 cents per security operating earnings, 85% will come from recurring
45 property and funds management income with the balance to come from transactional income. Could I ask you to provide a bit more detail on what this transactional income is going to be and how confident you are that it will be achieved?
CMW Principally, it relates to our funds management business and to the fees that we derive from putting products together and promoting them in the open market. Whilst traditionally we have made good money from assets sales and sales of development property, we tend to regard those as one-offs and we
5 do not count them necessarily as income in the bank for next year. But we have had a very long track record of success when promoting direct property product. I think it is fair to say that the last six months have been pretty tough given the interest rates that have prevailed in the market and the credit issues that have come to be. I think investor confidence is pretty low. We think the
10 trigger that will lead to greater influx of investment into the direct property market will be reduction in interest rates and they will result in a fair premium of yield that can be secured in a direct property product over interest that can be earned in the bank. The two big drivers for our direct property products are yield, particularly yield differential over interest, and tax advantage
15 distributions. One of the things that has happened over the last six months has been that a number of our competitors in that direct retail space have either run into significant difficulties, have lost substantial confidence with their investor base, or they are no longer in business. So, we will effectively be working in what we believe to be an improving market with increased
20 market share.
BRR Now, Paul, you have mentioned a new hybrid property fund. Can you explain why you think that this is going to be an attractive product for investors?
CMW I think one of the things, James, that the market has recognized is that it is
25 very difficult in a wholly direct property fund to provide liquidity mechanisms. We have seen that companies that have linked liquidity mechanisms to the balance sheet, for example (inaudible) (0:08:29), have found themselves in difficulty and have not been able to make redemption requests and we have seen that the limited liquidity facilities in direct property funds, in many cases,
30 have closed. I might say that Cromwell’s redemption arrangements in the Cromwell Property Fund have stayed open, but we are very much in the minority in the industry at the moment. I think what will happen is that platforms from which a number of investors gain access into direct property funds will come to recognize that the only liquidity that can be obtained for
35 direct property investments are investments in hybrids, that is funds which have an exposure to listed property trusts which can be liquidated reasonably easily because of the fact that they have really traded on the stock exchange and exposure to direct property funds. So that LPT (inaudible) (0:09:30) investment acts as effectively the liquidity mechanism for the fund. I think also
40 the hybrid fund is attractive to investors at the current time because there is a general perception in the market that the (inaudible) (0:09:46) sector has been oversold, that there are pretty attractive yields and some pretty heavy discounts to NTA in the sector and that they are unsustainable in the short to medium term.
45
BRR Well, Paul, once again, congratulations on a very good result from Cromwell and we certainly appreciate you taking time to speak with us on Boardroom Radio this afternoon.
CMW James, thanks very much for having me.
BRR All right. We look forward to speaking with you again in the future, Paul.
CMW Thank you.
INTERVIEW CONCLUDED
Contact brr@brr.com.au for more information
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