Back door listing plans weighed for Cromwell ahead of Brookfield play

Brookfield owns prized Australian office towers, including Brookfield Place at 125 St Georges Terrace, Perth, which houses BHP.

Cromwell Property Group has had recent approaches from groups keen to use the company as a vehicle for a back door share market listing, fuelling speculation that Brookfield may have the same intentions.

Cromwell released a statement to the market on Monday revealing that Brookfield had purchased ESR’s 19.9 per cent stake at the weekend.

In May, ESR sold down a 10.8 per cent stake in Cromwell, reducing its holding from about 30 per cent to about 19.9 per cent.

Cromwell, a $1bn listed commercial property investor and manager, has seen its shares sink 56 per cent in the past five years.

ESR has had the stake on the market for some time, with it being non-core, but more recently is known to have been shopping the shareholding to strategic investors.

Brookfield owns a number of trophy office assets including Brookfield Place on St Georges Tce in Perth and some believe that buying the stake could provide the private equity firm the option for a back door listing of that portfolio in the future.

The private equity firm with Canadian origins has been a prolific investor in Australia, but more recently, has suffered damage to its reputation following the collapse of the country’s second largest private hospital operator Healthscope that it purchased in 2019 for $4.4bn.

It has recently sold its retirement living business Aveo for $3.85bn and has its non-bank lending business La Trobe Financial on the market, while Morgan Stanley had earlier been hired to find a buyer for its construction business Multiplex.

The moves has led to questions surrounding whether Brookfield could stage a major retreat from Australia where it also owns valuable infrastructure and utility assets.

An alternative view is that the purchase of the Cromwell stake was opportunistic, with Brookfield outlaying about $200m for the 521m shares purchased that sees it pick up the stake at about a 40 per cent discount to the net tangible asset value.

Cromwell, chaired by Gary Weiss, has about eight balance sheet assets left worth about $2.5bn after it sold its European funds management operation for $457m last year.

It had an objective to divest $1.6bn of real estate.

It also owns stakes in funds management businesses.

Shares on Friday closed at 36.5c and were up 7.5 per cent on Monday to close at 39c.

Hong Kong’s ESR, which has about $US154bn of assets under management, is owned by a consortium including Starwood Capital and Warburg Pincus.

It inherited the Cromwell stake through its acquisition of the LOGOS industrial property specialist backer ARA Asset Management.

It purchased ARA for $US5.2bn.

ESR describes itself as a leading logistics real estate platform with a growing presence in data centres, developing and managing modern logistics and industrial facilities across major economies in the Asia-Pacific.

Its Australian business was established in 2018 and it has a large presence.

It purchased listed real estate investor Propertylink with $1.8bn of assets in 2019 for more than $700m, and in April it bought Blackstone’s Milestone logistics business, consisting of 45 properties, for $3.8bn.