Cromwell’s rally gives ESR excuse to leave

Cromwell chairman Gary Weiss. Picture: Adam Head

Cromwell Property Group’s 8 per cent rally on Thursday was good news for the Warburg Pincus-backed ESR that has been keen to stage an exit from the stock for some time.

The rally came after Cromwell marked the completion of a $1.6bn asset sale program to reduce its debt with the announcement it had sold its European fund management platform and interests to the Deutsche Bank-advised Stoneweg for €280m ($457m).

The price was close to book value, which was recently written down sharply.

Working on the transaction were investment banks Citi and UBS, and it comes after Cromwell announced on May 16 it had sold its Cromwell Polish Retail fund for €285m ($465m) to Star capital.

While this deal may have been good news for bankers, other corporate activity involving a demerger of its $3bn office portfolio looks off the agenda, (Barrenjoey and the now UBS-owned Credit Suisse was lined up for that in 2022).

The next development looks likely to be a block trade by ESR to sell down some of its 30 per cent-odd holding, or perhaps a strategic buyer to take the interest.

Yet with such a large exposure to the out-of-favour office sector, most around the market have been left scratching their heads as to what party that would be.

Cromwell’s share price rally on the news it has finally retreated to its more profitable markets of Australia and New Zealand, however, makes a selldown on market more appealing to the Hong Kong-based ESR, which is said to have been waiting for the European asset sales before making an exit.

And with the Gary Weiss-chaired Cromwell is now focused on redeploying capital for its key strategy of growing funds under management, it may re-rate further.

Shares in Cromwell closed 8 per cent higher at 47c, taking its market value to $1.1bn.

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

It purchased ARA for $US5.2bn and now ESR is said to need the money elsewhere.

ESR has $US156bn of assets under management and 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.