Annual Report 2014
well versed well timed well considered
contents
03 About Cromwell
04 Financial Highlights
06 Chairman’s Report
09 CEO’s Report
20 Directors’ Report
43 Auditor’s Independence Declaration
44 Consolidated Statements of
Comprehensive Income
45 Consolidated Statements of
Financial Position
46 Consolidated Statements of
Changes in Equity
47 Consolidated Statements of Cash Flows
48 Notes to the Financial Statements
99 Directors’ Declaration
100 Independent Auditor’s Report
102 Corporate Governance Statement
109 Securityholder Information
2
C ROMW ELL 20 1 4 ANNUAL REPORT
Cover and this page - QANTAS Global Headquarters: Sydney, NSW
Cromwell Property Group
Cromwell Property Group (ASX: CMW) is an internally managed Australian
Real Estate Investment Trust (A-REIT), and one of Australia’s leading property
investment and funds management groups. We are part of the S&P/ASX 200,
with over $3.7 billion in assets under management (including unlisted funds)
and manage 33 properties.
During the 2014 fi nancial year, the Group delivered operating earnings of over
$146.7 million, from our property portfolio and funds management business.
Our core focus is on Australian commercial property, and delivering strong,
consistent returns to investors. We primarily lease our buildings to Government
and blue-chip tenants to reduce vacancy risk.
We believe that one of our key competitive advantages is the internalised
property management model that we employ to manage all our property assets
in-house. Our property team oversees the strategic management of Cromwell
assets to ensure that tenants are happy, space is leased, and buildings operate
effi ciently. By keeping these functions in-house we ensure that our assets are
managed in line with the interests and expectations of our investors.
We are committed to improving tenant satisfaction, increasing income from our
portfolio and growing the value of our portfolio.
THIS DOCUMENT IS ISSUED BY
Cromwell Property Group consisting of
Cromwell Corporation Limited ABN 44 001 056 980 and
Cromwell Property Securities Limited AFS 238052 ABN 11 079 147 809
as responsible entity for
Cromwell Diversifi ed Property Trust ARSN 102 982 598 ABN 30 074 537 051
Level 19, 200 Mary Street, Brisbane QLD 4000
Phone: +61 7 3225 7777
Fax: +61 7 3225 7788
Web: www.cromwell.com.au
Email: invest@cromwell.com.au
SECURITYHOLDER ENQUIRIES
All enquiries and correspondence regarding securityholdings should be
directed to Cromwell’s Investor Services on 1300 276 693.
CROMWELL 2014 ANNUAL RE PORT
3
fi nancial
highlights
Consistent Strategy,
Strong Business
• Remained focused on
delivering predictable,
growing distributions
• Active management
strategy ensured portfolio
was optimised for market
• Non-core assets sold to
reduce gearing and
increase cash
• Funds management
business continued
to grow strongly
Another Record Result
• Record operating profi t of $146.7 million up 43%, or 8.5 cents per security
(cps) up 12%
• Distributions up 5% to 7.6cps
• Statutory profi t of $182.5 million, up 295%
• Like-for-like property income up 1.4%
• Funds management operating profi t up 30% $8.3 million
FINANCIAL RESULTS SUMMARY
FY14
FY13
Change
Statutory profi t ($’000)
182,471
46,156
295%
Statutory profi t (cents per security)
10.6
3.4
208%
Property Investment ($’000)
138,616
96,510
Funds Management External ($’000)
5,491
3,330
Funds Management Internal ($’000)
2,839
3,086
Development ($’000)
(225)
(515)
Operating profi t ($’000)
146,721
102,411
Operating profi t (cents per security)
8.5
7.6
Distributions ($’000)1
131,394
97,448
Distributions (cents per security)
Payout Ratio (%)
7.6
90%
7.3
95%
44%
65%
(8%)
56%
43%
12%
35%
5%
(5%)
1) FY13 excludes $4.2m of distributions above pro rata entitlement attributable to equity raisings.
RECORD OPERATING PROFIT
N
O
L
L
M
$146.7 43%
UP
I
I
4
C ROMW ELL 20 1 4 ANNUAL REPORT
Financial Position Improved
FY15 Guidance
• Net tangible assets (NTA) increased from $0.70 to $0.73 cps
• FY15 operating earnings guidance
QANTAS Global Headquarters: Sydney, NSW
of at least 8.3cps
• FY15 distributions per security
targeting 7.85 cps
• Continued focus on preserving
or enhancing distributions and
creating value
• Gearing reduced from 46% at June 2013 to 42% at June 2014 and 37% post
balance date
• Pro forma cash of $190 million provides fl exibility to pursue new property
acquisitions or funds management initiatives
• Average weighted debt maturity of 3.9 years.
FINANCIAL POSITION
Jun-14
(Pro-Forma)1
($’000)
Jun-14
(Actual)
($’000)
Jun-13
(Actual)
($’000)
Total Assets
2,336,540
2,469,940
2,546,110
Total Liabilities
(1,072,542)
(1,205,942)
(1,345,258)
Net assets
1,263,998
1,263,998
1,200,852
Securities on issue (‘000)
1,727,281
1,727,281
1,713,721
NTA per security
(excluding interest rate swaps)
NTA per security
(including interest rate swaps)
Gearing2
Gearing (look-through)2
$0.74
$0.75
$0.72
$0.73
$0.73
$0.70
37%
39%
42%
43%
46%
46%
1) Pro-forma balance sheet includes impact of 321 Exhibition Street sale and purchse of interest
rate cap.
2) Calculated as (total borrowings less cash)/(total tangible assets less cash). Look through gearing
adjusts for the 50% interest in Northpoint Tower.
CROMWELL 2014 ANNUAL RE PORT
5
chairman’sreport
Geoffrey H Levy, AO
100 Waymouth Street: Adelaide, SA
QANTAS Global Headquarters: Sydney, NSW
IN PROPERTY EARNINGS24% I
E
S
A
E
R
C
N
Cromwell’s activities in 2013 and 2014
highlighted its ability to adapt to changing
market conditions. In 2013, we took
advantage of relatively weak investment
demand to buy assets with long term,
quality cash fl ows at attractive prices.
In contrast, the 2014 year saw us take
advantage of improved sentiment in the
investment market to generate strong
returns from the sale of non-core assets.
Importantly, we were able to apply the
proceeds of those asset sales to reduce
debt in accordance with our stated gearing
strategy and to strengthen our balance
sheet ahead of what we expect to be
more volatile trading conditions in 2015
and beyond. We were also able to recycle
capital into a new value add opportunity
in North Sydney in partnership with
Redefi ne Properties Limited, our largest
securityholder. This acquisition gave us
the opportunity to participate in expected
capital and earnings upside from an asset
that might otherwise have been too large
for our balance sheet, whilst providing
6
C ROMW ELL 20 1 4 ANNUAL REPORT
us with enhanced returns from the asset and the funds
management fees we will be receiving from our partner.
Our activities over the last few years also highlight
the ways in which Cromwell seeks to actively manage
its property portfolio through the property cycle and
the ways in which we adjust our investment activities
ahead of changing market conditions. I am proud that
we have maintained strong discipline in our acquisition
and divestment processes, and I believe this discipline
is a major reason that we were able to demonstrate
improvement in all of our key measures of fi nancial
performance in 2014.
Cromwell exists for the benefi t of its investors, and
our key objective is to provide a secure and growing
distribution to security holders from our investment and
funds management activities. An important part of our
strategy to achieve this growth is to increase the size and
profi tability of our funds management business.
The funds management business grew strongly in 2014,
and continues to build its scale and its contribution to
Group earnings.
Our partnership with Phoenix Portfolios and the continued
strong performance of the award-winning Cromwell
Phoenix Property Securities Fund is based on a model
in which Cromwell combines its established expertise,
systems and capital with the investment strategies of
high quality boutique fund managers to build funds under
management and to provide attractive investment products
for our investors.
We have extended this model with the acquisition of a 50%
share of New Zealand’s Oyster Group. While Cromwell’s
initial investment is relatively small we believe it has the
potential to grow into the future. The recent strength of
the New Zealand economy has reinforced our view that the
Oyster acquisition was very well timed.
The further extension of this model to other managers, the
expansion of partnership and co-investment opportunities
with our South African investors and organic growth
from our syndicates and direct property platform all offer
promising signs for increasing contributions from our
funds management business to future earnings.
The year under review also saw a major restructuring of
our debt facilities, extending our weighted average debt
maturity to approximately four years, and providing us with
greater fl exibility and a lower cost of debt.
Since balance date we have also entered into hedging
arrangements capping our exposure to future interest
payments on $1 billion of debt for 5 years.
Our achievements reinforce to me, and I hope you our
securityholders, Cromwell’s key points of difference to our
peers, namely:
• We are not passive accumulators of assets; we actively
manage our portfolio and our assets through the
property cycle;
• We use gearing intelligently through the property cycle;
• We are able to leverage additional earnings from our
internal management model to produce value from our
funds management business.
I would like to take this opportunity to thank Paul
Weightman, Daryl Wilson and all of the Group’s executives
and staff for their efforts this year. We are proud of the
fact that we don’t follow the herd and that we continue to
outperform our peers.
I would also like to thank my fellow Board members for
their support during the year. In particular, I would like to
thank David Usasz and Mike Watters, both of whom reach
the end of their respective terms at the end of the 2014
Annual General Meeting.
David has been an enthusiastic, independent director since
he joined the Board in 2007, providing strong fi nancial and
risk management stewardship as Chairman of the Audit
& Risk Committee and a member of the Nomination and
Remuneration Committee and adding immeasurably to
the collegiate atmosphere on the Board to the benefi t of
all stakeholders. We wish David all the very best for the
future.
Mike, CEO of Redefi ne International PLC, joined the Board
in 2011 and his fi nancial and property expertise have
proven to be of great advantage to the Group.
At the 2014 Annual General Meeting, securityholders
will be asked to elect Jane Tongs as a new independent
director, replacing David and to elect Andrew Konig, CEO
of Redefi ne Properties Limited, to replace Mike. Further
details will be included in the notice of meeting for the
2014 Annual General Meeting.
Thank you also to our Securityholders for your ongoing
support. I look forward to working with the whole Cromwell
team over the next year.
Geoffrey H Levy, AO
Chairman
CROMWELL 2014 ANNUAL RE PORT
7
Cromwell improved the
quality of our property
portfolio, selling over
$459 million worth of
non-core assets and
purchasing the
$278.7 million
Northpoint Tower.
8
C ROMW ELL 20 1 4 ANNUAL REPORT
QANTAS Global Headquarters: Sydney, NSW
ceo’sreport
Paul Weightman
QANTAS Global Headquarters: Sydney, NSW
The 2014
fi nancial year
was another
year of solid
performance by
Cromwell, with
a 43% increase
in Operating
Profi t to a record
$146.7 million.
The Group’s Management team took a strong sense of satisfaction from Cromwell’s
performance in the 2014 fi nancial year, with the strong increase in Operating Earnings
showing the benefi t of FY13 acquisitions, an increase in like-for-like income from our
existing portfolio, reduced interest cost and an increase in funds management earnings.
During the year, we continued to improve the quality of our property portfolio, completing
the sale of seven properties for $458 million and acquiring a 50% interest in Northpoint
Tower in North Sydney for $278.7 million, in partnership with our shareholder Redefi ne
Properties Limited. We also continued to grow our funds management business.
Cromwell Performance June 2014
TOTAL SECURITYHOLDER RETURNS
TO JUNE 2014 (Annualised)1
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Cromwell Property Group
S&P/ASX A-REIT 300 Accumulation Index
Excess Returns
%
9
.
2
3
%
8
.
0
3
%
4
.
2
2
%
2
.
5
1
%
2
.
7
%
5
.
4
2
%
5
.
4
1
%
2
.
0
1
%
8
.
1
2
%
1
.
1
1
%
9
.
4
2
%
9
.
5
3 year
5 years
10 years2
15 years1,2,3
Source: IRESS
1) Includes distributions
2) 10 year Cromwell return includes period prior to stapling in December 2006
3) 15 year S&P/ ASX A-REIT 300 Accumulation Index return is since inception, which is 31 March 2000
CROMWELL 2014 ANNUAL RE PORT
9
Property portfolio
We aim to maintain a property portfolio that provides a
solid base of dependable and defensive earnings, balanced
by “opportunistic” assets that provide outperformance
either because of the prices at which they are acquired or
because they can be improved or repositioned with active
asset management.
Net earnings from the Group’s portfolio increased 24% to
$214.4 million as a result of additional income from assets
acquired in late FY13 combined with increased rental
income from the Qantas Global Headquarters in Sydney.
The increase included growth in like-for-like income of
1.4%, supported by bi-annual CPI rental reviews. This was
an above average result in a national offi ce rental market
that remains soft.
Growth was supported by a number of properties acquired
on a favourable basis in the past 18 months, including the
seven assets in the NSW portfolio acquired in June 2013
for $405 million and the Health and Forestry Building in
Brisbane acquired in May 2013 for $65 million.
There was a modest increase in portfolio property
valuations, with an increase in investment property value
of $46.2 million, net of capital expenditure and incentives.
The increase highlights the growing market appetite for
low risk assets such as Cromwell’s offi ce properties.
26.3%
51%
GOVERNMENT
TENANTS
29.8%
LISTED COMPANIES OR
THEIR SUBSIDIES
GEOGRAPHIC DIVERSIFICATION
BY GROSS INCOME
ACT
NSW
QLD
VIC
TAS
SA
Offi ce
Retail
1.1% 2.4%
7.5%
19.2%
43.5%
SECTOR DIVERSIFICATION
BY GROSS INCOME
1.2%
98.8%
TENANT CLASSIFICATION
BY GROSS INCOME
19.4%
29.8%
Listed Company/Subsidiary
Government Authority
Private Company
50.8%
Nationwide, there has been an increase in valuations for
assets with long leases and a decrease in valuation for
some assets with vacancy or short term lease profi les.
We believe there is potential for further increases in value.
Rents are also showing signs of bottoming although we
expect the recovery to be slow.
Cromwell’s portfolio has a very strong tenant profi le, with
Government tenants contributing 50.8% of rental income
and listed companies or their subsidiaries a further 29.8%
of rental income. The portfolio has a Weighted Average
Lease Expiry (WALE) of 5.9 years and vacancy of just 3.2%,
which compares favourably with the national CBD offi ce
average of 12.2%.
Cromwell has consistently maintained occupancy above
national benchmark occupancy rates, which we believe is a
result of our internal management model that continues to
create additional value over time.
We continuously seek to adjust our portfolio ahead of
changing market conditions and during FY14 we sold six
assets for a total of $253 million. Post balance date we
also completed the sale of 321 Exhibition St in Melbourne
for $205 million, resulting in total sales of $458 million.
The assets we sold had delivered good historical returns.
However, our assessment was that their risk/return
profi les were unlikely to meet our future expectations
and that the capital invested in those assets should be
redeployed elsewhere.
10
C ROMW ELL 20 1 4 ANNUAL REPORT
100 Waymouth Street: Adelaide, SA
CROMWELL 2014 ANNUAL RE PORT
11
Cromwell’s strategy
remained unchanged:
to provide defensive, superior
risk-adjusted returns from
commercial properties we
own and manage
in Australia.
QANTAS Global Headquarters: Sydney, NSW
portfolio
assets sold
12
C ROMW ELL 20 1 4 ANNUAL REPORT
321 EXHIBITION
STREET
MELBOURNE, VIC
NQX DISTRIBUTION
CENTRE
PINKENBA, QLD
A further
enhancement
to our Sydney
portfolio occurred
in January
2014, when the
$131 million
Qantas Global
Headquarters
refurbishment was
completed on time
and on budget.
LATROBE STREET &
HOMEBASE CENTRE
N
O
L
L
$154M
SOLD
I
I
Four of the assets sold were industrial
properties, which achieved a total
price of $100.85 million representing a
4% premium to their book value as at
June 2013. The assets were the NQX
Distribution Centre at Pinkenba in
Queensland, the Brooklyn Woolstore
at Brooklyn in Victoria, the Gillman
Woolstore at Gillman in South Australia,
and 28-54 Percival Road at Smithfi eld in
New South Wales.
In November 2013, Cromwell sold an
offi ce property at 380-390 La Trobe Street
Melbourne and the HomeBase bulky
goods centre at Prospect in NSW to
separate purchasers for a total of
$154 million.
The La Trobe Street property was a major
disposal, selling for $113.6 million, which
approximated book value, while the
HomeBase centre was sold for $40.45
million, which represented a premium of
approximately 9.6% to book value.
The disposal of 321 Exhibition Street
was the largest by Cromwell in a number
of years and followed an extensive
refurbishment undertaken between
July 2010 and August 2011. Whilst
we took what some would describe
as a substantial risk in acquiring and
retrofi tting that asset in 2010, we were
confi dent in our assessment of the
market and in our ability to reposition
the building. The resulting capital gain
on sale demonstrated our ability to
add value in diffi cult markets and to
effectively manage the risks associated
with complex redevelopment of major
offi ce buildings.
Some of the capital from these sales was
recycled into an investment in Northpoint
Tower in North Sydney, some of the
capital was applied to the reduction of
debt and the balance was retained for
future opportunities.
Northpoint Tower, which was acquired
for $278.7 million, is the foundation asset
for a new unlisted wholesale investment
trust, the Cromwell Partners Trust. The
Trust is managed by Cromwell and is
owned 50/50 by Cromwell and South
African property investment group
Redefi ne Properties Limited, which is
also a major Cromwell securityholder.
We believe there is a great opportunity
to improve the property by repositioning
its retail offering, adding additional
accommodation, and in improving car
parking and commercial offi ce rentals.
Northpoint is North Sydney’s tallest and
most recognisable offi ce tower with a
total land area of more than 5,000sqm
and a net lettable area of 35,145sqm
spread across 42 levels. As a result of the
acquisition of the NSW Portfolio in June
2013 and Northpoint Tower in December
2013, Cromwell now has a much larger
exposure to Sydney offi ce property.
Our Sydney portfolio was further
enhanced in January 2014, with the
completion of the $131 million expansion
and refurbishment of the Qantas Global
Headquarters at Mascot. The project
was completed on time and on budget
and allowed Qantas to consolidate seven
sites into one, resulting in $8.5 million in
annual savings for the airline. As part of
the transaction, Qantas extended its lease
of the site to 2032 in a true win/win for
Cromwell and Qantas.
Our increased portfolio allocation to the
Sydney market was no accident, and was
based on our view that Sydney would
benefi t most strongly from the transition
in the Australian economy after the fall
in the Resource development sector. Our
view has been vindicated by the recent
decline in vacancy rates in the Sydney
market and the rising expectation of
effective rental growth in that market.
BROOKLYN
WOOLSTORE
BROOKLYN, VIC
GILLMAN
WOOLSTORE
GILLMAN, SA
PERCIVAL ROAD
SMITHFIELD, NSW
380 LATROBE STREET
MELBOURNE, VIC
HOMEBASE CENTRE
PROSPECT, NSW
CROMWELL 2014 ANNUAL RE PORT
13
Funds management
Within FY14 the Group had a 65% increase in earnings
from external funds management activities to $5.5 million.
Cromwell now has external assets under management of
$1.3 billion and total assets under management of more
than $3.7 billion.
Cromwell continued to expand and diversify its range of
managed investments during the period, launching three
new unlisted property trusts; the Cromwell Property Trust
12 (which has closed) and two funds that remain open for
investment – the Cromwell Direct Property Fund and the
Cromwell Australian Property Fund. All of the new funds
have demonstrated strong short term performance.
Cromwell also took its fi rst step to expand overseas, with
the acquisition of a 50% stake in New Zealand property and
fund manager Oyster Group for NZ$7.5 million in June 2014.
As part of the transaction, Cromwell’s New Zealand based
Director Michelle McKellar has been appointed Chair of
the Oyster Group. The structure of the investment has been
based on the successful Phoenix Portfolios model, which
incentivises management to build the business with the
assistance of Cromwell’s expertise, systems and capital.
Oyster has more than NZ$650 million in property assets
under management through a combination of private
property syndicates and institutional property mandates.
This is comprised of 24 separate unlisted funds with a
combined value of NZ$343 million and NZ$315 million of
assets managed for institutional investors.
The Oyster business has many similarities to Cromwell
and provides a solid platform for our expansion into New
Zealand. The Oyster management team is very capable and
experienced and is culturally and philosophically aligned to
Cromwell and has a strong track record of performance.
Closer to home, the award-winning Cromwell Phoenix
Property Securities Fund continued to experience large
monthly infl ows, with funds under management growing to
$559 million at 30 June, 2014.
Our reputation and track record continues to grow with each
successful investment and we are experiencing growing
demand from large dealer groups for our retail products due
to our strong historical performance and premium ratings.
We maintain our long-term goal for Funds Management to
contribute 20% of Cromwell Group earnings.
We continue to remain vigilant for opportunities to profi t
from our “opportunistic assets”. Bligh House in Sydney,
acquired as part of the NSW Portfolio, has the potential
for conversion to hotel or residential use when the lease
expires in 2018, or for refurbishment to A-Grade offi ce
accommodation. We have received offers from a number
of developers to acquire the asset at a premium to our
acquisition cost and to current book value.
Another signifi cant repositioning opportunity exists at
Health and Forestry House in Brisbane, which has the
potential for conversion to hotel or residential use or for
refurbishment to offi ce accommodation at lease expiry.
Cromwell’s funds management
business is an important asset to
the Group, with the potential to
signifi cantly enhance revenue.
I
O
T
G
N
W
O
R
G
FUNDS UNDER MANAGEMENT
$1.3 B
N
O
L
L
I
I
ASSETS UNDER MANAGEMENT
Property Securities
External Direct
Internal
n
o
i
l
l
i
B
$
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1
0
e
n
u
J
3
0
e
n
u
J
5
0
e
n
u
J
7
0
e
n
u
J
9
0
e
n
u
J
1
1
e
n
u
J
3
1
e
n
u
J
4
1
e
n
u
J
1
a
m
r
o
F
o
r
P
4
1
e
n
u
J
1.) Assumes completion of property currently under construction.
14
C ROMW ELL 20 1 4 ANNUAL REPORT
Investor base
growing fast
• Over 6,000 fund investors
• Over 14,000 Cromwell
securityholders
• Over 27,000 potential
investors
City Heart Building: Ipswich, QLD
CROMWELL 2014 ANNUAL RE PORT
15
Capital management
NTA per security increased during the year from $0.70
to $0.73, primarily as a result of property revaluations.
We reduced gearing from 46% at the end of FY13 to 42%
at the end of FY14. Following the post balance date sale
of Exhibition Street, gearing has been further reduced to
37%, which is at the lower end of the Group’s preferred
range of 35-55%. Our gearing strategy recognises that
gearing is relative to the strength of underlying cash
fl ows and allows for higher gearing when asset prices
are low, and lower gearing when asset values rise.
This consistent strategy has allowed us to profi t from
changing market conditions throughout the cycle.
The most important capital management initiative during
the year was the restructuring of our debt platform.
Cromwell fi nalised a new $1.02 billion debt platform
to replace seven existing facilities. The platform
consolidated all but two of Cromwell’s existing debt
facilities. The new facility under the platform extended
Cromwell’s weighted average debt maturity from 1.4
years to 3.9 years and reduced the weighted average
margin across all facilities by approximately 0.16%.
Under the new facility, borrowings are secured, on a
limited recourse basis, by a pool of assets comprising
the majority of Cromwell’s portfolio. The facility is
structured as separate tranches provided by each lender.
The platform provides Cromwell with greater fl exibility
for its future funding needs, as it allows for the issue of
additional tranches to acquire new assets or refi nance
existing facilities.
The new facility is both fl exible and cost effective, and
provides an innovative platform from which we can
continue to improve and grow our property portfolio and
recycle capital.
In August 2014, Cromwell took advantage of the
historically low interest rate/low volatility environment, to
extend our hedging profi le and substantially protect our
securityholders against any future substantial increases
in interest rates for the next 5 years.
The Group entered into a series of interest rate caps
which, when combined with existing swaps, hedges
$1 billion of Cromwell’s debt until May 2019. The new
arrangements
CMW HEDGING PROFILE
$1,200M
$1,000M
$800M
$600M
$400M
$200M
$M
Capped at maximum 3.39%1
Fixed through existing swap profi le
4
1
c
e
D
5
1
n
u
J
5
1
c
e
D
6
1
n
u
J
6
1
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e
D
7
1
n
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J
7
1
c
e
D
8
1
n
u
J
8
1
c
e
D
9
1
y
a
M
1. Excludes facility margins, which average 1.6%
16
C ROMW ELL 20 1 4 ANNUAL REPORT
100 Waymouth Street: Adelaide, SA
207 Kent Street: Sydney, NSW
We continue to maintain our
preference for commercial offi ce
property, which now comprises
98.8% of our portfolio.
DIRECT PROPERTY RETURNS
Cromwell Property Group
IPD Benchmark
Excess Returns
%
9
.
9
%
5
.
9
%
3
.
0
1
%
0
.
9
%
8
.
0
1
%
5
.
9
%
6
.
1
1
%
5
.
9
%
3
.
1
%
3
.
1
%
1
.
2
%
4
.
0
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
3 year
5 years
10 years
15 years
Source: IPD
LEASE EXPIRY PROFILE
% GROSS INCOME BY FINANCIAL YEAR
Outlook
In the year ahead, we expect to see continued demand for
property with long leases, while demand for CBD assets
will expand to include near city and suburban locations.
Australian offi ce yields are still high by international
standards, suggesting demand from overseas investors will
continue to drive yields down, and prices up.
Notwithstanding, and perhaps contrary to the strength
in investment markets, we expect rents to remain under
pressure in the short term across all sectors. We will be
partially insulated from these conditions because our
assets have low vacancy levels and minimal lease expiries
in FY15. Over the medium term, we have a number of
larger lease expiries in FY16 and FY17. We are working
hard to ensure the best outcome in each case for our
securityholders.
Active management and access to capital will be the keys
to future performance. We will continue to adjust our
portfolio ahead of changing market conditions. We will
also maintain a strong balance sheet with low debt and
good cash reserves that leaves us well positioned to take
advantage of any opportunities that arise if there is any
market correction or downturn.
We have delivered consistent and growing distributions
throughout the economic cycle. This continues to be our
priority for the future.
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
40.9%
We have forecast FY15 EPS of at least 8.3 cps and DPS of
7.85 cps, representing 3% growth over FY14.
24.1%
17.2%
8.3%
FY16
FY17
FY18
Thereafter
2.4%
Vacant
7.1%
FY15
I would like to thank all our staff for their efforts during the
year and the Board for their advice and guidance over the
last 12 months. Our success is very much the result of a
team effort.
CROMWELL 2014 ANNUAL RE PORT
17
contents
20 Directors’ Report
43 Auditor’s Independence Declaration
44 Consolidated Statements
of Comprehensive Income
45 Consolidated Statements
of Financial Position
46 Consolidated Statements
of Changes in Equity
47 Consolidated Statements of Cash Flows
48 Notes to the Financial Statements
99 Directors’ Declaration
100 Independent Auditor’s Report
102 Corporate Governance Statement
109 Securityholder information
18
C ROMW ELL 20 1 4 ANNUAL REPORT
0
fi nancials
Cromwell Property Group
Annual Financial Report
30 June 2014
Cromwell Corporation Limited
ABN 44 001 056 980
Level 19, 200 Mary Street
Brisbane QLD 4000
Cromwell Diversifi ed Property Trust
ARSN 102 982 598
Responsible Entity:
Cromwell Property Securities Limited
ABN 11 079 147 809 AFSL: 238052
Level 19, 200 Mary Street
Brisbane QLD 4000
Northpoint Tower: Sydney NSW
CROMWELL 2014 ANNUAL RE PORT
19
directors’report
The directors of Cromwell Corporation Limited and
Cromwell Property Securities Limited as Responsible
Entity for the Cromwell Diversifi ed Property Trust
(collectively referred to as “the Directors”) present their
report together with the consolidated fi nancial statements
for the year ended 30 June 2014 for both:
• the Cromwell Property Group (“Cromwell”) consisting
of Cromwell Corporation Limited (“the Company”)
and its controlled entities and Cromwell Diversifi ed
Property Trust (“the CDPT”) and its controlled entities;
and
• the CDPT and its controlled entities (“the Trust”).
The shares of the Company and units of the CDPT are
combined and issued as stapled securities in Cromwell.
The shares of the Company and units of the Trust cannot
be traded separately and can only be traded as stapled
securities.
1. DIRECTORS & OFFICERS
(a) Directors
The persons who were Directors at any time during the
fi nancial year and up to the date of this report (unless
otherwise stated) were:
Mr Geoffrey Levy (AO) – Chairman
Mr Levy has extensive public company executive and
directorship experience and is the former Chief Executive
Offi cer of Investec Bank (Australia) Ltd. He is currently
Chairman of ASX listed Specialty Fashion Group Limited
and Monash Private Capital. He was appointed an Offi cer
in the Order of Australia in the Queen’s Birthday Honours
List in June 2005. Mr Levy has extensive experience in the
corporate advisory and banking environment where he is
regarded as an expert in mergers and acquisitions, venture
capital, capital management and general corporate
commercial law. He has been a Director of a number
of ASX-listed companies and has degrees in commerce
and law. He is a member of Cromwell’s Nomination and
Remuneration and Investments Committees.
Mr Robert Pullar – Non-Executive Director
Mr Pullar is a Director of the Brisbane based property
development company operating in Australia, Citimark
Properties. He was previously a partner with a mid-
tier chartered accounting fi rm, specialising in property
investment, taxation and corporate reorganisation.
Mr Pullar is a member of the Institute of Chartered
Accountants and a Fellow of the Australian Institute
of Company Directors. He is Chairman of Cromwell’s
Nomination & Remuneration Committee, Chairman of
Cromwell’s Investment Committee and a member of
Cromwell’s Audit & Risk Committee.
Ms Michelle McKellar – Non-Executive Director
Ms McKellar has a wealth of commercial property and
portfolio management experience having spent over 30
years in senior roles throughout the Asia-Pacifi c. Ms
McKellar was responsible for establishing the CBRE
business in New Zealand and subsequently served as the
Hong Kong based Managing Director and overseeing the
company’s Greater China operations. She then served
as the CEO of Jen Group of companies building a billion
dollar portfolio of commercial and retail properties across
Australia and New Zealand. Ms McKellar is also a founding
Director of China-based Dash Brands. She is a senior
member of the Property and Land Economy Institute, and
a Fellow of the Australian Institute of Company Directors.
Ms McKellar is a member of Cromwell’s Nomination &
Remuneration, Audit and Risk and Investment Committees
and is Chair of Oyster Group, Cromwell’s joint venture Funds
Management company in New Zealand.
Mr David Usasz – Non-Executive Director
Mr Usasz has 31 years experience (partner 20 years) with
PricewaterhouseCoopers in Australia and Hong Kong
and has been involved in tax, merger and acquisition
advice, corporate advisory consultancy, specialising in
corporate reorganisations. He is a Non-Executive Director
of Queensland Investment Corporation Ltd and a member
of the QIC Audit & Risk Committee and a member of
QIC’s Nomination & Remuneration Committee. He holds
a Bachelor of Commerce UQ , a Fellow of the Institute
of Chartered Accountants and a Fellow of the Australian
Institute of Company Directors. Mr Usasz is Chairman
of Cromwell’s Audit & Risk Committee and a member of
Cromwell’s Nomination & Remuneration Committee.
Mr Richard Foster – Non-Executive Director
Mr Foster is a licensed real estate agent with substantial
experience in the real property industry specialising
in large-scale property acquisition for most of his
professional life. He has also been closely involved with the
acquisition and marketing of direct property investments
valued in excess of $1.2 billion. He has had substantial
input to the growth and development of the business and
Cromwell’s investment products. Mr Foster is a member of
Cromwell’s Nomination & Remuneration and Investment
Committees.
20
C ROMW ELL 20 1 4 ANNUAL REPORT
Geoffrey H Levy, AO
NON-EXECUTIVE
CHAIRMAN
7/30*
Paul Weightman
MANAGING DIRECTOR /
CEO
16/30*
Daryl Wilson
DIRECTOR – FINANCE &
FUNDS MANAGEMENT
15/23*
Robert Pullar
NON-EXECUTIVE
DIRECTOR
12/28*
Michelle McKellar
NON-EXECUTIVE
DIRECTOR
8/30*
Michael Watters
NON-EXECUTIVE
DIRECTOR
5/28*
Richard Foster
NON-EXECUTIVE
DIRECTOR
16/45*
Marc Wainer
NON-EXECUTIVE
DIRECTOR
5/38*
David Usasz
NON-EXECUTIVE
DIRECTOR
8/36*
Nicole Riethmuller
COMPANY SECRETARY
6/17*
*Years with Cromwell/years experience
Mr Marc Wainer – Non-Executive Director
Mr Wainer has more than 35 years experience in the property
industry in South Africa, including founding Investec Property
Group, Investec Bank’s property division. Marc is Chief
Executive Offi cer and an Executive Director of listed South
African property group Redefi ne Properties Limited which
he founded, and a director of Redefi ne International P.L.C.,
a listed property investment company which is a substantial
securityholder of Cromwell Property Group.
Mr Michael J Watters – Non-Executive Director
Mr Watters who was appointed in April 2011, is a qualifi ed
engineer with a BSc Eng. (Civil) Degree and an MBA, and
has over 27 years experience in the investment banking
and real estate industries. He has held directorships of
some of South Africa’s top rated listed property funds
including Sycom Property Fund and Hyprop Investments
Limited. He is the CEO of Redefi ne International P.L.C.
Mr Paul Weightman – Managing Director/
Chief Executive Offi cer
Mr Weightman practised as a solicitor for more than
20 years and holds degrees in commerce and law. He
has extensive experience in property development and
investment, fi nancial structuring, public listings, mergers
and acquisitions, revenue matters and joint ventures. Mr
Weightman was Cromwell’s Executive Chairman from 1998
until the appointment of Mr Levy in April 2008, and has
acted as Chief Executive Offi cer since that date. He has
been a director of companies in the property, energy and
retail sectors. Mr Weightman is a member of Cromwell’s
Investment Committee.
Mr Daryl Wilson – Director – Finance & Funds Management
Mr Wilson joined Cromwell in August 1999 and has
primary responsibility for the fi nance and funds
management functions. Mr Wilson has led the
development of Cromwell’s funds management capabilities
and has many years experience as a chartered accountant.
He holds a Bachelor of Commerce and a Diploma of
Financial Planning. Mr Wilson is a member of Cromwell’s
Investment Committee.
Mr Geoffrey Cannings – Alternate Director
Mr Cannings is an alternate director to Mr Michael J
Watters and was appointed on 1 August 2011. Mr Cannings
is also an alternate director to Mr Marc Wainer and was
appointed on 19 February 2014.
All Directors of the Company are also Directors of
Cromwell Property Securities Limited, the Responsible
Entity of the CDPT.
(b) Directorships of other listed entities
in last 3 years
Mr Levy has been a Director of Specialty Fashion Group
since 8 April 2005.
Mr Usasz was a director of Queensland Mining Corporation
Limited from 15 June 2007 until his resignation on 28
February 2013.
Mr Wainer is a Director of Redefi ne International P.L.C.,
a property investment company which is listed on the
London Stock Exchange and a Director of Redefi ne
Properties Limited, a property group which is listed on the
Johannesburg Stock Exchange.
Mr Watters is a Director of Redefi ne International P.L.C.,
a property investment company which is listed on the
London Stock Exchange.
No other Director has been a director of any other listed
company during the 3 years preceding the end of the
fi nancial year and up to the date of this report.
CROMWELL 2014 ANNUAL RE PORT
21
(c) Company secretary
Ms Nicole Riethmuller
Ms Riethmuller has over 15 years experience as a corporate lawyer having worked primarily in the fi nancial services
industry. Prior to joining Cromwell, Nicole was General Counsel at the Queensland Investment Corporation where she
headed the in-house legal team. Before that she was a Senior Associate in the Funds Management team at Minter Ellison
lawyers in Sydney. Nicole has also been a lawyer and Assistant Company Secretary at Queensland Sugar Corporation. She
has a Bachelor of Laws and a Bachelor of Commerce from the University of Queensland.
(d) Directors’ Meetings
The number of Directors’ meetings (including meetings of committees of the Board) and number of meetings attended by
each of the Directors of the Company during the fi nancial year were:
Director
Board
Nomination &
Remuneration
Committee
Audit & Risk
Committee
Investment
Committee
Geoffrey Levy
Robert Pullar
Michelle McKellar
David Usasz
Richard Foster
Marc Wainer (1)
Michael Watters (2)
Paul Weightman
Daryl Wilson
A
10
10
11
10
12
10
12
12
12
B
12
12
12
12
12
12
12
12
12
A
1
3
2
2
2
-
-
-
-
B
1
3
3
3
3
-
-
-
-
A
-
7
9
8
-
-
-
-
-
B
-
9
9
9
-
-
-
-
-
A
1
5
6
-
6
-
-
5
5
B
2
6
6
-
6
-
-
6
6
B – Number of meetings eligible to attend
A – Number of meetings attended
(1) From February 2014, includes attendance by alternate director Geoffrey Cannings.
(2) Includes attendance by alternate director Geoffrey Cannings.
2. PRINCIPAL ACTIVITIES
The principal activities of Cromwell and the Trust during the fi nancial year consisted of property investment. The principal
activities of Cromwell also include funds management, property management and property development.
There were no signifi cant changes in the nature of Cromwell’s or the Trust’s principal activities during the fi nancial year.
22
C ROMW ELL 20 1 4 ANNUAL REPORT
3. DIVIDENDS/DISTRIBUTIONS
Cromwell
2014
Interim distribution
Interim distribution
Interim distribution
Final distribution
2013
Interim distribution
Interim distribution
Interim distribution
Final distribution
Trust
2014
Interim distribution
Interim distribution
Interim distribution
Final distribution
2013
Interim distribution
Interim distribution
Interim distribution
Final distribution
Dividend
per Security
Distribution
per Security
Total per
Security
Total
$’000
Franked amt
per Security
Record
Date
Payment
Date
–
–
–
–
–
–
–
–
–
–
1.8750¢
1.8750¢
1.9375¢
1.9375¢
7.6250¢
1.8125¢
1.8125¢
1.8125¢
1.8125¢
7.2500¢
1.8750¢
1.8750¢
1.9375¢
1.9375¢
7.6250¢
32,234
32,278
33,416
33,466
131,394
1.8125¢
21,243
1.8125¢
22,874
1.8125¢
1.8125¢
7.2500¢
26,481(1)
31,061(2)
101,659
–
–
–
–
–
–
–
–
–
–
30/09/13
13/11/13
31/12/13
12/02/14
31/03/14
14/05/14
30/06/14
14/08/14
05/10/12
31/12/12
28/03/13
28/06/13
14/11/12
13/02/13
15/05/13
15/08/13
Dividend
per Security
Distribution
per Security
Total per
Security
Total
$’000
Franked amt
per Security
Record
Date
Payment
Date
–
–
–
–
–
–
–
–
–
–
1.8750¢
1.8750¢
1.9375¢
1.9375¢
7.6250¢
1.8125¢
1.8125¢
1.8125¢
1.8125¢
7.2500¢
1.8750¢
1.8750¢
1.9375¢
1.9375¢
7.6250¢
32,239
32,282
33,416
33,466
131,403
1.8125¢
21,248
1.8125¢
22,879
1.8125¢
1.8125¢
7.2500¢
26,486(1)
31,066(2)
101,679
–
–
–
–
–
–
–
–
–
–
30/09/13
13/11/13
31/12/13
12/02/14
31/03/14
14/05/14
30/06/14
14/08/14
05/10/12
31/12/12
28/03/13
28/06/13
14/11/12
13/02/13
15/05/13
15/08/13
(1) Includes an amount of $453,000 for both Cromwell and the Trust in excess of the pro-rata entitlement for the quarterly distribution paid to
those securityholders who acquired securities in February 2013 as part of the Security Purchase Plan.
(2) Includes an amount of $3,758,000 for both Cromwell and the Trust in excess of the pro-rata entitlement for the quarterly distribution paid
to those securityholders who acquired securities in June 2013 as part of the placement and entitlement offer.
.
4. REVIEW OF OPERATIONS AND RESULTS
(a) Financial performance
Cromwell recorded a profi t of $182,471,000 for the year ended 30 June 2014 compared with a profi t of $46,156,000 for
the previous year. The Trust recorded a profi t of $177,950,000 for the year ended 30 June 2014 compared with a profi t of
$43,291,000 for the previous year.
Net earnings from the property portfolio, after property outgoings costs but before interest expense was $214,387,000, an
increase of 24% on the previous year. The increase was primarily as a result of additional rental income generated due to
the acquisition of the Brisbane CBD properties (acquired May 2013) and the NSW Portfolio (acquired June 2013) and the
increased rental income from Qantas Headquarters (due to expansion of the property).
Cromwell also measures the change in like for like net property earnings, taking into account only properties held in both
the current and previous fi nancial years. On this basis, net property earnings increased by 1.4% in 2014 despite a very
diffi cult leasing environment. This demonstrates the value of the strong leasing profi le of the portfolio combined with the
in house management which enables it to get the best out of each property.
CROMWELL 2014 ANNUAL RE PORT
23
Interest expense for the year increased to $70,025,000 (2013: $67,715,000). This increase occurred as a result of the
additional borrowings for properties acquired during the prior year and because interest incurred in relation to the Qantas
Headquarters is no longer being capitalised into the cost of the project. The average interest cost fell during the year from
6.43% to 5.99%. This fall in average rate refl ected a reduction in loan facility margins and lower variable interest rates as
the Reserve Bank reduced the cash rate early in the year.
External funds management earnings increased from $3,330,000 in 2013 to $5,491,000 in 2014, refl ecting the continuing
success of Cromwell in delivering new products to the market and an increase in recurring revenue from assets under
management. This highlights the attractiveness of having the funds management business, which can provide Cromwell
with additional growth to complement the property income stream.
Development activity for this year continued to be limited, with a small amount of industrial land held for development
or re-sale when the opportunity arises. Cromwell does not seek to undertake any material amount of speculative
development.
The profi t for the year includes a number of items which are non-cash in nature or occur infrequently and/or relate
to realised or unrealised changes in the values of assets and liabilities and in the opinion of the Directors, need to be
adjusted for in order to allow securityholders to gain a better understanding of Cromwell and the Trust’s underlying profi t
from operations.
The most signifi cant of these items impacting the profi t of Cromwell for 2014 and not considered part of the underlying
profi t from operations were:
• An increase in the fair value of investment properties of $46,226,000 (2013: decrease $55,747,000); and
• An increase in the fair value of interest rate derivatives of $5,222,000 (2013: increase of $7,326,000).
The increase in fair value of investment properties had two signifi cant components. The underlying valuations for
investment properties increased by $40,240,000 during the year, net of property improvements, leasing incentives
and lease costs. This is equivalent to an increase in value of approximately 2.3 cents per stapled security from June
2013 valuations. These increases were generally concentrated in properties with longer leases such as the Qantas
Headquarters in Sydney, Exhibition Street in Melbourne and Kent Street in Sydney, where properties have increased in
value as demand for assets with secure cash fl ows increases. In contrast, properties with short to medium-term lease
expiries or current vacancies such as Mary Street in Brisbane, Tuggeranong Offi ce Park and Keltie Street in Canberra have
seen decreases in fair value. This is refl ective of the current soft economic conditions and a more diffi cult leasing market.
Change in valuations, net of property improvements, lease costs and incentives
Non-cash adjustments for straight-lining of rentals and lease amortisation
Acquisition transaction costs (properties acquired during the year)
Increase/(decrease) in fair value of investment properties
Cromwell
2014
$’000
40,240
5,986
–
46,226
2013
$’000
(32,830)
3,455
(26,372)
(55,747)
The increase in fair value of interest rate derivatives arose as a result of Cromwell’s policy to hedge a portion of future
interest expense. Cromwell has hedged future interest rates through contracts over 87% of its debt at 30 June 2014 to
minimise the risk of changes in interest rates in the future. These contracts expire between October 2014 and December
2017 and can be valued. Although the valuation process is relatively complex, the value is essentially determined by the
difference between the actual interest rates which have been agreed under the contracts and what the market forward
interest rates are at the date of the valuation until maturity of the hedge contract. The fi nancial result included an increase
in fair value of these interest rate derivatives (contracts) held by the Trust of $5,222,000 or 0.3 cents per stapled security.
Market rates, and hence valuations, change daily, but the value at the end of an interest rate contract will always be nil
and therefore the amounts recognised in profi t or loss are expected to reverse over time as the interest rate contracts
expire.
(b) Profi t from operations
Profi t from operations for the year was $146,721,000 (2013: $102,411,000).
Profi t from operations is considered by the Directors to refl ect the underlying earnings of Cromwell and the Trust. It
is a key metric taken into account in determining distributions for the Group and Trust, but is a measure which is not
calculated in accordance with International Financial Reporting Standards (“IFRS”) and has not been audited or reviewed
by Cromwell’s auditor.
24
C ROMW ELL 20 1 4 ANNUAL REPORT
In the current year the calculation of profi t from operations has been amended slightly to include the cost of securities
issued under the performance rights plan. The impact of this change has been to reduce profi t from operations in the
current year by $731,000. Except for this charge, profi t from operations has been calculated consistently since the stapling
of Cromwell in December 2006.
A reconciliation of profi t from operations of Cromwell, as assessed by the Directors, to the reported profi t for the year is as
follows:
Profi t from operations(1)
Reconciliation to profi t for the year
Gain/(loss) on sale of investment properties
Loss on sale of other assets
Merger transaction costs
Fair value net gains/(write-downs):
Investment properties
Interest rate derivatives
Investments at fair value through profi t or loss
Non-cash property investment income/(expense):
Straight-line lease income
Lease incentive amortisation
Lease cost amortisation
Other non-cash expenses:
Amortisation of fi nance costs
Employee options expense
Amortisation and depreciation
Relating to equity accounted investments(2)
Net tax losses incurred/(utilised)(3)
Net profi t for the year
Cromwell
2014
$’000
2013
$’000
146,721
102,411
3,152
(559)
–
46,226
5,222
85
5,648
(10,180)
(1,454)
132
(146)
(631)
(55,747)
7,326
47
6,071
(8,042)
(1,484)
(4,025)
(2,581)
–
(758)
(7,973)
366
(669)
(643)
481
(369)
182,471
46,156
(1) Segment profi t for 2013 (refer note 36) differs from the above calculation of profi t from operations by $669,000 which is the impact of
recording the cost of securities issued under employee securities plans as a segment expense. This change in calculation has been
adjusted for in the comparatives for the segment reporting.
(2) Comprises fair value adjustments included in share of profi t o f equity accounted entities.
(3) Comprises tax expense attributable to changes in deferred tax assets recognised as a result of carried forward tax losses.
The contribution to profi t from operation of each of the 4 segments of Cromwell was:
Property Investment
Property/ Internal Funds Management
External Funds Management
Property Development
Profi t from operations
2014
%
2014
$’000
94.5%
138,616
2.0%
3.7%
(0.2%)
2,839
5,491
(225)
146,721
2013
%
94.2%
3.0%
3.3%
(0.5%)
2013
$’000
96,510
3,086
3,330
(515)
102,411
Property Investment contributed $138,616,000 or 94.5% of profi t from operations for the year (2013: $96,510,000 or 94.2%).
(c) Earnings and Distributions per stapled security
Profi t per security (per statutory accounts)
Profi t from operations per security (see section 4(b))
Distributions per security
2014
Cents
10.60
8.52
7.63
2013
Cents
3.44
7.63
7.25
CROMWELL 2014 ANNUAL RE PORT
25
Profi t from operations on a per security basis is considered by the Directors to be the most important measure of
underlying fi nancial performance as it excludes certain volatile and non-cash items but includes the impact of changes in
the number of securities on issue.
Profi t from operations per security was 8.52 cents (2013: 7.63 cents). This represents an increase of approximately 11.7%
which is considered exceptional given the current market conditions.
Distributions paid for the year were 7.63 cents (2013: 7.25 cents), including a June 2014 quarter distribution of 1.9375
cents per stapled security paid on 14 August 2014. This represents a growth in distributions per security of 5.2% in 2014.
Growing distributions per security in a sustainable way remains a key priority in the future.
(d) Financial Position
Total assets ($’000)
Net assets ($’000)
Net tangible assets ($’000) (1)
Net debt ($’000) (2)
Gearing (%) (3)
Securities issued (’000)
NTA per security (1)
NTA per security (excluding interest rate swaps)
(1) Net assets less deferred tax asset and intangible assets.
(2) Borrowings less cash and cash equivalents and restricted cash.
(3) Net debt divided by total assets less cash and cash equivalents.
Cromwell
Trust
2014
2013
2014
2013
2,469,940
2,546,110
2,403,658
2,487,254
1,263,998
1,200,852
1,203,631
1,145,462
1,261,606
1,199,018
1,203,631
1,145,462
983,894
1,106,787
1,034,263
1,157,594
42%
46%
44%
48%
1,727,281
1,713,721
1,727,281
1,713,996
$0.73
$0.75
$0.70
$0.72
$0.70
$0.71
$0.67
$0.69
A total of 15 property assets were externally revalued at June 2014, representing approximately 49% of the property
portfolio by value. The balance of the portfolio is subject to internal valuations having regard to previous external
valuations and comparable sales evidence. The weighted average capitalisation rate (WACR) was 8.08% across the
portfolio, compared with 8.51% at June 2013.
Net debt has decreased by $122,893,000 due to the proceeds of the disposal of several buildings being used to repay
borrowings. Gearing also decreased from 46% to 42% during the year as a result of buildings acquired in the prior year
having a lower loan to value ratio than those disposed of during the current year.
During the year the majority of debt facilities were refi nanced and extended. This resulted in the weighted average debt
term increasing to 4.2 years at 30 June 2014.
An additional 13,559,000 stapled securities were issued during the year, at an average issue price of $0.88, comprising the
continuing operation of the distribution reinvestment plan which resulted in the issue of 11,188,000 securities during the
year, whilst a further 2,372,000 were issued due to the exercise of performance rights.
NTA per security has increased during the year from $0.70 to $0.73, primarily as a result of the increase in value of
investment properties. NTA per security excluding the value of interest rate contracts increased to $0.75 per security.
5. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Changes in the state of affairs of Cromwell during the fi nancial year are set out within the fi nancial report.
There were no signifi cant changes in the state of affairs of Cromwell during the fi nancial year other than as disclosed in
this report and the accompanying fi nancial report.
26
C ROMW ELL 20 1 4 ANNUAL REPORT
6. SUBSEQUENT EVENTS
Other than as set out in note 41, no matter or circumstance has arisen since 30 June 2014 that has signifi cantly affected
or may signifi cantly affect:
• Cromwell’s operations in future fi nancial years; or
• the results of those operations in future fi nancial years; or
• Cromwell’s state of affairs in future fi nancial years.
7. LIKELY DEVELOPMENTS
The outlook remains positive for Cromwell despite the continuing sluggish pace of economic growth in Australia.
The property portfolio was 98% leased at year-end, with a 6.1 year weighted average lease term. Importantly, tenant
quality is strong, with 45.8% of rental income at balance date underpinned by Government or Government owned/funded
entities and a further 37.1% by listed companies or their subsidiaries.
Cromwell’s property portfolio is expected to continue to deliver consistent operating earnings in coming years, although
this will to some degree be dependent upon the impact of future economic conditions on portfolio occupancy.
Cromwell will also continue to focus on increasing operating earnings from funds management activities over the medium
term.
Cromwell has reduced gearing over the past 2 years and expects to reduce gearing further over time.
Cromwell also aims to grow net tangible assets per security and to continue to outperform the S&P/ASX 300 A-REIT
accumulation index over rolling 3 and 5 year periods.
8. ENVIRONMENTAL REGULATION
The Directors are not aware of any particular and signifi cant environmental regulation under a law of the Commonwealth,
State or Territory relevant to Cromwell.
9. DIRECTORS’ INTERESTS
The interests of current Directors in stapled securities of Cromwell at the date of this report are as follows:
Geoffrey Levy
Robert Pullar
Michelle McKellar
David Usasz
Richard Foster
Marc Wainer
Michael J Watters
Geoffrey Cannings
Paul L Weightman
Daryl J Wilson
Stapled
Securities
Performance
Rights
Options over
Securities
2,777,630
6,500,000
792,211
2,405,000
3,311,765
–
–
80,000
–
–
–
–
–
–
–
–
16,921,500
4,198,321
1,350,775
1,670,551
33,884,916
5,868,872
–
–
–
–
–
–
–
–
–
–
–
CROMWELL 2014 ANNUAL RE PORT
27
10. OPTIONS AND PERFORMANCE RIGHTS
(a) Securities under option through the Performance Rights Plan
Cromwell issues options over stapled securities through the issue of performance rights under the Performance Rights
Plan (“PRP”). At the date of this report, performance rights on issue are as follows:
Date granted
Exercise date
Exercise price
Expiry date
26/05/11
26/05/11
05/09/11
05/09/11
05/09/11
24/08/12
24/08/12
12/10/12
12/10/12
19/10/12
19/10/12
19/10/12
19/10/12
18/12/13
18/12/13
18/12/13
18/12/13
01/07/14 – 01/10/14
01/07/15 – 01/10/15
06/09/14 – 05/10/14
06/09/14 – 05/10/14
06/09/14 – 05/10/14
24/08/15 – 24/09/15
24/08/15 – 24/09/15
12/10/15 – 12/11/15
12/10/15 – 12/11/15
01/07/14 – 01/08/14
01/07/15 – 01/08/15
01/07/14 – 01/08/14
01/07/15 – 01/08/15
01/09/16 – 01/10/16
01/09/16 – 01/10/16
01/09/16 – 01/10/16
01/12/16 – 01/01/17
Performance rights on issue
$0.50
$0.50
$0.20
$0.00
$0.10
$0.00
$0.20
$0.00
$0.20
$0.00
$0.00
$0.20
$0.20
$0.00
$0.10
$0.50
$0.50
01/10/14
01/10/15
05/10/14
05/10/14
05/10/14
24/09/15
24/09/15
12/11/15
12/11/15
01/08/14
01/08/15
01/08/14
01/08/15
01/10/16
01/10/16
01/10/16
01/01/17
Number
1,913,333
1,913,334
393,679
590,622
52,851
81,581
82,142
150,018
229,110
55,563
55,563
60,292
60,292
789,955
46,303
893,465
2,042,205
9,410,308
Performance rights on issue at 30 June 2014 represent 0.54% of total issued securities. No holder has any right under
the performance rights to participate in any other security or interest of the Company or any other entity, except that
performance rights holders effectively have a matching in-substance option for units in Cromwell Diversifi ed Property
Trust as a result of Cromwell’s stapling arrangement.
No other form of option is on issue at the date of this report.
Securities issued on the exercise of performance rights through the Performance Rights Plan
(b)
The following stapled securities were issued during the year ended 30 June 2014 on the exercise of performance rights
granted under the PRP. No further securities have been issued as a result of the exercise of performance rights since that
date. No amounts are unpaid on any of the securities.
Date performance rights granted
Issue Price of Securities
No. of Securities Issued
23 August 2010
23 August 2010
23 August 2010
7 March 2011
26 May 2011
19 October 2012
19 October 2012
$0.00
$0.10
$0.20
$0.00
$0.50
$0.00
$0.20
101,378
47,433
95,894
97,633
1,913,333
55,561
60,292
2,371,524
11. REMUNERATION REPORT
The remuneration report is presented for the fi nancial year ending 30 June 2014. The report forms part of the Directors
Report and has been prepared and audited in accordance with the requirements of the Corporations Act 2001.
This report outlines the remuneration for Non-Executive Directors, Executive Directors and other Key Management
Personnel. The report is set out under the following headings:
(a) Remuneration principles
(b) Performance assessment
28
C ROMW ELL 20 1 4 ANNUAL REPORT
(c) Details of remuneration
(d) Equity based compensation
(e) Employment contracts and termination provisions
(f) Details of equity instrument holdings, loans, etc.
(a) Remuneration principles
(i) Governance
Cromwell has appointed a nomination and remuneration committee (“Committee”). The Committee has overall
responsibility for the remuneration strategy of the Group. The Committee also advises the Board on remuneration policy
and practices. The Committee is chaired by Mr RJ Pullar, a Non-Executive Director. External consultants are appointed to
advise the Committee as required.
(ii) Remuneration policy
Cromwell Property Group is committed to setting and achieving objectives that best serve the interests of Cromwell’s
securityholders. Cromwell’s remuneration strategy is designed to align behaviours with the Group’s objectives.
Board sets Strategic
Objectives for Cromwell
>
Objectives
Consistent returns that exceed benchmarks through each market cycle
Portfolio that balances defensive assets with “value add” assets
Active asset management
Prudent risk management and mitigation
Good capital management
• Accretive capital raisings
• WADE profi le appropriate to market conditions
• Gearing – 35% at market peak to 55% at market trough
• Hedging profi le assists in ensuring consistent income
Maintain articulated investment allocation policy for Group portfolio, unlisted
funds & co-investments
Grow earnings from opportunistic / value add activities and expansion of funds
management platform
Corporate values are known and lived by all staff
>
KMP’s role, qualifi cations
and experience
Develop specifi c KMP Key Performance Indicators
>
• Financial
• Customer focussed
• Business Processes
• Learning & Growing
Balanced scorecard assessment
Market Competitive
Remuneration
>
KMP Remuneration Packages
• Fixed Pay
• Short term incentives (“STI”)–
• Long term incentives (“LTI”)
Specifi c to each KMP
Merit Based Remuneration
Attract, retain and motivate
>
>
>
>
>
Alignment between Objectives and KMP Behaviours
CROMWELL 2014 ANNUAL RE PORT
29
Objectives
Fundamentally, the Cromwell Property Group aims to support or enhance its operating earnings per security in any given
fi nancial year in a way that does not unduly increase the risk profi le of Cromwell. Cromwell also seeks to operate within a
framework that facilitates both sustainable growth and Cromwell outperforming its peers in the medium - long term.
Cromwell believes its past performance supports its view that the best way to achieve its objectives, and thus serve
the interests of securityholders, is to provide a remuneration package to its employees, and particularly KMPs, that
is designed to incentivise them to outperform by specifi cally linking their remuneration to their particular role and
responsibilities.
Cromwell’s key fi nancial measures for the last fi ve years are set out below:
Operating earnings per security (as assessed by the Directors)
8.5 cents
7.6 cents
7.5 cents
7.1 cents
8.5 cents
2014
2013
2012
2011
2010
Change over previous year
Distributions per security
Change over previous year
NTA per security (excl. interest rate swaps)
Change over previous year
Gearing
Change over previous year
12%
1%
6%
(16%)
(12%)
7.6 cents
7.3 cents
7.0 cents
7.0 cents
8.0 cents
4%
4%
0%
$0.75
$0.72
$0.71
4%
42%
(4%)
1%
46%
(5%)
(3%)
51%
2%
(13%)
$0.73
3%
49%
1%
(11%)
$0.71
(8%)
48%
(5%)
Cromwell’s Total Securityholder Return (“TSR”) over the last 1, 3 and 5 years relative to benchmark indices is shown
below. Given Cromwell’s focus on medium – longer term returns relative to its peers, emphasis is given to performance
over 3 and 5 year periods against the S&P/ASX 300 A-REIT Accumulation Index:
Total Securityholder Returns (annualised)
TSR – Cromwell
TSR - S&P/ASX 300 A-REIT accumulation index
Group performance against S&P/ASX 300 A-REIT accumulation index
TSR – All Ord’s accumulation index
Group performance against All Ord’s accumulation index
1 Year
3 Year
5 Year
7.9%
11.1%
(3.2%)
17.6%
(9.7%)
22.4%
15.2%
7.2%
9.7%
12.7%
24.5%
14.3%
10.2%
11.0%
13.5%
Performance Assessment
The key performance indicators (KPIs) for each KMP take into account their role within Cromwell generally as well as their
expected contribution to the achievement of Cromwell’s objectives. The KPIs are designed to best incentivise each KMP to
meet Cromwell’s objectives and therefore best serve the interests of securityholders.
Although the specifi c KPIs are different for each of the KMP, the overriding principles in accordance with which they are
determined are the same. The principles involve the assessment of each KMP’s performance according to a traditional
balanced scorecard methodology. The balanced scorecard methodology assigns performance and responsibility criteria
across four broad categories. These categories are:
Financial Measures: Includes both the performance of Cromwell and the employees’ business unit. Cromwell focuses on
maintaining individual securityholder alignment by using operating earnings per security as the major short term fi nancial
metric. Other short term fi nancial metrics include distributions per security, changes in NTA per security (excluding
interest rate swaps) and gearing. The key long term fi nancial metric is TSR over rolling 3 and 5 year periods relative to the
S&P/ASX 300-A-REIT Accumulation Index.
Internal Business Measures: Concentrate on improvement of people, systems and processes to create effi ciency and
accuracy to support long term business growth. The processes emphasise adherence to governance requirements.
Customer Focussed Measures: Cromwell surveys securityholders, tenants, fund investors and other stakeholders to
ascertain customer relationship trends and set KPIs for employees to meet the needs identifi ed by those trends, and to
coincide with longer term corporate objectives.
Innovation & Learning Measures: Focuses on the growth of individuals, departments and corporate culture to innovate and
extend current capabilities throughout Cromwell.
30
C ROMW ELL 20 1 4 ANNUAL REPORT
The weightings of these categories for any individual are set and assessed in consideration of their role, qualifi cations and
experience. However, generally the weightings will be within the bands set out below:
Financial Measures:
40 – 70%
Customer Measures:
10 – 30%
Internal Business Measures:
10 – 30%
Innovation & Learning Measures:
10 – 30%
For all KMP except the Chief Executive Offi cer and Non-Executive Directors, the Chief Executive Offi cer is responsible for
setting KPI targets and assessing annually whether those targets have been met. The KPI targets for the Chief Executive
Offi cer are set, revised and reviewed annually by the Committee or the Board.
Remuneration Packages
Fixed Pay
All employees, including all KMP (other than Non-Executive Directors) receive a remuneration package that includes a
fi xed pay component.
KMP are remunerated at the market median level of their fi xed pay, adjusted for factors such as the external market
environment and the employee’s position, qualifi cations, period of service and responsibility within Cromwell. In assessing
the level of fi xed pay relative to the market, weighting is given to the employee’s period of service and their performance
over the total employment period.
Short term incentives
Short term incentives are generally included as part of the remuneration package for those employees that can have a
material impact on the key marginal drivers of operating earnings in any given fi nancial year. These include such factors
as leasing outcomes and changes in property earnings, interest expense, funds management earnings and changes in the
investment property portfolio. In the 2014 fi nancial year, 21 employees received short term incentives (2013: 21), 5 of whom
were KMP (including the Chief Executive Offi cer and Finance Director).
Cromwell does not generally take into account non-fi nancial performance indicators in assessing whether or not relevant
employees are entitled to short term incentives. In the 2014 fi nancial year no non-fi nancial performance indicators were
used when assessing whether short term incentives were payable. All short term incentive payments related to fi nancial
performance indicators occurring within the fi nancial year. Short term incentives are generally paid as cash bonuses.
Long term incentives
The granting of long term incentives is considered to be both a retention tool for employees who are considered key to the
longer term success of Cromwell and a reward for achieving performance targets in a fi nancial year. No employee has an
automatic entitlement to a particular percentage or value of long term incentives in any year.
The executive directors and all employees are eligible to participate in Cromwell’s long term incentive arrangements.
Participating employees are offered a choice of long term incentives in the form of either performance rights, issued under
Cromwell’s performance rights plan (PRP), or access to a limited recourse interest free loan facility, under Cromwell’s
security loan plan (SLP), to fund the acquisition of stapled securities in Cromwell.
If performance rights issued under the PRP vest, employees will be issued one stapled security per performance right
exercised. Performance rights do not give a participating employee the right to vote at securityholder meetings nor the
right to receive a distribution from Cromwell. Any stapled securities acquired by virtue of a loan under the SLP will give the
participating employee the right to vote at security holder meetings, and the right to receive distributions from Cromwell,
on the same terms as other stapled securities on issue. However, the relevant stapled securities will be security for the
participating employee’s obligations under the SLP and any distributions received must be used to repay or reduce the
loan amount.
Every three years, the maximum value of the executive directors’ participation in Cromwell’s long term incentive
arrangements is discussed and agreed by the Board (using the allocation method discussed below) and put to
securityholders for approval. At the 2013 AGM securityholders approved a maximum value of $450,000 per annum for the
Chief Executive Offi cer, and $150,000 per annum for the Finance Director.
Each year the Board (on recommendation from the Committee) considers whether to grant long term incentives to
the executive directors and, if so, to what value. In December 2013, 2,042,205 performance rights were granted to the
executive directors, vesting in December 2016.
CROMWELL 2014 ANNUAL RE PORT
31
Each year the Committee delegates authority to the Chief Executive Offi cer to determine which employees other than
executive directors will receive long term incentives and, if so, to what value. The Committee considers and, if appropriate,
ratifi es the Chief Executive Offi cer’s determination.
Allocations for participating employees, other than the executive directors, are determined annually after the end of each
fi nancial year.
In determining the total value of long term incentives to be granted in any one year the performance of Cromwell as
a whole is considered. This involves an assessment of whether Cromwell has met its objectives, including a review of
Cromwell’s key fi nancial measures. For more information see section (a)(ii) above.
The actual value awarded to a participating employee is determined by taking into account the following:
• the employee’s performance during the previous fi nancial year as assessed against their KPI’s. An employee must
have achieved at least 70% of their KPIs in the previous fi nancial year; and
• the employee’s level of fi xed pay. The maximum value of performance rights to be allocated to any employee other
than an executive director is generally limited to 25% of their fi xed pay.
The Board takes the same factors into account when determining the value of long term incentives that may be granted to
the executive directors each year. By determining allocations in this way, Cromwell seeks to ensure that the performance
of both the employee and Cromwell is taken into account before long term incentives are issued.
Aggregate, and employee, allocation limits are also in place to ensure a balance between the cost of long term incentives
and the benefi t of retaining valuable employees. The employee limits also serve to mitigate the risk to Cromwell of non-
payment by an employee under the SLP.
Once a value has been allocated, the participating employee is given the option of participation in either the PRP, the
SLP or a combination of the two. If participation in the PRP is selected, the actual number of performance rights that are
then granted to the participating employee is determined by dividing the total value awarded to that employee by the fair
value of each performance right at grant date. The fair value at grant date for performance rights is determined using a
Black-Scholes option pricing model that takes into account the exercise price (including the discount to market value at
grant date), the term of the performance right, the security price at grant date, expected price volatility of the underlying
securities, the expected dividend/distribution yield and the risk free interest rate for the term of the performance right.
The valuation of performance rights is discussed in more detail in section (d) below.
Under the PRP, if performance rights vest they allow eligible employees to obtain stapled securities at a discount to
market value. The use of the discount is intended to reduce or avoid the need for employees to obtain signifi cant funding
or to sell a substantial number of securities to fund the exercise of performance rights on vesting. The discount is taken
into account when determining the value to be issued to a participating employee. Since grants under the PRP are made
in value terms, the lower the exercise price the lower the number of performance rights granted and, therefore, the lower
the number of securities that may be issued.
Once performance rights are granted, the participating employees will need to meet performance hurdles before they vest.
Although the Committee (or the Chief Executive Offi cer under delegated authority) may impose other conditions, generally
performance rights will vest if an employee achieves 70% or greater of their KPIs in two out of the three years comprising
the vesting period and are still employed by Cromwell at the end of that three year vesting period. Performance hurdles
are assessed at the end of the vesting period. If the performance hurdles are not met, the performance rights will be
forfeited. Forfeited performance rights are not re-tested. Performance rights will also lapse if not exercised within the
exercise period.
To determine the maximum loan amount, where participation in the SLP is selected, the value of the long term incentive
is treated as an interest rate reduction benefi t during the loan period (usually expected to be three years). The loan is then
used to acquire stapled securities at their “current market value”, being the average of the daily volume weighted average
price for all sales of CMW stapled securities on ASX, including special crossings, during the previous 10 trading days.
During the loan period the participating employee cannot deal with the stapled securities acquired under the SLP. At the
end of the loan period, provided performance hurdles are met and the outstanding loan balance is less than the market
value of stapled securities, the loan balance is immediately repayable. Upon repayment the participating employee will be
able to deal with the stapled securities. If the participating employee does not repay the outstanding loan balance, or if the
outstanding loan balance is greater than the market value of the stapled securities, the stapled securities will be forfeited.
32
C ROMW ELL 20 1 4 ANNUAL REPORT
The performance hurdles under the PRP and the SLP are the same, being, generally, that the participating employee
achieved 70% or greater of their KPI’s in two out of the three years comprising the vesting/loan period and remained
employed by Cromwell. Performance hurdles are assessed at the end of the vesting/loan period.
In addition to the above, performance rights and stapled securities issued under the SLP will also be forfeited if an
employee resigns, has their employment terminated or commits an act which brings Cromwell into disrepute.
Cromwell believes its approach allows employees to align themselves with securityholders by having a fi nancial interest in
the long term value of Cromwell’s security price, which acts to maximise TSR.
Below is a table showing the extent to which performance rights have been issued to KMPs (including the executive
directors) and to participating employees (including KMPs) over the last three years. To date, no employee has participated
in the SLP, which was introduced in 2013.
Total Cromwell employees eligible to participate
Participating employees
Participating employees (by number & by percentage of total employees)
Participating KMPs by number
Participating KMPs as percentage of total employees
Total employment expenses ($‘000)
Value of performance rights granted ($‘000)
Value of performance rights granted as a percentage of total employment costs
Value of performance rights granted to KMPs ($‘000)
Value of performance rights granted to KMPs as a percentage of total employment costs
Total stapled securities on issue (‘000)
Performance rights on issue (‘000)
Performance rights on issue as a percentage of issued securities
Performance rights on issue to KMPs (‘000)
Performance rights on issue to KMPs as a percentage of issued securities
FY14
FY13
77
22
29%
8
10%
17,569
1,494
9%
939
5%
70
18
25%
7
10%
14,859
473
3%
293
2%
1,727,281
1,713,721
9,410
0.5%
7,668
0.4%
8,009
0.5%
7,058
0.4%
Remuneration package – CEO & Finance Director
The remuneration packages of the Chief Executive Offi cer and the Finance Director for the last three years comprised the
following components:
Paul Weightman
Daryl Wilson
Financial
Year
Fixed Pay
$
Short term
incentives
paid
$
Long Term
Incentives
$
2014
1,050,000
250,000
(71%)
(17%)
2013
950,000
250,000
2012
2014
2013
2012
(69%)
950,000
(71.5%)
500,000
(70%)
450,000
(66%)
450,000
(69.5%)
(18%)
200,000
(15%)
150,000
(21%)
150,000
(22%)
120,000
(18.5%)
171,953
(12%)
179,699
(13%)
180,210
(13.5%)
66,604
(9%)
78,169
(12%)
78,391
(12%)
CROMWELL 2014 ANNUAL RE PORT
33
(iii) External environment
The unemployment rate during the year remained low by historical standards, but has been steadily increasing, in line
with the softer economy generally. Whilst this has resulted in an easing labour market, demand for quality employees,
particularly in the property and fi nancial services sectors, remains high.
(iv) Non-executive directors remuneration
Fees and payments to Non-Executive Directors refl ect the demands which are made on, and the responsibilities of, the
Directors. The Board determines remuneration of Non-Executive Directors within the maximum amount approved by
security holders from time to time. This maximum currently stands at $1,000,000 per annum in total for fees to be divided
among the Non-Executive Directors in such a proportion and manner as they agree.
Non-Executive Directors are paid a fi xed remuneration, comprising base fees or salary and superannuation (if applicable).
Non-Executive Directors do not receive bonus payments or participate in security-based compensation plans, and are not
provided with retirement benefi ts other than statutory superannuation.
Chairman
Non-Executive Director
Audit & Risk Committee – Chairman
Audit & Risk Committee – Member
Nomination & Remuneration Committee – Chairman
Nomination & Remuneration Committee – Member
Investment Committee
2014
$
2013
$
185,000
185,000
85,000
18,000
12,000
7,500
5,000
–
85,000
18,000
12,000
7,500
5,000
–
The Non-Executive Directors’ fees were unchanged in the 2014 fi nancial year and were last increased in November 2011.
The current and previous year rates are shown above.
Voting and comments made at the company’s 2013 Annual General Meeting
(v)
The Group and Trust’s remuneration report for the 2013 fi nancial year was passed on a ‘show of hands’. Proxies received
before the meeting were approximately 95% in favour of the remuneration report.
(b) Details of remuneration
Remuneration paid, payable, or otherwise made available, directly or indirectly, to key management personnel is set out
below.
Key Management Personnel during the year were:
Non-Executive Directors:
Mr GH Levy (AO)
Mr RJ Pullar
Ms MA McKellar
Mr DE Usasz
Mr WR Foster
Mr M Wainer
Mr MJ Watters
Mr G Cannings
Executive Directors:
Mr PL Weightman
Mr DJ Wilson
Other Senior Executives:
Mr B Binning
Mr MJ Blake
Ms JA Clark
Mr PJ Cowling
Mr DA Gippel
Chairman
Director
Director
Director
Director
Director
Director
Director (Alternate to Mr Watters; Alternate to Mr Wainer)
Managing Director/Chief Executive Offi cer
Director – Finance & Funds Management
National Leasing Manager
National Head of Sales, Director of controlled entity
Chief Operations Offi cer, Property Licensee, Director of controlled entity
Associate Director Transactions, Director of controlled entity
Group Treasurer, Director of controlled entity
Ms NE Riethmuller
General Counsel/Company Secretary
34
C ROMW ELL 20 1 4 ANNUAL REPORT
Short-term
benefi ts
Short-term
benefi ts
Short-term
benefi ts
Short-term
benefi ts
Post-
employment
Long-term
benefi ts
Cash salary
and fees
$
Accrued
leave (1)
$
Cash
bonus
$
Non-cash
benefi ts
$
Super-
annuation
$
Long
service
leave (1)
$
Share-
based
payments
Total
Remunera-
tion
% of
Remun.
that is
performance
based
Options
$
$
2014
Non-Executive
Directors
GH Levy
RJ Pullar
169,336
95,652
MA McKellar
102,000
DE Usasz
WR Foster
M Wainer
MJ Watters
G Cannings
Executive
Directors
98,856
82,380
85,000
65,000
18,307
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,664
8,848
–
9,144
7,620
–
–
1,693
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
185,000
104,500
102,000
108,000
90,000
85,000
65,000
20,000
–
–
–
–
–
–
–
–
PL Weightman
874,326
(81,118)
250,000
157,900
DJ Wilson
482,224
34,269
150,000
Other key
management
personnel
B Binning
M Blake
JA Clark
P Cowling
D Gippel
312,000
281,726
238,364
320,648
294,580
3,309
80,000
(5,529)
129,613
1,872
(9,769)
–
–
830
200,000
N Riethmuller
297,440
(10,628)
–
–
–
–
–
–
26,669
11,234
17,775
17,775
37,999
17,618
171,953
1,428,835
66,604
768,490
30%
28%
17,775
17,775
17,775
17,775
17,775
17,775
10,945
8,152
26,603
14,044
8,308
6,971
61,788
46,705
9,868
60,894
48,475
31,555
485,817
478,442
294,482
403,592
596,637
354,347
29%
37%
3%
15%
42%
9%
3,817,839
(66,764)
809,613
195,803
185,169
130,640
497,842
5,570,142
(1) Annual and long service leave are accounted for on an accruals basis. The amounts represent the change in accrued leave during the year.
CROMWELL 2014 ANNUAL RE PORT
35
Short-term
benefi ts
Short-term
benefi ts
Short-term
benefi ts
Short-term
benefi ts
Post-
employment
Long-term
benefi ts
Cash salary
and fees
$
Accrued
leave (1)
$
Cash
bonus
$
Non-cash
benefi ts
$
Super-
annuation
$
Long
service
leave (1)
$
Share-
based
payments
Total
Remunera-
tion
% of
Remun.
that is
performance
based
Options
$
$
2013
Non-
Executive
Directors
GH Levy
RJ Pullar
MA McKellar
DE Usasz
WR Foster
MJ Wainer
M Watters
G Cannings
Executive
Directors
169,725
95,872
102,000
99,083
82,569
85,000
65,000
18,349
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
PL Weightman
775,630
10,456
DJ Wilson
433,530
(17,779)
250,000
150,000
Other key
management
personnel
B Binning
MJ Blake
JA Clark
P Cowling
DA Gippel
300,000
270,890
192,324
308,700
283,250
N Riethmuller
283,250
1,893
1,935
892
4,052
(4,108)
(9,066)
100,000
166,546
25,500
50,000
100,000
50,000
–
–
–
–
–
–
–
–
157,900
-
–
–
6,665
–
25,551
8,232
15,275
8,628
-
8,917
7,431
-
-
1,789
16,470
16,470
16,470
16,470
16,470
16,470
16,470
16,470
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
185,000
104,500
102,000
108,000
90,000
85,000
65,000
20,138
23,511
179,699
1,413,666
8,264
78,169
668,654
8,154
9,823
5,461
9,483
4,809
4,386
72,742
38,473
–
69,761
56,411
18,849
499,259
504,137
247,312
458,466
482,383
372,121
–
–
–
–
–
–
–
–
30%
34%
35%
41%
10%
26%
32%
19%
3,565,172
(11,725)
892,046
198,348
173,800
73,891
514,104
5,405,636
(1) Annual and long service leave are accounted for on an accruals basis. The amounts represent the change in accrued leave during the year.
Details of remuneration: cash bonuses and performance rights
(c)
For each cash bonus and grant of performance rights included in the tables in section (b) above, the percentage of the
available bonus or grant that was paid, or that vested, in the year, and the percentage that was forfeited because the
person did not meet the service and performance criteria is set out below.
No part of the bonus is payable in future years. In addition to existing short-term incentive arrangements, a discretionary
bonus of $100,000 in total was also paid to a KMP for the successful refi nancing of 92% of Cromwell’s borrowings out to
May 2018 and May 2019.
The performance rights are subject to vesting conditions as outlined above. No performance rights will vest if the
conditions are not satisfi ed, hence the minimum value of performance rights yet to vest is $nil. The maximum value of the
performance rights yet to vest has been determined as the amount of the grant date fair value of the performance rights
that is yet to be expensed at balance date. References to options in the table below relate to performance rights.
36
C ROMW ELL 20 1 4 ANNUAL REPORT
Cash Bonus
Paid
%
Cash Bonus
Forfeited
%
Financial
Year Options
Granted
Options
Vested
in 2014
%
Options
Forfeited in
2014
%
100%
100%
80%
100%
–
–
200%
–
–
–
2011/14
2011/14
20%
2012/13/14
–
–
–
–
–
2011/12/13/14
2014
2012/13/14
2012/13
2012/13/14
100%(1)
100%(1)
100%(2)
100%(1)
–
100%(2)
100%(2)
–
–
–
–
–
–
–
–
–
Financial
Years
Options may
vest
Maximum
value of
grant to vest
$
2015/16/17
2015/16/17
2015/16/17
2015/16/17
2017
2015/16/17
2015/16
2015/16/17
403,435
138,299
74,958
79,733
40,182
74,324
10,583
72,549
Name
PL Weightman
DJ Wilson
B Binning
MJ Blake
JA Clark
P Cowling
DA Gippel
NE Riethmuller
(1) Relates to performance rights issued in 2011.
(2) Relates to performance rights issued in 2013.
(d) Equity based compensation
Details of the PRP are set out in part (a)(ii) of the remuneration report.
All Executive Directors and employees of Cromwell are considered for participation in the PRP subject to a minimum
period of service and level of remuneration, which may be waived by the Committee. Grants to Executive Directors are
subject to securityholder approval.
Consideration for granting performance rights, grant periods, vesting and exercise dates, exercise periods and exercise
prices are determined by the Board or Committee in each case. Performance rights carry no voting rights. When
exercised, each performance right is convertible into one stapled security.
The terms and conditions of each grant of performance rights under the PRP affecting remuneration for Key Management
Personnel in the current or future reporting periods are included in the table below:
Grant Date
Expiry Date
Exercise Price
No of Performance
Rights Granted
Assessed Value
per Right at Grant
Date
23/08/2010
26/05/2011
26/05/2011
26/05/2011
05/09/2011
05/09/2011
05/09/2011
12/10/2012
12/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
18/12/2013
18/12/2013
18/12/2013
21/09/2013
01/10/2013
01/10/2014
01/10/2015
05/10/2014
05/10/2014
05/10/2014
12/11/2015
12/11/2015
01/08/2013
01/08/2014
01/08/2015
01/08/2013
01/08/2014
01/08/2015
01/10/2016
01/10/2016
01/01/2017
$0.20
$0.50
$0.50
$0.50
$0.20
$0.10
–
–
$0.20
–
–
–
$0.20
$0.20
$0.20
–
$0.50
$0.50
95,894
1,913,333
1,913,333
1,913,334
308,097
52,851
343,634
50,006
120,584
55,561
55,563
55,563
60,292
60,292
60,292
296,804
395,677
2,042,205
37.0¢
13.9¢
12.6¢
11.5¢
32.3¢
41.1¢
50.0¢
60.0¢
41.5¢
77.6¢
71.1¢
65.1¢
57.9¢
51.9¢
46.4¢
75.7¢
30.2¢
29.1¢
CROMWELL 2014 ANNUAL RE PORT
37
Details of changes during the 2014 year in performance rights on issue to Key Management Personnel under the PRP are
set out below.
Name
2014
PL Weightman
DJ Wilson
DA Gippel
B Binning
MJ Blake
JA Clark
P Cowling
N Reithmuller
Opening
balance
Granted
during year
Exercised
during the year
Forfeited
during the year
Lapsed
during year
Closing
balance
4,000,000
1,740,000
1,531,654
510,551
(1,333,333)
(580,000)
277,920
288,262
353,410
–
296,180
102,857
–
100,725
229,748
165,929
100,054
96,025
(13,890)
(60,292)
(95,894)
–
(41,671)
–
7,058,629
2,734,686
(2,125,080)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,198,321
1,670,551
264,030
328,695
487,264
165,929
354,563
198,882
7,668,235
The assessed fair value at grant date of performance rights granted is allocated equally over the period from grant date
to vesting date, and the amount is included in the remuneration tables in part (b) of the remuneration report. Fair value
at grant date for performance rights with no market based vesting conditions are determined using a Black-Scholes
option pricing model that takes into account the exercise price, the term of the performance right, the security price at
grant date, expected price volatility of the underlying securities, the expected dividend/distribution yield and the risk-free
interest rate for the term of the performance right.
A total of 3,771,928 performance rights were granted during 2014 (2013: 890,414) of which 2,734,686 (2013: 518,153)
were issued to Key Management Personnel. The model inputs for performance rights granted during the 2014 year are
disclosed in note 32.
Plan rules contain a restriction on removing the “at risk” aspect of the instruments granted to executives. Plan
participants may not enter into any transaction designed to remove the “at risk” aspect of an instrument before it vests
without explicit approval from the Board.
At 30 June 2014 no performance rights on issue had vested.
Further details relating to performance rights are set out below.
Name
PL Weightman
DJ Wilson
B Binning
MJ Blake
JA Clark
P Cowling
DA Gippel
NE Riethmuller
Remuneration
consisting of
performance
rights (1)
Value
at grant date (2)
$
Value
at exercise date (3)
$
Value
at forfeit date (4)
$
12%
7%
13%
10%
3%
15%
8%
9%
446,468
148,823
76,284
69,301
50,051
75,776
–
72,724
185,200
80,562
34,933
35,442
–
32,331
10,777
–
–
–
–
–
–
–
–
–
(1) The percentage of total remuneration consisting of performance rights, based on the value of performance rights expensed during the year.
(2) The value of performance rights granted during the year as part of remuneration calculated at grant date in accordance with AASB 2
Share-based Payment.
(3) The value at exercise date of performance rights that were granted as part of remuneration and were exercised during the year, being the
intrinsic value of the performance rights at that date.
(4) The value at lapse date of performance rights that were granted as part of remuneration and were forfeited during the year because a
vesting condition was not satisfi ed.
38
C ROMW ELL 20 1 4 ANNUAL REPORT
(e) Employment contracts and termination provisions
(i)
Employment contracts
PL Weightman
Remuneration and other terms of employment for the Chief Executive Offi cer are formalised in an employment
agreement. The Company may terminate the agreement without notice for gross misconduct; otherwise, the Company
may terminate the agreement on six months notice, or payment of entitlements for this period in lieu of notice. Mr
Weightman may terminate the agreement at any time with six months notice. Other major provisions of the agreement are
as follows:
• Term of agreement – Commencing 1 July 2006, no fi xed termination date.
• Base salary, inclusive of superannuation, for the 2014 year of $1,050,000, to be reviewed annually by the remuneration
committee.
• Performance cash bonus of up to $250,000 with targets to be reviewed annually by the remuneration committee.
The performance bonus payable to Mr Weightman for the 2014 year depended on performance criteria being met. The
criteria were assessed as being met in full during the fi nancial year, with 100% of the performance bonus amount being paid.
DJ Wilson
Remuneration and other terms of employment for the Director – Finance & Funds Management are formalised in an
employment agreement. The Company may terminate the agreement without notice for gross misconduct; otherwise, the
Company may terminate the agreement on six months notice, or payment of entitlements for this period in lieu of notice.
Mr Wilson may terminate the agreement at any time with six months notice. Other major provisions of the agreement are
as follows:
• Term of agreement – commencing 1 July 2006, no fi xed termination date.
• Base salary, inclusive of superannuation, for the 2014 year of $500,000, to be reviewed annually by the remuneration
committee.
• Performance cash bonus of up to $150,000 with targets to be reviewed annually by the remuneration committee.
The performance bonus payable to Mr Wilson for the 2014 year depended on certain criteria being met. The criteria were
assessed as being met in full during the fi nancial year, with 100% of the performance bonus amount being paid.
All other executives
Remuneration and other terms of employment for other executives are contained under standard employment contracts.
There are no termination payments due under the contracts other than statutory entitlements for accrued leave.
Remuneration is reviewed annually.
Termination provisions
(ii)
There are no fi xed term conditions in executive employment contracts. Minimum termination periods for executives are
outlined below and adhered to in all cases except in the case of serious breaches of the employment contract.
Managing Director/CEO, Director – Finance & Funds Management
Group Treasurer
All other key management personnel
Notice Period
Employee
Notice Period
Group
6 months
3 months
6 months
6 months
1-2 months
1-2 months
On termination, a portion of short term incentives may also be paid at the discretion of the CEO, or the Board in the case of
termination of the CEO. In addition, other statutory entitlements such as accrued leave may be taken as termination benefi ts.
CROMWELL 2014 ANNUAL RE PORT
39
Share holdings/unit holdings
(f) Details of equity instrument holdings, loans, etc
(i)
The numbers of shares in the Company and units in the CDPT held during the fi nancial year by Key Management
Personnel of Cromwell Corporation Limited, including their personally related parties, are set out below.
Name
Non-Executive Directors:
GH Levy
RJ Pullar
MA McKellar
DE Usasz
WR Foster
M Wainer(1)
MJ Watters(2)
G Cannings
Executive Directors:
PL Weightman
DJ Wilson
Other key management personnel of Cromwell:
B Binning
MJ Blake
JA Clark
PJ Cowling
DA Gippel
NE Riethmuller
Balance
at 1 July
On exercise
of options
Net purchases
(sales)
Balance
at 30 June
2,777,630
6,500,000
768,611
2,405,000
3,811,765
–
–
80,000
–
–
–
–
–
–
–
–
–
–
23,600
–
(500,000)
–
–
–
2,777,630
6,500,000
792,211
2,405,000
3,311,765
–
–
80,000
15,921,167
1,622,200
1,333,333
580,000
(333,000)
(851,425)
16,921,500
1,350,775
154,672
1,704,098
71,032
1,675,801
1,206,864
123,459
60,292
95,894
–
41,671
13,890
–
2,664
(100,000)
–
–
(573,490)
554
217,628
1,699,992
71,032
1,717,472
647,264
124,013
38,568,334
2,125,080
(2,331,097)
38,616,282
(1) M Wainer is a director of Redefi ne International P.L.C. which indirectly owns Redefi ne Australia Investments Limited, which at
30 June 2014 owned 227,076,125 (2013: 235,536,192) stapled securities in Cromwell. M Wainer is also CEO and a director of Redefi ne
Properties Limited which at 30 June 2014 owned 218,547,808 (2013: 212,336,234) stapled securities in Cromwell.
(2) M Watters is a director of Redefi ne International P.L.C. which indirectly owns Redefi ne Australia Investments Limited, which owns
227,076,125 (2013: 235,535,192) stapled securities in Cromwell.
No shares or units were received by the above persons as compensation during the 2014 year.
Loans to key management personnel
(ii)
No loans were made during the 2014 or 2013 years to key management personnel and no loans were outstanding at the
reporting date.
(iii) Other transactions with key management personnel
Cromwell rents an apartment, located at 185 Macquarie Street, Sydney, which is owned by Mr. Paul Weightman, a director
of the Company. Total rent paid during 2014 was $88,400 (2013: $88,400). The payment of rent is on normal commercial
terms and conditions and at market rates.
40
C ROMW ELL 20 1 4 ANNUAL REPORT
12. TRUST DISCLOSURES
Fees to Responsible Entity
Total amounts paid/payable to the Responsible Entity or its associates during the year were $21,436,421 (2013:
$18,594,286).
Units held by Responsible Entity
Cromwell Corporation Limited, the parent company of the Responsible Entity, held no units (2013: 275,106) in the Trust
at the end of the fi nancial the year, having had these bought back by the Trust. Pursuant to Australian Securities &
Investments Commission relief, the units were not stapled to shares in Cromwell Corporation Limited.
The Responsible Entity held no units (2013: 1,517,000) in the Cromwell Mary Street Planned Investment, a subsidiary of
the Trust, at the end of the fi nancial year, having transferred them to the Company. When held the holding represented
approximately 8% (2013: 8%) of the issued units in the Cromwell Mary Street Planned Investment.
Issued Units
Units issued in the Trust during the year are set out in note 24 in the accompanying fi nancial report. There were
1,727,280,850 (2013: 1,713,996,562) issued units in the Trust at balance date.
Value of Scheme Assets
The total carrying value of the Trust’s assets as at balance date was approximately $2,403,658,000 (2013: $2,487,254,000).
Net assets attributable to unitholders of the Trust were $1,197,318,000 (2013: $1,140,730,000) equating to $0.70 per unit
(2013: $0.67 per unit).
The Trust’s assets are valued in accordance with policies stated in notes 1 and 3 of the fi nancial statements.
13. INDEMNIFYING OFFICERS OR AUDITOR
Subject to the following, no indemnity or insurance premium was paid during the fi nancial year for a person who is or has
been an offi cer of the Group.
The constitution of the Company provides that to the extent permitted by law, a person who is or has been an offi cer of
the Company is indemnifi ed against certain liabilities and costs incurred by them in their capacity as an offi cer of the
Company.
Further, the Company has entered into a Deed of access, insurance and indemnity with each of the Directors and the
company secretary. Under the deed, the Company agrees to, amongst other things:
• indemnify the offi cer to the extent permitted by law against certain liabilities and legal costs incurred by the offi cer as
an offi cer of the Company and its subsidiaries;
• maintain and pay the premium on an insurance policy in respect of the offi cer; and
• provide the offi cer with access to board papers and other documents provided or available to the offi cer as an offi cer
of the Company and its subsidiaries.
The Group has paid premiums for Directors and offi cers’ liability insurance with respect to the Directors, company
secretary and senior management as permitted under the Corporations Act 2001. The terms of the policy prohibit
disclosure of the nature of the liabilities covered and the premiums payable under the policy.
No indemnities have been given or insurance premiums paid, during or since the end of the fi nancial year, for any person
who is or has been an auditor of the Company or any of its controlled entities.
14. ROUNDING OF AMOUNTS TO NEAREST THOUSAND DOLLARS
The Company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments
Commission, relating to the “rounding off” of amounts in the Directors’ report and fi nancial report. Amounts in the
Directors’ report and fi nancial report have been rounded off to the nearest thousand dollars, or in certain cases to the
nearest dollar, in accordance with that Class Order.
CROMWELL 2014 ANNUAL RE PORT
41
15. AUDITOR
Pitcher Partners continues in offi ce in accordance with section 327 of the Corporations Act 2001.
The Company may decide to employ Pitcher Partners on assignments additional to their statutory duties where the
auditor’s expertise and experience with the Company and/or the Group are important.
The Directors have considered the position and, in accordance with advice received from the Audit & Risk Committee, are
satisfi ed that the provision of the non-audit services is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The Directors are satisfi ed that the provision of non-audit services by the auditor,
as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 as none of
the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants and all non-audit services have been reviewed by the Audit & Risk Committee to ensure they do
not impact the impartiality and objectivity of the auditor.
Details of the amounts paid or payable to the auditor and its related parties for non-audit services provided to the Group
are set out below:
Non-audit Services
Other – review of pro forma balance sheets and forecasts
Total remuneration for non-audit services
2014
$
–
–
2013
$
131,200
131,200
The auditor receives remuneration for audit and other services relating to other entities for which Cromwell Property
Securities Limited and Cromwell Funds Management Limited, both controlled entities, act as responsible entity. The
remuneration is disclosed in the relevant entity’s fi nancial reports and totalled $105,000 (2013: $68,500).
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is attached
to this report.
This report is made in accordance with a resolution of the Directors.
P.L. Weightman
Director
Dated this 27th day of August 2014
42
C ROMW ELL 20 1 4 ANNUAL REPORT
The Directors
Cromwell Corporation Limited and
Cromwell Property Securities Limited as Responsible Entity for Cromwell Diversifi ed Property Trust
Level 19
200 Mary Street
BRISBANE QLD 4000
Dear Sirs,
Auditor’s Independence Declaration
As lead auditor for the audit of the fi nancial reports of Cromwell Corporation Limited and Cromwell
Diversifi ed Property Trust for the year ended 30 June 2014, I declare that, to the best of my
knowledge and belief, there have been:
(i) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of both Cromwell Corporation Limited and the entities it controlled
during the year and Cromwell Diversifi ed Property Trust and the entities it controlled during the
year.
PITCHER PARTNERS
N Batters
Partner
Brisbane, Queensland
27 August 2014
CROMWELL 2014 ANNUAL RE PORT
43
Consolidated Statements of Comprehensive Income
for the year ended 30 June 2014
Notes
Cromwell
Trust
2014
$’000
2013
$’000
2014
$’000
2013
$’000
Revenue and other income
Rental income and recoverable outgoings
Funds management fees
Interest
Distributions
Gain on sale of investment property
Other revenue
Share of profi ts of equity accounted entities
Increase in recoverable amount:
Property development inventories/provision
Fair value net gain from:
Interest rate derivatives
Investments properties
Investments at fair value through profi t or loss
Total revenue and other income
Expenses
Property expenses and outgoings
Funds management costs
Property development costs
Finance costs
Employee benefi ts expense
Administration and overhead costs
Responsible entity fees
Amortisation and depreciation
Net share of losses of equity accounted entities
Loss on disposal of other assets
Fair value net loss from:
Investment properties
Merger transaction costs
Total expenses
Profi t before income tax
Income tax expense
Profi t
6
14(b)
12
6
6
6
14 (b)
6
12
38(ii)
7
Other comprehensive income, net of tax
Total comprehensive income
Profi t and Total comprehensive income/(loss) is attributable to
Company shareholders
Trust unitholders
Non-controlling interests
259,419
11,892
4,613
903
3,152
1,543
–
–
5,222
46,226
85
206,665
258,683
206,478
9,797
5,262
222
132
418
646
–
7,326
–
47
–
3,056
903
3,152
1,317
–
–
5,222
46,226
85
–
4,604
222
132
192
593
225
7,326
–
47
333,055
230,515
318,644
219,819
34,005
50,304
38,753
45,032
1,209
167
74,050
17,569
7,326
–
758
2,942
559
–
–
149,612
183,443
972
182,471
–
592
359
70,296
14,859
6,398
–
643
–
146
55,747
631
183,676
46,839
683
46,156
–
–
–
74,050
–
1,139
12,121
–
3,248
–
–
–
140,862
177,782
–
177,782
–
182,471
46,156
177,782
4,521
177,950
–
2,865
43,291
–
–
177,950
(168)
–
–
70,355
–
1,102
9,959
–
–
–
55,747
631
176,547
43,272
–
43,272
–
43,272
–
43,291
(19)
43,272
3.23¢
3.23¢
Profi t and Total comprehensive income
182,471
46,156
177,782
Basic earnings per company share/trust unit (cents)
Diluted earnings per company share/trust unit (cents)
Basic earnings per stapled security (cents)
Diluted earnings per stapled security (cents)
29
29
29
29
0.26¢
0.26¢
10.60¢
10.57¢
0.21¢
0.21¢
3.44¢
3.44¢
10.34¢
10.31¢
The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.
44
C ROMW ELL 20 1 4 ANNUAL REPORT
Consolidated Statements of Financial Position
as at 30 June 2014
Cromwell
Trust
Notes
2014
$’000
2013
$’000
117,820
125,933
4,702
2,714
7,940
2,527
125,236
136,400
2014
$’000
67,451
1,981
1,686
71,118
2013
$’000
75,126
6,816
1,844
83,786
Current Assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets
Non-Current Assets
Inventories
Investment properties
Investments at fair value through profi t or loss
Equity accounted investments
Property, plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
Total assets
Current Liabilities
Trade and other payables
Dividends/distributions payable
Borrowings
Derivative fi nancial instruments
Provisions
Current tax liability
Other current liabilities
Total current liabilities
Non-Current Liabilities
Borrowings
Derivative fi nancial instruments
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings/(accumulated losses)
Equity attributable to shareholders/unitholders
Non-controlling interests
Trust unitholders
Non-controlling interests
Total equity
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
20
21
22
24
25
26
27
27
3,000
3,000
–
–
2,249,470
2,396,000
2,249,470
2,396,000
10,546
77,526
1,770
1,272
1,120
7,468
100
1,308
804
1,030
10,546
72,524
–
–
–
7,468
–
–
–
–
2,344,704
2,409,710
2,332,540
2,403,468
2,469,940
2,546,110
2,403,658
2,487,254
25,714
33,466
90,500
15,332
1,211
1,127
11,240
178,590
28,014
31,061
–
17,638
1,215
329
15,468
93,725
23,322
33,466
90,500
15,332
–
–
11,240
173,860
27,030
31,066
–
17,638
–
–
15,468
91,202
1,011,214
1,232,720
1,011,214
1,232,720
14,953
1,185
17,870
943
14,953
17,870
–
–
1,027,352
1,251,533
1,026,167
1,250,590
1,205,942
1,345,258
1,200,027
1,341,792
1,263,998
1,200,852
1,203,631
1,145,462
104,370
103,323
1,267,748
1,257,707
5,929
(44,176)
66,123
5,198
–
–
(48,697)
(70,430)
(116,977)
59,824
1,197,318
1,140,730
1,197,875
1,141,028
–
–
–
6,313
–
4,732
1,263,998
1,200,852
1,203,631
1,145,462
The above consolidated statements of fi nancial position should be read in conjunction with the accompanying notes.
CROMWELL 2014 ANNUAL RE PORT
45
Consolidated Statements of Changes in Equity
for the year ended 30 June 2014
Cromwell
Attributable to Equity Holders of the Company
Notes Contributed
Equity
Accumu-
lated
Losses
Available-
for-Sale
Reserve
$’000
$’000
$’000
Share
Based
Payments
Reserve
$’000
Total
$’000
Non-
controlling
Interest
(Trust)
$’000
Total
Equity
$’000
Balance at 1 July 2013
103,323
(48,697)
2,340
2,858
59,824
1,141,028
1,200,852
Total comprehensive income
–
4,521
Transactions with equity holders
in their capacity as equity holders:
Contributions of equity,
net of transaction costs
Distributions paid/payable
Employee share options
Total transactions with equity
holders
24
28
25
1,047
–
–
1,047
–
–
–
–
Balance at 30 June 2014
104,370
(44,176)
Balance at 1 July 2012
Total comprehensive income
Transactions with equity holders
in their capacity as equity holders:
Contributions of equity,
net of transaction costs
Distributions paid/payable
Employee share options
Total transactions with equity
holders
66,344
(51,562)
–
2,865
24
28
25
36,979
–
–
36,979
–
–
–
–
–
–
–
–
–
2,340
2,340
–
–
–
–
–
Balance at 30 June 2013
103,323
(48,697)
2,340
–
–
–
4,521
177,950
182,471
1,047
10,291
11,338
–
(131,394)
(131,394)
731
731
–
731
731
3,589
2,189
–
–
–
669
669
2,858
1,778
(121,103)
(119,325)
66,123
1,197,875
1,263,998
19,311
769,678
788,989
2,865
43,291
46,156
36,979
429,718
466,697
–
669
(101,659)
(101,659)
–
669
37,648
328,059
365,707
59,824
1,141,028
1,200,852
Trust
Balance at 1 July 2013
Total comprehensive income/(loss)
Transactions with equity holders in their capacity
as equity holders:
Contributions of equity, net of transaction costs
Redemptions
Distributions paid/payable
Total transactions with equity holders
Balance at 30 June 2014
Balance at 1 July 2012
Total comprehensive income/(loss)
Transactions with equity holders in their capacity
as equity holders:
Contributions of equity, net of transaction costs
Distributions paid/payable
Attributable to Equity Holders of CDPT
Notes
Contributed
Equity
$’000
Accumu-
lated
Losses
$’000
Total
(CDPT)
$’000
Non-
controlling
Interest
$’000
Total
Equity
$’000
1,257,707
(116,977)
1,140,730
4,732
1,145,462
–
177,950
177,950
(168)
177,782
24
24
28
24
28
10,291
(250)
–
–
10,291
2,113
12,404
(250)
–
(250)
–
(131,403)
(131,403)
(364)
(131,767)
10,041
(131,403)
(121,362)
1,749
(119,613)
1,267,748
(70,430)
1,197,318
6,313
1,203,631
827,989
(58,589)
769,400
5,320
774,720
–
43,291
43,291
(19)
43,272
429,718
–
429,718
–
429,718
–
(101,679)
(101,679)
(569)
(569)
(102,248)
327,470
Total transactions with equity holders
429,718
(101,679)
328,039
Balance at 30 June 2013
1,257,707
(116,977)
1,140,730
4,732
1,145,462
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
46
C ROMW ELL 20 1 4 ANNUAL REPORT
Consolidated Statements of Cash Flows
for the year ended 30 June 2014
Cash Flows From Operating Activities
Receipts in the course of operations
Payments in the course of operations
Distributions received
Interest received
Finance costs paid
Income tax paid
Notes
Cromwell
Trust
2014
$’000
2013
$’000
2014
$’000
2013
$’000
305,414
(92,377)
2,763
4,496
245,581
(78,461)
204
7,110
290,742
(83,299)
2,763
2,986
231,798
(71,371)
204
6,448
(72,032)
(68,715)
(72,032)
(68,773)
(640)
(184)
–
–
Net cash provided by operating activities
30
147,624
105,535
141,160
98,306
Cash Flows From Investing Activities
Payments for investment properties
Proceeds from sale of investment properties
Payments for property, plant and equipment
Net infl ow of cash on acquisition of controlled entity
38
Payments for investments at fair value through
profi t or loss
Proceeds from sale of investments at fair value
through profi t or loss
Payments for equity accounted investments
Payments for software and other intangible assets
Loans to related entities
Repayment of loans by related entities
Payment of merger transaction costs
(69,126)
(591,962)
(69,126)
(591,962)
253,161
(1,368)
–
42,571
253,161
(304)
2,560
–
–
42,571
–
2,560
(7,310)
(7,720)
(7,310)
(7,720)
4,318
(82,228)
(502)
(39,189)
39,189
–
565
–
(863)
(19,606)
32,391
(631)
4,318
(77,632)
–
(39,189)
39,189
–
565
–
–
(23,668)
35,580
(631)
Net cash provided by/(used in) investing activities
96,945
(542,999)
103,411
(542,705)
Cash Flows From Financing Activities
Proceeds from borrowings
Repayment of borrowings
Payment of loan transaction costs
Proceeds from issue of stapled securities/units
Proceeds from issue of units by subsidiary
Equity issue transaction costs
Redemption of units
Payment of dividends/distributions
Payment for derivative fi nancial instruments
1,044,965
240,921
1,044,965
240,921
(1,173,043)
(84,144)
(1,173,043)
(6,953)
993
–
(550)
–
(2,661)
443,731
–
(11,590)
–
(6,953)
900
2,113
(518)
(250)
(118,094)
(80,780)
(119,460)
–
(1,233)
–
(84,144)
(2,661)
408,723
–
(10,939)
–
(82,163)
(1,233)
Net cash (used in)/provided by fi nancing activities
(252,682)
504,244
(252,246)
468,504
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 July
Cash and cash equivalents at 30 June
8
(8,113)
125,933
117,820
66,780
59,153
125,933
(7,675)
75,126
67,451
24,105
51,021
75,126
The above consolidated statements of cash fl ows should be read in conjunction with the accompanying notes.
CROMWELL 2014 ANNUAL RE PORT
47
Notes to the Financial Statements
for the year ended 30 June 2014
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cromwell Property Group (“Cromwell”) was formed by the stapling of Cromwell Corporation Limited (“the Company”)
and its controlled entities, and Cromwell Diversifi ed Property Trust (“CDPT”) and its controlled entities (“the Trust”). The
Financial Reports of Cromwell and the Trust have been presented jointly in accordance with ASIC Class Order 13/1050
relating to combining accounts under stapling and for the purpose of fulfi lling the requirements of the Australian
Securities Exchange.
Cromwell was established for the purpose of facilitating a joint quotation of the Company and the Trust on the Australian
Securities Exchange. The constitutions of the Trust and the Company ensure that, for so long as the two entities remain
jointly quoted, the number of units in the Trust and the number of shares in the Company shall be equal and the
unitholders and shareholders are identical. Both the Responsible Entity of the Trust and the Company must at all times
act in the best interests of Cromwell.
To account for the stapling, Australian Accounting Standards require an acquirer (Cromwell Corporation Limited) to be
identifi ed and an acquisition to be recognised. The net assets and net profi t of the acquiree (the Trust and its controlled
entities) are recognised as non-controlling interest as they are not owned by the acquirer in the stapling arrangement.
The stapling arrangement will cease upon the earliest of either the winding up of the Company or the Trust.
The principal accounting polices adopted in the preparation of the fi nancial report are set out below. These policies have
been consistently applied to all the years presented, unless otherwise stated.
(a) Basis of preparation
The fi nancial report is a general purpose fi nancial report which has been prepared in accordance with Australian
Accounting Standards (including Australian Accounting Interpretations) adopted by the Australian Accounting Standards
Board (AASB) and the Corporations Act 2001. Cromwell and the Trust are for-profi t entities for the purpose of preparing
the fi nancial statements.
Compliance with IFRS
The fi nancial report complies with the International Financial Reporting Standards (IFRS) and interpretations adopted by
the International Accounting Standards Board.
Historical cost convention
The fi nancial report is prepared on the historical cost basis except for the following:
• investment properties are measured at fair value;
• derivative fi nancial instruments are measured at fair value; and
• investments at fair value through profi t or loss are measured at fair value.
The methods used to measure fair values are discussed further below.
Functional and presentation currency
The fi nancial report is presented in Australian dollars, which is the functional currency of Cromwell and the Trust.
Application of new accounting standards
The accounting policies and methods of computation adopted are consistent with those of the previous fi nancial year and
corresponding interim reporting period with the exception of new and amended standards and interpretations mandatory
for annual reporting periods beginning on or after 1 January 2013, which include:
• AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other
Entities, AASB 128 Investments in Associates and Joint Ventures, AASB 127 Separate Financial Statements and AASB 2011-7
Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards;
• AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from
AASB 13; and,
• AASB 119 Employee Benefi ts (September 2011) and AASB 2011-10 Amendments to Australian Accounting Standards
arising from AASB 119 (September 2011).
48
C ROMW ELL 20 1 4 ANNUAL REPORT
Other revised standards that are applicable for the fi rst time for reporting periods beginning on or before 1 January 2013
include:
• AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and
Financial Liabilities; and,
• AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle.
The adoption of AASB 10, AASB 11, AASB 13 and AASB 119 and related amendments resulted in changes to accounting
policies but no adjustments to the amounts recognised in the fi nancial statements. The changes to relevant accounting
policies are explained and summarised below. The other standards only affected the disclosures in the notes to the
fi nancial statements.
Change in accounting policy: consolidated fi nancial statements and joint arrangements
AASB 10 Consolidated Financial Statements replaces the guidance on control and consolidation in AASB 127 Consolidated
and Separate Financial Statements and in Interpretation 112 Consolidation – Special Purpose Entities.
Cromwell has reviewed the nature of its investments in other entities to assess whether the conclusion to consolidate
is affected by the application of AASB 10 as compared with AASB 127. No differences were found and therefore no
adjustments to any of the carrying amounts in the fi nancial statements are required as a result of the adoption of AASB 10.
Under AASB 11 investments in joint arrangements are classifi ed as either joint operations or joint ventures depending
on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement.
Cromwell and the Trust have assessed the nature of their joint arrangements and determined to have interests in three
joint ventures, Phoenix Portfolios Pty Ltd (“Phoenix”), Cromwell Partners Trust (“CPA”) and Oyster Property Funds Limited
(“Oyster”), but no interests in joints operations.
Phoenix was previously classifi ed as an investment in an associate and accounted for using the equity method. It has been
determined it falls within the meaning of a joint venture under AASB 11. CPA and Oyster are new investments during the
year and they have also been determined to be joint ventures under the new standard.
As required under AASB 11, the change in policy has been applied retrospectively as of 1 July 2012. From this date
interests in joint ventures have been accounted for using the equity method. Hence, Cromwell’s accounting for its interests
in joint ventures was not affected by the adoption of the new standard since Cromwell had previously applied the equity
method in accounting for the interest in Phoenix.
Change in disclosures: disclosure of interests in entities to which AASB 10 and 11 pertain
AASB 12 Disclosure of Interests in Other Entities (and AASB 2011-7 Amendments to Australian Accounting Standards
arising from the consolidation and Joint Arrangements standards) is the new disclosure standard and is applicable to entities
that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities, setting
out the required disclosures for entities reporting under AASB 10 and AASB 11. It replaces the disclosure requirements
previously found in AASB 127, AASB 128 and AASB 131. In general, the application of AASB 12 has resulted in more
extensive disclosures in the consolidated fi nancial statements (please see note 14 for details).
Change in accounting policy: employee benefi ts
The relevant section of the revised standard has changed the accounting for Cromwell’s annual leave obligations. As
Cromwell does not expect all annual leave to be taken within 12 months of the respective service being provided, annual
leave obligations are now classifi ed as long-term employee benefi ts in their entirety. This has resulted in a change to the
measurement of the provision for annual leave obligations. The provision is now measured on a discounted cash fl ow
basis. The impact of this change was immaterial.
Change in accounting policy: fair value measurement
AASB 13 Fair Value Measurement aims to improve consistency and reduce complexity by providing a defi nition of fair
value and a single source of fair value measurement and disclosure requirements for use across Australian Accounting
Standards. The standard does not extend the use of fair value accounting but provides guidance on how it should be
applied where its use is already required or permitted by other Australian Accounting Standards.
There has been no material change to the valuation of fi nancial assets, fi nancial liabilities or investment properties as a
result of the transition to AASB 13.
CROMWELL 2014 ANNUAL RE PORT
49
(b) Principles of consolidation
Stapling
The stapling of the Company and CDPT was approved at separate meetings of the respective shareholders and unitholders
on 6 December 2006. Following approval of the stapling, shares in the Company and units in the Trust were stapled to one
another and are quoted as a single security on the Australian Securities Exchange.
Australian Accounting Standards require an acquirer to be identifi ed and an in-substance acquisition to be recognised. In
relation to the stapling of the Company and CDPT, the Company is identifi ed as having acquired control over the assets of
CDPT. To recognise the in-substance acquisition, the following accounting principles have been applied:
(1) no goodwill is recognised on acquisition of the Trust because no direct ownership interest was acquired by the
Company in the Trust;
(2) the equity issued by the Company to unitholders to give effect to the transaction is recognised at the dollar value of
the consideration payable by the unitholders. This is because the issue of shares by the Company was administrative
in nature rather than for the purposes of the Company acquiring an ownership interest in the Trust; and
(3) the issued units of the Trust are not owned by the Company and are presented as non-controlling interests in
Cromwell notwithstanding that the unitholders are also the shareholders by virtue of the stapling arrangement.
Accordingly, the equity in the net assets of the Trust and the profi t/(loss) arising from these net assets have been
separately identifi ed in the statement of comprehensive income and statement of fi nancial position.
The Trust’s contributed equity and retained earnings/accumulated losses are shown as a non-controlling interest in this
Financial Report in accordance with AASB Interpretation 1002 Post-Date-of-Transition Stapling Arrangements and AASB
3 Business Combinations. Even though the interests of the equity holders of the identifi ed acquiree (the Trust) are treated
as non-controlling interests the equity holders of the acquiree are also equity holders in the acquirer (the Company) by
virtue of the stapling arrangement.
Subsidiaries
The consolidated fi nancial statements incorporate the assets and liabilities of all subsidiaries as at 30 June 2014 and the
results of all subsidiaries for the year then ended.
Subsidiaries are entities controlled by Cromwell. Control exists when Cromwell is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power to direct the
activities of the entity. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from
the date that control commences until the date that control ceases.
The acquisition method of accounting is used to account for the business combinations by Cromwell (refer to note 1(m)).
Inter-entity transactions, balances and unrealised gains on transactions between Cromwell entities are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by
Cromwell.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of comprehensive
income and statement of fi nancial position respectively.
Investments in subsidiaries are accounted for at cost in the individual fi nancial statements of the Company. A list of
subsidiaries appears in note 35 to the consolidated fi nancial statements.
Associates
Associates are all entities over which Cromwell has signifi cant infl uence but not control, generally accompanying a
holding of between 20% and 50% of the voting rights. Investments in associates are accounted for in Cromwell’s fi nancial
statements using the equity method of accounting, after initially being recognised at cost. Cromwell’s investment in
associates includes goodwill (net of any accumulated impairment loss) identifi ed on acquisition.
Cromwell’s share of its associates’ post-acquisition profi ts or losses is recognised in profi t or loss and its share of post-
acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment. Dividends or distributions receivable from associates are recognised in
Cromwell’s fi nancial statements as a reduction of the carrying amount of the investment.
50
C ROMW ELL 20 1 4 ANNUAL REPORT
When Cromwell’s share of losses in an associate equals or exceeds its interest in the associate, including any other
unsecured receivables, Cromwell does not recognise further losses, unless it has incurred obligations or made payments
on behalf of the associate. Unrealised gains on transactions between Cromwell and its associates are eliminated to the
extent of Cromwell’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary
to ensure consistency with the policies adopted by Cromwell.
Joint arrangements
Investments in joint arrangements investments are classifi ed as either joint operations or joint ventures. The classifi cation
depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement.
Interests in joint venture entities are accounted for in Cromwell’s fi nancial statements using the equity method. Under the
equity method, the share of the profi ts or losses of the joint venture entity is recognised in profi t or loss, and the share of
movements in reserves is recognised in reserves.
Profi ts or losses on transactions establishing the joint venture entity and transactions with the joint venture are eliminated to
the extent of Cromwell’s ownership interest until such time as they are realised by the joint venture entity on consumption or
sale, unless they relate to an unrealised loss that provides evidence of the impairment of an asset transferred.
Where relevant, Cromwell recognises its direct right to the assets, liabilities, revenues and expenses of joint operations
and its share of any jointly held or incurred assets, liabilities, revenues and expenses, and these are incorporated in the
fi nancial statements under the appropriate headings.
(c) Revenue recognition
Rental revenue
Rental revenue from investment property is recognised on a straight-line basis over the lease term. Rental revenue not
received at reporting date is refl ected in the statement of fi nancial position as a receivable or if paid in advance, as rent in
advance (unearned income). Lease incentives granted are considered an integral part of the total rental revenue and are
recognised as a reduction in rental income over the term of the lease, on a straight-line basis. Contingent rents based on
the future amount of a factor that changes other than with the passage of time, including turnover rents and CPI linked
rental increases, are only recognised when contractually due.
Funds management revenue
Funds management revenue includes equity raising fees, loan establishment fees, project management fees and
acquisition fees, each of which are recognised proportionally to the rendering of the respective service provided.
Interest
Interest revenue is recognised as it accrues using the effective interest method.
Income tax
(d)
Under current income tax legislation the Trust is not liable to pay tax provided its taxable income and taxable realised
capital gains are distributed to unitholders. The liability for capital gains tax that may arise if the properties were sold is
not accounted for in this report.
Cromwell’s income tax expense for the period is the tax payable on the current period’s taxable income adjusted by
changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and
liabilities and their carrying amounts in the fi nancial statements, and to unused tax losses.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets
are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax
rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset
or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability.
No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other
than a business combination, that at the time of the transaction did not affect either accounting profi t or taxable profi t or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax
bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the
temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Current and deferred tax balances attributable to amounts recognised in other comprehensive income or directly in equity
are also recognised in other comprehensive income or directly in equity.
CROMWELL 2014 ANNUAL RE PORT
51
Tax consolidation
The Company and its wholly-owned entities (this excludes the Trust and its controlled entities) have formed a tax-
consolidated group with effect from 1 July 2003 and are, therefore, taxed as a single entity from that date. The head entity
within the tax-consolidated group is Cromwell Corporation Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the
members of the tax-consolidated group are recognised in the separate fi nancial statements of the members of the tax-
consolidated group, using the ‘separate taxpayer within group’ approach by reference to the carrying amounts of assets
and liabilities in the separate fi nancial statements of each entity and the tax values applying under tax consolidation.
Any current tax liabilities or assets and deferred tax assets arising from unused tax losses of the subsidiaries are
assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from)
other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts referred to in the
following section. Any difference between these amounts is recognised by the Company as an equity contribution or
distribution.
The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent
that it is probable that future taxable profi ts of the tax-consolidated group will be available against which the asset can be
utilised. Any subsequent period adjustment to deferred tax assets arising from unused tax losses, as a result of revised
assessments of the probability of recoverability, is recognised by the head entity only.
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding
arrangement, which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts.
The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by
the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an
inter-entity receivable (payable) equal in amount to the tax liability (asset) assumed. The inter-entity receivable (payable) are
at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and refl ect the timing of the
head entity’s obligation to make payments for tax liabilities to the relevant tax authorities.
The head entity, in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing
agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the
entities should the head entity default on its tax payment obligations. No amounts have been recognised in the fi nancial
statements in respect of this agreement, as payment of any amounts under the tax sharing agreement is considered remote.
(e) Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with fi nancial institutions and other short-term
highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of
cash and which are subject to an insignifi cant risk of changes in value.
(f) Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less
provision for impairment of receivables. Receivables relating to operating leases of investment properties are due on the
fi rst day of each month, payable in advance. Other receivables are usually due for settlement no more than 90 days from
the date of recognition.
Collectibility of trade and other receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible
are written off. A provision for impairment of receivables is established when there is objective evidence that Cromwell
will not be able to collect all amounts due according to the original terms of trade and other receivables. The amount of
the provision is the difference between the asset’s carrying amount and the present value of estimated future cash fl ows,
discounted at the original effective interest rate. Cash fl ows relating to short-term trade and other receivables are not
discounted if the effect of discounting is immaterial. The amount of the provision is recognised in profi t or loss.
Inventories
(g)
Land held for development and resale is stated at the lower of cost and net realisable value. Cost is assigned by specifi c
identifi cation and includes the cost of acquisition and development and borrowing costs during development. When
development is completed borrowing costs and other holding charges are expensed as incurred.
52
C ROMW ELL 20 1 4 ANNUAL REPORT
Investment properties
(h)
Investment property is property which is held either to earn rental income or for capital appreciation or both and includes
property that is being constructed or developed for future use as investment property. Initially, investment property is
measured at cost including transaction costs.
Investment property is subsequently measured at fair value, with any change therein recognised in the statement of
comprehensive income.
Fair value is based upon active market prices, given the assets highest and best use, adjusted if necessary, for any
difference in the nature, location or condition of the relevant asset. If this information is not available, Cromwell uses
alternative valuation methods such as discounted cash fl ow projections or the capitalised earnings approach. The highest
and best use of an investment property refers to the use of the investment property by market participants that would
maximise the value of that investment property.
The carrying value of the investment property includes components relating to lease incentives and other items relating to
the maintenance of, or increases in, lease rentals in future periods.
For further information in relation to fair value measurement as it pertains to the investment property refer to note 3(d).
Investments and other fi nancial assets
(i)
Cromwell classifi es its investments as either fi nancial assets at fair value through profi t or loss or available for sale
fi nancial assets. The classifi cation depends on the purpose for which the investments were acquired. Management
determines the classifi cation of its investments at initial recognition.
Financial assets at fair value through profi t or loss
Financial assets at fair value through profi t or loss are fi nancial assets held for trading which are acquired principally for
the purpose of selling in the short term with the intention of making a profi t. Derivatives are also categorised as held for
trading unless they are designated as hedges. Financial assets at fair value through profi t or loss also includes fi nancial
assets which upon initial recognition are designated as such.
Available-for-sale fi nancial assets
Available-for-sale fi nancial assets are non-derivatives that are either designated in this category or not classifi ed in any
of the other categories. They are included in non-current assets unless management intends to dispose of the investment
within 12 months of the balance date.
Regular purchases and sales of investments are recognised on trade date – the date on which Cromwell commits to
purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all fi nancial assets
not carried at fair value through profi t or loss. Financial assets carried at fair value through profi t or loss are initially
recognised at fair value and transaction costs are expensed in profi t or loss. Financial assets are derecognised when the
rights to receive cash fl ows from the fi nancial assets have expired or have been transferred and Cromwell has transferred
substantially all the risks and rewards of ownership.
Available-for-sale fi nancial assets and fi nancial assets at fair value through profi t or loss are subsequently carried at fair
value. Gains or losses arising from changes in the fair value of the ‘fi nancial assets at fair value through profi t or loss’
category, including interest and dividend income, are presented in profi t or loss in the period in which they arise. Changes
in the fair value of securities classifi ed as available-for-sale are recognised in other comprehensive income. When
securities classifi ed as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in
other comprehensive income are reclassifi ed to profi t or loss as gains or losses from investment securities.
Cromwell assesses at each balance date whether there is objective evidence that a fi nancial asset or group of fi nancial
assets is impaired. In the case of equity securities classifi ed as available-for-sale, a signifi cant or prolonged decline in the
fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence
exists for available-for-sale fi nancial assets, the cumulative loss – measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that fi nancial asset previously recognised in profi t and loss – is
reclassifi ed from equity and recognised in profi t or loss as a reclassifi cation adjustment. Impairment losses recognised in
profi t or loss on equity instruments classifi ed as available for sale are not reversed through profi t or loss.
CROMWELL 2014 ANNUAL RE PORT
53
(j) Property, plant and equipment
Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefi ts associated with the item will fl ow to Cromwell and the cost of the item
can be measured reliably. All other repairs and maintenance are charged to profi t or loss during the fi nancial period in
which they are incurred.
Depreciation is calculated using the straight line method to allocate cost of assets, net of their residual values, over their
estimated useful lives, as follows:
Class
Plant and equipment
Furniture and fi ttings
Rate
10-67%
18%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount (note 1(l)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profi t
or loss.
Intangible assets
(k)
Software assets have a fi nite useful life and are carried at cost less accumulated amortisation and impairment losses.
Amortisation is calculated using the straight-line method to allocate the cost of software over its estimated useful life of 3
years on average .
Impairment of assets
(l)
Goodwill and intangible assets that have an indefi nite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.
At each reporting date, and whenever events or changes in circumstances occur, Cromwell assesses whether there is
any indication that any other asset may be impaired. Where an indicator of impairment exists, Cromwell makes a formal
estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is
considered impaired and an impairment loss is recognised for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifi able cash infl ows which are largely independent of the cash infl ows from other assets or groups of assets
(cash generating units). Assets other than goodwill that suffer an impairment are reviewed for possible reversal of the
impairment at each reporting date.
(m) Business combinations
The acquisition method of accounting is used to account for all business combinations regardless of whether equity
instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the
fair values of the assets transferred, the liabilities incurred and the equity interests issued by Cromwell. The consideration
transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing
equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifi able assets acquired and
liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at
their fair values at the acquisition date. On an acquisition-by-acquisition basis, Cromwell recognises any non-controlling
interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net
identifi able assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of Cromwell’s share of the net
identifi able assets acquired are recorded as goodwill. If those amounts are less than the fair value of the net identifi able
assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised
directly in profi t or loss as a bargain purchase.
54
C ROMW ELL 20 1 4 ANNUAL REPORT
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their
present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate
at which a similar borrowing could be obtained from an independent fi nancier under comparable terms and conditions.
Contingent consideration is classifi ed either as equity or a fi nancial liability. Amounts classifi ed as a fi nancial liability are
subsequently remeasured to fair value with changes in fair value recognised in profi t or loss.
(n) Lease incentives
Lessees may be offered incentives as an inducement to enter into non-cancellable operating leases. These incentives may
take various forms including up front cash payments, rent free periods, or a contribution to certain lessee costs such as fi t
out costs or relocation costs. They are recognised as an asset in the statement of fi nancial position as a component of the
carrying amount of investment property and amortised over the lease period as a reduction of rental income.
Initial direct leasing costs
(o)
Initial direct leasing costs incurred by Cromwell in negotiating and arranging operating leases are recognised as an asset
in the statement of fi nancial position as a component of the carrying amount of investment property and are amortised as
an expense on a straight line basis over the lease term.
(p) Repairs and maintenance
Repairs and maintenance costs and minor renewals are charged as expenses when incurred.
(q) Derivative fi nancial instruments
Cromwell is exposed to changes in interest rates and uses interest rate derivatives to hedge these risks. Such derivative
fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are
subsequently remeasured to fair value at balance date. Derivatives are carried as assets when their fair value is positive
and as liabilities when their fair value is negative.
Cromwell enters into interest rate swap agreements that are used to convert certain variable interest rate borrowings
to fi xed interest rates. The derivatives are entered into with the objective of hedging the risk of adverse interest rate
fl uctuations. While Cromwell has determined that these arrangements are economically effective, they have not satisfi ed
the documentation, designation and effectiveness tests required by accounting standards. As a result, they do not qualify
for hedge accounting and gains or losses arising from changes in fair value are recognised immediately in profi t or loss.
For further information in relation to fair value measurement as it pertains to derivative fi nancial instruments refer to
note 3(c).
(r) Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost. These
amounts represent liabilities for goods and services provided to Cromwell prior to the end of the year and which are
unpaid. The amounts are usually unsecured and paid within 30-60 days of recognition.
(s) Borrowings and borrowing costs
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured
at amortised cost using the effective interest rate method. Under this method fees, costs, discounts and premiums directly
related to the fi nancial liability are spread over its expected life. Borrowings are classifi ed as current liabilities unless
Cromwell has an unconditional right to defer settlement of the liability for at least 12 months after the balance date.
Borrowing costs incurred for the construction of a qualifying asset are capitalised during the period of time that is
required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. Where funds
are borrowed specifi cally for the acquisition, construction or production of a qualifying asset the amount of borrowing
costs capitalised is the actual borrowing costs incurred on that borrowing net of any interest earned on those borrowings.
Where funds are borrowed generally the capitalisation rate used to determine the amount of borrowing costs to capitalise
is the weighted average interest rate applicable to Cromwell’s outstanding borrowings during the year.
(t) Financial guarantee contracts
Financial guarantee contracts are recognised as a fi nancial liability at the time the guarantee is issued. The liability
is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB
137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less any cumulative
amortisation.
CROMWELL 2014 ANNUAL RE PORT
55
The fair value of fi nancial guarantees is determined as the present value of the difference in net cash fl ows between the
contractual payments under the debt instrument and the payments that would be required without the guarantee, or the
estimated amount that would be payable to a third party for assuming the obligations. Where guarantees in relation to
loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for
as contributions and recognised as part of the cost of the investment.
(u) Provisions
Provisions are recognised when Cromwell has a present legal or constructive obligation as a result of past events, it is
probable that an outfl ow of resources will be required to settle the obligation and the amount has been reliably estimated.
Provisions are not recognised for future operating losses.
(v) Employee benefi ts
Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefi ts, that are expected to be settled wholly within
12 months after the end of the period in which the employees render the related service are recognised in respect of
employee’s services up to the end of the reporting period and are measured at the amounts expected to be paid when the
liabilities are settled. All other short-term employee benefi t obligations are presented as payables.
Long service leave
The liabilities for long service leave and annual leave are not expected to be settled wholly within 12 months after the
end of the period in which the employees render the related service. They are therefore recognised in the provision for
employee benefi ts and measured as the present value of expected future payments to be made in respect of services
provided by employees up to the end of the reporting period. Consideration is given to expected future wage and salary
levels, experience of employee departures and periods of service. Expected future payments are discounted using relevant
discount rates at the end of the reporting period that match, as closely as possible, the estimated future cash outfl ows.
Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profi t or
loss.
Superannuation
Contributions are made by Cromwell to defi ned contribution superannuation funds. Contributions are charged as
expenses as they become payable.
Security-based payments
The fair value of options and performance rights granted is recognised as an employee benefi t expense with a
corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the
employees become unconditionally entitled to the options or performance rights.
The fair value at grant date is determined using a pricing model that takes into account the exercise price, the term, the
security price at grant date and expected price volatility of the underlying security, the expected distribution yield and the
risk free interest rate for the term.
The fair value of the options or performance rights granted is adjusted to refl ect the probability of market vesting
conditions being met, but excludes the impact of any non market vesting conditions (for example, profi tability and sales
growth targets). Non market vesting conditions are included in assumptions about the number of options or performance
rights that are expected to become exercisable. At each balance date, the entity revises its estimate of the number of
options or performance rights that are expected to become exercisable. The employee benefi t expense recognised each
period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in
profi t or loss with a corresponding adjustment to equity.
Bonus plans
Cromwell recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice
that has created a constructive obligation.
56
C ROMW ELL 20 1 4 ANNUAL REPORT
(w) Leases (as lessee)
Leases of assets where Cromwell has substantially all the risks and rewards of ownership are classifi ed as fi nance
leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the
present value of the minimum lease payments. The corresponding rental obligations, net of fi nance charges, are included
in liabilities. Each lease payment is allocated between the liability and fi nance cost. The fi nance cost is charged to profi t
or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability
for each period. The depreciable assets acquired under fi nance leases are depreciated over the estimated useful life of
the asset. Where there is no reasonable certainty that the lessee will obtain ownership, the asset is depreciated over the
shorter of the lease term and the asset’s useful life.
Leases in which a signifi cant portion of the risks and rewards of ownership are retained by the lessor are classifi ed as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to
profi t or loss on a straight-line basis over the period of the lease.
(x) Contributed equity
Ordinary shares and units are classifi ed as equity. Incremental costs directly attributable to the issue of new shares, units
or options are shown in equity as a deduction, net of tax, from the proceeds.
Where any group company purchases the Company’s equity instruments, for example as the result of a share buy-
back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net
of income taxes) is deducted from equity attributable to the securityholders as treasury shares until the securities are
cancelled or reissued. Where such ordinary securities are subsequently reissued, any consideration received, net of any
directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to
securityholders.
(y) Dividends/distributions
Provision is made for the amount of any dividend/distribution declared, being appropriately authorised and no longer at
the discretion of Cromwell, on or before the end of the fi nancial year but not distributed at balance date.
(z) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing profi t/(loss) attributable to equity holders of the Company/CDPT,
excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares
outstanding during the fi nancial year, adjusted for bonus elements in ordinary shares issued during the year.
Diluted earnings per share
Diluted earnings per share adjusts the fi gures used in the determination of basic earnings per share to take into account
the after income tax effect of interest and other fi nancing costs associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
(aa) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
• where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of
acquisition of an asset or as part of an item of expense; or
• for receivables and payables which are recognised inclusive of GST.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or
payables.
(ab) Comparatives
Where necessary, comparative fi gures have been adjusted to conform with changes in presentation in the current year.
(ac) Rounding of amounts
The Company/CDPT is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments
Commission, relating to the “rounding off” of amounts in the fi nancial report. Amounts in the fi nancial report have been
rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.
CROMWELL 2014 ANNUAL RE PORT
57
(ad) New accounting standards and interpretations
Relevant accounting standards and interpretations that have been issued or amended but are not yet effective and have
not been adopted for the year are as follows:
Standard/Interpretation
Application
date of
standard
Application
date for
Cromwell
AASB 9 Financial Instruments – revised and consequential amendments to other accounting
standards resulting from its issue
1 Jan 2018
1 Jul 2018
AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and
Financial Liabilities
1 Jan 2014
1 Jul 2014
AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets
1 Jan 2014
1 Jul 2014
AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and
Continuation of Hedge Accounting
AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities
AASB 2014-1 Part A Amendments to Australian Accounting Standards – Annual Improvements
2010-2012 and 2011-2013
AASB 1031 Materiality – revised and consequential amendments to other accounting standards
resulting from its planned withdrawal
IFRS 15(1) Revenue from Contracts with Customers
1 Jan 2014
1 Jul 2014
1 Jan 2014
1 Jul 2014
1 Jul 2014
1 Jul 2014
1 Jan 2014
1 Jul 2014
1 Jan 2017
1 Jul 2017
(1) This IASB Standard was also issued but not yet effective, although an Australian equivalent standard has not yet been issued.
The Directors anticipate that the adoption of these Standards and Interpretations in future years may have the following
impacts:
AASB 9 – This revised standard provides guidance on the classifi cation and measurement of fi nancial assets, which is
the fi rst phase of a multi-phase project to replace AASB 139 Financial Instruments: Recognition and Measurement.
Under the new guidance, a fi nancial asset is to be measured at amortised cost only if it is held within a business model
whose objective is to collect contractual cash fl ows and the contractual terms of the asset give rise on specifi ed dates
to cash fl ows that are payments solely of principal and interest (on the principal amount outstanding). All other fi nancial
assets are to be measured at fair value. Changes in the fair value of investments in equity securities that are not part
of a trading activity may be reported directly in equity, but upon realisation those accumulated changes in value are not
recycled to profi t or loss. Changes in the fair value of all other fi nancial assets carried at fair value are reported in profi t
or loss. The Directors do not expect the new standard to have a signifi cant impact on the fi nancial statements and related
disclosures. In the second phase of the replacement project, the revised standard incorporates amended requirements
for the classifi cation and measurement of fi nancial liabilities. The new requirements pertain to liabilities at fair value
through profi t or loss, whereby the portion of the change in fair value related to changes in the entity’s own credit risk is
presented in other comprehensive income rather than profi t or loss. The Directors believe there will be no material impact
on Cromwell’s accounting for fi nancial liabilities. Cromwell intends to adopt the new standard from 1 July 2018.
AASB 2012-3 – The amendments to AASB 132 clarify when an entity has a legally enforceable right to set-off fi nancial
assets and fi nancial liabilities permitting entities to present balances net on the balance sheet. The amendments to AASB
7 increase the disclosure about offset positions, including the gross position and the nature of the arrangements. The
Directors believe the adoption of the standards will not result in any material changes to Cromwell’s fi nancial statements.
AASB 2013-3 – These amendments introduce changes to AASB 136 to require the disclosure of additional information
about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of
disposal. This includes further disclosures about the discount rates used in current and previous measurements if the
recoverable amount of impaired assets based on fair value less costs of disposal was measured using a present value
technique. The Directors believe the adoption of the amendments will not result in any material changes to Cromwell’s
fi nancial statements.
AASB 2013-4 – These amendments introduce changes to AASB 139 to permit the continuation of hedge accounting in
circumstances where a derivative, which has been designated as a hedging instrument, is novated from one counterparty
to a central counterparty as a consequence of laws or regulations. The Directors believe the adoption of the amendments
will not result in any material changes to Cromwell’s fi nancial statements as Cromwell and the Trust currently do not
engage in hedge accounting.
58
C ROMW ELL 20 1 4 ANNUAL REPORT
AASB 2013-5 – These amendments to AASB10 (and others) defi ne an investment entity and require that, with limited
exceptions, an investment entity not consolidate its subsidiaries or apply AASB 3 when it obtains control of another entity.
Instead, an investment entity is to measure unconsolidated subsidiaries at fair value through profi t or loss in accordance
with AASB 9. At this time the Directors believe the adoption of the amendments will not result in any impact on Cromwell
as it does not meet the defi nition of an investment entity itself, nor has any subsidiaries that currently do.
AASB 2014-1 Part A – These amendments introduce various changes to currently applicable AASBs. The Directors believe
the adoption of the amendments will not result in any material changes to Cromwell and the Trust’s fi nancial statements.
AASB 1031 – This standard is being withdrawn and consequential amendments made to other standards and
interpretations in light of the guidance on materiality available in existing Australian Accounting Standards; the revised
IASB Conceptual Framework for Financial Reporting; and the AASB’s policy of not providing unnecessary local guidance
on matters covered by IFRSs. The Directors believe the withdrawal of the standard and adoption of the amendments to
others will not result in any material changes to Cromwell and the Trust’s fi nancial statements.
IFRS 15 – This new standard contains a single model that applies to contracts with customers and two approaches to
recognising revenue. The model features a contract-based fi ve step analysis of transactions to determine whether, how
much and when revenue is recognised. The Group is yet to assess the impact of the new standard.
2. CRITICAL ACCOUNTING ESTIMATES
The preparation of fi nancial statements requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised and in any future periods affected.
Information about signifi cant areas of estimation uncertainty and critical judgements in applying accounting policies that
have the most signifi cant effect on the amounts recognised in the fi nancial statements are:
Fair value of investment properties
The investment properties are valued every year by external valuers. Values are based upon active market prices,
adjusted if necessary for conditions specifi c to the investment property. If this information is not available, Cromwell uses
alternative valuation methods such as discounted cash fl ow projections and the capitalisation of income approach.
Refer to note 3(d) for more information in relation to the inputs and techniques used to derive the fair values of investment
properties.
Financial instruments
A variety of methods are used to calculate the value of fi nancial instruments and make assumptions that are based upon
market conditions existing at balance date. Valuation of derivative fi nancial instruments involves assumptions based
upon quoted market rates adjusted for the specifi c features of the relevant instrument. The valuations of any fi nancial
instrument may change in the event of market volatility.
Refer to notes 3 (b) and (c) for more information in relation to the inputs and techniques used to derive the fair value of
fi nancial instruments.
CROMWELL 2014 ANNUAL RE PORT
59
3. FAIR VALUE ESTIMATION
Cromwell measures and recognises the following assets and liabilities at fair value on a recurring basis:
• Investment properties;
• Investments at fair value through profi t or loss; and
• Derivative fi nancial instruments.
(a) Fair value hierarchy
Recognised fair value measurements
The different levels of fair value hierarchy have been defi ned as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:
inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices).
inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 3:
The table below presents Cromwell’s assets and liabilities measured and carried at fair value at 30 June 2014:
Notes Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
2014
2013
Assets
Investment properties
Investments at fair value
through profi t or loss:
Listed equity securities
Unlisted equity securities
Total assets at fair value
12
13
13
Liabilities
Derivative fi nancial
instruments:
–
601
–
601
–
–
9,945
9,945
2,249,470 2,249,470
–
–
–
601
9,945
2,249,470 2,260,016
315
–
315
–
–
7,153
7,153
2,396,000
2,396,000
–
–
315
7,153
2,396,000
2,403,468
Interest rate swaps
21
Total liabilities at fair value
–
–
30,285
30,285
–
–
30,285
30,285
–
–
35,508
35,508
–
–
35,508
35,508
There were no transfers between the levels of the fair value hierarchy during the fi nancial year. The only level 3 asset is
investment property. Refer to note 12 for a roll forward of this asset.
Disclosed fair values
The fair values of investment property (Level 3) and derivative fi nancial instruments (Level 2) are disclosed in the
statement of fi nancial position.
The carrying amounts of trade and other receivables, other current assets, trade and other payables and distributions
payable are assumed to approximate their fair values due to their short-term nature.
The fair value of non-current borrowings is estimated by discounting the future contractual cash fl ows at the current
market interest rates that are available to Cromwell for similar fi nancial instruments. The fair value of these borrowings is
not materially different from the carrying value due to their relatively short-term nature.
(b) Valuation techniques used to derive Level 1 fair values
Fair value of investments at fair value through profi t or loss
Level 1 assets held by Cromwell include listed equity securities.
The fair value of fi nancial assets and liabilities traded in active markets is based on their quoted market prices at the
end of the reporting period without any deduction for estimated future selling costs. Cromwell values its investments in
accordance with the accounting policies set out in note 1 to the fi nancial statements. Owing to the current composition of
its portfolio, Cromwell relies on publicly available market information for the valuation of its investments.
The quoted market price used for fi nancial assets and liabilities held by Cromwell is the current fi nal closing price.
A fi nancial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from
an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and
regularly occurring market transactions on an arm’s length basis.
60
C ROMW ELL 20 1 4 ANNUAL REPORT
(c) Valuation techniques used to derive Level 2 fair values
The fair value of fi nancial instruments that are not traded in an active market is determined using valuation techniques.
These valuation techniques maximise the use of observable market data where it is available and rely as little as possible
on entity specifi c estimates. If all signifi cant inputs required to fair value an instrument are observable, the instrument is
included in Level 2.
At initial recognition, Cromwell measures a fi nancial asset or liability at its fair value. Transaction costs in relation to
fi nancial assets and fi nancial liabilities carried at fair value through profi t or loss are expensed in profi t or loss.
Fair value of investments at fair value through profi t or loss
Level 2 assets held by Cromwell include unlisted equity securities. The fair value of these fi nancial instruments is based
upon the net tangible assets as reported by the underlying unlisted entity, adjusted for inherent risk where appropriate.
Fair value of derivative fi nancial instruments
Level 2 assets held by Cromwell include “Vanilla” fi xed to fl oating interest rate swap derivatives (over-the-counter
derivatives). The fair value of interest rate derivatives has been determined using a pricing model based on discounted
cash fl ow analysis which incorporates assumptions supported by observable market data at balance date including
market expectations of future interest rates and discount rates adjusted for any specifi c features of the derivatives and
counterparty or own credit risk. All counterparties to interest rate derivatives are Australian fi nancial institutions.
(d) Valuation techniques used to derive Level 3 fair values
Fair value of investment property
If one or more of the signifi cant inputs is not based upon observable market data the asset or liability is included in Level
3. Cromwell holds no Level 3 fi nancial instruments. However, Cromwell has investment properties with an aggregate
carrying amount of approximately $2,249,470,000 that are valued using techniques whereby at least one signifi cant
input is not observable market data, and hence they are considered to be Level 3 assets for the purposes of fair value
measurement.
The highest and best use of each investment property is taken into consideration when determining their fair values.
The highest and best use of an investment property refers to the use of the investment property by a market participant
that would maximise the value of that property. With respect to Cromwell’s investment properties, the current use is
considered to be the highest and best use. Within this construct, fair value is determined within a range of reasonable
estimates utilising both capitalisation of net market income and discounted future cash fl ow methodologies and
comparing the results to market sales evidence.
The most appropriate evidence of fair value is given by current prices in an active market for similar property in the same
location and condition and subject to similar leases. Where suffi cient market information is not available, or to supplement
this information, management considers other relevant information including:
• Current prices for properties of a different nature, condition or location, adjusted to refl ect those differences;
• Recent prices of similar properties in a less active market, with adjustments to refl ect changes in economic
conditions or other factors;
• Capitalised income calculations based on an assessment of current net market income for that property or other
similar properties, a capitalisation rate taking into account market evidence for similar properties and adjustments
for any differences between market rents and contracted rents over the term of existing leases and deductions for
short term vacancy or lease expiries, incentive costs and capital expenditure requirements; and
• Discounted cash fl ow forecasts including estimates of future cash fl ows based on current leases in place for that
property, historical operating expenses, reasonable estimates of current and future rents and operating expenses
based on external and internal assessments and using discount rates that appropriately refl ect the degree of
uncertainty and timing inherent in current and future cash fl ows.
The fair value adopted for each investment property has been supported by an independent external valuation of that
property undertaken within the past 12 months. As part of this process, an external, independent valuer, having an
appropriate recognised professional qualifi cation and recent experience in the location and category of property, values
each investment property at least every year or on a more regular basis if considered appropriate and as determined by
management in accordance with the valuation policy of Cromwell.
CROMWELL 2014 ANNUAL RE PORT
61
The signifi cant unobservable inputs associated with the valuation of Cromwell’s investment properties are as follows:
Inputs
Annual Net Property Income ($’000)
Capitalisation rate (%)
Weighted average lease term (years)
Discount rate (%)
Occupancy (%)
Range
Weighted Average
1,203 – 25,438
6.50% - 12.25%
1.0 – 17.1
8.25% - 11.50%
80.3% - 100.0%
12,780
8.08%
6.1
9.04%
98.1%
Sensitivity Information
The relationships between the signifi cant unobservable inputs and the fair value are as follows:
Inputs
Annual Net Property Income
Capitalisation rate
Weighted average lease term
Discount rate
Occupancy
Impact on Fair Value from
increase in input
Impact on Fair Value from
decrease in input
Increase
Decrease
Increase
Decrease
Increase
Decrease
Increase
Decrease
Increase
Decrease
4. CAPITAL RISK MANAGEMENT
Cromwell’s capital management strategy seeks to maximise securityholder value through optimising the level and use of
capital resources and the mix of debt and equity funding.
Cromwell’s capital management objectives are to:
• ensure that Cromwell entities comply with capital and dividend/distribution requirements of their constitutions and/or
trust deeds;
• ensure suffi cient capital resources to support Cromwell’s operational requirements;
• continue to support Cromwell’s creditworthiness;
• comply with capital requirements of relevant regulatory authorities; and
• safeguard Cromwell’s ability to continue as a going concern.
Cromwell monitors the adequacy of its capital requirements, cost of capital and gearing (i.e. debt/equity mix) as part of its
overall strategic plan. Cromwell’s capital structure is continuously reviewed to ensure:
• suffi cient funds and fi nancing facilities are available, on a cost effective basis, to implement Cromwell’s strategies;
and
• dividends/distributions to members are made within the stated policy.
Cromwell is able to alter its capital mix by:
• issuing new stapled securities;
• activating its dividend/distribution reinvestment plan;
• adjusting the amount of dividends/distributions paid to members;
• activating its security buyback program; and
• selling assets to reduce borrowings.
Cromwell also protects its equity in assets by taking out insurance cover with creditworthy insurers.
62
C ROMW ELL 20 1 4 ANNUAL REPORT
One of the key ways Cromwell monitors capital adequacy is on the basis of the gearing ratio. The ratio is calculated as net
debt divided by adjusted assets. Net debt is calculated as total borrowings less cash and cash equivalents and restricted
cash. Adjusted assets are calculated as total assets less cash and cash equivalents, restricted cash and intangible assets.
The gearing ratios for both Cromwell and the Trust at each balance date were as follows:
Total borrowings
Less: cash and cash equivalents
Net debt
Total assets
Cromwell
2014
$’000
2013
$’000
Trust
2014
$’000
2013
$’000
1,101,714
1,232,720
1,101,714
1,232,720
117,820
983,894
125,933
67,451
75,126
1,106,787
1,034,263
1,157,594
2,469,940
2,546,110
2,403,658
2,487,254
Less: intangible assets and deferred tax assets
2,392
1,834
–
–
Less: cash and cash equivalents
Adjusted assets
Gearing ratio
117,820
125,933
67,451
75,126
2,349,728
2,418,343
2,336,207
2,412,128
42%
46%
44%
48%
5. FINANCIAL RISK MANAGEMENT
Cromwell’s activities expose it to a variety of fi nancial risks; credit risk, liquidity risk and market risk (interest rate risk
and price risk). The overall risk management program focuses on managing these risks and seeks to minimise potential
adverse effects on the fi nancial performance of Cromwell. Cromwell uses derivative fi nancial instruments such as interest
rate derivatives to hedge certain risk exposures. Cromwell seeks to deal only with creditworthy counterparties. Liquidity
risk is monitored through the use of future rolling cash fl ow forecasts.
Cromwell’s management of treasury activities is centralised and governed by policies approved by the Directors who
monitor the operating compliance and performance as required. Cromwell has policies for overall risk management
as well as policies covering specifi c areas such as identifying risk exposure, analysing and deciding upon strategies,
performance measurement, the segregation of duties and other controls around the treasury and cash management
functions.
Cromwell and the Trust hold the following fi nancial instruments:
Financial Assets
Cash and cash equivalents (1)
Trade and other receivables (1)
Investments at fair value through profi t and loss (2)
Total fi nancial assets
Financial Liabilities
Trade and other payables (4)
Derivative fi nancial instruments (3)
Borrowings (4)
Dividends/distributions payable (4)
Total fi nancial liabilities
(1) Loans and receivables
(2) At fair value – designated
(3) At fair value – held for trading
(4) At amortised cost
Cromwell
2014
$’000
2013
$’000
117,820
125,933
4,702
10,546
7,940
7,468
133,068
141,341
25,714
30,285
28,014
35,508
Trust
2014
$’000
67,451
1,981
10,546
79,978
23,322
30,285
2013
$’000
75,126
6,816
7,468
89,410
27,030
35,508
1,101,714
1,232,720
1,101,714
1,232,720
33,466
31,061
33,466
31,066
1,191,179
1,327,303
1,188,787
1,326,324
CROMWELL 2014 ANNUAL RE PORT
63
(a) Credit Risk
Credit risk is the risk that a counterparty will default on its contractual obligations under a fi nancial instrument and result
in a fi nancial loss to Cromwell. Cromwell has exposure to credit risk on all fi nancial assets included in the statement of
fi nancial position except investments at fair value through profi t or loss.
Cromwell manages this risk by:
• establishing credit limits for customers and managing exposure to individual entities;
• monitoring the credit quality of all fi nancial assets in order to identify any potential adverse changes in credit quality;
• derivative counterparties and cash transactions, when utilised, are transacted with high credit quality fi nancial
institutions;
• providing loans to associates where Cromwell is comfortable with the underlying exposure;
• regularly monitoring loans and receivables on an ongoing basis; and
• regularly monitoring the performance of associates on an ongoing basis.
The maximum exposure to credit risk at balance date is the carrying amount of fi nancial assets recognised in the
statement of fi nancial position of Cromwell. Cromwell holds no signifi cant collateral as security. There are no signifi cant
fi nancial assets that have had renegotiated terms that would otherwise have been past due or impaired.
Cash is held with Australian fi nancial institutions. Interest rate derivative counterparties are all Australian fi nancial
institutions.
The ageing analysis of receivables past due at balance date but not impaired is as follows:
1 to 3 months
3 to 6 months
Over 6 months
Cromwell
Trust
2014
$’000
1,060
–
–
1,060
2013
$’000
3,269
223
345
3,837
2014
$’000
1,060
–
–
1,060
2013
$’000
3,269
223
345
3,837
(b) Liquidity Risk
Prudent liquidity risk management implies maintaining suffi cient cash reserves and fi nance facilities to meet the ongoing
operational requirements of the business. It is Cromwell’s policy to maintain suffi cient funds in cash and cash equivalents
to meet expected near term operational requirements. Cromwell prepares and monitors rolling forecasts of liquidity
requirements on the basis of expected cash fl ow. Cromwell monitors the maturity profi le of borrowings and puts in place
strategies designed to ensure that all maturing borrowings are refi nanced in the required timeframes.
The current weighted average debt maturity of Cromwell and the Trust is 4.3 years (2013: 2.2 years).
Contractual maturity of fi nancial liabilities (borrowings and payables) of Cromwell and the Trust, including interest
thereon, are as follows:
Due within one year
Due between one and fi ve years
Cromwell
Trust
2014
$’000
2013
$’000
2014
$’000
2013
$’000
122,122
133,850
119,732
132,869
1,294,682
1,342,138
1,294,682
1,342,138
1,416,804
1,475,988
1,414,414
1,475,007
64
C ROMW ELL 20 1 4 ANNUAL REPORT
Price risk – Listed equity securities
(c) Market Risk
(i)
Cromwell and the Trust are exposed to equity securities price risk. This arises from investments held by Cromwell and
the Trust classifi ed on the balance sheet as investments at fair value through profi t and loss (refer note 13). Cromwell and
the Trust are not exposed to commodity price risk. A small proportion of Cromwell and the Trust’s equity investments are
publicly traded and are included in the ASX All Ordinaries index.
Cromwell and Trust sensitivity
The table below details Cromwell and the Trust’s sensitivity to movements in the ASX All Ordinaries, based on the
fi nancial instruments held at balance date with all other variables held constant and assuming all Cromwell and the
Trust’s equity instruments moved in correlation with the index.
Cromwell and the Trust
ASX All Ordinaries increased by 20%
ASX All Ordinaries decreased by 20%
Profi t/(loss)
Equity
2014
$’000
120
(120)
2013
$’000
63
(63)
2014
$’000
120
(120)
2013
$’000
63
(63)
Price risk – Unlisted equity securities
(ii)
Cromwell and the Trust are exposed to price risk in relation to its unlisted equity securities (refer note 13) acquired during
the year. Cromwell and the Trust use the fair value of the net assets of the unlisted equity securities to determine the fair
value of its investments in the same. The fair value of the net assets of the unlisted equity securities is predominantly
dependent on the market value of the investment property they hold. Any movement in the market value of the investment
property will impact on the fair value of Cromwell and the Trust’s investment.
Cromwell and Trust sensitivity
The table below details Cromwell and the Trust’s sensitivity to movements in the market values of investment properties
held by unlisted equity investments, based on the unlisted equity investments held at balance date with all other variables
held constant and assuming all Cromwell and the Trust’s unlisted equity instruments moved in correlation with the market
values of the underlying investment properties.
Cromwell and the Trust
Investment properties increased by 5%
Investment properties decreased by 5%
Profi t/(loss)
Equity
2014
$’000
715
(715)
2013
$’000
612
(612)
2014
$’000
715
(715)
2013
$’000
612
(612)
Interest rate risk
(iii)
Cromwell’s interest-rate risk primarily arises from borrowings. Borrowings issued at variable rates expose Cromwell to
cash fl ow interest-rate risk. Borrowings issued at fi xed rates expose Cromwell to fair value interest-rate risk. Cromwell’s
policy is to effectively maintain hedging arrangements on not less than 50% of its borrowings. At balance date 87% (2013:
86%) of Cromwell’s borrowings were effectively hedged.
Cromwell manages its cash fl ow interest-rate risk by using interest rate derivatives. Such interest rate derivatives have
the economic effect of converting borrowings from fl oating rates to fi xed or a limited range of rates. Generally, Cromwell
raises long term borrowings at fl oating rates and hedges a portion of them into fi xed or capped rates. Under the interest-
rate derivatives, Cromwell agrees with other counterparties to exchange, at specifi ed intervals (usually 30 days), the
difference between contract rates and fl oating-rate interest amounts calculated by reference to the agreed notional
principal amounts.
The fi xed or limited interest rates range between 2.98% and 5.95% (2013: 2.98% and 5.95%) and the variable rates are
generally based on the 30 day bank bill swap bid rate which at balance date was 2.66% (2013: 2.87%). At balance date, the
notional principal amounts and periods of expiry of the interest rate swap contracts are detailed as follows:
Cromwell and the Trust
Less than 1 year
1-2 years
2-3 years
3-4 years
4-5 years
2014
$’000
379,100
31,730
270,000
286,450
–
967,280
2013
$’000
262,400
216,700
31,730
270,000
286,450
1,067,280
CROMWELL 2014 ANNUAL RE PORT
65
Because Cromwell’s interest rate derivatives do not meet the accounting requirements to qualify for hedge accounting
treatment, gains or losses arising from changes in fair value have been refl ected in the profi t or loss.
Information on borrowings and the maturity profi le of borrowings including interest thereon is set out in Note 20.
Information on additional interest rate derivative transactions undertaken since balance date is set out in Note 41.
Cromwell sensitivity
The table below details Cromwell’s sensitivity to movements in the year end interest rates, based on the borrowings
and interest rate derivatives held at balance date with all other variables held constant and assuming all Cromwell’s
borrowings and interest rate derivatives moved in correlation with the movement in year end interest rates.
Cromwell
Interest rates increased by 100 basis points
Interest rates decreased by 100 basis points
Profi t/(loss)
Equity
2014
$’000
20,514
(20,514)
2013
$’000
33,281
(33,281)
2014
$’000
20,514
(20,514)
2013
$’000
33,291
(33,291)
Trust sensitivity
The table below details Cromwell’s sensitivity to movements in the year end interest rates, based on the borrowings
and interest rate derivatives held at balance date with all other variables held constant and assuming all Cromwell’s
borrowings and interest rate derivatives moved in correlation with the movement in year end interest rates.
Trust
Interest rates increased by 100 basis points
Interest rates decreased by 100 basis points
6. EXPENSES
Premises rental – minimum lease payments
Finance Costs:
Total interest
Amortisation of borrowing costs
Finance costs
Employee Benefi ts Expense:
Wages and salaries including on costs
Contributions to defi ned contribution superannuation plans
Equity settled share-based payments
Increase in liability for long service and annual leave
Less: employee benefi ts capitalised
Employee benefi ts expense
Depreciation/Amortisation:
Depreciation of plant and equipment
Amortisation of intangibles
Depreciation/Amortisation
Loss on disposal of other assets:
Net loss on disposal of property, plant and equipment
Net loss on disposal of intangible assets
Loss on disposal of other assets
Profi t/(loss)
Equity
2014
$’000
20,116
(20,116)
2013
$’000
32,773
(32,773)
2014
$’000
20,116
(20,116)
2013
$’000
32,773
(32,773)
Cromwell
Trust
2014
$’000
488
70,025
4,025
74,050
15,676
1,031
731
238
17,676
(107)
17,569
346
412
758
559
–
559
2013
$’000
456
67,715
2,581
70,296
13,279
833
669
256
15,037
(178)
14,859
320
323
643
3
143
146
2014
$’000
–
70,025
4,025
74,050
2013
$’000
–
67,774
2,581
70,355
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66
C ROMW ELL 20 1 4 ANNUAL REPORT
7.
INCOME TAX
Income tax expense
(a)
Current tax
Deferred tax
Change in tax losses recognised
Adjustment in relation to prior periods
Income tax expense
Cromwell
2014
$’000
2013
$’000
Trust
2014
$’000
2013
$’000
1,428
(455)
–
(1)
972
1,519
137
(933)
(40)
683
(b) Numerical reconciliation of income tax expense to prima facie tax
Profi t before income tax
Tax at the Australian tax rate of 30% (2013: 30%)
Tax effect of amounts which are not deductible/ (taxable) in
calculating taxable income:
Trust income
Non-deductible expenses
Non-deductible property development costs/impairment
Assessable for income tax
Change in tax losses recognised
Adjustment in relation to prior periods
Income tax expense
183,443
55,033
46,839
14,052
(53,128)
(12,987)
(18)
–
–
(914)
(1)
972
215
278
98
(933)
(40)
683
(c) Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Tax losses
20,998
17,792
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of
certain tax losses (both revenue and capital) because it is not probable that future taxable profi t will be available against
which the consolidated entity can utilise the benefi ts from the deferred tax assets. All unused tax losses were incurred by
Australian entities.
(d) Tax consolidation
Refer note 1(d) for details regarding the relevance of the tax consolidation system to the consolidated entity, the tax
funding arrangements and other information.
No amounts were recognised during the year (2013: $nil) as tax consolidation contributions by, or distributions to, equity
participants.
8. CASH AND CASH EQUIVALENTS
Cash at bank
Cash and cash equivalents
Cromwell
Trust
2014
$’000
117,820
117,820
2013
$’000
125,933
125,933
2014
$’000
67,451
67,451
2013
$’000
75,126
75,126
CROMWELL 2014 ANNUAL RE PORT
67
9. TRADE AND OTHER RECEIVABLES
Current Assets
Trade debtors
Provision for impairment of trade debtors
Trade and other receivables – current
Cromwell
Trust
2014
$’000
5,057
(355)
4,702
2013
$’000
7,940
–
7,940
2014
$’000
2,336
(355)
1,981
2013
$’000
6,816
–
6,816
Trade debtors mainly comprises of amounts owing by tenants of Cromwell and the Trust’s investment properties and
recoverable costs owed by external managed investment schemes. These amounts are usually non-interest bearing,
unsecured and generally payable on no more than 30 day terms.
(a) Loans – related parties
Cromwell Property Trust 12
The Cromwell Property Trust 12 (“C12”), ARSN 166 216 995, an unlisted multi-property trust was constituted on 20 June
2013 and registered on 22 October 2013. Cromwell Funds Management Limited (“CFM”), a subsidiary of the Company, has
acted as responsible entity since C12’s inception. C12 was established to acquire and hold three properties and has a fi xed
term until 2020.
CFM issued a PDS on 29 October 2013 in order to raise up to $76,000,000 from investors in C12.
Cromwell and the Trust have provided a loan facility of $50,000,000 to C12, which is unsecured, to enable the acquisition
of the buildings and provide funding for initial construction. The facility was drawn to a maximum $37,189,000 during the
fi nancial year, but repaid in full prior to balance date. While the loan was drawn down Cromwell and the Trust earned a
return equivalent to the C12 distribution rate of 7.75%.
Cromwell Box Hill Trust
During the year the Cromwell Box Hill Trust ARSN 161 394 243 (“BHT”), an unlisted single property trust, for which
Cromwell Funds Management Limited (“CFM”), a subsidiary of the Company, acts as responsible entity, was advanced a
short term loan of $2,000,000.
The loan facility was unsecured and the funds were utilised to settle fi nal construction costs for which BHT was liable.
The loan was repaid in full as soon as BHT had external funding arrangements in place. While the loan was drawn down,
Cromwell and the Trust earned a return equivalent to the BHT distribution rate of 7.75%.
(b) Past due but not impaired receivables
At balance date, Cromwell and the Trust had $1,060,000 (2013: $3,837,000) of trade and other receivables which were past
due but not impaired which relate to a number of tenants for whom there is no recent history of default.
Impaired receivables
(c)
As at 30 June 2014 $355,000 trade receivables of Cromwell and the Trust were impaired (2013: $nil).
The ageing analysis of impaired receivables is as follows:
1 to 3 months
Movements in the provision for impairment of receivables are as follows:
Balance at 1 July
Provision for impairment recognised during the year
Provision for impairment utilised in respect of non-recovered amount
Balance at 30 June
2014
$’000
355
355
–
355
–
355
2013
$’000
–
–
127
–
(127)
–
The creation of the provision has been included in property expenses and outgoings in the statement of comprehensive
income.
68
C ROMW ELL 20 1 4 ANNUAL REPORT
10. OTHER CURRENT ASSETS
Cromwell
2014
$’000
2013
$’000
Trust
2014
$’000
2013
$’000
Prepayments
2,714
2,527
1,686
1,844
11. INVENTORIES
Non-current
Land held for development and resale (net realisable value)
Inventories
12. INVESTMENT PROPERTIES
Cromwell
2014
$’000
2013
$’000
Trust
2014
$’000
2013
$’000
3,000
3,000
3,000
3,000
–
–
–
–
Cromwell
2014
$’000
2013
$’000
Trust
2014
$’000
2013
$’000
Investment properties at fair value
2,249,470
2,396,000
2,249,470
2,396,000
(a) Movement in investment properties
Balance at 1 July
Additions at cost
Cromwell Property Fund – properties acquired
Purchase price of other investment properties
Acquisition transaction costs
Capital Works
Property improvements
Lifecycle
Disposals
Straight-lining of rental income
Lease costs and incentives
Amortisation of lease costs and incentives
Net gain/(loss) from fair value adjustments
Balance at 30 June
2,396,000
1,724,400
2,396,000
1,724,400
–
–
–
44,484
6,828
171,372
463,602
26,372
76,319
6,301
–
–
–
44,484
6,828
171,372
463,602
26,372
76,319
6,301
(250,009)
(42,439)
(250,009)
(42,439)
5,648
11,927
(11,634)
46,226
6,071
29,275
(9,526)
(55,747)
5,648
11,927
(11,634)
46,226
6,071
29,275
(9,526)
(55,747)
2,249,470
2,396,000
2,249,470
2,396,000
(b) Amounts recognised in profi t and loss for investment properties
Rental and outgoings from investment properties
259,419
206,665
258,683
206,478
Direct operating expense from properties that generated
rental income
(45,032)
(34,005)
(50,304)
(38,753)
214,387
172,660
208,379
167,725
(c) Assets pledged as security
Borrowings (refer Note 20) are secured by fi xed and fl oating charges over each investment property plus charges over any
building document, lease document, performance bond and bank guarantee in addition to a real property mortgage over
each property.
CROMWELL 2014 ANNUAL RE PORT
69
(d) Leases as a lessor
The investment properties are generally leased to tenants on long term operating leases with rentals payable monthly.
Minimum lease payments under the non-cancellable operating leases of the investment properties not recognised in the
fi nancial statements are receivable as follows:
Within one year
Later than one year but not later than fi ve years
Later than fi ve years
(e) Valuation basis
For further information refer to note 3(d).
Cromwell
Trust
2014
$’000
213,371
556,713
673,260
2013
$’000
217,749
624,900
741,200
2014
$’000
213,371
556,713
673,260
2013
$’000
217,869
624,900
741,200
1,443,344
1,583,849
1,443,344
1,583,969
70
C ROMW ELL 20 1 4 ANNUAL REPORT
(f) Details of investment properties
200 Mary Street, QLD
Terrace Offi ce Park, QLD
Oracle Building, ACT
Title
Indepen-
dent
valuation
date
Freehold
Jun 2014
Freehold Dec 2013
Leasehold Jun 2014
NQX Distribution Centre, QLD
Freehold
SOLD
74,500
23,500
29,400
–
Henry Waymouth Centre, SA
Freehold
Jun 2014
47,500
Independent
valuation
Carrying
amount
Fair value
adjustment
2014
$’000
2013
$’000
2014
$’000
2013
$’000
2014
$’000
2013
$’000
81,000
26,500
29,100
25,375
40,000
35,450
12,800
15,000
13,500
16,200
74,500
23,500
29,400
–
47,500
–
14,500
14,000
13,600
–
81,000
26,500
29,100
25,375
42,300
36,100
13,900
15,000
13,500
16,700
(7,918)
(3,017)
136
–
4,885
–
590
(893)
8
–
Freehold
SOLD
Freehold Dec 2013
Freehold Dec 2013
Freehold Dec 2013
Freehold
SOLD
–
14,500
14,000
13,600
–
Freehold Dec 2013
171,000
172,000
171,000
172,000
(617)
Leasehold Jun 2014
31,000
31,000
31,000
31,000
1,405
Freehold
Freehold
SOLD
SOLD
–
–
114,500
–
–
–
114,500
–
–
–
475 Victoria Avenue, NSW
Freehold
Jun 2014
132,000
135,000
132,000
135,000
(2,297)
Synergy, QLD
Freehold Dec 2013
72,000
73,500
72,000
73,500
(95)
Tuggeranong Offi ce Park, ACT
Leasehold Jun 2013
140,000
155,000
140,000
155,000
(15,303)
(18,130)
Leasehold Jun 2014
64,000
69,000
64,000
69,000
(4,956)
(1,109)
Bundall Corporate Centre, QLD
Freehold Dec 2013
70,000
Leasehold Dec 2013
205,920
175,000
205,920
180,500
Leasehold Dec 2013
335,000
232,000
335,000
275,000
Freehold
Jun 2014
197,500
200,000
197,500
200,000
Freehold
SOLD
Freehold Dec 2013
Leasehold Jun 2014
Freehold
SOLD
Freehold Dec 2013
Freehold
Jun 2014
Freehold
Jun 2014
Freehold Dec 2013
Freehold
Jun 2014
Freehold
Jun 2014
–
31,600
43,500
–
2,100
28,500
36,000
59,000
16,700
23,900
68,000
36,800
31,750
62,500
19,000
2,475
29,000
36,000
53,000
13,800
22,600
70,000
–
31,600
43,500
–
2,100
28,500
36,000
59,000
16,700
23,900
25,065
16,140
(3,564)
(1,802)
–
(283)
8,836
8,901
3,673
577
(2,377)
(3,349)
68,500
36,800
31,750
62,500
(19,202)
(11,831)
19,000
2,475
30,000
35,000
53,000
13,800
22,600
–
(375)
(501)
(6)
5,307
1,996
1,294
Freehold
Jun 2014
174,000
133,000
174,000
133,000
34,307
Freehold
Jun 2014
26,500
23,900
26,500
23,900
2,586
Freehold Dec 2013
141,000
130,000
141,000
130,000
10,833
Freehold
Jun 2014
31,250
28,700
31,250
28,700
2,503
2,249,470
2,342,450 2,249,470
2,396,000
46,226
(55,747)
Brooklyn Woolstore, VIC
Village Cinemas, VIC
Vodafone Call Centre, TAS
Regent Cinema Centre, NSW
Elders Woolstore, SA
700 Collins Street, VIC
19 National Circuit, ACT
380 La Trobe Street, VIC
101 Grenfell Street, SA
TGA Complex, ACT
321 Exhibition Street, VIC
203 Coward Street, NSW
HQ North, QLD
HomeBase, NSW(1)
43 Bridge Street, NSW(1)
13 Keltie Street, ACT(1)
28-54 Percival Road, NSW(1)
Sturton Road, SA(1)
147-163 Charlotte Street, QLD
146-160 Mary Street, QLD
4-6 Bligh Street, NSW
117 Bull Street, NSW
11 Farrer Street, NSW
207 Kent Street, NSW
84 Crown Street, NSW
2-24 Rawson Place, NSW
2-6 Station Street, NSW
Total investment properties
(7,139)
(314)
(934)
(1,078)
(6,735)
1,718
465
(244)
87
656
(613)
(918)
27
(701)
1,638
1,618
(2,538)
(225)
(1,743)
(2,164)
(2,941)
(766)
(1,254)
(6,707)
(1,326)
(7,214)
(1,593)
(1) Buildings acquired in a business combination transaction, through the acquisition of the Cromwell Property Fund (see notes 14 and 38).
CROMWELL 2014 ANNUAL RE PORT
71
13. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Unlisted equity securities at fair value
Listed equity securities at fair value
Investments at fair value through profi t or loss
Cromwell
Trust
2014
$’000
9,945
601
10,546
2013
$’000
7,153
315
7,468
2014
$’000
9,945
601
10,546
2013
$’000
7,153
315
7,468
These investments are designated at fair value through profi t or loss. Gains and losses are shown in profi t or loss.
14. EQUITY ACCOUNTED INVESTMENTS
At balance date Cromwell had investments in three joint ventures, Phoenix Portfolios Pty Ltd (“Phoenix”), Cromwell
Partners Trust (“CPA”) and Oyster Property Funds Limited (“Oyster”).
Phoenix
This entity was formed in Australia and its principal activity is investment management. The reporting date for Phoenix
is the same as for Cromwell. During the prior year additional non-voting equity was issued to a third party which reduced
Cromwell’s ownership interest from 50% to 45% whilst preserving the Cromwell’s 50% ownership of issued capital to
which voting rights attach. The remaining 50% of issued capital to which voting rights attach is held by one other investor.
CPA
During the year Cromwell acquired a 50% ownership interest in the CPA. CPA is the parent of Cromwell Northpoint
Trust, which itself owns the Northpoint Building in the North Sydney CBD. The reporting date for CPA is the same as
for Cromwell. Cromwell acts as the trustee for the Trust. The remaining 50% of the units in the CPA are held by a single
investor. A unit holder agreement between Cromwell and the other investor limits the power of the trustee such that
Cromwell’s investment in CPA has been determined to be a jointly controlled entity.
Oyster
During the year Cromwell acquired a 50% ownership interest in Oyster. This entity was formed in New Zealand and its
principal activity is investment and property management. The reporting date for Oyster is the same as for Cromwell.
The remaining 50% ownership of Oyster is held by six investors. The board of Oyster comprises three representatives
appointed by the six investors and three representatives from Cromwell with no deciding or “chairman’s” vote. A
shareholder agreement between Cromwell and the six investors outlines how Oyster will be managed. By virtue of the
board arrangement and the shareholder agreement, Cromwell’s investment in Oyster has been determined to be a jointly
controlled entity.
CPF
Cromwell and the Trust previously held an investment in an associate, Cromwell Property Fund (“CPF”). The remaining
units of CPF not previously owned by Cromwell and the Trust were acquired during the prior year (refer note 38).
Investments
(a)
The investments are accounted for using the equity method of accounting. Information relating to the investments is
detailed below:
Cromwell
Investments accounted for using the equity method:
CPF – associate
CPA – joint venture
Oyster – joint venture
Phoenix – joint venture
Trust
Investments accounted for using the equity method:
CPF – associate
CPA – joint venture
Ownership Interest
2013
2014
%
%
2014
$’000
2013
$’000
–
50
50
45
–
–
–
–
–
45
–
–
–
72,524
4,596
406
77,526
–
72,524
–
–
–
100
100
–
–
72
C ROMW ELL 20 1 4 ANNUAL REPORT
(b) Movement in carrying amount of equity accounted investments
Cromwell
2014
Balance at 1 July 2013
Cost of initial investment
Share of profi t/(loss) (1) (2)
Distributions received
Balance at 30 June 2014
2013
Balance at 1 July 2012
Share of profi t (1)
Carrying value consolidated (3)
Balance at 30 June 2013
Trust
2014
Balance at 1 July 2013
Cost of initial investment
Share of profi t/(loss) (1)
Distributions received
Balance at 30 June 2014
2013
Balance at 1 July 2012
Share of of profi t/(loss) (1)
Carrying value consolidated (3)
Balance at 30 June 2013
CPF
$’000
Total
$’000
Phoenix
$’000
Oyster
$’000
100
–
306
–
406
47
53
–
100
–
4,596
–
–
4,596
–
–
–
–
CPA
$’000
–
77,632
(3,248)
(1,860)
72,524
–
–
–
–
CPA
$’000
–
77,632
(3,248)
(1,860)
77,524
–
–
–
–
–
4,705
593
(5,298)
–
CPF
$’000
–
–
–
–
–
–
–
–
–
4,705
593
(5,298)
–
100
82,228
(2,942)
(1,860)
77,526
4,752
646
(5,298)
100
Total
$’000
–
77,632
(3,248)
(1,860)
72,524
4,705
593
(5,298)
–
(1) Share of profi t/(loss) includes fair value gain/(loss) on investment properties and interest rate derivatives where applicable.
(2) Cromwell received no share of profi t from Oyster due to the investment being transacted close to the end of the fi nancial year.
(3) The carrying amount of CPF was derecognised following the acquisition of the remaining units of CPF in October 2012, resulting in CPF
being fully consolidated by Cromwell and the Trust.
CROMWELL 2014 ANNUAL RE PORT
73
(c) Share of assets and liabilities of equity accounted investments
2014
Phoenix
$’000
Oyster
$’000
CPA
$’000
Total
$’000
Phoenix
$’000
2013
CPF
$’000
Total
$’000
Current Assets
Cash
Other current assets
Total current assets
Non-current assets
Investment properties
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Financial liabilities
Other current liabilities
Total current liabilities
Non-current liabilities
Financial liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
228
185
413
–
94
94
507
87
14
101
–
–
–
101
406
358
393
751
5,380
358
5,738
5,966
936
6,902
–
139,350
139,350
–
5,318
139,350
144,668
239
–
239
–
3
3
145,088
151,570
242
3,002
298
3,300
3,768
994
4,780
69,264
69,264
–
69,264
72,564
72,524
–
69,264
74,044
77,526
–
–
–
–
(142)
(142)
(142)
100
5,224
5,224
5,975
1,325
54
1,379
–
–
–
1,379
4,596
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
239
–
239
–
3
3
242
–
–
–
–
(142)
(142)
(142)
100
(d) Share of revenues, expenses and results of equity accounted investments
Revenue (1)
Interest income
Other revenue
Total revenue
Expenses (1)
Interest expense
Depreciation and amortisation
Other expenses
Total expenses
Total comprehensive income
Share of profi t/(loss)
3
709
712
–
–
(406)
(406)
306
306
–
–
–
–
–
–
–
–
–
69
7,291
7,360
72
8,000
8,072
(1,535)
(1,535)
(86)
(86)
(8,987)
(9,393)
(10,608)
(11,014)
(3,248)
(3,248)
(2,942)
(2,942)
–
437
437
–
–
(384)
(384)
53
53
–
1,409
1,409
–
–
(816)
(816)
593
593
–
1,846
1,846
–
–
(1,200)
(1,200)
646
646
(1) Cromwell received no share of profi t from Oyster due to the investment being transacted extremely close to the end of the fi nancial year.
74
C ROMW ELL 20 1 4 ANNUAL REPORT
15. PROPERTY, PLANT AND EQUIPMENT
Furniture and fi ttings at cost
Accumulated depreciation
Plant and equipment at cost
Accumulated depreciation
Property, plant and equipment
Cromwell
2014
$’000
1,351
(141)
1,210
2,292
(1,732)
560
1,770
2013
$’000
1,612
(871)
741
2,033
(1,466)
567
1,308
–
–
–
–
–
–
–
Trust
2014
$’000
2013
$’000
(a) Movement in property, plant and equipment
Reconciliations of the carrying amounts of each class of property, plant and equipment are set out below.
Cromwell
Balance at 1 July 2013
Additions
Disposals
Depreciation
Balance at 30 June 2014
Balance at 1 July 2012
Additions
Disposals
Depreciation
Balance at 30 June 2013
Furniture
and Fittings
$’000
Plant and
Equipment
Owned
$’000
741
1,068
(534)
(65)
1,210
796
25
–
(80)
741
567
299
(25)
(281)
560
531
279
(3)
(240)
567
–
–
–
–
–
–
–
Total
$’000
1,308
1,367
(559)
(346)
1,770
1,327
304
(3)
(320)
1,308
16. DEFERRED TAX ASSETS
Deferred tax assets
Deferred tax assets and liabilities are attributable to the following:
Cromwell
2014
$’000
1,272
2013
$’000
804
Interests in managed investment schemes
(1,900)
(1,918)
Employee benefi ts
Provisions
Transaction costs and sundry items
Tax losses recognised
Movements
Balance at 1 July
Reduction in current tax liability on use of tax losses previously recognised
(Debit)/credit to profi t or loss
Change in tax losses recognised
Adjustments in relation to prior periods
Balance at 30 June
907
30
285
1,952
1,272
804
–
(23)
492
(1)
1,272
718
17
527
1,460
804
914
(1,189)
(137)
933
283
804
Trust
2014
$’000
2013
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The benefi t of temporary differences and prior year tax losses recognised as a deferred tax asset was based on projected
earnings over a limited period that the Directors considered to be probable. Projected earnings are re-assessed at each
reporting date. There remains a signifi cant amount of tax losses that have not been recognised as a deferred tax asset
(refer note 7).
CROMWELL 2014 ANNUAL RE PORT
75
17. INTANGIBLE ASSETS
Software – at cost
Accumulated amortisation
Intangible assets
Cromwell
2014
$’000
3,239
(2,119)
1,120
2013
$’000
2,737
(1,707)
1,030
Amortisation of software is included in amortisation expense in profi t or loss.
Reconciliations of the carrying amounts of software are set out below:
Balance at 1 July
Additions
Disposals
Amortisation
Balance at 30 June
18. TRADE AND OTHER PAYABLES
1,030
502
–
(412)
1,120
633
863
(143)
(323)
1,030
Trust
2014
$’000
2013
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Trade payables and accruals
Lease incentives payable
Tenant security deposits
Other payables
Trade and other payables
Cromwell
Trust
2014
$’000
16,703
6,897
954
1,158
25,712
2013
$’000
11,662
12,782
1,020
2,550
28,014
2014
$’000
15,285
6,897
954
186
23,322
2013
$’000
11,818
12,782
1,020
1,410
27,030
Trade and other payables are generally unsecured, non-interest bearing and paid in cash within 30-60 days of recognition.
Lease incentives payable are generally unsecured, non-interest bearing and paid in cash or by way of a rental rebate
within 6 months of recognition according to the terms of the underlying lease.
19. DISTRIBUTIONS PAYABLE
Distributions payable
Cromwell
Trust
2014
$’000
33,466
2013
$’000
31,061
2014
$’000
33,466
2013
$’000
31,066
Distributions payable relate to June quarter distributions declared in June and payable in August of each year.
76
C ROMW ELL 20 1 4 ANNUAL REPORT
20. BORROWINGS
Current
Secured
Loans – fi nancial institutions
Borrowings – current
Non-Current
Secured
Loans – fi nancial institutions
Unamortised transaction costs
Borrowings – non-current
Total
Secured
Loans – fi nancial institutions
Unamortised transaction costs
Total borrowings
Cromwell
Trust
2014
$’000
2013
$’000
2014
$’000
2013
$’000
90,500
90,500
–
–
90,500
90,500
–
–
1,019,000
1,237,578
1,019,000
1,237,578
(7,786)
(4,858)
(7,786)
(4,858)
1,011,214
1,232,720
1,011,214
1,232,720
1,109,500
1,237,578
1,109,500
1,237,578
(7,786)
(4,858)
(7,786)
(4,858)
1,101,714
1,232,720
1,101,714
1,232,720
Loans shown above are net of transaction costs which are amortised over the term of the loan.
(a) Borrowing details
Borrowings of Cromwell and the Trust are the same and details at balance date are set out below:
Facility
Note
Secured
Syndicated Facility – new (Tranche 1)
Syndicated Facility – new (Tranche 2)
Syndicated Facility – former facility
Tuggeranong
Multi Property (Tranche 1)
Multi Property (Tranche 2)
Mascot (Tranche 1)
Mascot (Tranche 2)
Mascot (Tranche 3)
HQ North (Tranche 1)
Bundall Corporate Centre
Cromwell Property Fund
NSW Portfolio
Total facilities
(i)
(i)
(ii)
(iii)
(iv)
(iv)
(v)
(v)
(v)
(vi)
(vii)
(viii)
(ix)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Maturity
Date
May 2018
May 2019
Jan 2016
Facility
2014
$’000
422,000
597,000
Utilised
2014
$’000
422,000
597,000
–
–
June 2015
90,500
90,500
July 2015
July 2015
Dec 2014
Dec 2014
Dec 2014
Dec 2014
Jan 2015
June 2015
June 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Facility
2013
$’000
Utilised
2013
$’000
–
–
352,467
100,595
132,719
100,000
62,400
83,750
47,720
–
–
352,467
100,595
132,719
98,653
62,400
58,762
–
106,506
106,506
34,916
90,560
34,916
90,560
200,000
200,000
1,109,500
1,109,500
1,311,633
1,237,578
(i) Syndicated Facility – new - Tranches 1 and 2
During the year a new Syndicated fi nance facility was established. The Syndicated fi nance facility is secured by fi rst
registered mortgages over a pool of the investment properties held by the Trust and is split into two tranches, one of
$422,000,000 which expires in May 2018 and one of $597,000,000 which expires in May 2019. Interest is payable monthly in
arrears at variable rates based on the 30 day BBSY rate which was 2.66% at balance date plus a loan margin. The facility
was fully drawn and the proceeds used to repay all debt facilities other than Tuggeranong (Tranche 1).
(ii) Syndicated Facility – former facility
The Syndicated fi nance facility was retired and fully repaid during the 2014 fi nancial year. The Syndicated fi nance facility
was secured by fi rst registered mortgages over a pool of the investment properties held by Cromwell and a registered
fl oating charge over the assets of the Trust. Interest was payable monthly in arrears at variable rates based on the 30 day
BBSY rate plus a loan margin. Repayments of $352,467,000 (2013: $23,705,000) were made during the year from proceeds
of the new Syndicated facility.
CROMWELL 2014 ANNUAL RE PORT
77
(iii) Tuggeranong
The loan is secured by a fi rst registered mortgage over Tuggeranong Offi ce Park. The loan matures in June 2015. The loan
bears interest at a variable rate based on the 30 day BBSY rate plus a loan margin. Repayments of $10,095,000 (2013:
$10,643,000) were made during the year.
(iv) Multi Property
The loan was secured by fi rst registered mortgage over the Synergy, Mary Street, TGA and Exhibition Street investment
properties. The facility limit was $232,719,000 in aggregate and had 2 remaining tranches.
Tranche 1 related to the TGA Complex in Canberra and the 200 Mary Street and Synergy properties in Brisbane and
was fully drawn. Tranche 2 related to the Exhibition Street property and $98,653,000 had been drawn of the limit of
$100,000,000. Both tranches bore interest at a variable rate based on the 30 day BBSY rate plus a loan margin.
Both tranches were repaid and replaced by the new Syndicated facility during the year.
(v) Mascot
The loan was secured by a fi rst registered mortgage over the 203 Coward Street, Mascot property. The loan consisted of 2
remaining tranches.
Tranche 1 had been fully drawn to $62,400,000. Tranche 2 was drawn to $83,379,000 during the period (June 2013:
$58,762,000).
The loan bore interest at a variable rate based on a margin over the 30 day BBSY rate.
Both tranches were repaid and replaced by the new Syndicated facility during the year.
(vi) HQ North
The loan was secured by a fi rst registered mortgage over the HQ North investment property and bore interest at a variable
rate based on the 30 day BBSY rate plus a margin.
The loan was repaid and replaced by the new Syndicated facility during the year.
(vii) Bundall Corporate Centre
The loan was secured by a fi rst registered mortgage over the Bundall Corporate Centre investment property and bore
interest at a variable rate based on the 30 day BBSY rate plus a margin.
The loan was repaid and replaced by the new Syndicated facility during the year.
(viii) Cromwell Property Fund
CPF became a consolidated entity of Cromwell during the period (see notes 14 and 38) and as a result Cromwell and the
Trust assumed a $112,250,000 loan. The loan was secured by fi rst registered mortgages over the investment properties of
CPF (refer note 14) and a registered fl oating charge over the assets of CPF. The loan bore interest at a variable rate based
on a margin over the 30 day BBSY.
The loan was repaid and replaced by the new Syndicated facility during the year.
(ix) NSW Portfolio
The facility was $200,000,000 and was fully drawn down during June 2013 in order to partly fund the acquisition of the
NSW Property Portfolio. The loan bore interest at a variable rate based on a margin over the 30 day BBSY rate.
The loan was repaid and replaced by the new Syndicated facility during the year.
(b) Maturity Profi le
Maturity profi le of the principal amounts of current and non-current borrowings together with estimated interest thereon:
Due within one year
Due between one and fi ve years
Cromwell
Trust
2014
$’000
139,357
2013
$’000
60,209
2014
$’000
139,357
2013
$’000
60,209
1,183,663
1,312,065
1,183,663
1,312,065
1,323,020
1,372,274
1,323,020
1,372,274
(c) Unused Finance Facilities
At balance date Cromwell had no unused fi nance facilities (2013: $74,055,000).
78
C ROMW ELL 20 1 4 ANNUAL REPORT
Interest Rate Risk
(d)
Interest rate derivatives
Cromwell manages its cash fl ow interest-rate risk by using fl oating-to-fi xed interest rate derivatives. Such interest rate
derivatives have the economic effect of converting borrowings from fl oating rates to fi xed rates. Generally, Cromwell raises
long term borrowings at fl oating rates and a portion of them into fi xed or limited range of rates.
Information regarding Cromwell’s exposure to interest rates is provided in note 5.
21. DERIVATIVE FINANCIAL INSTRUMENTS
Cromwell
Trust
2014
$’000
2013
$’000
2014
$’000
2013
$’000
Current liabilities
Interest rate derivatives – at fair value
15,332
17,638
15,332
17,638
Non-current liabilities
Interest rate derivatives – at fair value
14,953
17,870
14,953
17,870
Details of principal amounts, expiry dates and interest ranges of interest rate derivative (hedging) contracts are set out in
note 5(c)(iii).
Valuation basis
For further information refer to note 3(c).
22. PROVISIONS
Current
Employee benefi ts
Non-Current
Employee benefi ts
Make good
Provisions
Movement in provisions
Balance at 1 July
Provision increased
Balance at 30 June
Cromwell
2014
$’000
1,211
1,211
1,085
100
1,185
2013
$’000
1,215
1,215
843
100
943
Trust
2014
$’000
2013
$’000
–
–
–
–
–
–
–
–
–
–
Make Good
2014
$’000
100
–
100
2013
$’000
100
–
100
23. OTHER CURRENT LIABILITIES
Unearned income
Cromwell
Trust
2014
$’000
11,240
2013
$’000
15,468
2014
$’000
11,240
2013
$’000
15,468
Unearned income primarily comprises rent paid in advance by tenants.
CROMWELL 2014 ANNUAL RE PORT
79
24. CONTRIBUTED EQUITY
(a) Equity attributable to shareholders/unitholders
Contributed equity
1,372,093
1,360,755
104,370
103,323
1,267,748
1,257,707
Cromwell
Company
CDPT
2014
$’000
2013
$’000
2014
$’000
2013
$’000
2014
$’000
2013
$’000
Movements in ordinary shares/ordinary units
Date
Details
Number of
Securities
Cromwell
Issue
Price
1 Jul 12
Opening balance
1,169,688,943
Company
CDPT
$’000
894,058
Issue
Price
$’000
66,344
Issue
Price
16 Aug 12 Dividend reinvestment plan
2,880,765
69.9¢
2,013
20 Sep 12 Exercise of performance rights
20 Sep 12 Exercise of performance rights
4 Oct 12
CPF acquisition
8 Oct 12
Placement
170,287
123,459
32,339,260
16,911,765
14 Nov 12 Dividend reinvestment plan
3,424,554
14 Dec 12 Placement
182,165,605
13 Feb 13 Dividend reinvestment plan
3,317,803
14 Feb 13 Security purchase plan
49,959,701
–
10.0¢
75.0¢
68.0¢
80.0¢
78.5¢
83.5¢
78.5¢
15 May 13 Dividend reinvestment plan
2,739,314
101.4¢
–
12
24,255
11,500
2,741
143,000
2,771
39,218
2,777
11 Jun 13 Placement
128,023,212
100.0¢
128,023
64,570,891
100.0¢
2,424,768
100.0¢
54,981,129
100.0¢
11 Jun 13 Entitlement offer
11 Jun 13 Entitlement offer
24 Jun 13 Entitlement offer
Transaction costs
1 Aug 13
Exercise of performance rights
1 Aug 13
Exercise of performance rights
–
1,713,721,456
153,194
60,292
15 Aug 13 Dividend reinvestment plan
3,064,282
4 Sep 13
Exercise of performance rights
580,000
4 Sep 13
Exercise of performance rights
4 Sep 13
Exercise of performance rights
95,894
47,433
4 Sep 13
Exercise of performance rights
101,378
19 Sep 13 Exercise of performance rights
1,333,333
13 Sep 13 Dividend reinvestment plan
12 Feb 14 Dividend reinvestment plan
25 Mar 14 Redemption of units
2,325,881
3,214,013
–
64,571
2,425
54,981
(11,590)
1,360,755
–
12
2,999
290
19
5
–
666
2,237
3,161
–
–
–
20.0¢
97.7¢
50.0¢
20.0¢
10.0¢
–
50.0¢
96.2¢
98.3¢
–
5.3¢
–
0.8¢
5.7¢
5.1¢
6.0¢
5.9¢
6.3¢
5.9¢
8.3¢
8.2¢
8.2¢
8.2¢
8.2¢
–
–
1.6¢
8.0¢
4.7¢
1.9¢
0.9¢
–
4.7¢
9.0¢
9.1¢
–
14 May 14 Dividend reinvestment plan
2,583,694
96.7¢
2,499
9.0¢
Transaction costs
–
–
(550)
–
152
64.6¢
–
1
1,829
867
207
10,782
209
2,957
227
10,446
5,269
198
4,486
(651)
103,323
–
1
245
27
2
1
–
62
209
295
–
237
(32)
–
9.2¢
69.3¢
62.9¢
74.0¢
72.6¢
77.2¢
72.6¢
93.1¢
91.8¢
91.8¢
91.8¢
91.8¢
–
–
18.4
89.7¢
45.3¢
18.1¢
9.1¢
–
45.3¢
87.2¢
89.2¢
91.0¢
87.7¢
–
$’000
827,989
1,861
–
11
22,426
10,633
2,534
132,218
2,562
36,261
2,550
117,577
59,302
2,227
50,495
(10,939)
1,257,707
–
11
2,754
263
17
4
–
604
2,028
2,866
(250)
2,262
(518)
1,727,280,850
1,372,093
104,370
1,267,748
The basis of allocation of the issue price of stapled securities issued post stapling is determined by agreement between
the Company and the Trust as set out in the Stapling Deed.
The Company/CDPT has established a dividend/distribution reinvestment plan under which holders of stapled securities
may elect to have all of their dividend/distribution entitlement satisfi ed by the issue of new ordinary stapled securities
rather than being paid in cash. Securities may be issued under the plan at a discount to the market price as determined by
the Directors before each dividend/distribution. During 2014 and 2013 all securities were issued at market price, with no
discount.
80
C ROMW ELL 20 1 4 ANNUAL REPORT
(b) Stapled Securities
The ordinary shares of the Company are stapled with the units of the Trust. These entitle the holder to participate in
dividends and distributions as declared from time to time and the proceeds on winding up. On a show of hands every
holder of stapled securities present at a meeting in person, or by proxy, is entitled to one vote, and upon a poll each
stapled security is entitled to one vote.
A reconciliation of the stapled number of ordinary shares of the Company and ordinary units of the Trust is as follows:
Ordinary shares / ordinary units
Unstapled units (held by the Company)
25. RESERVES
Share based payments
Available-for-sale fi nancial assets revaluation reserve
Reserves
Movements in reserves
Share based payments
Balance at 1 July
Options expensed
Balance at 30 June
2014
Company
Number
2014
CDPT
Number
2013
Company
Number
2013
CDPT
Number
1,727,280,850 1,727,280,850
1,713,721,456
1,713,996,562
–
–
–
(275,106)
1,727,280,850 1,727,280,850
1,713,721,456
1,713,721,456
Trust
2014
$’000
2013
$’000
Cromwell
2014
$’000
3,589
2,340
5,929
2,858
731
3,589
2013
$’000
2,858
2,340
5,198
2,189
669
2,858
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The share based payments reserve is used to recognise the fair value of options issued for employee services.
Available-for-sale fi nancial assets revaluation reserve
Balance at 1 July
Balance at 30 June
2,340
2,340
2,340
2,340
–
–
Changes in the fair value of investments classifi ed as available-for-sale are taken to the available-for-sale fi nancial assets
revaluation reserve. Amounts are recognised in profi t or loss when the associated assets are disposed/sold or impaired.
For Cromwell the balance at year end comprises a reserve of a subsidiary attributable to its pre-stapling interest in a trust
which continues to be held. For Cromwell there was no movement in the available-for-sale fi nancial assets revaluation
reserve over the last two fi nancial years.
26. RETAINED EARNINGS/(ACCUMULATED LOSSES)
Cromwell
Trust
2014
$’000
2013
$’000
2014
$’000
2013
$’000
Retained Earnings/(Accumulated Losses)
(43,244)
(48,697)
(70,430)
(116,977)
Movements in retained earnings/(accumulated losses)
Balance at 1 July
Profi t for the year
Distributions
Balance at 30 June
(48,697)
4,521
–
(51,562)
2,865
–
(44,176)
(48,697)
(116,977)
177,950
(131,403)
(70,430)
(58,589)
43,291
(101,679)
(116,977)
CROMWELL 2014 ANNUAL RE PORT
81
27. NON-CONTROLLING INTERESTS
Non-controlling interests
Movements in non-controlling interests
Balance at 1 July
Units issued by CDPT
Units issued by subsidiary
Profi t/(loss) for the year
Distributions paid/payable
Balance at 30 June
28. DIVIDENDS/DISTRIBUTIONS
Franking credits
Cromwell
2014
$’000
2013
$’000
1,197,875
1,141,028
Trust
2014
$’000
6,313
1,141,028
10,291
–
177,950
769,678
429,718
–
43,291
(131,394)
(101,659)
1,197,875
1,141,028
4,732
–
2,113
(168)
(364)
6,313
2013
$’000
4,732
5,320
–
–
(19)
(569)
4,732
Franking credits available for subsequent years based on a tax rate of 30% (2013 – 30%)
Cromwell
2014
$’000
1,945
2013
$’000
1,315
The above amounts represent the balance of the franking account as at the end of the fi nancial year, adjusted for:
• franking credits that will arise/(decrease) from the payment/(receipt) of the amount of the provision/(receivable) for
income tax;
• franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
Dividends paid/payable by the Company
There were no dividends paid or payable by the Company in respect of the 2014 and 2013 fi nancial years.
Distributions paid/payable by Cromwell
2014
Date Paid
2013
Date Paid
13 November 2013
12 February 2014
14 May 2014
14 August 2014
14 November 2012
13 February 2013
15 May 2013
15 August 2013
(1) Cents per stapled security.
Distributions paid/payable by the Trust
2014
Date Paid
2013
Date Paid
13 November 2013
12 February 2014
14 May 2014
14 August 2014
(1) Cents per unit.
14 November 2012
13 February 2013
15 May 2013
15 August 2013
2014
Cents (1)
1.8750¢
1.8750¢
1.9375¢
1.9375¢
7.6250¢
2014
Cents (1)
1.8750¢
1.8750¢
1.9375¢
1.9375¢
7.6250¢
2013
Cents (1)
1.8125¢
1.8125¢
1.8125¢
1.8125¢
7.2500¢
2013
Cents (1)
1.8125¢
1.8125¢
1.8125¢
1.8125¢
7.2500¢
2014
$’000
32,234
32,278
33,416
33,466
2013
$’000
21,243
22,874
26,481
31,061
131,394
101,659
2014
$’000
32,239
32,282
33,416
33,466
2013
$’000
21,248
22,879
26,486
31,066
131,403
101,679
All distributions from Cromwell and the Trust are unfranked. The determination of the Trust’s distributable income
excludes unrealised gains/(losses) including fair value adjustments to investment properties and interest rate derivatives.
82
C ROMW ELL 20 1 4 ANNUAL REPORT
29. EARNINGS PER SHARE
Basic earnings/(loss) per share/unit
Diluted earnings/(loss) per share/unit
Cromwell
Trust
2014
0.26¢
0.26¢
2013
0.21¢
0.21¢
2014
10.34¢
10.31¢
2013
3.23¢
3.23¢
$’000
$’000
$’000
$’000
Earnings used to calculate basic and diluted earnings per share/unit:
Profi t for the year
Profi t/loss attributable to non-controlling interests
Profi t attributable to ordinary equity holders of the company/
trust used in calculating basic/diluted earnings per share/unit
182,471
177,950
46,156
43,291
177,782
43,272
(168)
(19)
4,521
2,865
177,950
43,291
Weighted average number of ordinary shares/units used in
calculating basic earnings per share/unit
Effect of dilutive securities:
Number
of Shares
Number
of Shares
Number
of Units
Number
of Units
1,721,314,454 1,341,491,052 1,721,516,450 1,341,766,158
– Director and employee performance rights
4,845,641
4,481,124
4,845,641
4,481,124
Weighted average number of ordinary shares/units and
potential ordinary shares/units used in calculating diluted
earnings per share/unit
1,726,160,095 1,345,972,176 1,726,362,091 1,346,247,284
Performance rights granted under the Performance Rights Plan are considered to be potential ordinary shares/units and
have been included in the determination of diluted earnings per share/unit to the extent to which they are dilutive. The
performance rights have not been included in the determination of basic earnings per share/unit. Details relating to the
performance rights are set out in note 32.
Earnings per stapled security
Basic earnings per stapled security
Diluted earnings per stapled security
Earnings used to calculate basic and diluted earnings per stapled security:
Profi t for the year attributable to company shareholders
Profi t for the year attributable to trust unitholders
Profi t attributable to stapled security holders of Cromwell used in calculating
basic/diluted earnings per stapled security
Weighted average number of stapled securities used in calculating
basic earnings per stapled security
Effect of dilutive securities:
– Director and employee performance rights
Weighted average number of ordinary stapled securities and potential ordinary
stapled securities used in calculating diluted earnings per stapled security
Cromwell
2014
10.60¢
10.57¢
2013
3.44¢
3.44¢
$’000
$’000
4,521
177,950
2,865
43,291
182,471
46,156
Number
of Securities
Number
of Securities
1,721,314,454 1,341,491,052
4,845,641
4,481,124
1,726,160,095 1,345,972,176
Performance rights granted under the Performance Rights Plan are considered to be potential ordinary stapled securities
and have been included in the determination of diluted earnings per stapled security to the extent to which they are
dilutive. The performance rights have not been included in the determination of basic earnings per stapled security.
Details relating to the performance rights are set out in note 32.
CROMWELL 2014 ANNUAL RE PORT
83
30. CASH FLOW INFORMATION
(a) Reconciliation of profi t/(loss) to net cash provided by operating activities
Cromwell
Trust
2014
$’000
2013
$’000
2014
$’000
2013
$’000
182,471
46,156
177,782
43,272
Net profi t
Amortisation and depreciation
Amortisation of loan transaction costs
Amortisation of lease costs and incentives
Share of (profi ts)/losses of associates (net of distributions)
Gain on sale of investment properties
Share based payments
Fair value net (gain)/loss from:
Investment properties
Interest rate derivatives
Investments at fair value through profi t or loss
Straight-line rentals
Loss on disposal of property, plant and equipment and intangibles
Business combination transaction costs
Changes in operating assets and liabilities:
(Increase)/decrease:
Trade and other receivables
Prepayments
Tax assets
Increase/(decrease):
Trade payables and accruals
Provisions (employee benefi ts/make good)
Unearned revenue
758
4,025
11,634
4,802
(3,152)
731
(46,226)
(5,222)
(85)
(5,648)
559
–
3,238
(187)
330
3,585
238
(4,227)
643
2,581
9,526
(646)
(132)
669
55,747
(7,326)
(47)
(6,071)
146
631
(2,774)
(349)
499
(1,264)
28
7,518
–
4,025
11,634
5,108
(3,152)
–
(46,226)
(5,222)
(85)
(5,648)
–
–
4,835
157
–
2,179
–
(4,227)
Net cash provided by operating activities
147,624
105,535
141,160
–
2,581
9,526
(593)
(132)
–
55,747
(7,326)
(47)
(6,071)
–
631
(3,251)
(410)
–
(2,914)
(225)
7,518
98,306
(b) Finance facilities
Refer to note 20 for details of unused fi nance facilities.
(c) Cash held as part of minimum net tangible assets
At balance date cash held by controlled entities of the Company of $9,525,000 (2013: $9,548,000) was utilised to meet
minimum net tangible asset requirements under their Australian Financial Services Licence (AFSL). As such, the cash is
effectively restricted in its use as it cannot readily be used to meet expenses and obligations of other Cromwell entities
without consideration of the AFSL requirements.
(d) Non cash items
Shares/units issued on reinvestment of distributions
Shares/units issued on acquisition of CPF
10,896
–
10,302
24,255
9,910
–
9,508
24,255
84
C ROMW ELL 20 1 4 ANNUAL REPORT
31. KEY MANAGEMENT PERSONNEL DISCLOSURES
(a) Key management personnel compensation
Cromwell & Trust
Short-term employee benefi ts
Post-employment benefi ts
Other long-term benefi ts
Share-based payments
2014
$
2013
$
4,756,491
4,643,841
185,169
130,640
497,842
173,800
73,891
514,104
5,570,142
5,405,636
Loans to key management personnel
(b)
No loans were made during the 2014 or 2013 years to key management personnel and no loans were outstanding at the
reporting date.
(c) Other transactions with key management personnel
Cromwell rents an apartment, located at 185 Macquarie Street, Sydney, which is owned by Mr. Paul Weightman, a director
of the Company. Total rent paid during 2014 was $88,400 (2013: $88,400). The payment of rent is on normal commercial
terms and conditions and at market rates.
32. SHARE BASED PAYMENTS
(a) Performance Rights Plan
A Performance Rights Plan (PRP) was established in September 2007 by the Company. All full-time and part-time
employees who meet minimum service, remuneration and performance requirements, including executive Directors of
the Company, are eligible to participate in the PRP at the discretion of the Board. Participation in the PRP by executive
Directors is subject to securityholder approval. The PRP is designed to provide long-term incentives for employees to
continue employment and deliver long-term securityholder returns.
Under the PRP, eligible employees are allocated performance rights. Each performance right enables the participant
to acquire a stapled security in Cromwell, at a future date and exercise price, subject to conditions. The number of
performance rights allocated to each participant is set by the Board or the Nomination & Remuneration Committee and
based on individual circumstances and performance.
The amount of performance rights that will vest under the PRP depends on a combination of factors which may include
Cromwell’s total securityholder returns (including price growth, dividends and capital returns), internal performance
measures and the participant’s continued employment. Performance rights allocated under the PRP generally vest in 3
years. Until performance rights have vested, the participant cannot sell or otherwise deal with the performance rights
except in certain limited circumstances. It is a condition of the PRP that a participant must remain employed by Cromwell
in order for performance rights to vest. Any performance rights which have not yet vested on a participant leaving
employment must be forfeited.
Under AASB 2 “Share based Payment”, the performance rights are treated as options for accounting purposes.
CROMWELL 2014 ANNUAL RE PORT
85
Set out below are summaries of the number of performance rights granted and exercised.
Grant Date
Expiry Date
Exercise price
Balance
at start of
the year
Granted
during
the year
Forfeited
during
the year
Exercised
during
the year
Balance
at year end
2014
23/08/2010
23/08/2010
23/08/2010
07/03/2011
26/05/2011
26/05/2011
26/05/2011
05/09/2011
05/09/2011
05/09/2011
24/08/2012
24/08/2012
12/10/2012
12/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
18/12/2013
18/12/2013
18/12/2013
18/12/2013
21/09/2013
21/09/2013
21/09/2013
01/08/2013
01/10/2013
01/10/2014
01/10/2015
05/10/2014
05/10/2014
05/10/2014
24/09/2015
24/09/2015
12/11/2015
12/11/2015
01/08/2013
01/08/2014
01/08/2015
01/08/2013
01/08/2014
01/08/2015
01/10/2016
01/10/2016
01/10/2016
01/01/2017
$0.00
$0.10
$0.20
$0.00
$0.50
$0.50
$0.50
$0.20
$0.00
$0.10
$0.00
$0.20
$0.00
$0.20
$0.00
$0.00
$0.00
$0.20
$0.20
$0.20
$0.00
$0.10
$0.50
$0.50
101,378
47,433
95,894
97,633
1,913,333
1,913,333
1,913,334
393,679
590,622
52,851
81,581
82,142
150,018
229,110
55,561
55,563
55,563
60,292
60,292
60,292
–
–
–
–
8,009,904
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
789,955
46,303
893,465
2,042,205
3,771,928
Weighted average exercise price
$0.38
$0.39
2013
23/08/2010
23/08/2010
23/08/2010
23/08/2010
23/08/2010
07/03/2011
26/05/2011
26/05/2011
26/05/2011
05/09/2011
05/09/2011
05/09/2011
24/08/2012
24/08/2012
12/10/2012
12/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
21/09/2012
21/09/2012
21/09/2013
21/09/2013
21/09/2013
01/08/2013
01/10/2013
01/10/2014
01/10/2015
05/10/2014
05/10/2014
05/10/2014
24/09/2015
24/09/2015
12/11/2015
12/11/2015
01/08/2013
01/08/2014
01/08/2015
01/08/2013
01/08/2014
01/08/2015
Weighted average exercise price
$0.00
$0.10
$0.00
$0.10
$0.20
$0.00
$0.50
$0.50
$0.50
$0.20
$0.00
$0.10
$0.00
$0.20
$0.00
$0.20
$0.00
$0.00
$0.00
$0.20
$0.20
$0.20
170,287
123,459
101,378
47,433
95,894
97,633
1,913,333
1,913,333
1,913,334
393,679
590,622
52,851
–
–
–
–
–
–
–
–
–
–
7,413,236
$0.40
–
–
–
–
–
–
–
–
–
–
–
–
81,581
82,142
150,018
229,110
55,561
55,563
55,563
60,292
60,292
60,292
890,414
$0.11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(101,378)
(47,433)
(95,894)
(97,633)
(1,913,333)
–
–
–
–
–
–
–
–
–
(55,561)
–
–
(60,292)
–
–
–
–
–
–
(2,371,524)
–
–
–
–
–
1,913,333
1,913,334
393,679
590,622
52,851
81,581
82,142
150,018
229,110
–
55,563
55,563
–
60,292
60,292
789,955
46,303
893,465
2,042,205
9,410,308
$0.42
$0.38
(170,287)
(123,459)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(293,746)
$0.04
–
–
101,378
47,433
95,894
97,633
1,913,333
1,913,333
1,913,334
393,679
590,622
52,851
81,581
82,142
150,018
229,110
55,561
55,563
55,563
60,292
60,292
60,292
8,009,904
$0.38
At balance date nil Performance Rights (2013: nil) were vested and exercisable. The weighted average remaining
contractual life of performance rights outstanding at the end of the year was 1.4 years (2013: 1.3 years).
86
C ROMW ELL 20 1 4 ANNUAL REPORT
The assessed fair value of performance rights granted is as follows:
Grant Date
23/08/2010
23/08/2010
23/08/2010
07/03/2011
26/05/2011
26/05/2011
26/05/2011
05/09/2011
05/09/2011
05/09/2011
24/08/2012
24/08/2012
12/10/2012
12/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
19/10/2012
18/12/2013
18/12/2013
18/12/2013
18/12/2013
Expiry Date
Exercise price
Non-market based
Market based
Fair value (cents)
21/09/2013
21/09/2013
21/09/2013
01/08/2013
01/10/2013
01/10/2014
01/10/2015
05/10/2014
05/10/2014
05/10/2014
24/09/2015
24/09/2015
12/11/2015
12/11/2015
01/08/2013
01/08/2014
01/08/2015
01/08/2013
01/08/2014
01/08/2015
01/10/2016
01/10/2016
01/10/2016
01/01/2017
$0.00
$0.10
$0.20
$0.00
$0.50
$0.50
$0.50
$0.00
$0.10
$0.20
$0.00
$0.20
$0.00
$0.20
$0.00
$0.00
$0.00
$0.20
$0.20
$0.20
$0.00
$0.10
$0.50
$0.50
54.2¢
45.5¢
37.0¢
61.5¢
13.9¢
12.6¢
11.5¢
50.0¢
41.1¢
32.3¢
55.3¢
36.5¢
60.0¢
41.5¢
77.6¢
71.1¢
65.1¢
57.9¢
51.9¢
46.4¢
75.7¢
66.5¢
30.2¢
29.1¢
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fair Value of Performance Rights Granted
Performance rights do not have any market-based vesting conditions. The fair values at grant date for performance rights
determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option,
the security price at grant date and expected price volatility of the underlying security, the expected dividend/distribution
yield and the risk-free interest rate for the term of the option.
The model inputs for performance rights granted during the year ended 30 June 2014 included:
Exercise price
Grant date
Share price at grant date
Expected price volatility
Expected dividend yield
Risk free interest rate
Expiry date
$0.00
$0.10
$0.50
$0.50
18/12/13 18/12/13 18/12/13 18/12/13
$0.945
$0.945
$0.945
$0.945
19%
7.94%
2.96%
19%
7.94%
2.96%
19%
7.94%
2.96%
19%
7.94%
2.96%
01/10/16 01/10/16 01/10/16 01/01/17
The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any
expected changes to future volatility due to publicly available information.
The model inputs for Performance Rights granted during the year ended 30 June 2013 included:
Exercise price
Grant date
$0.00
$0.20
$0.00
$0.20
$0.00
$0.00
$0.00
$0.20
$0.20
$0.20
24/08/12 24/08/12 12/10/12 12/10/12 19/10/12 19/10/12 19/10/12 19/10/12 19/10/12 19/10/12
Share price at grant date
Expected price volatility
Expected dividend yield
$0.74
19%
9.8%
$0.74
19%
9.8%
Risk free interest rate
2.35%
2.35%
$0.79
17%
9.18%
2.55%
$0.79
17%
9.18%
2.55%
$0.79
17%
9.18%
2.55%
$0.79
17%
9.18%
2.55%
$0.79
17%
9.18%
2.55%
$0.79
17%
9.18%
2.55%
$0.79
17%
9.18%
2.55%
$0.79
17%
9.18%
2.55%
Expiry date
24/09/15 24/09/15 12/11/15 12/11/15 01/08/13 01/08/14 01/08/15 01/08/13 01/08/14 01/08/15
The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any
expected changes to future volatility due to publicly available information.
CROMWELL 2014 ANNUAL RE PORT
87
(b) Tax Exempt Plan
The Tax Exempt Plan enables eligible employees to acquire up to $1,000 of stapled securities on-market in a tax effective
manner within a 12 month period. Eligibility for the Tax Exempt Plan is approved by the Board having regard to individual
circumstances and performance. No Directors or KMP are eligible for the Tax Exempt Plan.
Expenses relating to the plan are recorded in employee benefi ts expense and all securities are purchased on-market.
(c) Expenses arising from share based payment transactions
Total expenses arising from share based transactions recognised during the year as part of employee benefi ts expense
were as follows:
Performance rights issued under PRP
Expenses arising from share based payments
Cromwell
Trust
2014
$’000
731
731
2013
$’000
669
669
2014
$’000
–
–
2013
$’000
–
–
33. OTHER RELATED PARTY TRANSACTIONS
(a) Parent entity and subsidiaries
Cromwell Corporation Limited is the ultimate parent entity in Cromwell. Cromwell Diversifi ed Property Trust is the
ultimate parent entity in the Trust. Details of subsidiaries for both parent entities are set out in note 35.
(b) Transactions with jointly controlled entity and associates
Transactions between Cromwell and its associates and jointly controlled entities included:
Cromwell Partners Trust
During the year Cromwell acquired 50% of the issued units of Cromwell Partners Trust for $77,632,000. Cromwell received
distributions of $1,860,000 during the year. Cromwell also earned property management fees and project management
fees of $483,007 during the year.
Oyster Property Group Limited
During the year Cromwell acquired 50% of the issued capital of Oyster Property Group Limited for $4,596,000.
Cromwell Property Fund
During the prior year Cromwell received interest from Cromwell Property Fund of $361,895. During the prior year
Cromwell charged the Cromwell Property Fund for registry services, accounting services, property, facility management
and project management and leasing services totalling $339,563. During the prior year, Cromwell and the Trust acquired
the remaining units they did not already own of Cromwell Property Fund (refer notes 14 and 38).
(c) Transactions with managed investment schemes (managed by the consolidated entity)
Cromwell Funds Management Limited (“CFM”) acts as responsible entity for a number of managed investment schemes.
Cromwell derives a range of benefi ts from schemes managed by CFM including management and acquisition fees.
Transactions between Cromwell and the schemes managed by CFM also included:
Cromwell Ipswich City Heart Trust (“ICH”)
During the current year Cromwell acquired 80,000 units in ICH at $1 each and received distributions of $298,645.
During the prior year Cromwell acquired 3,890,122 units in ICH at $1 each and sold 325,000 units in ICH at $1 each and
received distributions of $164,606. During the prior year ICH repaid its loan from Cromwell. Cromwell received interest
from ICH of $178,440.
Cromwell Box Hill Trust (“BHT”)
Cromwell has provided a loan facility of $25,000,000 to BHT, which is unsecured and earns Cromwell a return equivalent to
the BHT distribution rate of 7.75% whilst drawn down. During the year this facility was drawn to $2,000,000 ($19,606,000),
and fully repaid by balance date (2013: loan fully repaid). During the current year Cromwell earned $3,397 (2013: $383,115)
in interest from BHT under the loan facility.
During the current year Cromwell disposed of its 14,505 units in BHT for $1 each and received $975 in distributions. All
units were sold to Cromwell Direct Property Fund, a managed scheme for which CFM also acts as responsible entity.
During the prior year Cromwell acquired 14,505 units in BHT at $1 each and received $1,780 in distributions.
88
C ROMW ELL 20 1 4 ANNUAL REPORT
Cromwell Riverpark Trust (“CRT”)
During the current year Cromwell acquired 1,827,948 units at $1.04 each and disposed of 3,989,437 units at an average
of $1.05 per unit and received distributions of $238,067. All units were sold to Cromwell Direct Property Fund, a managed
scheme for which CFM also acts as responsible entity.
During the prior year Cromwell acquired 3,436,334 units in CRT at $1.04 each and received distributions of $25,362.
Cromwell Property Trust 12 (“C12”)
On 22 October 2013 the Cromwell Property Trust 12 ARSN 166 216 995 (“C12”) an unlisted multi-property trust, for
which CFM acts as responsible entity, was registered with the Australian Securities and Investments Commission. CFM
issued a PDS on 29 October 2013 to raise $76,000,000 from investors for C12. Cromwell has provided a loan facility of
$50,000,000 to C12, which is unsecured, to enable the initial operations of the Trust. During the year the facility was drawn
to $37,189,000 and this amount has been fully repaid by balance date. While the loan was drawn down Cromwell earned
a return equivalent to the C12 distribution rate of 7.75%. Cromwell earned $1,393,182 in interest from C12 under the loan
facility during the year. Cromwell acquired 5,000,000 units in C12 at $1 each and received distributions of $346,875.
d)
Transactions between the Trust and Cromwell Corporation Limited and its subsidiaries
(including the Responsible Entity)
(i)
Amounts paid/payable
Expense
Funds management fees
Property management fees
Accounting fees
Investment properties
Project management fees
Leasing commissions
Distributions
Interest
(ii)
Amounts received/receivable
Revenue
Interest income
Rental income and recoverable outgoings
Aggregate amount payable to responsible entity and associates at balance date
(included in trade and other payables)
Aggregate amount receivable from the responsible entity and associates at balance date
(included in trade and other receivables)
Trust
2014
$
2013
$
12,120,607
9,963,069
6,809,128
5,739,700
438,600
385,785
1,656,561
855,872
411,525
375,245
5,853,514
1,649,860
588,555
–
–
62,804
4,654,128
4,545,063
796,452
1,196,529
5,652
1,207
The Responsible Entity no longer holds any units in a subsidiary of CDPT, Cromwell Mary Street Planned Investment
(2013: 1,517,000). These were acquired by the Company at the end of the fi nancial year.
(iii) Loan to the Trust
During the year a subsidiary of the Company became the primary external borrower for Cromwell and the Trust. As a
result new borrowings of $1,019,000,000 were received from external lenders by the subsidiary and immediately on-lent to
the Trust, with the Trust paying the subsidiary interest at a rate equal to that paid by the subsidiary to the external lenders.
Interest rate swaps with a total notional value of $949,100,000 were also transferred from the Trust to the subsidiary.
These swaps are matched against swaps held between the Trust and the subsidiary so that any amount payable or
receivable by the subsidiary to external counterparties of the swap is payable or receivable by the Trust to/from the
subsidiary.
CROMWELL 2014 ANNUAL RE PORT
89
34. PARENT ENTITY DISCLOSURES
As at and throughout the fi nancial year ending 30 June 2014 the parent entity of Cromwell was Cromwell Corporation
Limited and the parent entity of the Trust was Cromwell Diversifi ed Property Trust.
(a) Summary fi nancial information
The individual fi nancial statements for the parent entities show the following aggregations.
Results
(Loss)/profi t for the year
Cromwell
Corporation Limited
2013
2014
$’000
$’000
Cromwell
Diversifi ed Property Trust
2014
$’000
2013
$’000
(299)
572
102,869
14,686
Total comprehensive income/(loss)
(299)
572
102,869
14,686
Financial position
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Total equity
Contributed equity
Share based payments reserve
Available for sale fi nancial assets revaluation reserve
Retained earnings/(accumulated losses)
Total equity
30,119
54,708
1,127
1,127
53,581
47,857
52,458
45,631
65,144
1,838,772
1,704,894
325
325
140,307
811,219
57,349
658,848
52,133
1,027,553
1,046,046
104,370
103,323
1,267,748
1,257,707
3,589
(31)
(54,347)
53,581
2,858
–
–
–
–
–
(54,048)
(240,195)
(211,661)
52,133
1,027,553
1,046,046
(b) Commitments for capital expenditure
As at balance date, Cromwell Corporation Limited had commitments of $2,657,00 0 (2013: no commitments) in relation to
capital expenditure contracted for but not recognised as liabilities.
As at balance date, Cromwell Diversifi ed Property Trust had commitments of $nil (2013: $40,437,000) in relation to capital
expenditure contracted for but not recognised as liabilities.
(c) Guarantees provided
During the years ended 2014 and 2013 neither parent had provided any guarantees to entities it controlled.
(d) Contingent liabilities
Neither parent entity had contingent liabilities at year end (2013: $nil) .
90
C ROMW ELL 20 1 4 ANNUAL REPORT
35. INVESTMENTS IN CONTROLLED ENTITIES
The Company’s and CDPT’s investment in controlled entities are shown below, all of which are domiciled in Australia.
Company and its controlled entities
Name
Cromwell Property Securities Limited
Cromwell Property Services Pty Ltd
Marcoola Developments Pty Ltd
Votraint No. 662 Pty Ltd
Cromwell Capital Limited
Cromwell Finance Limited
Cromwell Operations Pty Ltd
Cromwell Paclib Nominees Pty Ltd
Cromwell Funds Management Limited
Cromwell Seven Hills Pty Ltd
Cromwell Holding Trust No 1 Pty Ltd
Cromwell Holding Trust No 2 Pty Ltd
Cromwell Altona Trust
Cromwell Real Estate Partners Pty Ltd
Cromwell Project & Technical Solutions Pty Ltd
CDPT Finance Pty Ltd
Cromwell BT Pty Ltd (3)
Trust and its controlled entities (1)
Name
Cromwell CMBS Pty Ltd
Cromwell Loan Note Pty Ltd
Cromwell Holding Trust No 1
Cromwell Holding Trust No 2
Cromwell Holding Trust No 4
Terrace Offi ce Park Property Trust/Planned Investment
Cromwell Mary Street Property Trust/Planned Investment (2)
Cromwell Northbourne Planned Investment
Tuggeranong Head Trust/Tuggeranong Trust
CDPT Finance Pty Ltd
CDPT Finance 2 Pty Ltd
EXM Head Trust/EXM Trust
Mascot Head Trust/ Mascot Trust
Cromwell Phoenix Opportunities Fund
Cromwell Property Fund Trust No 2
Cromwell Property Fund Trust No 3
Cromwell Diversifi ed Property Trust No 2
Cromwell Diversifi ed Property Trust No 3
Cromwell TGA Planned Investment
Cromwell HQ North Head Trust/ Cromwell HQ North Trust
Cromwell Bundall Corporate Centre Head Trust/Cromwell Bundall Corporate Centre Trust
Cromwell Property Fund
CPF Loan Note Issuer Pty Ltd
Cromwell Accumulation Fund
Cromwell CPF No. 1 Fund
Cromwell Health and Forestry House Trust
Cromwell NSW Portfolio Trust
Cromwell Bligh House Trust
Cromwell Newcastle Trust
Cromwell Queanbeyan Trust
Cromwell Symantec Trust
Cromwell Wollongong Trust
Cromwell McKell House Trust
Cromwell Penrith Trust
Equity Holding
2014
%
2013
%
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
92
100
100
–
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
–
–
100
100
100
100
100
100
92
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
(1) The Trust and its controlled entities listed above are consolidated as part of Cromwell as required under accounting standards (refer note 1(b)).
(2) The remaining 8% interest in Cromwell Mary Street Property Trust/Planned investment is held by Cromwell Corporation Limited.
(3) Incorporated during the year.
CROMWELL 2014 ANNUAL RE PORT
91
36. SEGMENT INFORMATION
(a) Description of segments
Reportable Group segments
Cromwell has identifi ed its operating segments based on its internal reports which are regularly reviewed and used by the
Chief Executive Offi cer in order to make decisions about resource allocation and to assess the performance of Cromwell.
The chief operating decision maker has been identifi ed as the Chief Executive Offi cer. The segments offer different
products and services and are managed separately.
Property Investment
The ownership of properties located throughout Australia.
Property/Internal Funds Management
Property management includes property and facility management, leasing and project management for the Trust and all
Cromwell managed investment schemes. Internal funds management includes the management of the Trust.
External Funds Management
The establishment and management of external funds.
Property Development
Property development, including development management, development fi nance and joint venture activities.
Trust
The Trust has one reportable segment, being property investment. Revenue is derived from rentals and associated
recoverable outgoings. The Trust’s properties are leased on a commercial basis incorporating varying lease terms and
conditions. These include the lease period, renewal options, periodic rent and, where applicable, indexation based on CPI,
fi xed and/or market reviews.
Accounting policies
(b) Other segment information
(i)
Segment information is prepared in conformity with the accounting policies of Cromwell as disclosed in note 1 and
Accounting Standard AASB 8 Operating Segments.
Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant
portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment
and consist primarily of operating cash, receivables, inventories, investment properties, plant and equipment and other
intangible assets, net of related provisions. While most of these assets can be directly attributable to individual segments,
the carrying amounts of certain assets used jointly by segments are allocated based on reasonable estimates of usage.
Segment liabilities consist primarily of trade and other payables, employee benefi ts and provisions.
Inter-segment transactions
(ii)
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an “arms-
length” basis and are eliminated on consolidation.
(iii) Equity-accounted investments
Cromwell has two Australian jointly controlled entities (Phoenix Portfolios Pty Ltd and Cromwell Partners Trust) and one
New Zealand jointly controlled entity (Oyster Property Funds Limited). All jointly controlled entities are accounted for
using the equity method. Phoenix Portfolios Pty Ltd and Oyster Property Funds Limited are included in the external funds
management segment. Cromwell Partners Trust is included in the property investment segment.
In 2013, Cromwell also had an investment in an Australian associate, Cromwell Property Fund, until its full acquisition on
4 October 2012 – see notes 14 and 38. Cromwell Property Fund was accounted for up to the date of its acquisition using
the equity method and included in the property investment segment.
(iv) Major customers
Revenue from major customers is outlined below and all form part of the property investment segment.
Major Customer
Commonwealth of Australia
New South Wales State Government
92
C ROMW ELL 20 1 4 ANNUAL REPORT
Revenue
2014
$’000
43,822
35,722
Revenue
2013
$’000
41,316
5,249
(c) Operating segments
2014
Segment results
Segment revenue and other income
Sales - external customers
Sales - intersegmental
Profi t of equity accounted entity (before adjustments)
Distributions
Interest
Other income
Property
Investment
$’000
263,951
1,073
4,725
–
1,659
1,317
Total segment revenue and other income
272,725
Segment expenses
Property expenses and outgoings
Funds management costs
Property development costs
Finance costs
Intersegmental costs
Employee benefi ts expense
Administration and overhead costs
Total segment expenses
Income tax expense/(benefi t)
Segment profi t/(loss) (1)
Reconciliation to reported profi t/(loss)
Gain on sale of investment properties
Loss on sale of other assets
Fair value adjustments/(write downs)
Investment properties
Interest rate derivatives
Investments at fair value through profi t and loss
Equity accounted investments
Other property investment income/(expense):
Straight-line lease income
Lease incentive and lease cost amortisation
Other expenses:
Amortisation of fi nance costs
Amortisation and depreciation
Net tax losses utilised
Total adjustments
Profi t/(loss)
43,578
–
–
70,025
19,368
–
1,138
134,109
–
138,616
3,152
–
46,226
5,222
–
(7,973)
5,648
(11,634)
(4,025)
–
–
36,616
175,232
Property
/ Internal
Funds
Management
$’000
External
Funds
Management
Property
Development
Consolidated
$’000
$’000
$’000
1,592
21,436
–
–
1,373
226
24,627
–
–
–
–
2,977
12,826
5,545
21,348
440
2,839
–
(501)
–
–
–
–
–
–
–
(679)
121
(1,059)
1,780
8,232
–
306
903
1,581
–
11,022
–
1,209
–
–
105
2,675
644
4,633
898
5,491
–
(58)
–
–
85
–
–
–
–
(79)
245
193
–
–
–
–
–
–
–
–
–
166
–
59
–
–
225
–
273,775
22,509
5,031
903
4,613
1,543
308,374
43,578
1,209
166
70,025
22,509
15,501
7,327
160,315
1,338
(225)
146,721
–
–
–
–
–
–
–
–
–
–
–
–
3,152
(559)
46,226
5,222
85
(7,973)
5,648
(11,634)
(4,025)
(758)
366
35,750
182,471
5,684
(225)
(1) Segment profi t/(loss) is based on income and expenses excluding adjustments for unrealised fair value adjustments and write downs, gains or
losses on sale of investments, non-cash income and expenses.
CROMWELL 2014 ANNUAL RE PORT
93
2014
Segment assets and liabilities
Total assets
Total liabilities
Other segment information
Investments in associates
Acquisitions of non-current segment assets
Investment in associates
Investments at fair value through profi t or loss
Property, plant and equipment
Intangibles
Property
Investment
$’000
2,393,112
1,200,028
Property
/ Internal
Funds
Management
$’000
52,979
5,257
72,524
77,632
–
–
–
77,632
–
–
–
1,225
450
1,675
External
Funds
Management
Property
Development
Consolidated
$’000
20,849
610
5,002
4,596
7,310
142
52
12,100
$’000
$’000
3,000
2,469,940
47
1,205,942
–
–
–
–
–
–
77,526
82,228
7,310
1,367
502
91,407
94
C ROMW ELL 20 1 4 ANNUAL REPORT
Property
/ Internal
Funds
Management
$’000
External
Funds
Management
Property
Development
Consolidated
$’000
$’000
$’000
2013
Segment results
Segment revenue and other income
Sales - external customers
Sales - intersegmental
Profi t of equity accounted entity (before adjustments)
Distributions
Interest
Other income
Property
Investment
$’000
208,635
953
111
–
4,043
193
1,341
18,634
–
–
572
225
5,911
–
54
222
647
–
Total segment revenue and other income
213,935
20,772
6,834
Segment expenses
Property expenses and outgoings
Funds management costs
Property development costs
Finance costs
Intersegmental costs
Employee benefi ts expense
Administration and overhead costs
Total segment expenses
Income tax expense/(benefi t)
Segment profi t/(loss) (1)
Reconciliation to reported profi t/(loss)
Gain on sale of investment properties
Loss on sale of other assets
Fair value adjustments/(write downs):
Investment properties
Interest rate derivatives
Investments at fair value through profi t and loss
Equity accounted investments
Other property investment income/(expense):
Straight-line lease income
Lease incentive and lease cost amortisation
Other expenses:
Amortisation of fi nance costs
Amortisation and depreciation
Net tax losses utilised
Business combination transaction costs
Total adjustments
Profi t/(loss)
32,521
–
–
67,715
16,089
–
1,100
117,425
–
96,510
132
–
(55,747)
7,326
–
481
6,071
(9,526)
(2,581)
–
–
(631)
(54,475)
42,035
–
–
–
–
3,255
10,175
4,716
18,146
136
2,490
–
(130)
–
–
–
–
–
–
–
(573)
(160)
–
(863)
1,627
–
592
–
–
87
2,138
582
3,399
178
3,257
–
(16)
–
–
47
–
–
–
–
(70)
(209)
–
(248)
3,009
–
–
–
–
–
–
–
–
–
359
–
156
–
–
515
–
(515)
–
–
–
–
–
–
–
–
–
–
–
–
–
(515)
215,887
19,587
165
222
5,262
418
241,541
32,521
592
359
67,715
19,587
12,313
6,398
139,485
314
101,742
132
(146)
(55,747)
7,326
47
481
6,071
(9,526)
(2,581)
(643)
(369)
(631)
(55,586)
46,156
(1) Segment profi t/(loss) is based on income and expenses excluding adjustments for unrealised fair value adjustments and write downs, gains or
losses on sale of investments, non-cash income and expenses.
CROMWELL 2014 ANNUAL RE PORT
95
2013
Segment assets and liabilities
Total assets
Total liabilities
Other segment information
Investments in associates
Acquisitions of non-current segment assets
Investment properties
Investments at fair value through profi t or loss
Property, plant and equipment
Intangibles
Property
Investment
$’000
2,479,785
1,341,785
Property
/ Internal
Funds
Management
$’000
45,944
3,050
External
Funds
Management
Property
Development
Consolidated
$’000
17,372
376
$’000
$’000
3,009
2,546,110
47
1,345,258
–
743,966
–
–
–
743,966
–
–
–
271
768
1,039
100
–
7,720
33
95
7,848
–
–
–
–
–
–
100
743,966
7,720
304
863
752,853
Segment revenue and other income reconciles to total revenue and other income as follows:
Total segment revenue and other income
Reconciliation to reported revenue and other income
Straight-line lease income
Lease incentive amortisation
Gain on sale of investment property
Fair value net gain from interest rate derivatives
Fair value net gain from investment properties
Fair value net gain from investments at fair value through profi t or loss
Share of operating profi t of equity accounted entities
Intersegmental sales
Other
Total revenue and other income
2014
$’000
2013
$’000
308,374
241,541
5,648
(10,180)
3,152
5,222
46,226
85
(5,031)
(22,509)
2,068
333,055
6,071
(8,042)
132
7,326
–
47
482
(19,587)
2,545
230,515
37. COMMITMENTS FOR EXPENDITURE
(a) Operating leases
Commitments for minimum lease payments in relation to non-cancellable operating leases in existence at the reporting
date but not recognised as liabilities are payable as follows:
Within one year
Later than one year but not later than fi ve years
Cromwell
2014
$’000
713
552
1,265
2013
$’000
548
1,032
1,580
Trust
2014
$’000
2013
$’000
–
–
–
–
–
–
Operating leases primarily comprise the lease of Cromwell’s premises. The Company has entered into a number of leases
with the Trust and its subsidiaries and as such the commitment is not recognised on consolidation. Operating lease
commitments of the Company are paid for and recognised as expenses by a controlled entity.
(b) Capital expenditure commitments
Commitments in relation to capital expenditure contracted for at reporting date but not recognised as a liability are
payable as follows:
Within one year
Later than one year but not later than fi ve years
2,657
–
2,657
40,437
–
40,437
–
–
–
40,437
–
40,437
96
C ROMW ELL 20 1 4 ANNUAL REPORT
(c) Loan commitments
Cromwell and the Trust have provided Cromwell Property Trust 12 with a $50,000,000 loan facility until September 2015.
This facility was undrawn at 30 June 2014.
38. BUSINESS COMBINATION
Acquisition of Cromwell Property Fund
On 4 October 2012 Cromwell and the Trust acquired the remaining units they did not already own of Cromwell Property
Fund (“CPF”). As a result, Cromwell and the Trust’s equity interest in CPF increased from 18% to 100% (refer note 14). The
acquisition complemented Cromwell and the Trust’s existing property portfolio and benefi ts are expected to be generated
from operational synergies and economies of scale.
Following the acquisition, Cromwell and the Trust consolidated the assets and liabilities and performance of CPF,
including the property portfolio which was valued at $171,372,000 (refer note 12). Prior to the acquisition, CPF was
accounted for as an associate of Cromwell (refer note 14).
Cromwell and the Trust have recognised the fair values of the identifi able assets and liabilities based upon the best
available information at the acquisition date. The business combination accounting is as follows:
Investment in associate/controlled entity
Cash and cash equivalents
Trade and other receivables
Other current assets
Investment properties
Trade and other payables
Derivative fi nancial instruments
Other current liabilities
Borrowings
Recognised on
Acquisition
$’000
24,837
Already
Held
$’000
5,298
Balance on
Consolidation
$’000
–
3,142
508
387
171,372
(4,897)
(3,440)
(1,230)
–
–
–
–
–
–
–
–
(135,707)
–
–
–
–
–
–
–
–
Fair value of net identifi able assets acquired
24,837
5,298
30,135
The carrying value of the assets and liabilities acquired was equivalent to their fair value in accordance with Cromwell
policies.
Fair value of investment already held
Purchase consideration:
Cash consideration paid
Fair value of equity instruments issued
Total purchase consideration
Total recognised on consolidation
The cash fl ows on acquisition were as follows:
Cash consideration paid
Cash acquired from business combination
Net infl ow of cash – investing activities
Balance on
Consolidation
$’000
5,298
582
24,255
24,837
30,135
(582)
3,142
2,560
(i) Equity instruments issued
The fair value of the stapled securities issued was based upon the adjusted share price of Cromwell at 4 October 2012 of
$0.75 per stapled security.
(ii) Acquisition-related costs
Cromwell incurred acquisition-related costs of $631,000 including legal and other professional fees and other transaction
execution costs. These have been included as Merger Transaction costs in Cromwell’s consolidated statements of
comprehensive income and in investing cash fl ows in the statement of cash fl ows.
CROMWELL 2014 ANNUAL RE PORT
97
(iii) Acquired receivables
The fair value of acquired trade receivables is $508,000. The gross contractual amount for trade receivables due is
$508,000, all of which has been recovered.
(iv) Revenue and profi t contribution
The acquired business contributed revenues of $14,831,000 and net loss of $14,614,000 to Cromwell for the period from
4 October 2012 to 30 June 2013 and contributed revenues of $15,056,000 and net loss of $14,904,000 for the Trust for the
same period.
If the acquisition had occurred on 1 July 2012, consolidated revenue and profi t for the year ended 30 June 2013 would have
been $247,641,000 and $33,720,000 respectively for Cromwell and $238,874,000 and $30,836,000 respectively for the Trust.
These amounts have been calculated using Cromwell’s accounting policies.
39. CONTINGENT LIABILITIES
The Directors are not aware of any material contingent liabilities of Cromwell or the Trust (2013: nil).
40. AUDITOR’S REMUNERATION
During the year the following fees were paid or payable for services
provided by the auditor of Cromwell (Pitcher Partners)
and its related entities:
Audit Services
Pitcher Partners
Auditing or reviewing fi nancial reports
Auditing of controlled entities’ AFS licences
Auditing the Trust’s compliance plan
Other Services
Pitcher Partners
Other – review of pro forma balance sheets and forecasts
Cromwell
2014
$
2013
$
Trust
2014
$
2013
$
282,000
261,000
200,000
180,000
5,000
28,000
5,000
28,000
315,000
294,000
–
28,000
228,000
–
28,000
208,000
–
–
131,200
131,200
–
–
–
–
The auditor receives remuneration for audit and other services relating to other entities for which Cromwell Property
Securities Limited, Cromwell Funds Management Limited and Cromwell Real Estate Partners Pty Ltd, all controlled
entities, act as responsible entity. The remuneration is disclosed in the relevant entity’s fi nancial reports and totalled
$105,000 (2013: $68,500).
41. SUBSEQUENT EVENTS
Interest Rate Cap
On 12 August 2014, Cromwell entered into a new interest rate cap at a cost of $16,900,000. The interest rate cap has been
structured as an accreting interest rate cap, starting with a notional principal amount of $32,700,000 and increasing to
$1,000,000,000 by December 2017 then continuing at this level until May 2019. The notional principal amount increases as
each of the existing interest rate swaps expire. The new interest rate cap ensures a maximum base interest rate of 3.39%
(excluding loan facility margins) is payable on previously variable rate borrowings.
Sale of 321 Exhibition Street Investment Property
On 22 August 2014, Cromwell and the Trust sold the investment property located at 321 Exhibition Street, VIC for net
proceeds of $205,920,000. $116,500,000 of the net proceeds was used to repay borrowings.
98
C ROMW ELL 20 1 4 ANNUAL REPORT
Directors’ Declaration
In the opinion of the Directors of Cromwell Corporation Limited and Cromwell Property Securities Limited as Responsible
Entity for the Cromwell Diversifi ed Property Trust (collectively referred to as “the Directors”):
(a) the attached fi nancial statements and notes are in accordance with the Corporations Act 2001, including:
(i) complying with Australian Accounting Standards (including the Australian Accounting Interpretations),
the Corporations Regulations 2001; and
(ii) giving a true and fair view of Cromwell’s and the Trust’s fi nancial position as at 30 June 2014 and of their
performance, for the fi nancial year ended on that date; and
(b) the fi nancial report also complies with International Financial Reporting Standards as disclosed in note (1)(a); and
(c) there are reasonable grounds to believe that Cromwell and the Trust will be able to pay its debts as and when they
become due and payable.
The Directors have been given the declarations by the chief executive offi cer and chief fi nancial offi cer for the fi nancial
year ended 30 June 2014 required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
P.L. Weightman
Director
Dated this 27th day of August 2014
CROMWELL 2014 ANNUAL RE PORT
99
Independent Auditor’s Report
To the Security holders of Cromwell Property Group
To the Unit holders of Cromwell Diversifi ed Property Trust
Report on the Financial Report
Cromwell Property Group (“Cromwell”) comprises Cromwell Corporation Limited and the entities it
controlled at the end of the year or from time to time during the year and Cromwell Diversifi ed Property
Trust and the entities it controlled (“the Trust”) at the end of the year or from time to time during the year.
We have audited the accompanying fi nancial reports of Cromwell and the Trust, which comprises
the consolidated statement of fi nancial position as at 30 June 2014, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity and the consolidated statement of
cash fl ows for the year then ended, notes comprising a summary of signifi cant accounting policies and other
explanatory information, and the directors’ declaration for both Cromwell Corporation Limited and Cromwell
Property Securities Limited as responsible entity for the Cromwell Diversifi ed Property Trust.
Directors’ Responsibility for the Financial Report
The directors of Cromwell Corporation Limited and Cromwell Property Securities Limited as responsible
entity for the Cromwell Diversifi ed Property Trust (collectively referred to as “the directors”) are responsible
for the preparation of the fi nancial reports that give a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine
is necessary to enable the preparation of the fi nancial reports that gives a true and fair view and is free from
material misstatement, whether due to fraud or error. In Note 1(a), the directors also state, in accordance
with Accounting Standard AASB101 Presentation of Financial Statements, that the fi nancial statements
comply with International Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the fi nancial report based on our audit. We conducted our
audit in accordance with Australian Auditing Standards. Those standards require that we comply with
relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain
reasonable assurance whether the fi nancial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
fi nancial report. The procedures selected depend on the auditor’s judgement, including the assessment
of the risks of material misstatement of the fi nancial report, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the
fi nancial report that gives a true and fair view in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the fi nancial report.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our
audit opinion.
100
C ROMW ELL 20 1 4 ANNUAL REPORT
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
Opinion
In our opinion:
(a) the fi nancial reports of Cromwell and the Trust are in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of Cromwell’s and the Trust’s fi nancial position as at 30 June 2014 and of
their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the consolidated fi nancial reports also comply with International Financial Reporting Standards as
disclosed in Note 1(a).
Report on the Remuneration Report
We have audited the Remuneration Report included in part 11 of the Directors’ Report for the year ended
30 June 2014. The directors of Cromwell Corporation Limited are responsible for the preparation and
presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001.
Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Opinion
In our opinion the Remuneration Report of Cromwell Corporation Limited for the year ended 30 June 2014
complies with Section 300A of the Corporations Act 2001.
PITCHER PARTNERS
N Batters
Partner
Brisbane, Queensland
27 August 2014
CROMWELL 2014 ANNUAL RE PORT
101
Corporate Governance Statement
Cromwell Property Group through its Board, Board Committees and management is committed to meeting stakeholders’
expectations of sound corporate governance, while seeking to achieve superior fi nancial performance and long term prosperity.
The ASX Corporate Governance Council has Corporate Governance Principles and Recommendations which are designed
to optimise corporate performance and accountability in the interests of shareholders and the broader economy. The
recommendations are not prescriptive. However listed entities are required to disclose the extent of their compliance and,
if any ASX recommendations have not been followed, must give reasons for not following them.
This statement relates to edition 2 of the ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations, and sets out the extent to which the Group has followed those ASX recommendations during this
fi nancial year, identifi es any of the ASX recommendations which were not followed and provides reasons.
PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
The Boards of Cromwell Corporation Limited and Cromwell Property Securities Limited each have common membership.
Responsibility for corporate governance and the internal working of each Group entity rests with the relevant Board. The
Board has adopted a formal charter which details the composition, values and functions of the Board.
The Board generally holds a scheduled meeting each month and additional meetings are convened as required. Board
papers are designed to focus Board attention on key issues and standing items include major strategic initiatives,
corporate governance, compliance, reports from each functional division and fi nancial performance.
Day-to-day management of the Group’s affairs and implementation of corporate strategy and policy initiatives are
delegated by the Board to management under the direction of the CEO . This has been formalised in the Board Charter
and a Delegations of Authority policy. The effectiveness of both these documents is reviewed by the Board annually.
Each director has received a letter of appointment which details the key terms of their appointment. The CEO and Director
– Finance and Funds Management (both of whom are executive directors) have formal job descriptions and letters of
appointment outlining the terms of their employment.
A formal induction program allows new senior executives to participate fully and actively in decision-making as soon
as possible. The Group has an established process for the performance review of all staff. The performance of senior
executives is evaluated at least annually, in addition to regular feedback during the performance period. At the time of the
reviews, the professional development of the executive is also discussed, along with any training which could enhance their
performance. Both qualitative and quantitative measures are used in the evaluation. A performance evaluation for each
senior executive has taken place during the reporting period and was subject to the review process explained in this report.
Cromwell Property Securities Limited acts as responsible entity for the Cromwell Diversifi ed Property Trust. Cromwell
Funds Management Limited acts as responsible entity for the Group’s unlisted managed investment schemes. Both
companies are wholly owned subsidiaries of Cromwell Corporation Limited. The roles and responsibilities of a responsible
entity are set out in the relevant scheme’s constitution and, if registered, its compliance plan. Day-to-day management
of the schemes has been delegated to management, under the direction of the CEO. This has been formalised in the
Delegations of Authority policy mentioned above.
A compliance committee comprised of a majority of external independent members monitors the extent to which the
responsible entity complies with each registered managed investment scheme’s compliance plan and reports fi ndings to
the responsible entity. The roles and responsibilities of the compliance committee are outlined in a formal charter which is
reviewed annually by the committee and the Board.
What you can fi nd on our website:
• Corporate Governance Statement
• Board Charter
• Compliance Committee Charter
PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE
The Board is comprised of an independent Chairman (Geoff Levy), four other independent directors (David Usasz, Michelle
McKellar, Richard Foster and Robert Pullar) and four non-independent directors (Paul Weightman, Daryl Wilson, Marc Wainer
and Mike Watters). Profi les of each director, including details of their skills, expertise and experience can be found in the directors’
report.
102
C ROMW ELL 20 1 4 ANNUAL REPORT
The Group recognises that independent directors are important in reassuring securityholders that the Board properly fulfi ls its role.
The Board comprises a majority of independent directors. The independent directors (including the Chairman) are considered to
meet the test of independence under the ASX Guidelines. Each year, their independence is assessed and the independent directors
also confi rm to the Board, in writing, their continuing status as an independent director. They have each undertaken to inform the
Board as soon as practical if they think that their status as an independent director has or may have changed.
In assessing a director’s independent status, the Board has adopted a materiality threshold of 5% of the Group’s net operating
income or 5% of the Group’s net tangible assets (as appropriate).
Each director’s qualifi cations, experience, special responsibilities and attendances at Board meetings are detailed in the
directors’ report. The Board considers that its members comprise directors with an appropriate mix of skills, personal
attributes and experience that allow the directors individually, and the Board collectively, to discharge their duties effectively
and effi ciently. The Board comprises individuals who understand the business of the Group and the environment in which it
operates and who can effectively assess management’s performance in meeting agreed objectives and goals.
On an ongoing basis directors are provided with updates on legal and corporate developments relevant to the Group.
Independent professional advice
If warranted, the Board may resolve to obtain professional advice about the execution of the Board’s responsibilities at the Group’s
expense. Directors also have the right to seek independent professional advice. Subject to the Chairman’s approval, which will not
be unreasonably withheld, it will be at the Group’s expense. Where appropriate, such advice is shared with the other directors.
Board Committees
Three Board Committees have been established to assist in the execution of the Boards’ responsibilities. The membership of
each Committee and attendance at Board and Committee meetings during the fi nancial year is set out in the directors’ report.
It is the policy of the Board that the Investment Committee, Nomination and Remuneration Committee and the Audit and Risk
Committee consist of a majority of independent directors (other than the Chairman). Each committee has a charter which
includes a description of its duties and responsibilities.
The Board Charter has a description of the Board’s policies and procedures for the selection, appointment and re-election of directors.
Performance of the Board
The Board has undertaken its annual formal performance assessment, which includes an assessment of the Board, Board
Committees and individual directors. Directors completed a questionnaire and were able to make comments or raise any
issues they had regarding the Board or a Board Committee’s operations. The results were compiled by the Company Secretary
and discussed at a subsequent Board meeting. The CEO and Director – Finance and Funds Management also participated in
an annual performance review with the Chairman (who had consulted with the other directors). The review process was the
same as for senior executives.
As necessary, directors are provided with training sessions on key issues relevant to the Group’s operations. Directors also
have access to the internal training sessions provided by the Group’s General Counsel and/or Compliance Manager.
If the appointment of another independent director was being considered, or should a director vacancy occur, the Board,
through the Nomination and Remuneration Committee, would fi rstly identify any gaps or weaknesses in the skills and
experience of the existing directors and then identify the particular skills, experience and expertise that would best
complement Board effectiveness. Candidates would be identifi ed using both established professional networks and
professional intermediaries. The extent to which each candidate would address any identifi ed gaps or weaknesses and provide
an appropriate cultural and values fi t for the Group would be the main factors taken into account in the selection process. Any
relevant gender diversity objectives set by the Board would also be taken into account when identifying appropriate candidates.
However, selection and appointment would occur on the basis of merit.
Appointment of directors is documented by way of a formal agreement between the Group and each director, dealing with such
issues as performance expectations, confl icts of interest, disclosure obligations, remuneration and Group policies. The Board’s
policy and procedure for the selection, appointment and re-election of Directors are set out in the Board Charter.
What you can fi nd on our website:
• Remuneration and Nomination Committee Charter
• Board Charter
CROMWELL 2014 ANNUAL RE PORT
103
PRINCIPLE 3 – PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING
The Group’s directors and staff are required to maintain high ethical standards of conduct. The various practices and
policies of the Group reinforce this. All directors and staff are expected to act with integrity, striving at all times to
enhance the reputation and performance of the Group.
To reinforce this culture the Group has established a Code of Conduct to provide guidance about the attitudes and
behaviour necessary to maintain stakeholder confi dence in the integrity of the Group and comply with the Group’s legal
obligations.
The Code of Conduct is made available to all staff and they are reminded of the importance of the Code of Conduct on a
regular basis. Appropriate standards are also communicated and reinforced to all staff at induction programs and staff
meetings.
The Board has approved a Breach Reporting Policy and a Whistleblowing Policy. The policies are on the Group’s intranet
site and all staff received training with regard to the policies. These policies actively encourage and support reporting
to appropriate management of any actual or potential breaches of the Group’s legal obligations and / or of the Code of
Conduct.
The Board has also approved a Securities Trading Policy under which directors and staff are restricted in their ability
to deal in the Group’s securities. Appropriate black out periods are in place during which directors and staff are not
permitted to trade. All staff are aware of the policy and receive training annually. The policy is reviewed annually.
Compliance with Board policies is monitored via monthly checklists completed by key management and by investigation
following any report of a breach by an employee. Compliance monitoring is undertaken by the Legal & Compliance team
under the direction of the Company Secretary / General Counsel who reports directly to the Board.
The Board has approved a Diversity Policy which sets out the framework the Group has in place to achieve appropriate
diversity in its Board, senior executive and broader workforce.
The gender diversity objectives set for the 2014 fi nancial year were:
1. At least one female director and at least one female senior executive team member.
2.
If existing staff are promoted, at least 50% of those promoted will be female.
3. At least one female will be interviewed for all advertised management positions.
4. All employees regardless of gender, age and race are consulted annually via an engagement survey and are given
the opportunity to provide feedback on issues and potential barriers to diversity.
5.
6.
7.
8.
9.
Remuneration continues to be benchmarked against market data taking into consideration experience, qualifi cation
and performance and without regard to age, gender and race.
Succession plans and leadership programs are designed to assist in the development of a diverse pool of future
senior executives and managers and are regularly reviewed.
At least one corporate event is held to which staff can bring partners and children.
Parents (or carers) are offered fl exible work arrangements.
All staff undergo annual “equal employment opportunity” training.
10. At least 80% of females taking parental leave return to work.
11. At least 50% of staff undertaking Cromwell supported tertiary education and other professional development
programs are female.
The Group met all of the above objectives except for the third; although three management positions were advertised,
females were only interviewed for two. No suitably qualifi ed females applied for the position.
For the 2015 fi nancial year, the Group has the following diversity objectives:
1. The Group has at least 2 female directors and at least 2 female senior executives.
2.
If existing staff are promoted, at least 50% of those promoted will be females.
3. At least one female will be interviewed for all advertised management positions.
4. All employees regardless of gender, age and race are consulted annually via an engagement survey and are given
the opportunity to provide feedback on issues and potential barriers to diversity.
5. Remuneration continues to be benchmarked against market data taking into consideration experience, qualifi cation
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C ROMW ELL 20 1 4 ANNUAL REPORT
and performance and without regard to age, gender and race.
6. Succession plans and leadership programs are designed to assist in the development of a diverse pool of future
senior executives and managers and are regularly reviewed.
7. At least one corporate event is held to which staff can bring partners and children.
8. Parents (or carers) are offered fl exible work arrangements.
9. All staff undergo “equal employment opportunity” training at least once a year.
10. At least 80% of females taking parental leave return to work.
11. Training hours undertaken by females are at least equivalent to those undertaken by male counterparts.
The Board currently has 1 female director (out of 9 directors). As at 30 June 2014, executive management comprised 11
people, including 2 females, and the Group employed a total of 121 people, of which 57 were female.
What you can fi nd on our website:
• Code of Conduct
• Securities Trading Policy
• Breach Reporting Policy
• Whistleblowing Policy
• Diversity Policy
• FY2015 Gender Diversity Objectives
PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING
The Board has responsibility for the integrity of the Group’s fi nancial reporting. To assist the Board in discharging this
function the following process has been adopted.
Audit and Risk Committee
An Audit and Risk Committee has been appointed by the Board and has responsibility for overseeing the quality and
integrity of the accounting, auditing, fi nancial reporting and compliance and risk management practices of the Group.
The Audit and Risk Committee is comprised of three independent directors. The names, qualifi cations and attendance at
meetings of the members of the Audit and Risk Committee is detailed in the directors’ report.
The responsibilities, roles, composition and structure of the Audit and Risk Committee are set out in its charter. The
charter includes information on the procedures for selection and appointment of the external auditor and for the rotation
of external audit engagement partners.
Minutes are kept of all Committee meetings, including meetings of the Audit and Risk Committee, and presented at the
next Board meeting. The Committee reports to the Board on all matters relevant to its role and responsibilities.
The external auditor has declared its independence to the Board and the Committee. The Board is satisfi ed that the
standards for auditor independence and associated issues have been complied with. The auditor attends the Group’s
Annual General Meeting and is available to answer securityholder questions on the conduct of the audit and the content
and preparation of the auditor’s report.
The CEO and the Director – Finance and Funds Management state in writing to the Board that the Group’s fi nancial reports
present a true and fair view, in all material respects, of the Group’s fi nancial position and operational results and are in
accordance with relevant accounting standards.
Details of the risk monitoring duties of the Audit and Risk Committee are set out in principle 7 below.
• What you can fi nd on our website:
• Audit and Risk Committee Charter
PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE
The Group believes that all stakeholders should be informed of all the major business events and risks that infl uence the
Group in a timely and widely available manner. In particular, the Group strives to ensure that any price-sensitive material
for public announcement is lodged with the ASX before external disclosure elsewhere and posted on the Group’s website
as soon as practical after lodgement with the ASX.
The Group has a market disclosure protocol which includes polices and procedures designed to ensure compliance with
the disclosure requirements in the ASX Listing Rules.
The ASX liaison person is the Group’s Company Secretary.
What you can fi nd on our website:
• Market Disclosure Protocol
CROMWELL 2014 ANNUAL RE PORT
105
PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS
The Group has an investor relations strategy, approved by the Board, which has been designed to generate and foster a
long term close association with securityholders and investors in the Group’s fi nancial products.
The Group aims to keep securityholders informed of the Group’s performance and all major developments in an ongoing
manner. In this regard, securityholders receive regular reports, and all documents that are released publicly are made
available on the Group’s website. The Group uses its website as a means of providing information to securityholders and
the broader investment community.
Securityholders are also encouraged to participate in the Annual General Meeting to ensure a high level of accountability
and identifi cation with the Group’s strategies and goals. Notices of meeting are accompanied by explanatory notes on the
items of business and together seek to accurately and clearly explain the nature of the business of the meeting.
A copy of the Annual General Meeting’s notice of meeting is sent to the Company’s external auditor as required by law.
The current audit partner attends the Annual General Meeting and is available to answer questions from securityholders
about the audit. The Chairman reminds securityholders of this opportunity at each Annual General Meeting.
PRINCIPLE 7 – RECOGNISE AND MANAGE RISKS
The Group is exposed to various risks across its business operations and recognises the importance of effectively
identifying and managing those risks. To this end, the Group has adopted an Enterprise Risk Management Policy, which is
a general statement of the Group’s philosophy with respect to risk management practices. There are also a wide range of
underlying policies and procedures which are designed to mitigate the Group’s material business risks.
Risks are identifi ed and assessed so that informed decisions on risk issues can be made. The objective of the Group’s approach
to risk management is to manage the level of risk within acceptable parameters rather than seeking to eliminate risk.
Under the direction of the CEO, management is responsible for identifying relevant business risks, designing controls to
manage those risks and ensuring those controls are appropriately implemented. The risk management system operates
in accordance with Australian / New Zealand Standard for Risk Management (AS/NZS 4360 Risk Management).
Although management is expected to identify new or emerging risks and put appropriate controls in place on an ongoing
basis, at least annually the Legal & Compliance team will co-ordinate a formal review by all business divisions of their
business risks and mitigating controls.
The Legal & Compliance team monitors the adequacy of the risk management system and fulfi ls the internal audit
function within Cromwell Property Group. The Company Secretary reports on the risk management system (including
internal audit) to the Audit and Risk Committee throughout the year. The internal audit function involves both active testing
of the adequacy of controls for those risks which are inherently extreme or high as well as having management (monthly,
quarterly or annually as appropriate) confi rm that the assessment of identifi ed risks and their controls remain appropriate
and identify any new controls or risks.
Under the direction of the Company Secretary, the Legal & Compliance team also implement and monitor compliance
arrangements which have been designed to ensure that the Group meets its legal obligations. Those compliance
arrangements include key management staff completing a compliance checklist each month and independent compliance
testing. The Audit and Risk Committee is responsible for oversight of the risk management and internal control systems.
Responsibilities include:
(a) overseeing the establishment and implementation of risk management and internal compliance and control
systems and ensuring there is a mechanism for assessing the effi ciency and effectiveness of those systems;
(b) regularly reviewing and updating the risk profi le; and
(c) monitoring the effectiveness of the internal risk control system.
Although the Board has delegated operational oversight of the compliance framework to the Committee, the Board will
satisfy itself annually, or more frequently if required, that the risk management system is sound.
A compliance committee assists the Board of Cromwell Property Securities Limited, and Cromwell Funds Management
Limited, in overseeing the risk management framework of the registered managed investment schemes for which they act
as the responsible entity. The compliance committee monitors compliance with the compliance plans and the underlying
compliance framework. The Board receives regular reports from the compliance committee.
Chief Executive Offi cer and Chief Financial Offi cer Declaration
The CEO and the Director – Finance and Funds Management (Cromwell’s Chief Financial Offi cer) have provided the Board
with written confi rmation that:
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C ROMW ELL 20 1 4 ANNUAL REPORT
(a) in their view, the Group is effectively managing its material business risks;
(b) their statement given to the Board on the integrity of the Group’s statements (pursuant to section 295A of the
Corporations Act) is founded on a sound system of risk management and internal compliance and control which
implements the policies adopted by the Board; and
(c) the Group’s risk management and internal compliance and control system is operating effectively in all material
respects in relation to the Group’s material business risks.
It should be noted that the declarations from the CEO and Director – Finance and Funds Management are reasonable rather
than absolute assurances that the risk management and internal compliance and control system is operating effectively
because it is impossible for all weaknesses to be detected. Their conclusions are based on their own observations and
judgement and the outcome of the compliance and controls testing and reviews undertaken by the Legal & Compliance
team.
What you can fi nd on our website:
• Audit and Risk Committee Charter
• Enterprise Risk Management Policy
PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY
The Group’s remuneration policy is determined by the Nomination and Remuneration Committee which makes
recommendations to the Board:
(a) in the case of non-executive directors, for consideration of any increase by securityholders at the Annual General
Meeting; and
(b) in the case of executives, for decision.
External professional advice is sought from experienced consultants, where appropriate, to assist in the Committee’s and
the Board’s deliberations.
The Group’s remuneration policy links the nature and amount of executive directors’ and offi cers’ remuneration to the
Group’s fi nancial and operational performance.
The Group provides for long term incentives by way of a Performance Rights Plan and a Security Loan Plan and has issued
performance rights (effectively options over Group securities) to a number of executive and other senior employees. The
Group does not currently pay any other form of security-based remuneration.
Nomination and Remuneration Committee
The Board has established a Nomination and Remuneration Committee operating under an approved written charter that
incorporates various responsibilities, including reviewing and recommending compensation arrangements for the directors,
the CEO and key executives and setting remuneration policy.
Meetings of the Committee are attended, by invitation, by appropriate professional advisers from time to time.
Minutes of all Committee meetings are available to the Board and the Chairman of the Committee reports to the Board
after each Committee meeting. The Committee has 4 members, all of which are independent directors.
Details of the number of Committee meetings and attendances by directors are included in the directors’ report.
Non-executive director remuneration
The structure of non-executive directors’ remuneration, and that of executive directors, is set out in the relevant section of
the directors’ report.
Details of the nature and amount of each element of the remuneration of each director of the Group and other key
management personnel of the Group are disclosed in the relevant section of the directors’ report.
There is no retirement benefi t scheme for non-executive directors other than payment of statutory superannuation. The
Boards undertake an annual review of their performance together with an assessment of the Group’s executive management.
Executive directors and senior executive remuneration
The Group’s remuneration policies and practices in relation to executive directors and senior executives are disclosed in
the directors’ report. Further, details of the nature and amount of remuneration paid to those executives is set out in the
directors’ report.
For executive directors and key staff, formal performance objectives are set annually with discussion on their performance
taking place at assessment time.
The CEO and the Director – Finance and Funds Management participate in the long term incentive plans discussed above.
Participation is approved by securityholders at an Annual General Meeting, in accordance with the ASX Listing Rules.
CROMWELL 2014 ANNUAL RE PORT
107
Managed funds
Cromwell Property Securities Limited and Cromwell Funds Management Limited are entitled to various fees for acting
as responsible entity of Cromwell managed funds. Further, various other Group entities are entitled to fees for providing
services to managed funds such as property and asset management, accounting, registry and transactional management.
All related party transactions are tested by reference to whether they meet market standards.
Fees are calculated in accordance with a defi ned formula under the Constitution for the relevant schemes or agreements
which have been assessed as being on arm’s length or better terms. Fees are fully disclosed to investors at inception and
continue to be disclosed to investors in regular reporting.
Cromwell Property Securities Limited and Cromwell Funds Management Limited are also entitled to be reimbursed from
the relevant schemes for expenses incurred in the proper performance of their duties.
What you can fi nd on our website:
• Nomination and Remuneration Committee Charter
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C ROMW ELL 20 1 4 ANNUAL REPORT
Securityholder Information
The securityholder information set out below was applicable as at 30 September 2014, unless stated otherwise.
SPREAD OF STAPLED SECURITYHOLDERS
Category (size of holding)
100,001 and Over
50,001 to 100,000
1,001 to 10,000
1 to 1,000
Total
Number of
Securities
Number of
Holders
1,417,937,889
295,368,364
19,588,072
237,838
1,184
8,785
3,590
784
1,733,132,163
14,343
UNMARKETABLE PARCELS
The number of stapled securityholdings held in a less than marketable parcel was 557.
SUBSTANTIAL SECURITYHOLDERS
Holder
Macquarie Group Limited
Redefi ne Properties Limited
VOTING RIGHTS
Stapled Securities
Date of Notice
234,045,626
24 December 2013
447,872,426
9 October 2013
On a show of hands every securityholder present at a meeting in person or by proxy shall have one vote and, upon a poll,
every securityholder shall have effectively one vote for every security held.
CROMWELL 2014 ANNUAL RE PORT
109
20 LARGEST SECURITYHOLDERS
Rank Investor
Number of Stapled
% Held of Issued
Securities Held Stapled Securities
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
J P Morgan Nominees Australia Limited
Redefi ne Australian Investments Limited
HSBC Custody Nominees (Australia) Limited
Buttonwood Nominees Pty Ltd
National Nominees Limited
Citicorp Nominees Pty Limited
Buttonwood Nominees Pty Ltd
Redefi ne Global (Pty) Limited
RBC Investor Service Australia Nominees Pty Limited
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
Stara Investments Pty Ltd
UBS Wealth Management Australia Nominees Pty Ltd
Humgoda Investments Pty Ltd
RJP Family Pty Ltd
Kovron Pty Ltd
Panmax Pty Ltd
18 Mr Philip John Wallace & Mrs Bernadette Mary Wallace
19
20
RBC Investor Services Australia Nominees Pty Limited
Ecapital Nominees Pty Limited
208,948,611
172,833,576
168,884,566
162,715,616
91,914,991
57,457,352
55,000,000
54,242,549
35,492,345
23,171,744
12,157,245
16,221,167
8,111,394
7,282,126
6,500,000
5,972,000
5,718,993
4,898,736
4,229,436
4,149,820
1,105,902,267
12.06%
9.97%
9.74%
9.39%
5.30%
3.32%
3.17%
3.13%
2.05%
1.34%
0.70%
0.94%
0.47%
0.42%
0.38%
0.34%
0.33%
0.28%
0.24%
0.24%
63.81%
PROVISION OF INFORMATION FOR SECURITYHOLDERS
Cromwell is committed to ensuring its securityholders are fully informed on the fi nancial and operational status of the Group
as well as its future prospects, in accordance with the rules and guidelines of the Australian Securities Exchange (ASX) and
other regulatory bodies. The following information can also be found on the Cromwell website at www.cromwell.com.au.
ASX Listing
Cromwell Property Group is listed as a Stapled Security on the ASX (Code: CMW).
Securityholding Details
Securityholders can access information on their holdings and update their details through Cromwell’s share registry
provider:
Link Market Services Limited
Level 15, 324 Queen Street
Brisbane Qld 4000
Telephone: 1300 550 841
Outside Australia: +61 2 8280 7124
Fax: (02) 9287 0309
Web: www.linkmarketservices.com.au
Email: info@linkmarketservices.com.au
Securityholders can change or update details relating to their address, bank account and Tax File Number (TFN),
Australian Business Number (ABN) or exemption in a number of ways:
• Send written authorisation to the registry quoting your SRN / HIN and signing the request;
• Log on to www.linkmarketservices.com.au; or
• Call the registry
You will have to verify your identity by providing your personal details. Bank detail changes must be requested in writing or
electronically and cannot be made over the phone.
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C ROMW ELL 20 1 4 ANNUAL REPORT
Securityholders are not obliged to quote their TFN, ABN or exemption However, if these details are not lodged with the
registry, Cromwell is obliged to deduct tax from unfranked portions of dividend payments and distribution payments and
up to the highest marginal tax rate, depending on residency.
Distributions/Dividends
Cromwell Property Group Dividends/Distributions
During the year the following distributions/dividends have been paid:
Quarter Ending
Amount per Security
Ex Date
Record Date
Payment Date
30 June 2014
31 March 2014
31 December 2013
30 September 2013
1.9375 cents
1.9375 cents
1.8750 cents
1.8750 cents
24 June 2014
30 June 2014
14 August 2014
25 March 2014
31 March 2014
14 May 2014
23 December 2013
31 December 2013
12 February 2014
24 September 2013
30 September 2013
13 November 2013
FURTHER INFORMATION
The Cromwell website provides a comprehensive range of information on the Group, past performance and products.
The website address is www.cromwell.com.au. Requests for further information about the Group, its dealings and key
securityholder communications should be directed to:
Investor Relations Manager
Cromwell Property Group
GPO Box 1093
Brisbane QLD 4001 Australia
Tel: (07) 3225 7777
Fax: (07) 3225 7788
Email: invest@cromwell.com.au
Listing:
The Cromwell Property Group is listed on the Australian Securities Exchange (ASX code: CMW).
Share Registry:
Link Market Services Limited
Level 15, 324 Queen Street
Brisbane QLD 4000
Tel: 1300 550 841 (+61 2 8280 7124)
Fax: +61 2 9287 0309
Web: www.linkmarketservices.com.au
Auditor:
Pitcher Partners
Level 30, Central Plaza One
345 Queen Street
Brisbane QLD 4000
Tel: +61 7 3222 8444
Fax: +61 7 3221 7779
Web: www.pitcher.com.au
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