ARA opens Polish front in Cromwell stoush as valuations defy coronavirus crisis

Cromwell’s controversial holding of $1bn worth of Polish shopping centres has become a flashpoint in the battle for control of the group.

Cromwell CEO Paul Weightman.

Cromwell Property Group’s controversial holdings of about $1bn worth of Polish shopping centres have become a flashpoint in the battle for control of the property funds group which is under siege from Singaporean investment house ARA Asset Management.

The $2.3bn company said last month the centres had dropped in value by about 5.2 per cent, prompting a sharp retort from dissident major shareholder ARA.

Many Australian shopping centre landlords have flagged cuts of more than double this level, even as trading restrictions are lifting in much of the country as the pandemic is under control in some states.

ARA last month launched a $518m partial takeover offer from Cromwell that would give it control of the company that manages about $11bn of property funds after it made two failed pushes to elect veteran corporate raider Gary Weiss to the board.

Cromwell told investors that a preliminary draft valuation of the carrying value of the assets in the Cromwell Polish Retail Fund showed a “minimal decrease” of 5.3 per cent.

ARA group chief executive John Lim this week wrote to the Cromwell board imploring it to ensure the kind of metric major trusts release to investment analysts about assumptions underpinning the revaluations are disclosed.

ARA is understood to be concerned that rent collections were sitting at a run rate of just 57 per cent of total billings according to Cromwell’s June business update, and valuations had not shifted further.

Rival European real estate investment trusts EPP, NEPI Rockcastle and Atrium European Real Estate have been hit by larger declines of 52 per cent, 31 per cent, and 21 per cent, respectively in their security prices since Cromwell acquired the Cromwell Polish Retail Fund last November.

On ARA’s account, these declines indicate that European shopping centre valuations are likely to have decreased by significantly more than 5 per cent, since the end of December.

Local REITs have flagged falls with Vicinity Centres expecting a drop of 11 per cent – 13 per cent and those in Britain have been hit harder with British Land off by 26.1 per cent and Land Securities hit by a 20.5 per cent fall.

Cromwell paid up for the assets when it outlaid €585m last November, as it kept control of the management rather than disposing of them.

The Paul Weightman-led Cromwell had planned to put the Polish assets into a new fund but this sell down of is on hold for now. The company has said retailers are reopening and footfall is improving but the coronavirus pandemic has doused appetite for the sector.

A Cromwell spokesman said: “It might not suit ARA’s agenda, but the fact is that these assets were independently valued on an arms-length basis by an internationally recognised, top tier valuer, something that ARA is clearly not.”

“The examples that ARA point to have been cherrypicked by them, but are not directly comparable with Cromwell’s Polish assets.

They are neither the worst nor the best valuations for the Polish market — they are just expert valuations,” he said.