Office portfolio helps Cromwell deliver 13% increase in earnings
Commercial property REIT Cromwell Property Group will continue with its strategy of investing in high-yield CBD and core fringe offices after its office portfolio helped drive up earnings by 13% for the six-month period to December 31, 2011.
Cromwell reported first half operating earnings of $37.0 million compared with $32.8 million in the first half of 2011, with office property income rising 8% from $43.5 million to $47 million.
The fund has an office portfolio comprising 23 buildings worth $1.73 billion, with a weighted average lease term across the portfolio of 6.3 years and an occupancy rate of 99%.
The vast majority (85%) of the office space in the portfolio is leased to either government or listed companies.
Its highest-earning office asset is Tuggeranong Office Park in the ACT, which contributed $9.5 million income, followed by 700 Collins Street in the Melbourne CBD, which brought in $6.8 million.
Over the course of the six-month reporting period Cromwell acquired North HQ in Fortitude Valley for $186 million and also agreed to terms to re-acquire Bundall Corporate Centre, Gold Coast for $63.4 million.
The Fortitude Valley office building comprises 28,000 square metres of A-grade office space over 11 levels and is fully occupied for the next four years.
Cromwell previously sold the Bundall Centre for $107 million in October 2007 after initially acquiring it for $52.9 million in 2005.
“Since selling the property in 2007 an additional 8,000 square metre office building has been built on the site and it now supports a passing income of $7.4 million, equivalent to a yield of 11.5% on the purchase price,” says Cromwell chief executive officer Paul Weightman.
In his presentation to investors following the release of the results, Weightman says the trust will continue to invest in “high-quality office assets in predominantly CBD / core fringe markets”.
Weightman says the fund will seek assets which offer the “potential for superior returns through active asset management”.
Weightman says Cromwell will continue to build on its record of market outperformance by focusing on assets that offer the potential for superior returns through active management.
In December, Cromwell launched a $49 million equity raising for the new Cromwell Ipswich City Heart Trust (ICH) which owns the land and will fund construction of the $93 million Ipswich City Heart building in Ipswich, Queensland.
The trust is a seven-year single property syndicate that will commence distributions at 7.75% per annum paid monthly and forecast to increase to 8% per annum from July 2013 and 8.25% from July 20142. The trust’s income is underpinned by a pre-commitment from the Queensland government for a 15-year lease over 91% of the building’s net lettable area
Cromwell has also announced a move into wholesale funds management with the launch of Cromwell Real Estate Partners, which will concentrate on delivering superior risk-weighted returns to wholesale investors through opportunistic real estate investment.
“There is now growing demand from many of the more astute wholesale investors for some exposure to higher return property investments, if risk is managed by partners with a strong track record of risk management and project delivery,” Weightman says.