Cromwell’s Brisbane-based chief capital officer Simon Garing talks to PropertyEU about how the company’s newly listed Singapore REIT will help Asian investors gain exposure to European real estate.
In December 2017, Cromwell Property Group hired Simon Garing as chief capital officer. The former Bank of America Merrill Lynch deputy director of research, Asia Pacific, is based in Cromwell’s Brisbane headquarters and last month met with PropertyEU during Mipim to explain some of his responsibilities and how Cromwell in Europe can benefit from Cromwell’s strong Australian balance sheet and new minority owner, ARA Asset Management.
Garing says the reason for buying Valad from Blackstone two-and-a-half years ago was that Cromwell could see the Asian Pacific growth in private wealth. ‘It is difficult for a lot of that capital to invest in Europe. In the US it is easier given one language and one market. The success of the strategy of buying Valad was the listing of the Singapore REIT last year and that is now about 25% of the European assets. We have got 3,500 investors all looking for European exposure in an easy package. My task is to work with Mark McLaughlin and the CEREIT team to see what other real estate makes sense for the growth of that REIT, potentially launching other REITs with different mandates so they don’t cross over. The UK would be an obvious one.’
Redefine replaced by ARA
On March 8, Cromwell announced that Singapore-based ARA was replacing Redefine Properties, a South African company that had been with Cromwell since late 2009, as an investor. By acquiring a 19.5% stake for S$400 mln, Cromwell is now ARA’s single largest investment for a company that has S$40 bn of Asia Pacific investments and has a stated target to grow to S$100 bn.
John Lim, ARA group CEO said in a statement: ‘We are attracted to the strength and depth of their platforms, track record of value-enhancing real estate strategies and strong corporate governance. We believe Cromwell will benefit from our deep network of capital partners.’ Added Cromwell’s CEO Paul Weightman: ‘Cromwell’s European platform has the capacity to deploy more than 50% more capital due to an extensive network of 200 real estate professionals in 20 offices across 12 countries. We also have some exciting value-enhancing projects in our Australian property portfolio. We look forward to working with ARA to explore these, and other, opportunities to drive value and sustainable earnings growth for the benefit of all Cromwell securityholders.’
Garing says ARA provides another fresh impetus towards growing the platform in Europe, again involving Asian capital. Backers of ARA include US private equity group Warburg Pincus, which helped Lim buyout ARA in 2016 when it was a Singaporean REIT and remains a backer. The other backers are The Straits Trading Company, one of the world’s largest tin smelting companies, multinational conglomerate CK Asset Holdings, previously known as Cheung Kong Property Holdings whose chairman is Li Ka-shing. and AVIC Trust (Aviation Industry Corporation of China), formerly known as the South China Trust.
Strong financial backer
Garing sees ARA as a financial backer to Cromwell that would be able to weather a large global economic shock – a point where it could pick up distressed assets. He also points out that ARA paid AUS$ 1.05 a share for its stake, well above the 93/94 cents Cromwell was trading at. ‘Why did they pay above the market stock price? They can see price was not reflective of the business. They believe we have a team that can funnel more capital into our markets and drive returns, which is going to drive our share price higher.’
That is why performance is so key. Cromwell targets 50% AUM without spending more and ultimately help Cromwell’s share price higher. Garing added Cromwell is a low-leverage business with a strong balance sheet and therefore has the platform to support the European business. The company has been listed in Australia for 20 years and has an AUS$2 bn market capitalisation. ‘What’s providing good cash flow? AUS$2.5 bn of government-leased assets – long-term good credit. Around 80% of our business in terms of profits comes from owning good, stable assets that we have created and ended up owning.’ (The other 20% is from the funds management business.)
Garing points out the strong balance sheet is demonstrated by the €300 mln it has invested alongside others in the CEREIT and it should have a positive effect on helping Cromwell should the European team locate a ‘really good deal’ that they need to ‘put their hands on right away.’ Garing: ‘If Mark and his team say it is a good deal, so long as it passes our hurdles, we could warehouse and co-invest.’
Cromwell Property Group Facts & Figures
Headquarters: Brisbane, Australia
Total AUM: €7.3 bn
Cromwell’s Europe AUM: €4 bn
Style: Core and Value Add
Number of properties: 260+
Staff in Europe: 200 (79 locally based investment managers, asset managers and analysts)
Managing director Europe: Mark McLaughlin
Transactions in 2017: €2 bn acquired, €1.7 bn sold
-74 European assets across 5 European countries put into CEREIT in Singapore
-Acquired €217 mln diversified portfolio and €75.5 mln industrial asset in the Netherlands
-Acquired €167 mln Finland portfolio; Onboarded €410 mln Artemis pan-European portfolio