Cromwell crashes to $443.8m loss but lands buyer for Polish centres

The company chaired by corporate raider Gary Weiss posted a $443.8m loss but says it sees a way back as it unwinds a costly European venture.

Office landlord and funds house Cromwell Property Group has plunged to a $443.8m loss but says it will slash debt after finding a European investor to buy the bulk of its troubled Polish shopping centre portfolio.

The group, chaired by corporate raider Dr Gary Weiss, took heavy writedowns on its portfolio, including on local office blocks, revealing that its suburban and lower grade buildings were under pressure but tenants were not leaving for premium towers.

Cromwell’s $443.8m loss was a reversal on the $263.2m profit in 2022, and was driven by a hefty $491.6m dive in property valuations. Operating profit dropped from $201m to $158.6m over the year.

Cromwell runs a funds empire of about $11.5bn across Australia and Europe after the writedowns but still believes that it can expand in both areas as it moves to a capital-light model by spinning off assets.

Dr Weiss said the year had been “challenging” but Cromwell had sold non-core assets, with $505m in sales completed since December 2021, allowing the company to cut debt by more than $319m during the year.

“A reduction in gearing remains a key priority, through the potential exit of the Cromwell Polish Retail Fund portfolio and the completion of the final stage of our non-core asset sales,” he said. “We have also looked to grow our funds management platform through the proposed $1.1bn transaction between Cromwell Direct Property Fund and the Australian Unity Diversified Property Fund.”

After a proxy fight to gain control of the company – and a share price plunge prompted by concerns about the Polish exposure and high gearing – Dr Weiss insisted the company could be turned around.

“The ongoing simplification of the group has laid the foundations from which to grow the business,” he said. “Management is well positioned to identify value accretive opportunities to recycle capital, launch new products, and build on partnerships to grow the funds management platform, which will lead to long-term returns for security holders.”

Cromwell chief executive Jonathan Callaghan said there was a focus on simplifying the company and growing its funds platform.

“Our transition to a capital-light funds management model remains a priority when capital markets are more conducive,” he said.

Mr Callaghan said the company wanted to get gearing towards the lower end of its 30-40 per cent range and initial asset sales would take it to below 40 per cent from about 42 per cent.

Cromwell has about $560m of assets under due diligence and wants to exit its Polish retail assets in one line, which the CEO said was “strategically important” to the company, as it wants to run European funds rather than owning real estate.

Cromwell last year unveiled plans to spin off a $3bn local office portfolio into a listed REIT. But these plans have been pushed back with Mr Callaghan blaming the lift in inflation and subsequent interest rate hikes, as well as negative sentiment towards offices.

He insisted that Cromwell’s portfolio was holding up against a “flight-to-quality” that top-end landlords have promoted. Vacancy levels for premium towers were similar to the rest of the market and not all tenants wanted to shift into such expensive offices, he said.

On a like-for-like basis, excluding asset sales, the net operating income of Cromwell’s local portfolio grew by 3.9 per cent. The company paid distributions of 5.5c per security.

Cromwell shares lost 0.5c to close at 49c, giving it a market capitalisation slightly below $1.3bn.