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Vornado Realty Trust2016
ANNUAL
REPORT
2
2 CONTENTS
04
Financial Highlights
06
Chairman’s Report
09
CEO’s Report
17
Annual Financial Report
103
Corporate Governance Statement
Directors’
Report
Consolidated
Balance Sheets
Consolidated Income
Statements
Auditor’s Independence
Declaration
Consolidated Statements of
Comprehensive Income
18
42
43
44
45
46 Consolidated Statements of
48
49
100 Directors’
101 Independent Auditor’s
Notes to the
Financial Statements
Consolidated Statements of
Cash Flows
Changes in Equity
Declaration
Report
117
Securityholder Information
COVER IMAGE:
CROMWELL RIVERPARK TRUST
Cromwell Riverpark Trust unitholders
voted to extend the term of the
Trust for a further 5 years. Voting
participation was exceptionally high
at 83%.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
3
Cromwell Property Group
Cromwell Property Group (ASX: CMW) is a Global Real
Estate Investment Manager. As at 30 June 2016, Cromwell
had a market capitalisation in excess of $1.8 billion, a direct
property investment portfolio in Australia valued at $2.3
billion, and total assets under management of $10.3 billion
across Australia, New Zealand and Europe.
Cromwell Property Group (ASX: CMW) is included in the S&P/
ASX 200 and the FTSE EPRA/NAREIT Global Real Estate
Index. During the 2016 financial year, Cromwell delivered
profit from operations up 13% to $164.5 million. Distributions
to securityholders were up 4.3% to 8.20 cents per security.
Cromwell has a clear focus on owning, managing and
investing in commercial property. Investors benefit from
our breadth and depth of experience and a global platform
offering a diverse product range across key property sectors.
Cromwell’s performance is underpinned by quality income
producing Australian assets with strong tenant covenants,
long weighted average lease expiries and fixed rental
increments. 82% of earnings are derived from these assets.
The Group also has a long term target of delivering 20% of
earnings from funds management. Funds management
delivered 18% of earnings in FY16 benefitting from a number
of transactional items. Cromwell will continue to build the
funds management business to be able to consistently, year
on year, deliver this target.
THIS DOCUMENT IS ISSUED BY
Cromwell Property Group
consisting of
Cromwell Corporation Limited ABN 44 001 056 980 and
Cromwell Diversified Property Trust
ARSN 102 982 598 ABN 30 074 537 051
(the responsible entity of which is
Cromwell Property Securities Limited
AFSL 238052 ABN 11 079 147 809)
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 Team on 1300 276 693.
I S TED
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CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 4
FINANCIAL HIGHLIGHTS
Another Robust Result
Consistent Strategy, Consistent Results
Profit from operations
$164.5
million
9.41
cents per security
• Deliver stable, secure and growing distributions to investors
• Maintain defensive characteristics of core property portfolio
• Transform assets in active property portfolio
• Recycle capital to maximise returns
• Grow Funds Management
Distributions
8.20
cents per security
Statutory Profit
$329.6
million
122%
Statutory Profit - Cents per
Security
18.86
cents per security
120%
4.3%
Financial Results Summary
Statutory profit ($m)
Statutory profit (cents per security)
Property Investment ($m)
Property Management and Internal Funds
Management ($m)
Funds Management Retail ($m)
Funds Management Wholesale ($m)
Development ($m)
Operating profit ($m)
Operating profit (cents per security)
Distributions ($m)
Distributions (cents per security)
Payout Ratio (%)
FY16
329.6
18.86
135.4
0.2
10.0
19.0
(0.1)
164.5
9.41
143.4
8.20
87%
FY15
Change
148.8
8.58
141.7
(0.6)
1.4
2.6
(0.2)
144.9
8.35
136.5
7.86
94%
122%
120%
(4%)
133%
614%
631%
(50%)
14%
13%
5%
4%
(8%)
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
5
Conservative Capital Management
• Group gearing(1) reduced to 43%, (44% look-through)
• Portfolio gearing(2) of 34%, (36% look-through)
• Cash and cash equivalents of $95.6 million
• NTA increased to $0.81
Financial Position
Total Assets
Total Liabilities
Net assets
Jun-16
(Actual)
($’000)
Jun-15
(Actual)
($’000)
2,878,245
2,589,094
(1,378,109)
(1,294,883)
1,500,136
1,294,211
Securities on issue (‘000)
1,752,331
1,739,759
NTA per security
(excluding interest rate swaps)
NTA per security
(including interest rate swaps)
Gearing(1)
Gearing (look-through)(1)
$0.82
$0.67
$0.81
$0.65
43%
44%
45%
47%
(1) Gearing calculated as (total borrowings less cash)/(total tangible assets less cash). Look-through
gearing adjusts for the 50% interest in Northpoint Tower.
(2) Portfolio gearing removes impact of Convertible Bond and net IOF position.
FY17 Guidance
• FY17 operating earnings guidance
of not less than 8.40 cps
• FY17 distribution guidance of not
less than 8.34 cps
• Conservative assumptions that
recognise the potential downside
risks including Brexit, China
slow down, US elections and a
residential construction downturn
in Australia
Trend in earnings
and distribution growth
since 2011
• Growth in earnings of 5.80% p.a.
since FY11
• Growth in distributions of 3.22%
p.a. since FY11
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 6
CHAIRMAN’S REPORT
Geoffrey H Levy, AO
The 2016 financial year (FY16) saw continued heightened competition for
quality commercial property assets throughout Australia. Offshore capital
currently accounts for approximately 50% of transaction volumes and the rate
of international acquisitions have only slowed due to the lack of new stock
available in the Australian market given high transaction volumes over the last
few years.
This continued interest in Australian assets means cap rates are on par with, if
not tighter than, they were just before the GFC. This is uncharted territory and
in a situation like this we believe it pays to be more cautious and err on the side
of being conservative.
Cross-border capital is the ‘market maker’ in every major real estate market
bar the largest, the USA. Capital providers are now also increasingly making
allocation decisions on a global basis, trading off the pros and cons of investing in
London against Paris, New York, Shanghai and Tokyo to Sydney and Melbourne.
These institutions are also increasingly looking for global partners who can
help them deploy their capital smartly into each selected jurisdiction. Cromwell
has a local presence in six of the top 10 largest commercial real estate
markets and we are actively developing our platform to ensure we can meet
the needs of our current and potential capital provider partners.
Cromwell was again a net seller of real estate assets during FY16, disposing
of just under 10% of the balance sheet portfolio and recycling the capital into
higher value-adding opportunities. This strategy differentiates Cromwell from
most of our A-REIT peers who adopt more passive investment strategies.
Our strategy isn’t always appreciated by the market but we firmly believe that
‘sweating’ our securityholders’ capital enables us to generate investment
outperformance over time.
During the year Cromwell also undertook a range of new sustainability
initiatives including the adoption of a global sustainability framework.
Cromwell’s 2016 GRESB submission was expanded to include all Australian
assets as well as five European funds comprising a further 183 properties.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 7
We are committed to sustainable business practices and
both the new framework and GRESB results will help
improve business performance and support a responsible
and balanced pathway to business success. Further
details will be published in our 2016 Sustainability Report.
Community engagement is also important to us and
reflective of our culture. The Cromwell Property Group
Foundation was able to donate $130,000 to a number of
worthy charities during the year.
The beneficiaries were:
• Alzheimer’s Australia Dementia
Research Foundation and Alzheimer’s
Australia each received $25,000 after a
successful auction of two unique rugby
jerseys signed by all previous eight
Rugby World Cup winning captains
• Australian Liver Foundation (ALF)
ALF received a donation of $50,000 to
continue working on developing a new
blood test to improve the early diagnosis
of liver cancer
• Trigeminal Neuralgia Association
Australia received $30,000. Trigeminal
neuralgia is a disorder of the trigeminal
nerve that causes episodes of intense,
electric shock-like pain in the face
Details on the excellent work undertaken by these
charities can be found on the Foundation website
www.cromwellfoundation.org.au.
Finally I would like to take this opportunity to thank
recently retired Robert Pullar for his 13 years of service
as a Board member. I would also like to show my
appreciation of my fellow Board members for their
support and effort and finally congratulate CEO Paul
Weightman and all of Cromwell’s staff for their tireless
efforts and an excellent set of results this year. We
are blessed to have a very talented team of committed
and skilled individuals at Cromwell. I would also like
to acknowledge our securityholders - Cromwell exists
primarily to provide them with secure, stable and growing
distributions. We will continue to focus on delivering this
core business objective in FY17.
Geoffrey H Levy, AO
Chairman
Cromwell Property Group
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Assets Under Management(1)
BY SECTOR
Assets Under Management(1)
BY GEOGRAPHY
8
ATO Dandenong,
Victoria
(1) Assumes completion of properties currently under construction.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
CEO’S REPORT
9
Strong transactional income boosted Cromwell’s operating profit to
$164.5 million for the financial year to 30 June 2016 (FY16). Operating
profit per security was 9.41 cents per security (cps). Distributions per
security increased 4.3% to 8.20 cps. These results were ahead of Cromwell’s
previous market forecasts of 9.00 cps and 8.10 cps respectively and
continued Cromwell’s trend of consistently growing distributions through the
property cycle.
Cromwell’s strategy of realising gains and recycling capital, and its internal
management model, created value from active management of assets,
generated performance fees, allowed it to act opportunistically and enabled it to
effectively manage downside risk.
FY16 was a year in which Cromwell also strongly benefitted from a number of
one-off transactional items. Looking through these one-off items at the trends
in the core business, we have been successful in meeting our objective of
consistently growing distributions to investors, averaging growth in distributions
of 3.22% p.a. since FY11.
Distributions of $6.0 million were also received for the June quarter from the
Group’s 9.83% stake in Investa Office Fund (ASX:IOF). The stake was acquired on
12th of April for $4.24 per security.
Acquisition of the stake was opportunistic. We didn’t believe the takeover
proposal on the table at the time adequately reflected the underlying value
of Investa’s portfolio, and we feel vindicated by the subsequent trading
performance of IOF and its improved NTA at 30 June 2016. Investa is weighted to
the rising Sydney office market and we expect that the investment will continue
to be accretive.
CEO Paul Weightman
cps
9.50
9.00
8.50
8.00
7.50
7.00
6.50
6.00
FY11
FY12
FY13
FY14
FY15
FY16
Earnings
Distributions
Earnings Trend
Distributions Trend
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Tenant Classification(1)
BY GROSS INCOME
Sector Classification(1)
BY GROSS INCOME
Geographic Diversification(1)
BY GROSS INCOME
Private Company
Government Authority(2)
Listed Company/Subsidiary
Retail
Office
Other
ACT
NSW
QLD
VIC
10
Property Segment Update
The Property Investment Segment delivered an operating
profit of $135.4 million, down 4% on the prior year. This
was mainly due to the impact of asset sales during 2016.
Net property earnings, on a like-for-like basis, increased
1.6% with increases in rental income being offset by some
vacancy in Queensland and Canberra.
The like-for-like earning figures reflect the fact that the
biennial market rent reviews for the assets in our NSW
Government Portfolio have not been finalised and will be
the subject of valuation determination in 2017. The reviews
are capped at 8% and the assets represent 12.5% of our
total portfolio by income.
Property valuations increased by $250.3 million during
the year net of property improvements, lease costs and
incentives. Overall tenant quality remains strong with
Government and Government related entities contributing
46% of gross income. 68 leasing deals were completed
during the 12 months for over 97,000 square metres.
Tenant demand outside of Sydney remains weak resulting
in forecast subdued growth in like-for-like property income
in FY17 and FY18. Retention rates across the portfolio of
76% (excluding the Woden asset) were positive given the
varying conditions in the markets in which we operate.
Cromwell was a net seller in FY16 selling $209 million of
assets with a net gain of $19.4 million (equivalent to 1.1
cents per security). A proportion of the proceeds were used
to repay debt with the balance being held as cash. Unlike
some of our peers, we do not recognise gains on sale of
these non-core assets as operating income.
Given the heightened competition for assets in all markets,
Cromwell’s preference is to recycle capital from disposals to
value-adding opportunities in our existing portfolio. We are
investing $300 million for the future with the redevelopment
of Northpoint Tower in North Sydney and the development
of the new Department of Social Services national
headquarters at Tuggeranong Office Park in the ACT.
As at 30 June 2016, the portfolio had a Weighted Average
Lease Expiry (WALE) of 6.34 years and a vacancy rate of
7.8%1 compared to the national CBD office average of
11.9% (JLL). Our NSW and VIC assets continue to perform
well and we are actively managing the vacancy in our
Queensland and Canberra assets.
Both projects are on track and will contribute earnings
growth and valuation uplifts to the Group in the near future.
Demolition works have just finished, and construction will
begin next month, at Northpoint, while construction will
finish shortly at Tuggeranong. We see opportunity to invest
in, and add value to, other assets in our portfolio.
(1) By current passing gross income.
(2)
Includes Government owned and funded entities.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Artist Impression
Northpoint, Sydney
11
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
12
Haagse Poort
The Hague
Europe
€2.4
billion
Traded in assets
on behalf of
investors
Investment Capacity
€1.0
billion
As at 30 June
2016
Wholesale funds management
earnings in FY16
$19.0
million
from $2.6
million in
FY15
Funds Management Wholesale
During the year, Cromwell’s European business traded €2.4 billion in assets
on behalf of investors and had investment capacity of €1.0 billion as at 30 June
2016. The high level of trading activity generated good transactional fees and
wholesale funds management earnings increased from $2.6 million in FY15 to
$19.0 million in FY16.
We have been unwilling to deploy investment capacity where we do not see value
for our investors. Sentiment in the UK has stalled owing to uncertainty post-
Brexit but this is likely to lead to more private equity investment into the UK to
take advantage of the uncertainty, and also to more investment into Europe.
Since its acquisition, the European business has been progressively integrated
into Cromwell’s platform and we plan to phase out the VALAD name and
rebrand the business in early 2017.
As we look to reposition the business to have a broader, more discretionary
focus, we expect a number of older funds will naturally wind-down. We are
required to account for the impact of this change, and given prevailing market
conditions, both now and into the near future, have decided to take a quite
conservative approach and write down a proportion of the goodwill associated
with the business.
This is consistent with our commercial view that we would prefer not to carry
large intangibles on our balance sheet.
Our European platform has a tremendous future. We made a number of senior
hires during the year to bolster its capability. There are also a number of new
products under development and being actively promoted that will give us the
opportunity to deploy capital in the future. We will continue to focus on growing
our funds, and footprint, over time.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Retail funds management
earnings in FY16
$10.0
million
from $1.4
million in
FY15
Oyster Group AUM
NZ$983
million
34%
Artist Impression
Cider Building, Ponsonby
13
Funds Management - Retail
Retail funds management earnings increased to $10.0 million from $1.4
million in FY15. This was mainly attributed to $7 million in performance and
disposal fees realised from the sale of the asset in the Cromwell Box Hill
Trust. Unitholders voted to sell after Cromwell received an unsolicited bid
for the asset, at a 34% premium to its pre-construction ‘as-if-complete’
valuation.
During the year it was pleasing to see the funds management team receive
industry recognition including winning the A-REIT award for the third
consecutive year at the 2015 Professional Planner/Zenith Fund Awards(1); the
2015 Australian Property Institute’s Winner of the Commonwealth Bank of
Australia Funds Management Award and the 2016 Morningstar Fund Manager
of the Year Award, Listed Property Category(2).
In New Zealand, Oyster Group increased AUM by 34% to NZD$983 million.
Growth was diverse and came from a broad range of initiatives including the
NZD$100 million Cider building syndication which closed fully subscribed within
a matter of days.
Mark Schiele and the team at Oyster have had a very strong year and, with a
number of additional initiatives in the pipeline, should shortly achieve NZD$1
billion in AUM. That’s a great testament to the strength of the business and the
value they provide their investors.
(1) The Professional Planner | Zenith Fund Awards are determined using proprietary methodologies.
Fund Awards were issued October 9, 2015 and are solely statements of opinion and do not
represent recommendations to purchase, hold, or sell any securities or make any other
investment decisions. Ratings are subject to change.
(2) Morningstar Awards 2016 ©. Morningstar, Inc. All Rights Reserved. Awarded to Cromwell Funds
Management Limited for Fund Manager of the Year Award, Listed Property Category, Australia.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 14
Cash and Cash Equivalents
Capital Management And Operational Platform
$95.6
million
As at 30 June
2016
Cromwell is a conservative business and has a clear focus on capital
management, gearing levels and cash reserves. We place a priority on
maintaining our ability to access diverse sources of capital at different points in
the property cycle.
down from
45% in 2015
As at 30 June 2016 cash and cash equivalents were $95.6 million and Group
gearing was 43% down from 45% the previous year. Property portfolio gearing
was 34% down from 36%. Net Tangible Assets (NTA) increased to $0.81 on the
back of the increase in property valuations.
Group Gearing
43%
Portfolio Gearing
34%
down from
36% in 2015
The Group’s debt facilities continue to be well diversified across eight lenders
and the Convertible Bond issue with varying maturity dates. Future interest
rates are hedged through an interest rate cap to May 2019.
The average interest rate paid fell to 4.65% during FY16. This resulted in a debt
interest expense reduction of $4.9 million and this trend is likely to continue as
existing out of the money interest rate swaps continue to expire.
The debt platform and hedging program initiatives are designed to provide
a high level of comfort on the quantum and cost of debt over the short and
medium term. We will continue to be proactive in managing both in 2017.
Outlook
We continue to make conservative assumptions in relation to transactional
earnings and rental income for FY17. The impact of Brexit, the potential for
geopolitical disruption, risks associated with the slowdown in the Chinese
economy and associated increases in debt levels and debt servicing costs, a
slowdown in residential construction in Australia and the impact of the US
elections are all matters of concern.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Expected FY17 Operating Profit
not less
than
8.40
cpu
Expected FY17 Distribution
not less
than
8.34
cpu
15
We have also started the year with a vacancy rate higher than our historical
average, a domestic market that is, or is pretty close to being, fully valued, and
lacklustre tenant demand outside of Sydney.
On a positive note, whilst in the United Kingdom we are facing short term
dislocation due to the fallout from Brexit the fundamentals are relatively robust in
most of the rest of Europe. However we remain cautious overall and focused on
managing the downside risks. Despite this we do expect to continue our long term
trend of growth in distributions per security, and this remains our core objective.
Taking into account our conservative assumptions in transactional revenue
and rental income and the short term impact of our development program on
earnings the Group expects FY17 operating profit of not less than 8.40 cps and a
distribution of not less than 8.34 cps.
This represents an operating profit per security and distributions per security yield
of 7.92% and 7.73% respectively based on closing price of $1.06 on 24 August 2016.
I would like to thank my fellow Board members for their support over the last 12
months. As always, it is the hard work of Cromwell’s employees that have made
this result possible and I would like to also thank them for their contribution.
Paul Weightman
CEO
Cromwell Property Group
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT DIRECTORY
Board of Directors:
Geoffrey H Levy, AO
Michelle McKellar
Richard Foster
Jane Tongs
Marc Wainer
Andrew Konig
Paul Weightman
Compnay Secretary:
Lucy Laakso
All ASX and media releases as well as
company news can be found on our
webpage www.cromwell.com.au
Registered Office:
Level 19, 200 Mary Street
Brisbane QLD 4000
TEL: +61 7 3225 7777
FAX: +61 7 3225 7788
WEB: www.cromwell.com.au
Securities Registry:
Link Market Services Limited
Level 15, 324 Queen Street
Brisbane QLD 4000
TEL: 1300 554 474 (+61 2 8280 7100)
FAX: +61 2 8280 0303
WEB: www.linkmarketservices.com.au
Listing:
Cromwell Property Group
is listed on the Australian
Securities Exchange
(ASX code: CMW)
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
16
CONTENTS
18
Directors’ Report
42
Auditor’s Independence Declaration
Statements
Financial Statements
43
43 Consolidated Income
44 Consolidated Statements of
45 Consolidated
46 Consolidated Statements of
48 Consolidated Statements of
Comprehensive Income
Changes in Equity
Balance Sheets
Cash Flows
49
Notes to the Financial Statements
100
Directors’ Declaration
101
Independent Auditor’s Report
103
Corporate Governance Statement
117
Securityholder Information
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
FINANCIALS
17
Cromwell Property Group
Annual Financial Report
30 June 2016
Consisting of the combined consolidated financial reports of
Cromwell Corporation Limited (ABN 44 001 056 980) and
Cromwell Diversified Property Trust (ARSN 102 982 598)
Cromwell Corporation Limited
ABN 44 001 056 980
Level 19, 200 Mary Street
Brisbane QLD 4000
Cromwell Diversified 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
I S TED
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CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
18
DIRECTORS’ REPORT
The Directors of Cromwell Corporation Limited and
Cromwell Property Securities Limited as Responsible
Entity for the Cromwell Diversified Property Trust
(collectively referred to as the “Directors”) present their
report together with the consolidated financial statements
for the year ended 30 June 2016 for both:
• the Cromwell Property Group (“Cromwell”) consisting
of Cromwell Corporation Limited (the “Company”) and
its controlled entities and Cromwell Diversified 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 and Officers
(A) DIRECTORS
The persons who were Directors at any time during the
financial year and up to the date of this report (unless
otherwise stated) were:
Mr Geoffrey H Levy (AO) – Independent Non-executive
Chairman
Mr Levy has extensive public company executive and
directorship experience and is the former Chief Executive
Officer of Investec Bank (Australia) Ltd and former
Chairman of ASX listed Specialty Fashion Group Limited.
He is the current Chairman of Monash Private Capital and
its groups of companies and funds. He was appointed an
Officer in the Order of Australia in the Queen’s Birthday
Honours List in June 2005. Mr Levy is Chairman of
Cromwell’s Nomination & Remuneration Committee and a
member of Cromwell’s Investment Committee.
Ms Michelle McKellar – Independent Non-executive
Director
Ms McKellar has over 30 years of property and portfolio
management experience throughout the Asia-Pacific.
Ms McKellar was responsible for establishing the CBRE
business in New Zealand and served as the Hong Kong-
based Managing Director of the company’s Greater
China operations. She subsequently served as the CEO
of Jen Group of Companies and is a founding Director of
China-based Dash Brands. She is a senior member of
the Property Institute of New Zealand, and a Fellow of the
Australian Institute of Company Directors. Ms McKellar
is Chairman of Cromwell’s Investment Committee and a
member of Cromwell’s Audit & Risk and Nomination &
Remuneration Committees.
Mr Richard Foster – Independent Non-executive Director
Mr Foster has been 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
Cromwell’s investment products. Mr Foster is a member
of Cromwell’s Audit & Risk, Investment and Nomination &
Remuneration Committees.
Ms Jane Tongs – Independent Non-executive Director
Ms Tongs has over 20 years of management expertise,
serving on the boards of insurance, funds management
and other financial services entities. She is currently
Chairman of the Netwealth Group and Chairman of the
Lend Lease Australian Prime Property Fund Investors
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Geoffrey H Levy, AO
INDEPENDENT NON-EXECUTIVE
CHAIRMAN
Michelle McKellar
INDEPENDENT NON-EXECUTIVE
DIRECTOR
Richard Foster
INDEPENDENT NON-EXECUTIVE
DIRECTOR
Jane Tongss
INDEPENDENT NON-EXECUTIVE
DIRECTOR
Marc Wainer
NON-EXECUTIVE DIRECTOR
Andrew Konig
NON-EXECUTIVE DIRECTOR
Paul Weightman
MANAGING DIRECTOR / CEO
19
Committee and a Director of Australian Energy Marketing
Operator Limited, Catholic Church Insurances Ltd and
Warakirri Asset Management Ltd. Ms Tongs also served
as director of Run Corp Limited from 2005 until her
resignation in 2014. Ms Tongs is a Fellow of Chartered
Accountants Australia and New Zealand and of CPA
Australia and a member of the Australian Institute of
Company Directors. Ms Tongs is Chairman of Cromwell’s
Audit & Risk Committee and a member of Cromwell’s
Nomination & Remuneration Committee.
Mr Marc Wainer – Non–Executive Director
Mr Wainer has more than 40 years experience in the
property industry in South Africa. Marc is the Executive
Chairman and an Executive Director of listed South
African property group Redefine Properties Limited which
he founded, and which is a substantial securityholder of
Cromwell Property Group. He also is a Non-executive
Director of Redefine International P.L.C., a listed property
investment company in the United Kingdom and also
serves as a Non-executive Director of Redefine BDL Hotel
Group which owns and manages a portfolio of hotels in the
United Kingdom.
Mr Andrew Konig – Non–Executive Director
Mr Konig was appointed as Financial Director and to
the board of Redefine Properties in January 2011 and
elected as Chief Executive Officer in August 2014. He is
Chairman of the Executive Committee and member of the
Investment Committee, and holds external appointments
as Executive Director of Fountainhead Manco, Non-
executive Director of Delta Property Fund and Echo
Polska Properties and an alternate Director to Marc
Wainer on the Redefine International PLC Board. Mr
Konig is a qualified Chartered Accountant with 23 years of
commercial and financial experience, and was previously
Group Financial Director of Independent News and Media.
He is responsible for the management of Redefine and for
ensuring the Board’s strategy is implemented as well as
all aspects of regulatory compliance, corporate activity and
communications.
Mr Paul Weightman – Managing Director/
Chief Executive Officer
Mr Weightman has been the key driver of Cromwell’s
success since inception in 1998. He has extensive
experience in property development and investment,
financial structuring, public listings, mergers and
acquisitions, revenue matters and joint ventures. Mr
Weightman was Cromwell’s Executive Chairman from
1998 – 2008 and has acted as a director of companies in
the property, energy and retail sectors. He practised as
a solicitor for more than 20 years and holds degrees in
commerce and law and is a Fellow of the Royal Institute
of Chartered Surveyors. Mr Weightman is a member of
Cromwell’s Investment Committee.
Mr Robert Pullar (resigned) – Non-executive Director
Mr Pullar resigned on 25 November 2015. Mr Pullar is
a Director of the Brisbane based property development
company, Citimark Properties and a member of the
Chartered Accountants Australia and New Zealand and
a Fellow of the Australian Institute of Company Directors.
Mr Geoffrey Cannings (resigned) – Alternate Director
Mr Cannings resigned on 7 December 2015. Mr Cannings
was the alternate Director for Mr Wainer and Mr Konig
until his resignation.
All Directors of the Company are also Directors of
Cromwell Property Securities Limited, the Responsible
Entity of the CDPT.
(B) COMPANY SECRETARY
Ms Lucy Laakso – appointed 10 August 2015
Ms Laakso has over 15 years experience in the financial
services industry, having worked as a legal practitioner and
in the areas of company secretariat, corporate governance,
compliance and business banking. Prior to joining
Cromwell, Lucy was an in-house lawyer at a fund manager
and a manager in the company secretariat/compliance
team at a private investment advisory firm. Before that, she
worked at a Top 20 ASX-listed financial services company
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT in areas including corporate secretariat, compliance and business banking. Lucy also has private practice experience
at a top tier firm. She holds a Juris Doctor (First Class Honours), an MBA (specialising in Corporate Governance) and a
Bachelor of Business.
Ms Nicole Riethmuller (resigned)
Ms Riethmuller resigned on 10 August 2015.
Ms Riethmuller has over 15 years experience as a corporate lawyer and has a Bachelor of Laws and a Bachelor of
Commerce from the University of Queensland.
(C) 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 financial year were:
Directors
Board of Directors
Nomination &
Remuneration
Committee
Audit & Risk Committee
Investment Committee
20
Meetings
attended
Meetings
eligible to
attend
Meetings
attended
Meetings
eligible to
attend
Meetings
attended
Meetings
eligible to
attend
Meetings
attended
Meetings
eligible to
attend
G Levy
M McKellar
R Foster
J Tongs
M Wainer
A Konig
P Weightman
R Pullar
10
10
12
10
11
10
12
4
12
12
12
12
12
12
12
5
4
2
4
4
–
–
–
3
4
4
4
4
–
–
–
3
–
8
5
10
–
–
–
4
–
10
6
10
–
–
–
4
8
8
8
–
–
–
8
2
8
8
8
–
–
–
8
4
2. Principal Activities
The principal activities of Cromwell during the financial year consisted of property investment, funds management,
property management and property development. The Trust’s principal activity during the financial year was property
investment.
There were no significant changes in the nature of Cromwell’s or the Trust’s principal activities during the financial year.
3. Dividends/ Distributions
The table below shows details of Cromwell’s and the Trust’s quarterly dividends and distributions paid during the year:
Dividend
per security
Distribution
per security
Total per
security
Total
$M
Franked
amount per
security
Record
date
Payment
date
2016
Interim distribution
Interim distribution
Interim distribution
Final distribution
2015
Interim distribution
Interim distribution
Interim distribution
Final distribution
–
–
–
–
–
–
–
–
–
–
1.9925¢
1.9925¢
2.1075¢
2.1075¢
8.2000¢
1.9375¢
1.9375¢
1.9925¢
1.9925¢
7.8600¢
1.9925¢
1.9925¢
2.1075¢
2.1075¢
8.2000¢
1.9375¢
1.9375¢
1.9925¢
1.9925¢
7.8600¢
34.7
34.9
36.9
36.9
143.4
33.6
33.6
34.6
34.7
136.5
30-Sep-15
11-Nov-15
31-Dec-15
10-Feb-16
31-Mar-16
11-May-16
30-Jun-16
18-Aug-16
30-Sep-14
12-Nov-14
31-Dec-14
11-Feb-15
31-Mar-15
13-May-15
30-Jun-15
13-Aug-15
–
–
–
–
–
–
–
–
–
–
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 4. Review of Operations
(A) FINANCIAL PERFORMANCE
Cromwell recorded a profit of $329.6 million for the year ended 30 June 2016 (2015: profit of $148.8 million). The Trust
recorded a profit of $371.4 million for the year ended 30 June 2016 (2015: profit of $156.7 million).
The profit 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’s underlying profit from
operations. The most significant of these items impacting the profit of Cromwell not considered part of underlying
operating profit were:
• An increase in the fair value of investment properties of $263.2 million (2015: increase of $32.4 million);
• Gain on sale of investment properties of $19.4 million (2015: gain on sale of $1.0 million);
• Decrease in recoverable amount of goodwill of $86.2 million (2015: $nil); and
• An increase in the fair value of interest rate derivatives of $5.4 million (2015: decrease of $1.8 million).
Cromwell recorded an operating profit of $164.5 million for the year ended 30 June 2016 compared with an operating
profit of $144.9 million for the previous year. Operating profit is considered by the Directors to reflect the underlying
earnings of Cromwell. It is a key metric taken into account in determining distributions for Cromwell but is a measure
which is not calculated in accordance with International Financial Reporting Standards (“IFRS”) and has not been
reviewed by Cromwell’s auditor.
21
A reconciliation of operating profit, as assessed by the Directors, to statutory profit is as follows:
Cromwell
Operating profit
Reconciliation to profit for the year
Gain on sale of investment property
Gain/(loss) on disposal of other assets
Business combination costs
Other transaction costs
Fair value net gains/(write-downs):
Investment properties
Derivative financial instruments
Investments at fair value through profit or loss
Non-cash property investment income/(expense):
Straight-line lease income
Lease incentive amortisation
Lease cost amortisation
Other non-cash expenses:
Amortisation of finance costs
Net exchange gains/(loss) on foreign currency borrowings
Decrease in recoverable amounts
Amortisation and depreciation, net of deferred tax expense(1)
Relating to equity accounted investments(2)
Net foreign exchange gains/(losses)
Net tax losses incurred/(utilised)(3)
Profit for the year
2016
$M
164.5
19.4
(0.3)
–
(1.8)
263.2
10.6
6.0
2.3
(13.7)
(1.5)
(5.8)
(5.5)
(86.6)
(7.7)
(11.3)
(2.2)
–
329.6
2015
$M
144.9
1.0
0.3
(2.4)
–
32.4
(1.8)
(1.2)
5.5
(11.8)
(1.2)
(4.4)
1.6
–
(2.9)
(3.0)
(7.9)
(0.3)
148.8
(1) Comprises depreciation of plant and equipment and amortisation of intangible assets, including management rights and associated deferred tax
liability.
(2) Comprises fair value adjustments included in share of profit of equity accounted entities.
(3) Comprises tax expense attributable to changes in deferred tax assets recognised as a result of carried forward tax losses.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
Operating profit on a per security basis is considered by the Directors to be the most important measure of underlying
financial performance for Cromwell as it reflects the underlying earnings of Cromwell as well as the impact of changes
in the number of securities on issue. Operating profit and distributions on a per security basis are shown below.
Profit per security (per statutory accounts)
Operating profit per stapled security
Distributions per security
2016
Cents
18.86
9.41
8.20
2015
Cents
8.58
8.35
7.86
Operating profit per security for the 2016 financial year was 9.41 cents (2015: 8.35 cents). This represents an increase
of approximately 12.7% over the previous year and mainly reflects the increased contribution being made by the funds
management business. The change in operating profit per security has arisen as a result of a number of key factors:
• An increase in Cromwell’s earnings from external funds management;
• A decrease in property earnings due to assets sold during the year; and
• An increase in employee benefits costs and administration costs associated with Cromwell’s European business.
22
(B) SEGMENT CONTRIBUTIONS
The contribution to profit from operations of each of the 5 segments of Cromwell was:
Property investment (i)
Property/internal funds management (ii)
External funds management – retail (iii)
External funds management – wholesale (iv)
Property development (v)
Total operating profit
2016
$M
135.4
0.2
10.0
19.0
(0.1)
164.5
2016
%
82.3%
0.1%
6.1%
11.6%
(0.1%)
2015
$M
141.7
(0.6)
1.4
2.6
(0.2)
144.9
2015
%
97.7%
(0.4%)
1.0%
1.8%
(0.1%)
(i) Property investment
During the year Cromwell continued to focus on improving the lease expiry profiles of key assets. This resulted in
successful leasing outcomes across the portfolio particularly in Sydney and Melbourne based assets with both, the
700 Collins Street, VIC and 475 Victoria Avenue, NSW assets, starting the 2017 financial year with a better leasing profile
than that which they started the 2016 financial year. Cromwell also secured excellent leasing outcomes for 207 Kent
Street, NSW as well as lease renewals in two of the larger Brisbane assets; HQ North and Synergy, QLD. Cromwell
still faces vacancies at the 13 Keltie Street property in the ACT going into 2017. Tuggeranong Office Park in the ACT will
remain fully leased during 2017, albeit at a reduced market based rental for the second half of 2017. Other assets in
Brisbane, Canberra and Tasmania face issues as a result of soft leasing markets with vacancy rates, particularly in the
Brisbane market, being at historic lows. Cromwell received one off rent surrender and make good amounts totalling
$5.5 million (2015: $nil).
Construction has continued for a second and fully leased commercial office building on the surplus land of the
Tuggeranong Office Park investment property. Total costs of construction are expected to be $171.8 million and will be
funded from cash reserves and a new $159.5 million loan facility. The building, once completed, which is expected to be
in August 2017, will have an NLA of 30,700sqm and be leased for 15 years to the Commonwealth of Australia.
During the first half of the year Cromwell continued to take advantage of the current high prices being paid for assets
in the Australian commercial property market through the sale of four buildings. The sale of these buildings was
undertaken as Cromwell believes the proceeds can be better deployed into more productive assets in the future.
Earnings of the Property Investment segment for the current period are therefore not directly comparable to the previous
corresponding period.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
Buildings sold during the year were:
• Henry Waymouth Centre, Adelaide, SA sold in December 2015 for $73.0 million which was 18% above its 30 June 2015
valuation and resulted in a gain on sale of $10.9 million;
• 43 Bridge Street, Hurstville, NSW sold in July 2015 for $37.0 million which was 19% above the property’s last
independent valuation;
• 4 Bligh Street, Sydney, NSW sold in August 2015 for $68.0 million which was 10% above the property’s last independent
valuation; and
• Terrace Office Park, Bowen Hills, QLD sold in September 2015 for $31.0 million which was 38% above the property’s
carrying value resulting in an $8.5 million gain on sale.
$41.4 million of sale proceeds from the sale of Terrace Office Park and Henry Waymouth Centre were used to repay debt
with the balance held in cash.
As a result of the sales, net earnings from the property portfolio after property outgoings costs but before interest
expense were $192.0 million (2015: $203.2 million), a decrease of 5.5% on the previous year.
In order to assist comparability between periods, Cromwell also measures the change in like-for-like net property
earnings, taking into account only properties held in both the current financial year and the previous financial year. On this
basis, net property earnings increased by 1.6% during the current financial year. This reflects a continuing difficult leasing
market. While the portfolio remains well leased, we have seen a small amount of persistent vacancy, concentrated most
particularly in our Canberra and Queensland assets. This has offset part of the increase in rentals from the balance of our
portfolio. Although our vacancy levels remain slightly higher than our historical averages, they remain well below current
levels for major office markets, demonstrating the ability of our internal property management team to deliver above
average results despite a difficult market.
23
Valuations for investment properties increased by $250.3 million during the year (2015: $25.3 million), net of property
improvements, leasing incentives and lease costs. This is equivalent to an increase in value of approximately 11.9% or
14.3 cents per stapled security from June 2015 valuations.
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 in fair value of investment properties
2016
$M
250.3
12.9
–
263.2
2015
$M
25.3
7.5
(0.4)
32.4
Increases were concentrated in properties in the Sydney and Melbourne metropolitan areas with long weighted
average lease expiries (“WALE”). The single largest increase was for the Qantas Headquarters which has a WALE of
15.2 years. Other large increases were recorded at the 700 Collins Street, Melbourne, and 475 Victoria Avenue, Sydney
investment properties following successful leasing outcomes during the year. Likewise, the Queensland assets of
HQ North and Synergy saw valuations increase following successful lease extension negotiations with major tenants.
The Tuggeranong Office Park, ACT investment property increased in value as a result of the successful negotiations with
the Commonwealth of Australia and the commencement of construction of the new building for that site.
Interest expense
Interest expense for the year decreased to $49.0 million (2015: $57.8 million). This decrease occurred as a result of
reduced borrowings following the repayment of debt from the sale proceeds of the Terrace Office Park and the Henry
Waymouth Centre. The average interest rate fell from 5.73% for the prior year to 5.27% in the current year.
The fair value gain of interest rate derivatives of $5.4 million (2015: loss of $5.5 million) arose as a result of Cromwell’s
policy to hedge a portion of future interest expense. Cromwell has hedged future interest rates through various types of
swap contracts over 100% of its debt at 30 June 2016 (2015: 100%) to minimise the risk of changes in interest rates in
the future. All hedging contracts expire between February 2016 and May 2019.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
(ii) Property management and internal funds management
Property management and internal funds management recorded an operating profit for the year of $0.2 million (2015:
loss of $0.6 million). Staffing levels and associated costs increased compared with the prior year as a result of the new
construction projects at Tuggeranong and Northpoint and the expansion of Cromwell’s overall operations. The benefit
to Cromwell of projects such as Tuggeranong will be realised through the uplift in asset valuations rather than segment
operating profit. The Tuggeranong property has increased in value by 16% since 30 June 2015. This is the direct result of
the construction project and strengthens Cromwell’s balance sheet and improves the NTA.
On 12 April 2016, Cromwell announced it had acquired a 9.83% stake in Investa Office Fund which forms part of this
segment. Cromwell received distribution income of $5.9 million from its investment during the current financial year and
paid interest of $1.1 million on the borrowings used to partly fund the acquisition.
(iii) External funds management – retail
External retail funds management profit increased to $10.0 million for the current year from $1.4 million for the prior
year. The increased profit for the year is mainly attributable to $7.0 million earned in performance and disposal fees from
Cromwell’s unlisted fund, the Cromwell Box Hill Trust which sold its investment property at a 34% premium to its pre-
construction “as-if-complete” valuation just after the property reached practical completion.
24
Total external retail funds under management increased to $1.7 billion compared with $1.4 billion at 30 June 2015 despite
the sale of the Box Hill property and subsequent return of that Trust’s funds to its investors. Cromwell’s current retail
funds open to investors continued to grow.
The Cromwell Direct Property Fund increased in invested funds by 33% over the year. The fund now holds three
investment properties. 64 Allara Street is a six-level A-grade office building located in the Canberra CBD. Masters
Parafield is a purpose built retail complex located within the Adelaide Parafield Airport precinct. Construction on this
property was completed in June 2016. The major tenant is Woolworths Limited with a 15 year non-cancellable lease.
The third property is a Bunnings Home Improvements and Hardware Store at Munno Para, South Australia. Construction
on this property was completed shortly after year end with the main tenant’s lease commencing in August 2016. In
August 2016, the Fund acquired a further 10,124,000 units in the Cromwell Riverpark Trust for $15,100,000. Cromwell will
continue to identify quality assets that fit into the fund’s target asset size and risk profile.
The Cromwell Phoenix Opportunities Fund, which was launched by Cromwell in December 2014 and is designed to provide
a more diversified exposure to listed “small cap” equities, also continued to gain investor interest with an increase in
invested funds of almost 140% since 30 June 2015.
The Cromwell Phoenix Core Listed Property Fund was launched by Cromwell in March 2015. The fund invests in ASX
listed property and property related securities and has so far raised $5.6 million in investor funds.
Cromwell’s New Zealand based funds management joint venture, Oyster Property Group, continued to perform above
expectations during the year. Oyster Property Group had NZD$870 million of assets under management at 30 June 2016,
up from NZD$733 million at 30 June 2015.
Cromwell remains committed to increasing the size and diversification of its funds management business, which it
believes is highly complementary to its internally managed property portfolio and property and facilities management
activities. We continue to invest in a number of initiatives across our retail funds management business which will allow
us to continually improve our service offering to investors in both Cromwell and our unlisted funds.
(iv) External funds management - wholesale
External wholesale funds management profit increased to $19.0 million (2015: $2.6 million) mostly as a result of the
contribution of Valad Europe, a pan-European wholesale fund manager which was acquired by Cromwell on 31 March
2015. The European funds management business contributed $16.6 million, including convertible bond finance costs,
for the year. The European funds management business has three funds which have investment capacity and during the
financial year a total of €404.4 million of investment properties were successfully acquired for these funds. The business
secured portfolios and other mandates to the amount of €498.5 million during the year. Other funds are in sell down mode
and €1,529.2 million of investment properties were sold during the financial year. The resulting acquisition and disposal
fees amounted to $12.7 million out of total funds management fees of $75.4 million.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The European funds management business also received a performance fee (promote) during the financial year of
$6.0 million relating to the Gemini mandate. This workout mandate was awarded to the European business in 2012 by
the fund’s receiver in order to recover the maximum value from the portfolio which consisted of office, logistics, and retail
and leisure investment properties located throughout the United Kingdom. The European funds management business
also received performance fees for two other funds totalling $0.7 million.
As at 30 June 2016 the European funds management business had assets under management valued at €3.68 billion
($5.51 billion) and investment capacity of €955 million ($1.43 billion). A key assumption that underpinned Cromwell’s
initial assessment in 2015 of goodwill attaching to the European business related to the timing of the deployment of that
investment capacity. Recent uncertainty in the financial markets in Europe resulting in part from the vote in the United
Kingdom to leave the European Union has led Cromwell to adopt considerably more conservative assumptions on the timing
of the deployment of investment capacity and in turn to reduce the carrying value of the recoverable amount of goodwill by
$86.2 million. This reduction is not reversible under current accounting standards if investment capacity is subsequently
deployed. Similarly, the value of potential revenues from investment capacity under new funds or mandates promoted or
secured by Cromwell in the future are not able to be recognised as goodwill under current accounting standards.
Cromwell’s Australian wholesale fund, Cromwell Partners Trust (“CPA”) continued with its management of the Northpoint
property. The property is undergoing a major redevelopment of its retail space and development of a 190 room hotel on
site. Preliminary construction works associated with the major redevelopment have commenced and resulted in 26% lower
earnings from CPA as a number of tenancies needed to be terminated or were not renewed to make way for the works.
25
(v) Property development
Development activity during this financial year continued to be extremely limited, with a small amount of industrial land
held for development or re-sale when the opportunity arises. Cromwell does not seek to undertake any material amount
of speculative development.
(C) FINANCIAL POSITION
Total assets ($M)
Net assets ($M)
Net tangible assets ($M) (1)
Net debt ($M) (2)
Gearing (%) (3)
Stapled securities issued (’M)
NTA per stapled security
NTA per stapled security (excluding interest rate swaps)
Cromwell
Trust
2016
2,878.3
1,500.2
1,422.5
1,152.4
43%
1,752.3
$0.81
$0.82
2015
2,589.1
1,294.2
1,130.7
1,041.4
45%
1,739.8
$0.65
$0.67
2016
2,828.0
1,472.4
1,472.4
1,124.7
44%
1,752.3
$0.84
$0.85
2015
2,489.4
1,233.6
1,233.6
1,105.2
45%
1,739.8
$0.71
$0.72
(1) Net assets less deferred tax assets, intangible assets and deferred tax liabilities.
(2) Borrowings less cash and cash equivalents and restricted cash.
(3) Net debt divided by total tangible assets less cash and cash equivalents and restricted cash.
All of Cromwell’s property assets, except for the vacant block of land at Sturton Road in South Australia were externally
revalued at June 2016. The weighted average capitalisation rate (WACR) was 7.07% across the portfolio, compared with
7.84% at June 2015.
Net debt increased by $111.0 million as a result of new debt of $153 million to finance the acquisition of a 9.8% interest
in the Investa Office Fund and the construction of a new building on the Tuggeranong Office Park site partly offset by debt
repayments from proceeds of investment property sales. Gearing decreased from 45% to 43% during the year as a result
of an 11.9% increase in property valuations.
An additional 12.6 million stapled securities were issued during the year at an average issue price of $0.89, comprising
the continuing operation of the distribution reinvestment plan which resulted in the issue of 10.0 million securities during
the year, whilst a further 2.5 million were issued due to the exercise of performance rights.
NTA per security has increased during the year from $0.65 to $0.81, primarily as a result of an increase in property
valuations which contributed 14.3 cents to the increase in NTA.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (D) OUTLOOK
Distribution and operating profit
Distributions are expected to increase to a total annual distribution of 8.34 cents for the 2017 financial year with operating
profit of no less than 8.4 cents per stapled security.
Property investment
Returns from the Property Investment segment are expected to be lower in 2017. While 2016 saw excellent leasing
outcomes for Cromwell, the 13 Keltie Street, ACT investment property commences 2017 with 36% occupancy and the
Vodafone Call Centre, TAS will commence 2017 vacant. In Brisbane, the 200 Mary Street, QLD investment property will
commence 2017 with 58% occupancy. Cromwell will continue to focus on delivering positive leasing outcomes for all
property assets but the current leasing markets in Canberra and Queensland are expected to result in some downtime
before these properties return to full occupancy. 2016 also saw the Property Investment segment boosted by one off
revenues totalling $5.5 million which may not be replicated in 2017.
External funds management - retail
Cromwell will continue to look for appropriate assets for the Cromwell Direct Property Fund which will generate
transactional funds management income. Cromwell will also look for other property syndication opportunities during 2017.
26
On 7 July 2016, the unit holders of Cromwell Riverpark Trust voted to extend the term of their Trust for another 5 years.
At 30 June 2016, Cromwell Riverpark Trust had an NTA of $1.52 per unit and will increase distributions to 11.0 cents
per annum following the extension. This will result in Cromwell earning an interim performance fee in 2017 as well as
on-going funds management fees.
Cromwell’s other unlisted funds should all perform as expected and provide Cromwell with recurring funds
management fees.
Provided Cromwell can acquire property assets for the Cromwell Direct Property Fund and/or successfully launch
another property syndication then operating profit in 2017 from the retail funds management business is expected to be
consistent with the operating profit in 2016.
External funds management - wholesale
The European business faces a number of short term challenges in 2017 as a consequence of recent uncertainty in the
financial markets in Europe resulting in part from the vote in the United Kingdom to leave the European Union. In the
short term this has led to a slow down in the deployment of existing investment capacity and resulting deferral or loss
of transaction and funds management fees. It may be the case that the disruption in financial markets in Europe leads
to an increase in transactional activity or accelerated capital raising in funds promoted and managed in Europe. It may
also be the case that Cromwell may receive performance fees in 2017, and that these may be accelerated or deferred
depending on market conditions over the balance of the financial year. Cromwell has adopted conservative assumptions
in forecasting transactional and funds management revenues and potential performance fees from European business
in 2017.
Cromwell’s Australian wholesale fund, Cromwell Partners Trust (“CPA”) will continue with its management of the
Northpoint property. The property will continue with its major redevelopment of its retail space during 2017. This will
likely see the results for the Trust be similar to 2016 until the redevelopment is completed.
Overall
2016 was an excellent year for Cromwell and one which exceeded our expectations for transactional revenue as a result
of one off performance fees from Cromwell Box Hill Trust, the performance fee from the Gemini fund in Europe, non-
recurring revenue from the property portfolio and distributions from the opportunistic acquisition of the investment in the
Investa Office Fund. We have adopted conservative assumptions for transaction revenue and funds management revenue
in 2017. Notwithstanding those assumptions, we expect to demonstrate a consistent upward trend in operating earnings
from 8.3 cents per security in 2015 to no less than 8.4 cents per security in 2017, and resulting increase in distributions
from 8.20 cents per security in 2016 to no less than 8.34 cents per security in 2017.
This outcome, if achieved, will be a further strong endorsement of our strategy and business model.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Cromwell’s objective is to continue to grow operating profit and distributions per security, maintaining a capacity to
derive transactional revenue where possible, growing funds management revenues in a sustainable way and continuously
improving the capacity of our property portfolio to deliver above average returns over the medium and long term from
active management of our assets and our portfolio. We will continue to manage the risk and cost of our debt, maintaining
appropriate protection to the downside with the opportunity to benefit from the trend of lower global interest rates.
5. Significant Changes in the State of Affairs
Changes in the state of affairs of Cromwell during the financial year are set out within the financial report. There were no
significant changes in the state of affairs of Cromwell during the financial year other than as disclosed in this report and
the accompanying financial report.
6. Subsequent events
No matter or circumstance has arisen since 30 June 2016 that has significantly affected or may significantly affect:
• Cromwell’s and the Trust’s operations in future financial years; or
• the results of those operations in future financial years; or
• Cromwell’s and the Trust’s state of affairs in future financial years.
27
7. Environmental regulation
The Directors are not aware of any particular and significant environmental regulation under a law of the Commonwealth,
State or Territory relevant to Cromwell.
8. Trust Disclosures
Issued Units
Units issued in the Trust during the year are set out in note 10 in the accompanying financial report. There were
1,752,331,208 (2015: 1,739,759,298) issued units in the Trust at balance date.
Value of Scheme Assets
The total carrying value of the Trust’s assets as at year end was $2,828.0 million (2015: $2,489.4 million). Net assets
attributable to unitholders of the Trust were $1,467.2 million (2015: $1,228.0 million) equating to $0.84 per unit (2015:
$0.71 per unit).
The Trust’s assets are valued in accordance with policies stated in notes 5, 6, 7 and 12 of the financial statements.
AIFMD Remuneration Disclosure
The senior management and staff of Cromwell whose actions have a material impact on the risk profile of the Trust are
considered to by the key management personnel identified in the Remuneration Report which is included in this Directors’
Report.
The amount of the aggregate remuneration paid by Cromwell to those key management personnel in respect of the
financial year ending 30 June 2016 was $5,014,845. This amount is comprised of fixed remuneration of $3,819,297 and
variable remuneration of $1,195,548.
This remuneration disclosure is being made to satisfy Cromwell Property Securities Limited’s obligations under AIFMD.
References to “remuneration”, “staff” and “senior management” should be construed accordingly.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 9.
Indemnifying officers or auditor
Subject to the following, no indemnity or insurance premium was paid during the financial year for a person who is or has
been an officer of Cromwell. The constitution of the Company provides that to the extent permitted by law, a person who is
or has been an officer of the Company is indemnified against certain liabilities and costs incurred by them in their capacity
as an officer 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 officer to the extent permitted by law against certain liabilities and legal costs incurred by the officer as
an officer of the Company and its subsidiaries;
• maintain and pay the premium on an insurance policy in respect of the officer; and
• provide the officer with access to board papers and other documents provided or available to the officer as an officer of
the Company and its subsidiaries.
28
Cromwell has paid premiums for Directors and officers’ 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 financial year, for any person who is or has been an
auditor of the Company or any of its controlled entities.
10. Rounding of amounts to the nearest one hundred thousand dollars
Cromwell is an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 and in accordance with that instrument amounts in the Directors’ report and financial report have been rounded
off to the nearest one hundred thousand dollars, or in certain cases to the nearest dollar.
11. Auditor
Pitcher Partners continues in office 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 Cromwell are important.
The Directors have considered the position and, in accordance with advice received from the Audit & Risk Committee, are
satisfied 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 satisfied 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
Cromwell are set out below:
Non-audit services
Due diligence services
Total remuneration for non-audit services
2016
$
23,000
23,000
2015
$
400,000
400,000
The auditor receives remuneration for audit and other services relating to other entities for which Cromwell Funds
Management Limited and Cromwell Real Estate Partners Pty Ltd, both controlled entities, act as responsible entity.
The remuneration is disclosed in the relevant entity’s financial reports and totalled $99,500 (2015: $92,000).
Amounts paid to PwC, who acted as the component auditor for an overseas component of Cromwell in the current year,
and its network firms for non-audit services were as follows:
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
Non-audit services
Tax compliance services – Australia
Tax compliance and other services - overseas
Total remuneration for non-audit services
2016
$
349,810
88,695
438,505
2015
$
222,786
392,857
615,643
12. 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.
13. Remuneration Report
The remuneration report is presented for the financial year ending 30 June 2016. 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 is where we explain how performance has been linked to reward outcomes that forge a clear alignment between
Cromwell staff and securityholders.
29
This report outlines the remuneration for Non-Executive Directors as well as Executive Directors and other key
management personnel (“KMP”). KMP are defined as those employees who have authority and responsibility for planning,
directing and controlling the activities of Cromwell. The report is set out under the following headings:
(a) Remuneration principles – governance, policy, objectives;
(b) Link between remuneration and performance;
(c) Details of remuneration;
(d) Details of remuneration: cash bonuses and performance rights;
(e) Equity based compensation;
(f) Employment contracts and termination provisions; and
(g) Details of equity instrument holdings, loans, etc.
(A) REMUNERATION PRINCIPLES
Governance
Cromwell has appointed a nomination and remuneration committee (“Committee”). The Committee advises the Board on
remuneration policy, practices and strategies.
During the financial year the members of the Committee were:
Mr G Levy
Mr R Pullar
Non-executive Director and Chairman of the Committee following the resignation of Mr R Pullar;
Non-executive Director and Chairman of the Committee until his resignation on 25 November 2015;
Ms M McKellar
Non-executive Director
Mr R Foster
Ms J Tongs
Non-executive Director
Non-executive Director
The committee calls upon external consultants if and when necessary and also makes use of various professional and
industry publications in assisting them in their considerations. The Chairman of the Committee who is also the Chairman
of the Board, has also consulted directly with certain proxy advisors and some institutional investors to understand their
viewpoint on issues relating to remuneration generally and given the specific nature and circumstances of Cromwell’s
business operations and economic environment.
An important change made to Cromwell’s remuneration policy during the year has been the adoption by Cromwell
of a staff values initiative. This is outlined in more detail below and now forms 50% of every staff members annual
performance review. The employee value system cements what Cromwell believes has been the cornerstone of its
corporate culture and the underlying basis for its ongoing success.
Further information on the role and activities of the Committee is available on Cromwell’s website and the Corporate
Governance Statement to be released with the Annual Report.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
Remuneration policy
Cromwell 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 Cromwell’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
• Consistent distributions growing at greater than CPI annually
• Active asset management
• Prudent risk management and mitigation
• Good capital management
– Accretive capital raisings
– Weighted Average Debt Expiry profile appropriate to market
conditions
– Gearing – 35% at market peak to 55% at market trough
– Hedging profile assists in ensuring consistent income
• Maintain articulated investment allocation policy for Cromwell 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
Develop specific KMP key performance indicators
• Objectively measured KPIs e.g. financial
• Subjectively measurable KPIs e.g. Cromwell value system (corporate culture)
Balanced scorecard assessment
30
Market competitive
remuneration
KMP remuneration packages
• Fixed Pay
• At-risk cash bonus
• Equity based compensation
Merit based remuneration
Specific to each KMP
Attract, retain and motivate
Alignment between objectives and KMP behaviours
Objectives
Fundamentally, Cromwell aims to support or enhance its operating earnings per security in any given financial year in a
way that does not unduly increase the risk profile of Cromwell. Cromwell also seeks to operate within a framework that
facilitates both sustainable growth and Cromwell outperforming its peers in the medium to 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 align KMPs interests with those of long-term minded securityholders by specifically designing their
performance indicators to their particular role and responsibilities.
This is achieved by providing remuneration packages which consist of the following three elements (or a combination
thereof) where appropriate:
1.
2. An at-risk cash bonus that is linked solely to performance of a tailored set of objectives, where appropriate; and
3.
At risk longer term equity payment. This third element is equity based remuneration aimed at alignment and retention.
Fixed component in the form of a cash salary;
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The mix of these three elements, their key features and how they are applied to the KMPs of Cromwell are summarised
below.
Summary of remuneration elements by personnel
KMP
Fixed pay element
At-risk cash element
At-risk equity element
None.
None.
Non-executive Directors
Executive Director – CEO
Fixed pay amounts to each
Director reflects the demands
made on, and the responsibilities
of each Director and with regard
to market comparative levels.
Total amount payable to all Non-
executive Directors is approved by
securityholders from time to time.
Total amount payable, in
aggregate, currently stands at
$1,000,000.
Set at an amount to reflect
the demands, responsibilities,
and skill levels required, with
cognisance to the market.
Amount set by the Board annually
with cognisance to the market.
Payable based on reaching or
exceeding key performance
indicators set by the Board.
For more detail refer to the
Remuneration packages section
below.
Other KMP
Set at an amount to reflect
the demands, responsibilities
and skill levels required, with
cognisance to the market.
None.
31
Amount set by the Board and
approved by securityholders.
Annual grant of performance
rights with three year vesting
terms.
Grant requires the passing of
annual performance hurdles set
by the Board.
Must meet 70% of annual hurdles
in two out of the three years
comprising the vesting period.
Hurdles are assessed at the end
of the vesting period.
For more detail refer to section
Remuneration packages below.
Annual grant of performance
rights with three year vesting
terms.
Grant requires the passing of
annual performance hurdles set
by the Board and the CEO over a
three year period.
Must meet 70% of annual hurdles
in two out of the three years
comprising the vesting period.
Hurdles are assessed at the end
of the vesting period.
For more detail refer to section
Remuneration packages below.
It is important to note the Committee retains the discretion to award equity based remuneration to employees, based on
the recommendation of the CEO. This element of remuneration is seen as an alignment tool by the Board.
(B) LINK BETWEEN REMUNERATION AND PERFORMANCE
Cromwell’s key financial measures for the last five years are set out below:
Operating earnings per security
Change over previous year
Distribution per security
Change over previous year
Gearing
Change over previous year
KMP remuneration as % of operating earnings
Change over previous year
2016
2015
2014
2013
2012
9.4 cents
8.3 cents
8.5 cents
7.6 cents
7.5 cents
13%
(2%)
12%
1%
6%
8.2 cents
7.9 cents
7.6 cents
7.3 cents
7.0 cents
4%
43%
(4%)
3.0%
11%
4%
45%
7%
2.7%
(29%)
4%
42%
(9%)
3.8%
(28%)
4%
46%
(10%)
5.3%
(13%)
0%
51%
4%
6.1%
(18%)
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Cromwell has seen sustained growth in distributions per security over the last five years and growth in operating earnings
per security in four of the last five years. At the same time, KMP remuneration has remained stable which has seen the
level of remuneration compared with the level of earnings and distributions decrease over time. This reflects Cromwell’s
adherence to a disciplined approach to managing the business for the benefit of securityholders.
As Cromwell continues to grow both its property portfolio and its funds management business, the total remuneration
paid to KMP may increase but this will reflect the increase in size and complexity of Cromwell and will be reliant on
increase in returns to securityholders.
Key performance indicators and employee values
Performance of staff is annually assessed based on two equally weighted measures; achievement of Cromwell Employee
Values and meeting key performance indicators relevant to that employee.
Key performance indicators
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. 50% of an employee’s
annual performance score comes from meeting KPIs and the balance from living Cromwell employee values.
32
Although the specific 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.
The weightings of these categories for any individual are set and assessed in consideration of their role, qualifications and
experience. However, generally the weightings will be within the bands set out below:
Financial Measures:
Internal Business Measures:
Customer Measures:
Innovation & Learning Measures:
10 – 30%
10 – 30%
40 – 70%
10 – 30%
The Chief Executive Officer is responsible for setting KPI targets and assessing annually whether those targets have been
met. The KPI targets for the Chief Executive Officer are set, revised and reviewed annually by the Committee and the
Board.
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 financial metric.
Other financial metrics include but are not limited to:
Metric
Required outcome
Distribution per security
Sustainable growth in distributions per security.
Gearing
Net debt/EBITDA
Debt terms
Interest rates
Long term net operating income growth
Lease expiries
Portfolio management
Active portfolio
Funds management
Maintain total gearing profile of 35% LVR at market peak to 55% LVR at market trough.
Ensure the ratio of net debt to EBITDA does not exceed 6 times.
Mitigate debt risks by maintaining 12 months minimum expiry profile of debt.
Maintain an interest rate hedging profile that provides a high degree of certainty of
distributions for 2 years.
Achieve like-for-like net operating income growth that supports earnings and distribution
targets, noting in some years investment is required at the expense of short term growth
to secure long term growth.
Focus on lease expiries in core portfolio and maintain vacancy rates at set targets.
Meet agreed maintenance/lifecycle capex targets.
Execute asset management plans for active portfolio.
Successfully promote and launch new funds and maintain performance of current open
retail funds.
Cash reserves
Maximise returns from cash reserves.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Internal Business Measures: Concentrate on improvement of people, systems and processes to create efficiency 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 identified 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.
Cromwell employee values
Cromwell has implemented a staff values initiative that outlines and identifies the values and behaviours that Cromwell
believes are vital to its culture and the ongoing success and performance of Cromwell. These values and behaviours
require all Cromwell staff to be: principled, empathetic, collegiate, diligent, courageous, accountable, humble, committed
and spirited.
These values and behaviours have been an important part of Cromwell’s culture for many years and a core reason for
Cromwell’s success. All staff are now reviewed on how well they demonstrate Cromwell’s Employee Values as part of
their annual performance review. 50% of an employee’s annual performance score comes from meeting Cromwell’s
values.
33
Remuneration packages
Fixed pay
All employees, including all KMP (other than Non-Executive Directors) receive a remuneration package that includes a
fixed pay component. Fixed pay is based on market conditions and can be within a range from the lower end of market
to the higher end of market depending on the employee’s mix of fixed versus at risk remuneration. Geographical market
based factors are taken into consideration when determining fixed pay components and the mix between fixed versus
at risk remuneration.
KMP are remunerated at the market median level of their fixed pay, adjusted for factors such as the external market
environment and the employee’s position, qualifications and responsibility within Cromwell. In assessing the level
of fixed pay relative to the market, weighting is given to Cromwell’s and the employee’s performance over the total
employment period.
At-risk cash bonus (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 financial year. These include, but not
limited to, such factors as: leasing outcomes, changes in property earnings, interest expense, funds management
earnings, and changes in the investment property portfolio.
Cromwell does not generally take into account non-financial performance indicators in assessing whether or not relevant
employees are entitled to short term incentives.
Short term incentives are generally paid as cash bonuses, and once paid there are no forfeiture provisions.
Equity based compensation
Overview
The granting of equity based compensation to employees, that are considered important to the longer term success of
Cromwell, is to ensure alignment between these employees, and the securityholders. No employee has an automatic
entitlement to any equity based compensation which is a form of deferred remuneration.
Participating employees are offered a choice of compensation 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 or 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 PROPERTY GROUP I 2016 ANNUAL REPORT 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 equity based compensation
arrangements is discussed and agreed by the Board (using the allocation method discussed below) and put to
securityholders for approval.
Awarding
Each year the Board (on recommendation from the Committee) considers whether to grant equity based compensation
to the Executive Directors and, if so, to what value. In December 2015, 1,254,530 performance rights were granted to the
Chief Executive Officer, vesting in September 2018.
Each year the Committee delegates authority to the Chief Executive Officer to determine which employees other than
Executive Directors will receive equity based compensation and, if so, to what value. The Committee considers and, if
appropriate, ratifies the Chief Executive Officer’s determination.
34
Allocations for participating employees, other than the Executive Directors, are determined annually after the end of each
financial year.
In determining the total value of equity based compensation 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 financial measures.
The actual value awarded to a participating employee was determined by taking into account the following:
• the employee’s performance during the previous financial year as assessed against their KPI’s. An employee must
have achieved at least 70% of their KPIs in the previous financial year; and
• the employee’s level of fixed 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 fixed pay.
Once a value had been allocated, the participating employee is given the option of participation in the PRP, the SLP or
a combination of the two. If participation in the PRP is selected, the actual number of performance rights 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.
Once performance rights are granted, the participating employees will need to meet performance hurdles before they
vest. Although the Committee (or the Chief Executive Officer 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.
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.
Aggregate, and employee, allocation limits are also in place to ensure a balance between the cost of equity based
compensation and the benefit 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 (e) below.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Under the PRP, if performance rights vest they allow eligible employees to obtain stapled securities at a discount to
market value. 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.
To determine the maximum loan amount, where participation in the SLP is selected, the value of the equity based
compensation is treated as an interest rate reduction benefit 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.
While there was no long term equity based incentive scheme in 2016, the Board is considering the implementation of
one for future years when and if appropriate. While Cromwell is predominantly a real estate investment trust, with the
majority of operating profit being derived from passive rent collection, the Board has taken a view that a traditional equity
based long term incentive scheme may drive inappropriate behaviour. However, as Cromwell positions itself to earn
more operating profit from transactional and funds management business segments, certain longer term incentives may
become a desirable management tool.
35
Remuneration package – CEO
The remuneration packages of the Chief Executive Officer for the last three years comprised the following components:
Paul Weightman
Financial year
Fixed pay
$
At-risk cash
bonus
$
Equity based
compensation
$
2016
1,350,000
800,000
385,063
(53%)
(32%)
(15%)
2015
1,100,000
250,000
289,002
(67%)
(15%)
(18%)
2014
1,050,000
250,000
171,953
(71%)
(17%)
(12%)
Fixed pay
The board increased the fixed pay component of the CEO from $1,100,000 to $1,350,000 for 2016. In determining the FY16
fixed pay component for the CEO, the board considered the enlargement of the role with the acquisition of the European
business and the need to bring fixed remuneration closer in line to market. The awarded fixed pay for 2016 was around
50th percentile of the peer group. The increase was awarded following a detailed benchmarking exercise against the peer
group.
At-risk cash bonus
The Board increased the available at risk cash bonus pool for the CEO from $250,000 to $800,000 for 2016. The increase
was undertaken after benchmarking similar awards from CEO’s and senior executives of the peer group. The increase
in the at risk cash bonus pool is also a reflection of the increased focus on funds management, the global nature of the
business, global travel commitments, and the enlargement of the role. The potential at risk cash bonus pool of $800,000
puts Cromwell within the 25th percentile of its peer group.
The purpose of the at-risk cash bonus is to focus the CEO’s efforts on those key marginal drivers and outcomes that are
priorities for Cromwell for the relevant financial year and to motivate the CEO to strive to achieve stretch performance
objectives. The key marginal drivers and outcomes for each year are chosen by the Board on the basis that they are
expected to have a significant short and long term impact on the success of Cromwell.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The Board’s assessment of performance against key marginal drivers and outcomes for 2016 is provided in the following
table:
Key marginal driver – 2016
Earnings per security
Commentary
Actual operating EPS of 9.41 cps versus guidance of
9.0cps
Sustainable growth in distribution per security
Distribution growth of 3.8% versus guidance of 3.0%.
Integration of European business
Refer below for detailed commentary
Minimise 2017 portfolio rental contraction
Refer below for detailed commentary
Appropriate succession planning for the CEO
The succession plan for all KMPs is fluid and constantly
reviewed by the Board.
Overall rating
Exceeded
Exceeded
On target
Progress
Made
On target
No other KMP was awarded a short term incentive in 2016 as their remuneration was fixed and had been increased as
referred to below.
36
Successful integration of European business
The CEO and other KMP spent considerable time during the year working closely with the European team in order to
achieve the following key outcomes:
• Implementation of Cromwell’s Employee Values across the entire group including the European business;
• Beginning the rebranding of the European business as Cromwell and refreshing the brand globally;
• Reorganising and expanding the European business’ management base to allow better focus on maintaining current
transactional based revenue streams while positioning the business for growth by also allowing a new focus on more
reliable and stable annuity style revenue streams; and
• Implementing a growth strategy that looks at launching more discretionary, long-term funds. This will leverage off the
current skill base and revenue sources of the European business.
These are all ongoing and are being implemented gradually over the 2016 and 2017 financial years.
Minimise 2017 portfolio rental contraction
Successful leasing in Sydney and Melbourne and lease renewals has underwritten significant rental income in future
years. Cromwell continues to focus on the potential challenges in parts of the Canberra portfolio as it looks to reposition
assets such as Tuggeranong Office Park and 13 Keltie Street, Woden. Currently these Canberra assets remain in
transition.
Overall, returns from the Property Investment segment are expected to be lower in 2017 until occupancy levels in the
Canberra and Brisbane investment properties can be improved.
Based on the quality of the above results: the CEO was granted 87.5% of the possible at risk cash bonus for 2016.
Equity based compensation
At the 2015 AGM, securityholders voted to increase the maximum value of the equity pool available to the CEO to $800,000
per annum. As described previously, the CEO’s KPI’s for equity based awards are the same as those for determining the
at risk cash bonus. The assessment of performance against the CEO KPIs is tabled above.
The CEO’s long term equity plan differs from other Cromwell employees, in that the amount awarded in any given year
reflects the maximum equity based compensation payable, as approved by securityholders, multiplied by the annual
review score.
Non-executive Directors remuneration
Fees and payments to Non-Executive Directors reflect 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 fixed 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 benefits other than statutory superannuation.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Chairman
Non-Executive Director
Audit & Risk Committee – Chairman
Audit & Risk Committee – Member
Nomination & Remuneration Committee – Chairman
Nomination & Remuneration Committee – Member
Investment Committee
2016
$
2015
$
203,500
203,500
93,500
19,800
13,200
8,250
5,500
–
93,500
19,800
13,200
8,250
5,500
–
The Non-Executive Directors’ fees were increased as at 26 November 2014. Prior to this the last increase was in
November 2011. The current and previous year rates are shown above. From 1 July 2016, fees and payments to Non-
Executive Directors will be increased annually in line with CPI.
(C) DETAILS OF REMUNERATION
Remuneration paid, payable, or otherwise made available, directly or indirectly, to key management personnel is set
out below. Key management personnel of Cromwell are the Non-executive Directors, the Chief Executive Officer and his
direct reports who form Cromwell’s Executive Management Group (EMG). The EMG has the authority and responsibility
for planning, directing and controlling the activities of Cromwell.
37
Key management personnel during the year were:
Non-executive Directors:
Mr G Levy (AO)
Ms M McKellar
Mr R Foster
Ms J Tongs
Mr M Wainer
Mr A Konig
Mr R Pullar
Mr G Cannings
Chairman
Director
Director
Director
Director
Director
Director – resigned 25 November 2015
Alternate Director to Mr Wainer and Mr Konig – resigned 7 December 2015
Executive Management Group (EMG):
Mr Paul Weightman
Managing Director/Chief Executive Officer
Mr M Wilde
Ms J Clark
Mr D Horton
Chief Financial Officer
Chief Operations Officer, Property Licensee
Head of Property
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The table below outlines the cash remuneration and at-risk cash bonus received as well as the value of equity based
compensation that were expensed during the year in accordance with applicable statutory accounting rules.
Short-term
employment Long-term
Post-
Security
based
payments
Salary(7) and
fees
Non-
monetary
benefits
At-risk cash
bonus
Total short
term
Super-
annuation
Long
service
leave
Equity
based com-
pensation
$
$
$
$
$
$
$
38
Non-Executive Directors
G Levy
M McKellar
R Foster
J Tongs
M Wainer
A Konig
R Pullar(1)
G Cannings(2)
D Usasz(3)
M Watters(4)
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2015
2015
184,611
178,344
111,049
108,078
96,577
87,089
107,380
63,185
92,541
90,065
81,917
41,880
43,337
101,120
9,303
20,103
40,274
26,542
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
184,611
178,344
111,049
108,078
96,577
87,089
107,380
63,185
92,541
90,065
81,917
41,880
43,337
101,120
9,303
20,103
40,274
26,542
Executive Mangement Group (EMG)
P Weightman 2016 1,267,587
157,900
700,000
2,125,487
157,900
250,000
1,380,314
M Wilde
J Clark
D Horton
D Wilson(5)
M McCarthy(6)
2015
2016
2015
2016
2015
2016
2015
2015
2015
972,414
419,025
268,442
408,278
382,019
496,627
57,775
333,559
202,716
Total
2016 3,318,232
remuneration 2015 2,973,605
8,100
–
–
–
–
–
–
5,203
166,000
163,103
–
–
–
–
–
–
–
–
427,125
268,442
408,278
382,019
496,627
57,775
333,559
207,919
Total
$
201,941
195,287
111,049
108,078
105,752
95,362
117,581
69,083
92,541
90,065
81,917
41,880
47,454
110,726
10,258
22,013
44,100
26,542
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
175,612
385,063
2,705,470
33,558
23,156
4,775
14,028
16,576
3,259
90
6,597
–
289,002
1,721,657
47,117
31,202
63,368
36,866
–
–
10,646
–
516,706
320,096
504,982
454,244
519,194
60,032
363,300
207,919
17,330
16,943
–
–
9,175
8,273
10,201
5,898
–
–
–
–
4,117
9,606
955
1,910
3,826
–
19,308
18,783
19,308
15,677
19,308
18,783
19,308
2,167
12,498
–
Total
perfor-
mance
related
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40%
31%
9%
10%
13%
8%
0%
0%
3%
0%
700,000
250,000
4,184,232
3,386,708
119,010
114,364
216,055
61,596
495,548
367,716
5,014,845
3,930,384
(1) Mr Pullar resigned on 25 November 2015.
(2) Mr Cannings resigned on 7 December 2015.
(3) Mr Usasz resigned on 26 November 2014.
(4) Mr Watters resigned on 26 November 2014.
(5) Mr Wilson resigned from Cromwell as a director on 25 February 2015.
(6) Mr McCarthy resigned as KMP on 30 June 2015.
Includes any change in accruals for annual leave.
(7)
Mr Wilde and Ms Clark have both received promotions with much broader roles over a much larger business. Increases in
their respective remuneration to market are anticipated to also occur in 2017.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT DETAILS OF REMUNERATION: CASH BONUSES AND PERFORMANCE RIGHTS
(D)
For each at-risk cash bonus and grant of performance rights options (equity based compensation) included in the tables
in section (c) above, the percentage of the available at-risk cash bonus paid, or equity based compensation that vested,
during the year and the percentage that was forfeited because the person did not meet the service and performance
criteria is set out below.
The performance rights are subject to vesting conditions as outlined above. No performance rights will vest if the
conditions are not satisfied, 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.
At-risk cash bonus
Equity based compensation
Cash bonus
paid
%
Cash bonus
forfeited
%
Years options
granted
Options
vested in 2016
%
Options
forfeited in
2016
%
Years options
may vest
Maximum
value of grant
to vest
$
87.5%
12.5%
2014/15/16
–
–
–
–
–
–
–
–
2014/15/16
2014/15/16
–
–
100%(1)
100%(2)
–
–
–
–
–
–
–
–
2017/18/19
2017/18/19
2017/18/19
–
–
589,714
76,588
99,953
–
–
39
Name
P Weightman
M Wilde
J Clark
D Horton
M McCarthy
(1) Relates to performance rights issued in 2011.
(2) Relates to performance rights issued in 2013.
(E) EQUITY BASED COMPENSATION
Details of the PRP are set out in part (a) 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
18-Dec-2013
18-Dec-2013
18-Dec-2013
16-Oct-2014
16-Oct-2014
02-Nov-2015
11-Dec-2015
Expiry date
01-Oct-2016
01-Oct-2016
01-Jan-2017
01-Oct-2017
01-Oct-2017
02-Dec-2018
10-Oct-2018
Exercise price
No of performance
rights granted
Assessed value
per right at grant date
–
$0.50
$0.50
–
$0.50
–
$0.50
57,078
165,929
1,531,654
50,827
1,704,120
204,604
1,254,530
75.7¢
30.2¢
29.1¢
74.4¢
28.5¢
78.2¢
35.9¢
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
Details of changes during the 2016 year in performance rights on issue to key management personnel under the PRP are
set out below.
Opening balance
Granted
Exercised
Forfeited
Lapsed
Closing balance
P Weightman
4,305,765
1,254,530(1)
(1,333,334)(1)
M Wilde
J Clark
D Horton
M McCarthy
132,908
429,272
–
–
95,908(2)
108,696(3)
–
–
(25,003)(2)
–
–
–
4,867,945
1,459,134
(1,358,337)
–
–
–
–
–
–
–
–
–
–
–
–
4,226,961
203,813
537,968
–
–
4,968,742
(1) The value at grant date was $450,000. The value at exercise date was $153,200.
(2) The value at grant date was $75,002. The value at exercise date was $15,000.
(3) The value at grant date was $85,002.
40
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 (c) 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 2,375,686 performance rights were granted during 2016 (2015: 4,463,229) of which 1,459,134 (2015: 2,281,632)
were issued to key management personnel. The model inputs for performance rights granted during the 2016 year are
disclosed in note 18.
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 2016 no performance rights on issue had vested.
(F) EMPLOYMENT CONTRACTS AND TERMINATION PROVISIONS
Paul Weightman (CEO)
Remuneration and other terms of employment for the Chief Executive Officer are formalised in an employment
agreement. Cromwell may terminate the agreement without notice for gross misconduct; otherwise, Cromwell 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 fixed termination date.
• Base salary, inclusive of superannuation, of $1,369,308, to be reviewed annually by the remuneration committee.
• Performance cash bonus of up to $800,000 with targets to be reviewed annually by the remuneration committee.
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
There are no fixed 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
All other key management personnel
Notice period
employee
6 months
1-3 months
Notice period
Cromwell
6 months
1-3 months
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (G) DETAILS OF EQUITY INSTRUMENT HOLDINGS, LOANS AND OTHER TRANSACTIONS
Security holdings
The number of stapled securities in Cromwell and units in the CDPT held during the financial year by key management
personnel of Cromwell Corporation Limited, including their personally related parties, are set as follows.
Non-Executive Directors
Mr G Levy (AO)
Ms M McKellar
Mr R Foster
Ms J Tongs
Mr M Wainer(1)
Mr A Konig(2)
Executive Management Group (EMG):
Mr Paul Weightman
Mr M Wilde
Ms J Clark
Mr D Horton
Balance
at 1 July
Performance
rights exercised
Net purchases
(sales)
Balance
at 30 June
2,777,630
817,965
2,517,998
122,000
–
–
18,254,833
95,720
71,032
–
–
–
–
–
–
–
1,333,334
25,003
–
–
472,370
33,000
(420,000)
23,000
–
–
–
–
–
–
3,250,000
850,965
2,097,998
145,000
–
–
19,588,167
41
120,723
71,032
–
24,657,178
1,358,337
108,370
26,123,885
(1) Mr Wainer is a Director of Redefine Properties Limited which indirectly owns Redefine Australia Investments Limited, which owns 446,538,850 (2015:
227,076,125) stapled securities in Cromwell.
(2) Mr Konig is a Director of Redefine Properties Limited which indirectly owns Redefine Australia Investments Limited, which owns 446,538,850 (2015:
227,076,125) stapled securities in Cromwell.
Loans to key management personnel
Cromwell has provided loans to Mr P Weightman, a Director of the Company, for the exercise of his employee options
under Cromwell’s Performance Rights Plan. Each loan term is three years, limited recourse and interest free.
The outstanding balance at balance date was $1,066,067.
Other transactions with key management personnel
Cromwell rents an apartment, located at 185 Macquarie Street, Sydney, which is owned by Mr Weightman, a Director of
the Company. Total rent paid during 2015 was $98,982 (2015: $93,600). The payment of rent is on normal commercial
terms and conditions and at market rates.
The Directors’ Report, including the Remuneration Report, is signed in accordance with a resolution of the Directors.
PL Weightman
Director
Dated this 24th day of August 2016
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 42
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Consolidated Income Statements
for the year ended 30 June 2016
Revenue
Rental income and recoverable outgoings
Funds management fees
Share of profits – equity accounted investments
Interest
Distributions
Other revenue
Total revenue
Other income
Gain on sale of investment properties
Fair value net gain from:
Investment properties
Derivative financial instruments
Investments at fair value through profit or loss
Total revenue and other income
Expenses
Property expenses and outgoings
Funds management costs
Property development costs
Finance costs
Employee benefits expense
Administration and overhead costs
Share of loss – equity accounted investments
Amortisation and depreciation
Fair value net loss from:
Derivative financial instruments
Investments at fair value through profit or loss
Business combination costs
Other transaction costs
Decrease in recoverable amounts
Net foreign currency losses
Total expenses
Profit before income tax
Income tax expense
Profit for the year
Profit for the year is attributable to:
Company shareholders
Trust unitholders
Non–controlling interests
Profit for the year
Earnings per security
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)
Notes
5(b)
5
8(b)
20
4(a)
3(a)
3(a)
3(b)
3(b)
Cromwell
Trust
2016
$M
215.4
96.9
–
4.7
8.2
0.4
2015
$M
2016
$M
2015
$M
236.0
24.1
7.9
5.6
2.3
0.6
215.5
234.8
–
–
8.1
6.0
0.1
–
6.7
5.4
0.3
0.2
325.6
276.5
229.7
247.4
19.4
263.2
10.6
6.0
624.8
36.4
2.3
0.1
65.9
59.2
25.9
2.1
9.2
–
–
–
1.8
86.6
2.2
291.7
333.1
3.5
329.6
(77.1)
406.7
–
329.6
(4.42¢)
(4.42¢)
18.86¢
18.81¢
1.0
19.4
1.0
43
263.2
5.4
2.5
520.2
41.8
–
–
56.5
–
12.2
3.0
–
–
–
–
–
35.3
–
148.8
371.4
–
371.4
–
371.4
–
371.4
21.26¢
21.20¢
32.4
–
–
309.9
40.3
1.8
0.2
62.3
28.7
11.2
–
3.3
1.8
1.2
2.5
–
–
7.9
161.2
148.7
(0.1)
148.8
(8.1)
156.9
–
148.8
(0.47¢)
(0.47¢)
8.58¢
8.55¢
32.4
–
0.2
281.0
44.7
–
–
61.7
–
11.7
–
–
5.5
–
–
–
0.7
124.3
156.7
–
156.7
–
156.9
(0.2)
156.7
9.05¢
9.05¢
The above consolidated income statements should be read in conjunction with the accompanying notes.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Consolidated Statements of Comprehensive Income
for the year ended 30 June 2016
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Income tax relating to this item
Other comprehensive income, net of tax
Cromwell
Trust
2016
$M
329.6
7.6
0.1
7.7
2015
$M
148.8
6.2
–
6.2
2016
$M
371.4
1.1
–
1.1
2015
$M
156.7
0.6
–
0.6
Total comprehensive income
337.3
155.0
372.5
157.3
44
Total comprehensive income is attributable to:
Company shareholders
Trust unitholders
Non–controlling interests
Total comprehensive income
(71.5)
408.8
–
337.3
(3.6)
158.6
–
155.0
–
372.5
–
372.5
–
157.5
(0.2)
157.3
The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Consolidated Balance Sheets
as at 30 June 2016
Notes
15(a)
15(b)
5
5
6
7
9
15(a)
16
4(c)
15(c)
8
9
8
9
4(c)
10
11
Current Assets
Cash and cash equivalents
Receivables
Other financial assets
Current tax assets
Other current assets
Investment properties classified as held for sale
Total current assets
Non-Current Assets
Investment property
Equity accounted investments
Investments at fair value through profit or loss
Derivative financial instruments
Receivables
Intangible assets
Property, plant and equipment
Inventories
Deferred tax assets
Total non-current assets
Total assets
Current Liabilities
Trade and other payables
Dividends/distributions payable
Borrowings
Derivative financial instruments
Provisions
Current tax liability
Unearned income
Total current liabilities
Non-Current Liabilities
Borrowings
Derivative financial instruments
Provisions
Deferred tax liabilities
Total non–current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Other reserves
Retained earnings/(accumulated losses)
Equity attributable to shareholders/unitholders
Non-controlling interests
Trust unitholders
Non-controlling interests
Total equity
Cromwell
Trust
2016
$M
41.6
32.8
54.0
1.7
4.0
134.1
–
134.1
2015
$M
109.0
18.5
23.8
1.0
4.2
156.5
36.6
193.1
2016
$M
39.2
13.9
–
–
1.1
54.2
–
54.2
2015
$M
48.6
4.3
–
–
1.6
54.5
36.6
91.1
2,274.0
2,101.0
2,274.0
2,101.0
45
86.7
296.2
0.5
1.1
78.3
3.1
3.0
1.3
77.2
37.6
6.1
0.6
165.7
3.6
3.0
1.2
74.5
259.7
0.5
165.1
–
–
–
–
71.5
2.0
6.1
217.6
–
–
–
–
2,744.2
2,878.3
2,396.0
2,589.1
2,773.8
2,828.0
2,398.2
2,489.3
32.0
34.9
40.5
14.3
–
–
10.1
131.8
1,113.2
10.7
–
–
1,123.9
1,255.7
1,233.6
52.1
36.9
129.8
20.3
3.3
2.2
10.0
254.6
46.3
34.7
64.3
28.5
2.8
–
10.2
186.8
31.5
37.4
129.8
11.0
–
–
8.8
218.5
1,118.2
1,093.5
1,134.1
3.0
–
–
1,137.1
1,355.6
1,472.4
3.0
0.4
1.9
1,123.5
1,378.1
1,500.2
106.5
17.9
(129.4)
(5.0)
10.7
0.6
3.3
1,108.1
1,294.9
1,294.2
105.4
11.4
(52.3)
64.5
1,287.5
1,277.4
1.7
178.0
0.6
(50.0)
1,467.2
1,228.0
1,505.2
1,229.7
–
–
–
5.2
–
5.6
1,500.2
1,294.2
1,472.4
1,233.6
The above consolidated balance sheets should be read in conjunction with the accompanying notes.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Consolidated Statements of Changes in Equity
for the year ended 30 June 2016
Cromwell
Attributable to equity holders of the company
Notes
Contributed
equity
Other
reserves
Accumu-
lated losses
Total
Non-
controlling
interest
(Trust)
Total
equity
Balance at 1 July 2015
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with equity holders in
their capacity as equity holders:
46
Contributions of equity,
net of transaction costs
Dividends/distributions paid/
payable
Employee performance rights
Total transactions with equity
holders
Balance at 30 June 2016
Balance at 1 July 2014
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with equity holders in
their capacity as equity holders:
Contributions of equity,
net of transaction costs
Dividends/distributions paid/
payable
Employee performance rights
Total transactions with equity
holders
Balance at 30 June 2015
$M
105.4
–
–
–
1.1
–
–
1.1
106.5
104.4
–
–
–
1.0
–
–
1.0
105.4
10
2
10
2
$M
$M
$M
$M
$M
11.4
–
5.6
5.6
–
–
0.9
0.9
17.9
5.9
–
4.5
4.5
–
–
1.0
1.0
11.4
(52.3)
(77.1)
–
(77.1)
–
–
–
–
(129.4)
(44.2)
(8.1)
–
(8.1)
–
–
–
–
(52.3)
64.5
(77.1)
5.6
(71.5)
1,229.7
1,294.2
406.7
2.1
408.8
329.6
7.7
337.3
1.1
–
0.9
2.0
(5.0)
66.1
(8.1)
4.5
(3.6)
1.0
–
1.0
2.0
64.5
10.1
11.2
(143.4)
(143.4)
–
0.9
(133.3)
1,505.2
(131.3)
1,500.2
1,197.9
1,264.0
156.9
1.7
158.6
148.8
6.2
155.0
9.7
10.7
(136.5)
–
(126.8)
1,229.7
(136.5)
1.0
(124.8)
1,294.2
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Consolidated Statements of Changes in Equity
for the year ended 30 June 2016
Trust
Attributable to equity holders of the CDPT
Notes
Contributed
equity
Other
reserves
Accumu-
lated losses
Total
(CDPT)
Balance at 1 July 2015
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with equity holders in
their capacity as equity holders:
Contributions of equity,
net of transaction costs
Distributions paid/payable
Total transactions with equity
holders
Balance at 30 June 2016
Balance at 1 July 2014
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with equity holders in
their capacity as equity holders:
Contributions of equity,
net of transaction costs
Distributions paid/payable
Total transactions with equity
holders
Balance at 30 June 2015
$M
1,277.4
–
–
–
10.1
–
10.1
1,287.5
1,267.7
–
–
–
9.7
–
9.7
1,277.4
10
2
10
2
$M
$M
0.6
–
1.1
1.1
–
–
–
1.7
–
–
0.6
0.6
–
–
–
0.6
(50.0)
371.4
–
371.4
–
(143.4)
(143.4)
178.0
(70.4)
156.9
–
156.9
–
(136.5)
(136.5)
(50.0)
$M
1,228.0
371.4
1.1
372.5
10.1
(143.4)
(133.3)
1,467.2
1,197.3
156.9
0.6
157.5
9.7
(136.5)
(126.8)
1,228.0
Non-
controlling
interest
$M
Total
equity
$M
5.6
1,233.6
–
–
–
0.2
(0.6)
(0.4)
5.2
6.3
(0.2)
–
(0.2)
–
(0.5)
(0.5)
5.6
371.4
1.1
372.5
10.3
(144.0)
(133.7)
1,472.4
1,203.6
156.7
0.6
157.3
9.7
(137.0)
(127.3)
1,233.6
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
47
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Consolidated Statements of Cash Flows
for the year ended 30 June 2016
Notes
Cash flows from operating activities
Receipts in the course of operations
Payments in the course of operations
Interest received
Distributions received
Finance costs paid
Income tax paid
Net cash provided by operating activities
17
Cash flows from investing activities
Payments for investment properties
48
Proceeds from sale of investment properties
Payment for acquisition of subsidiary, net of cash acquired
Payment of business combination costs
Payment for equity accounted investments
Proceeds from adjustments to equity accounted investments
Payments for investments at fair value through profit or loss
Proceeds from sale of investments at fair value through profit or loss
Receipt of capital return distributions from
investments at fair value through profit or loss
Payments for intangible assets
Payments for property, plant and equipment
Loans to related entities and directors
Proceeds from repayment of related party loans
Net transfer to restricted funds
Payment for other transaction costs
Net cash used in investing activities
Cash flows from financing activities
Proceeds from bank borrowings
Repayment of bank borrowings
Repayment of other borrowings
Payment of loan transaction costs
Proceeds from issue of stapled securities
Payment of dividends/distributions
Payment of equity issue transaction costs
Payment for derivative financial instruments
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 July
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at 30 June
Cromwell
Trust
2016
$M
354.7
(150.2)
4.2
8.7
(54.8)
(3.5)
159.1
(74.9)
206.9
–
–
(18.6)
–
(261.8)
3.4
4.0
(0.9)
(0.7)
(14.0)
12.6
(30.2)
(1.8)
2015
$M
293.2
(104.3)
5.3
8.6
(56.6)
(2.0)
144.2
(62.8)
206.9
(198.7)
(2.4)
–
0.4
(4.3)
12.4
–
(0.7)
(1.5)
(0.7)
–
–
–
2016
$M
244.9
(70.7)
6.8
6.4
(54.7)
–
132.7
(74.9)
206.9
–
–
(12.7)
–
(256.3)
1.0
–
–
–
(13.3)
35.6
–
–
2015
$M
261.9
(77.0)
4.1
6.5
(56.7)
–
138.8
(62.9)
206.9
–
–
–
–
(3.5)
12.4
–
–
–
(211.3)
–
–
–
(176.0)
(51.4)
(113.7)
(58.4)
186.9
(79.8)
(23.8)
(4.1)
1.0
(130.9)
(0.1)
–
(50.8)
(67.7)
109.0
0.3
41.6
220.1
(166.5)
–
(6.2)
1.1
(125.6)
–
(16.9)
(94.0)
(1.2)
117.8
(7.6)
109.0
186.9
(79.8)
–
(4.0)
0.9
220.1
(166.5)
–
(2.2)
1.0
(132.0)
(126.9)
(0.1)
–
(28.1)
(9.1)
48.6
(0.3)
39.2
–
(16.9)
(91.4)
(11.0)
67.5
(7.9)
48.6
The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Notes to the Financial Statements
for the year ended 30 June 2016
About this report
Cromwell Property Group (“Cromwell”) was formed by the stapling of Cromwell Corporation Limited (“the Company”)
and its controlled entities, and Cromwell Diversified 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 Corporations
(Stapled Group Reports) Instrument 2015/838 relating to combining accounts under stapling and for the purpose of
fulfilling the requirements of the Australian Securities Exchange.
The format of Cromwell’s annual financial report has been changed to provide users of the financial report with a clearer
understanding of relevant balances and transactions that drive Cromwell’s financial performance and financial position
free of immaterial and superfluous information. Plain English is used in commentary or explanatory sections of the notes
to the financial statements to also improve readability of the financial report. Additionally, amounts in the consolidated
financial statements have now been rounded off to the nearest one hundred thousand dollars, unless otherwise indicated,
in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191.
49
The notes have been organised into the following five sections for reduced complexity and ease of navigation:
RESULTS
1 Operating segment information
2 Distributions
3 Earnings per security
4
Income tax
Investment properties
OPERATING ASSETS
5
6 Equity accounted investments
7
Investments at fair value through profit or loss
FINANCE AND CAPITAL STRUCTURE
8 Borrowings
9 Derivative financial instruments
10 Contributed equity
11 Reserves
12 Financial risk management
GROUP STRUCTURE
13 Parent entity disclosure
14 Controlled entities
OTHER ITEMS
15 Other financial assets and liabilities
16
Intangible assets
17 Cash flow information
18 Security based payments
19 Related parties
20 Employee benefits expense
21 Auditor’s remuneration
22 Unrecognised items
23 Subsequent events
24 Accounting policies
50
55
55
57
60
64
67
68
71
72
74
75
81
82
84
86
88
89
90
92
94
94
95
95
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Results
This section of the annual financial report provides further information on Cromwell’s and the Trust’s
financial performance, including the performance of each of Cromwell’s five segments, details of quarterly
distributions, the earnings per security calculation as well as details about Cromwell’s income tax items.
1. Operating Segment Information
OVERVIEW
Operating segments are distinct business activities from which an entity earns revenues and incurs expenses and the
results of which are regularly reviewed by the chief operating decision maker (CODM). Cromwell has five operating
segments which are regularly reviewed by the Chief Executive Officer (CEO), Cromwell’s CODM, in order to make
decisions about resource allocation and to assess the performance of Cromwell. Segment profit/(loss), also referred to
as operating profit, is considered to reflect the underlying earnings of Cromwell and is a key metric taken into account in
determining distributions for Cromwell.
50
Operating segments below are reported in a manner consistent with the internal reporting provided to the CEO.
Cromwell’s operating segments:
Business activity
Property investment
Property/internal funds management
External funds management – retail
External funds management -
wholesale
Property development
The ownership of investment properties located throughout Australia. This includes
investment properties held by the Trust and Cromwell’s equity accounted joint
venture investment in Cromwell Partners Trust. Property investment is the Trust’s
only reportable segment.
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.
The establishment and management of external funds for retail investors is
considered external retail funds management. Cromwell currently manages nine
external retail funds with combined assets under management of $1.7 billion as
at 30 June 2016 (2015: $1.4 billion). Cromwell’s joint venture investments in Oyster
Property Funds Limited and Phoenix Portfolios Pty Ltd are also reported as external
retail funds management.
The establishment and management of external funds for wholesale investors is
considered external wholesale funds management. Cromwell’s main activities in this
segment currently comprise Cromwell’s European business, which was acquired in
the 2015 financial year, the management of the Cromwell Partners Trust as well as
the Portgate joint venture. The segment has combined assets under management of
$5.6 billion as at 30 June 2016 (2015: $6.0 billion).
Property development, including development management, development finance and
property development related joint venture activities.
ACCOUNTING POLICIES
Revenue
Rental revenue
Rental revenue from investment property is recognised on a straight-line basis over the lease term. 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.
Funds management revenue
Funds management revenue includes equity raising fees, loan establishment fees, acquisition fees as well as property
management fees and fund administration fees. Revenue is recognised proportionally to the rendering of the respective
service provided. Performance fees are only recognised when the outcome can be reliably measured.
Interest revenue
Interest revenue is recognised as it accrues using the effective interest method.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Dividend and distribution revenue
Revenue from dividends and distributions is recognised when declared.
Expenses
Property expenses and outgoings which include rates, taxes and other property outgoings and other expenses are
recognised on an accruals basis.
Segment allocation
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. 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 revenues, expenses and results include transfers between segments. Such transfers are priced on
an “arms-length” basis and are eliminated on consolidation.
Segment profit/(loss)
Segment profit/(loss), internally referred to as operating profit, is based on income and expenses excluding adjustments
for unrealised fair value adjustments and write downs, gains or losses on all sale of investment properties and certain
other non-cash income and expense items.
51
A reconciliation of total segment profit to statutory profit as per income statement is provided in section (c) below.
(A) SEGMENT RESULTS
The table below shows segment results as presented to the Chief Executive Officer. For further commentary on individual
segment results refer to the Directors’ Report.
30 June 2016
Property
investment
Segment revenue
Sales – external customers
Sales – intersegmental
Operating profit of equity accounted
investments
Distributions
Interest
Other revenue
Total segment revenue
Segment expenses
Property expenses and outgoings
Funds management costs
Property development costs
Finance costs
Expenses – intersegmental
Employee benefits expense
Administration and overhead costs
Total segment expenses
Segment profit before income tax
Income tax expense/(benefit)
Segment profit/(loss)
$M
226.9
1.0
7.2
–
3.5
0.1
238.7
34.9
–
–
49.0
17.6
–
1.8
103.3
135.4
–
135.4
Property/
internal funds
management
$M
Funds
management
– retail
$M
Funds
management
– wholesale
$M
Property
development
Cromwell
$M
$M
5.4
17.6
–
5.9
0.9
0.3
30.1
–
–
–
1.1
1.0
21.0
6.8
29.9
0.2
–
0.2
14.8
76.6
–
1.7
0.1
0.2
–
–
0.3
2.2
0.1
–
16.8
79.2
–
2.3
–
–
–
1.6
0.6
4.5
12.3
2.3
10.0
–
–
–
4.6
–
36.6
16.3
57.5
21.7
2.7
19.0
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
0.1
(0.1)
–
(0.1)
323.7
18.6
9.2
8.2
4.7
0.4
364.8
34.9
2.3
0.1
54.7
18.6
59.2
25.5
195.3
169.5
5.0
164.5
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 30 June 2015
Property
investment
Segment revenue
Sales – external customers
Sales – intersegmental
Operating profit of equity accounted
investments
Distributions
Interest
Other revenue
Total segment revenue
Segment expenses
Property expenses and outgoings
Funds management costs
52
Property development costs
Finance costs
Expenses – intersegmental
Employee benefits expense
Administration and overhead costs
Total segment expenses
Segment profit before income tax
Income tax expense/(benefit)
Segment profit/(loss)
$M
242.3
1.0
9.7
–
4.3
–
257.3
39.1
–
–
57.8
17.6
–
1.1
115.6
141.7
–
141.7
Property/
internal funds
management
$M
Funds
management
– retail
$M
Funds
management
– wholesale
$M
Property
development
Cromwell
$M
$M
4.9
17.6
–
–
1.1
0.3
23.9
–
–
–
–
0.9
18.2
6.0
25.1
(1.2)
(0.6)
(0.6)
4.9
–
1.2
0.3
0.1
–
6.5
–
1.8
–
–
0.1
2.3
0.7
4.9
1.6
0.2
1.4
14.3
–
–
2.1
–
–
16.4
–
–
–
1.7
–
8.2
3.4
13.3
3.1
0.5
2.6
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
0.2
(0.2)
–
(0.2)
266.4
18.6
10.9
2.4
5.5
0.3
304.1
39.1
1.8
0.2
59.5
18.6
28.7
11.2
159.1
145.0
0.1
144.9
(B) SEGMENT ASSETS AND LIABILITIES
30 June 2016
Segment assets
Segment liabilities
Segment net assets
Other segment information
Decrease in recoverable amount - goodwill
Equity accounted investments
Acquisition of non-current segment assets*:
Investments in associates
Investments at fair value through profit or loss
Intangible assets
Property
investment
$M
2,403.2
(1,005.4)
1,397.8
–
74.5
12.8
–
–
Property/
internal funds
management
$M
Funds
management
– retail
$M
Funds
management
– wholesale
$M
278.6
(130.5)
148.1
–
–
–
256.0
0.7
25.0
(4.3)
20.7
–
8.5
1.4
0.3
–
168.5
(238.0)
(69.5)
86.2
3.7
4.8
5.5
0.2
Property
development
Cromwell
$M
3.0
–
3.0
$M
2,878.3
(1,378.1)
1,500.2
–
–
–
–
–
86.2
86.7
19.0
261.8
0.9
* For additions to investment property, forming part of the property investment segment, refer to note 5.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 30 June 2015
Segment assets
Segment liabilities
Segment net assets
Other segment information
Equity accounted investments
Property
investment
$M
2,271.7
(1,038.0)
1,233.7
71.5
Acquisition of non-current segment assets:
Investments at fair value through profit or loss
Intangible assets
–
–
Property/
internal funds
management
$M
Funds
management
– retail
$M
Funds
management
– wholesale
$M
47.0
(2.9)
44.1
–
–
0.6
13.1
(0.4)
12.7
5.7
3.5
0.1
254.3
(253.6)
0.7
–
36.0
161.8
Property
development
Cromwell
$M
3.0
–
3.0
–
–
–
$M
2,589.1
(1,294.9)
1,294.2
77.2
39.5
162.5
(C) RECONCILIATIONS TO CONSOLIDATED INCOME STATEMENT
Segment profit reconciles to profit as shown in the consolidated income statement as follows:
53
Segment profit
Reconciliation to profit:
Gain on sale of investment properties
Gain/(loss) on disposal of other assets
Business combination costs
Other transaction costs
Fair value net gain/(loss) from:
Investment properties
Derivative financial instruments
Investments at fair value through profit or loss
Equity accounted investments
Non-cash property investment income/(expense):
Straight-line lease income
Lease incentive and lease cost amortisation
Other non-cash expenses:
Decrease in recoverable amounts
Non-operating finance costs
Amortisation and depreciation
Net foreign exchange losses
Net tax losses utilised
Profit for the year
2016
$M
164.5
19.4
(0.3)
–
(1.8)
263.2
10.6
6.0
(11.3)
2.3
(15.2)
(86.6)
(11.3)
(7.7)
(2.2)
–
329.6
2015
$M
144.9
1.0
0.3
(2.4)
–
32.4
(1.8)
(1.2)
(3.0)
5.5
(13.0)
–
(2.8)
(2.9)
(7.9)
(0.3)
148.8
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Total segment revenue reconciles to total revenue and other income as shown in the consolidated income statement as
follows:
Total segment revenue
Reconciliation to total revenue and other income:
Straight-line lease income
Lease incentive amortisation
Gain on sale of investment property
Gain on sale of other assets
Fair value net gain from investment properties
Fair value net gain on investments at fair value through profit or loss
Fair value net gain on derivative financial instruments
Operating profit from equity accounted investments
Intersegmental sales
Total revenue and other income
54
2016
$M
364.8
2.3
(13.7)
19.4
–
263.2
6.0
10.6
(9.2)
(18.6)
624.8
2015
$M
304.1
5.5
(11.8)
1.0
0.3
32.4
–
–
(3.0)
(18.6)
309.9
(D) OTHER SEGMENT INFORMATION
Geographic information
Cromwell has operations in three distinct geographical markets. These are Australia though the Cromwell Property
Group and Australian funds it manages, United Kingdom and Europe through its European business acquired in the prior
year as Valad Europe, and New Zealand through its Oyster Property Funds Limited joint venture.
Non-current assets for the purpose of the disclosure below include inventories, investment property, property, plant and
equipment and intangible assets.
Geographic location
Australia
United Kingdom and Europe
New Zealand
Revenue from
external customers
2015
2016
$M
$M
267.1
78.1
1.0
346.2
269.4
15.2
0.8
285.4
Non-current
operating assets
2016
$M
2,285.5
77.9
–
2015
$M
2,108.1
165.2
–
2,358.4
2,273.3
Major customers
Major customers of Cromwell that account for more than 10% of Cromwell’s revenue are listed below. All of these
customers form part of the property investment segment.
Major customer
Commonwealth of Australia
Qantas Airways Limited
New South Wales State Government
Queensland State Government
2016
$M
46.7
27.8
26.5
22.1
123.1
2015
$M
54.3
26.8
32.8
22.1
136.0
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 2 Distributions
OVERVIEW
Cromwell’s aim is to provide investors with superior risk adjusted returns, including stable annual distributions. When
determining distribution rates Cromwell’s board considers a number of factors, including forecast earnings, anticipated
capital and lease incentive expenditure requirements over the next three to five years and expected economic conditions.
Cromwell aims to return 85 – 95 % of profit of Cromwell’s five segments (operating profit) which excludes unrealised fair
value adjustments and other non-cash income and expenses (refer note 1).
(A) DISTRIBUTIONS FOR THE YEAR
Distributions paid/payable by Cromwell and the Trust during the year were as follows:
2016
11 November 2015
10 February 2016
11 May 2016
18 August 2016
2015
12 November 2014
11 February 2015
13 May 2015
13 August 2015
2016
cents
1.9925¢
1.9925¢
2.1075¢
2.1075¢
8.2000¢
2015
cents
1.9375¢
1.9375¢
1.9925¢
1.9925¢
7.8600¢
2016
$M
34.7
34.9
36.9
36.9
143.4
2015
$M
33.6
33.6
34.6
34.7
136.5
55
There were no dividends paid or payable by the Company in respect of the 2016 and 2015 financial years. All of Cromwell’s
and the Trust’s distributions are unfranked.
(B) FRANKING CREDITS
Currently, Cromwell’s distributions are paid from the Trust. Franking credits are only available for future dividends paid
by the Company. The franking account balance as at 30 June 2016 is $4,300,000 (2015: $3,100,000).
3 Earnings per Security
OVERVIEW
This note provides information about Cromwell’s earnings on a per security basis. Earnings per security (EPS) is a
measure that makes it easier for users of Cromwell’s financial report to compare Cromwell’s performance between
different reporting periods. Accounting standards require the disclosure of two EPS measures, basic EPS and diluted
EPS. Basic EPS information provides a measure of interests of each ordinary issued security of the parent entity in the
performance of the entity over the reporting period while diluted EPS information provides the same information but
takes into account the effect of all dilutive potential ordinary securities outstanding during the period, such as Cromwell’s
performance rights.
Below in (a) earnings per share of the Company, the parent entity of Cromwell, and its controlled entities (“CCL”) and
earnings per unit of the Trust are presented as required by accounting standards. As both measures do not provide an
EPS measure for the Cromwell group as a whole (b) provides earnings per stapled security information.
(A) EARNINGS PER SHARE/UNIT
Basic earnings per company share/trust unit (cents)
Diluted earnings per company share/trust unit (cents)
Earnings used to calculate basic and diluted earnings per
company share/trust unit:
Profit for the year ($M)
Less: Profit attributable to non-controlling interests ($M)
Profit/(loss) attributable to ordinary equity holders of the
Company/Trust ($’000)
CCL
Trust
2016
(4.42)
(4.42)
2015
(0.47)
(0.47)
329.6
(406.7)
148.8
(156.9)
(77.1)
(8.1)
2016
21.26
21.20
371.4
–
371.4
2015
9.05
9.02
156.7
0.2
156.9
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (B)
EARNINGS PER STAPLED SECURITY
Basic earnings per stapled security (cents)
Diluted earnings per stapled security (cents)
Cromwell
2016
18.86
18.81
2015
8.58
8.55
Earnings used to calculate basic and diluted earnings per stapled security:
Profit for the year attributable to ordinary stapled security holders of Cromwell ($M)
329.6
148.8
Weighted average number of stapled securities used in calculating earnings per
company share/trust unit/stapled security:
Weighted average number of securities used in calculating basic earnings per company
share/trust unit/stapled security (number)
1,747,252,494
1,734,643,541
Adjustment for calculation of diluted earnings per company share/trust unit:
Performance rights (number)
56
Weighted average number of ordinary securities and potential ordinary securities
used in calculating earnings per company share/trust unit/stapled security
4,720,269
5,374,532
1,751,972,763
1,740,018,072
ACCOUNTING POLICY
Basic earnings per security
Basic earnings per security is calculated by dividing profit/(loss) attributable to equity holders of the Company/CDPT/
Cromwell, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary
securities outstanding during the financial year, adjusted for bonus elements in ordinary securities issued during the year.
Diluted earnings per security
Diluted earnings per security adjusts the figures used in the determination of basic earnings per security to take into
account the after income tax effect of interest and other financing costs associated with potentially ordinary securities
and the weighted average number of securities assumed to have been issued for no consideration in relation to dilutive
potential ordinary securities.
INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES
(C)
Performance rights
Performance rights granted under Cromwell’s 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 Cromwell’s performance rights are set out in note 18.
Convertible bonds
Convertible bonds issued during the prior year are considered to be potential ordinary stapled securities, however have
not been included in the determination of diluted earnings. The ASX market price of the Cromwell stapled security had
been below the convertible bond conversion price of $1.1503 throughout the year. Additionally, the actual Euro currency
translation rate at balance date was more favourable to bondholders than the fixed conversion rate. Therefore, the
convertible bond is currently considered to be non-dilutive.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 4
Income Tax
OVERVIEW
This note provides detailed information about Cromwell’s income tax items and accounting policies. This includes a
reconciliation of income tax expense if Australia’s company income tax rate of 30% was applied to Cromwell’s profit
before income tax as shown in the income statement to the actual income tax expense/benefit as well as an analysis of
Cromwell deferred tax balances.
Accounting standards require the application of the “balance sheet method” to account for Cromwell’s income tax.
Accounting profit does not always equal taxable income. There are a number of timing differences between the
recognition of accounting expenses and the availability of tax deductions or when revenue is recognised for accounting
purpose and tax purposes. These timing differences reverse over time but they are recognised as deferred tax assets and
deferred tax liabilities in the balance sheet until they are fully reversed. This is referred to as the “balance sheet method”.
Taxation of the Trust
Under current Australian income tax legislation, the Trust and its sub-Trusts are not liable for income tax on their taxable
income (including assessable realised capital gains) provided that the unitholders are presently entitled to the income of
the Trust. Accordingly, Cromwell only pays tax on Company taxable earnings and there is no separate tax disclosure for
the Trust.
57
A)
INCOME TAX EXPENSE
Current tax expense
Deferred tax expense
Adjustment in relation to prior periods
Income tax expense
Deferred tax expense
Decrease/(increase) in deferred tax assets
Increase/(decrease) in deferred tax liabilities
Total deferred tax expense
Cromwell
2016
$M
5.5
(1.5)
(0.5)
3.5
–
(1.5)
(1.5)
B) NUMERICAL RECONCILIATION BETWEEN INCOME TAX EXPENSE/(BENEFIT) AND PRE-TAX PROFIT
Profit before income tax
Tax at Australian tax rate of 30% (2015: 30%)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Trust income – refer above for Taxation of the Trust
Non-deductible expenses
Change in tax losses recognised
Adjustment in relation to prior periods
Difference in overseas tax rate
Income tax expense/(benefit)
Cromwell
2016
$M
333.1
99.3
(120.0)
24.9
–
(0.5)
(0.2)
3.5
2015
$M
0.3
(0.4)
–
(0.1)
0.1
(0.5)
(0.4)
2015
$M
148.7
44.6
(45.4)
1.0
(0.5)
–
0.2
(0.1)
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (C) DEFERRED TAX
(i) Deferred tax assets
Deferred tax assets are attributable to:
Interests in managed investment schemes
Employee benefits
Transaction costs and sundry items
Unrealised foreign currency losses
Tax losses recognised
Total deferred tax assets
Movements:
Balance at 1 July
Credited/(charged) to profit or loss
Credited/(charged) to other comprehensive income
58
Balance at 30 June
Cromwell
2016
$M
(1.9)
1.4
0.3
(0.1)
1.6
1.3
1.2
–
0.1
1.3
2015
$M
(1.9)
1.1
0.3
–
1.7
1.2
1.3
(0.1)
–
1.2
The amount of temporary differences and carried forward tax losses recognised as a deferred tax asset is based on
projected earnings over a limited period that the Directors considered to be probable. Projected earnings are re-assessed
at each reporting date. Unrecognised tax losses at balance date were $21,500,000 (2015: $25,100,000).
(ii) Deferred tax liabilities
Cromwell
Deferred tax liabilities are attributable to:
Intangible assets – management rights
Total deferred tax liabilities
Movements:
Balance at 1 July
Recognised on business combination
(Credited)/charged to profit or loss
Foreign exchange differences
Balance at 30 June
2016
$M
1.9
1.9
3.3
–
(1.5)
0.1
1.9
2015
$M
3.3
3.3
–
3.7
(0.5)
0.1
3.3
The deferred tax liability relates to an overseas tax jurisdiction. In accordance with AASB 112 Income Taxes the deferred
tax liability was not offset against the deferred tax assets of the group, which relate to the Australian tax jurisdiction.
ACCOUNTING POLICY
Income tax
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 financial 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. Deferred tax is not recognised for the recognition of goodwill on business combination
and 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.
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. 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 PROPERTY GROUP I 2016 ANNUAL REPORT Tax consolidation
The Company and its wholly-owned entities (this excludes the Trust and its controlled entities) have formed a tax-
consolidated group and are taxed as a single entity. 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 financial 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 financial 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 profits 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.
59
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) is at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect 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
financial statements in respect of this agreement, as payment of any amounts under the tax sharing agreement is
considered remote.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Operating Assets
This section of the annual financial report provides further information on Cromwell’s and the Trust’s
operating assets. These are assets that individually contribute to Cromwell’s revenue and include investment
properties, joint ventures and investments in listed and unlisted securities.
5.
Investment Properties
OVERVIEW
Investment properties are properties (land, building or both) held solely for the purpose of earning rental income and/
or for capital appreciation. Cromwell’s investment property portfolio comprises 24 commercial properties of which
21 properties are predominantly office use with the remaining three being retail properties and vacant land.
This note provides further details on Cromwell’s investment property portfolio, including details of individual properties,
details of sales and acquisitions as well as details on the fair value measurement of the properties.
60
(A) DETAILS OF CROMWELL’S AND THE TRUST’S INVESTMENT PROPERTIES
Title
Independent
valuation
date
Independent valuation
Carrying amount
Fair value adjustment
2016
$M
2015
$M
2016
$M
2015
$M
2016
$M
2015
$M
(1)
(1)
(2)
(1)
(1)
(1)
(1)
(1)
(2)
(1)
(1)
(2)
(2)
(2)
(1)
(1)
(1)
(2)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
Jun 2016
SOLD
Jun 2016
SOLD
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
SOLD
Jun 2016
Dec 2015
Jun 2016
Jun 2016
SOLD
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
Jun 2016
68.0
–
27.6
–
15.0
5.0
13.7
231.0
25.5
183.0
77.5
123.6
48.0
435.0
214.0
83.0
–
48.4
1.6
37.3
37.3
–
23.1
27.9
227.5
32.6
200.0
38.9
70.5
22.0
28.1
62.1
14.3
5.0
13.7
175.0
28.5
142.0
71.0
107.0
51.0
345.0
200.0
71.0
–
53.6
1.8
35.0
39.5
62.0
18.5
24.7
200.0
29.2
158.0
32.5
68.0
–
27.6
–
15.0
5.0
13.7
231.0
25.5
183.0
77.5
173.1(c)
48.0
435.0
214.0
83.0
–
48.4
1.6
37.3
37.3
–
23.1
27.9
227.5
32.6
200.0
38.9
70.5
22.0
28.1
62.1
14.5
5.0
14.3
195.0
28.5
142.0
70.0
109.3
51.0
353.0
200.0
71.0
–
53.6
1.8
35.0
39.5
67.4
18.5
24.7
200.0
29.2
162.5
32.5
(4.7)
–
(0.2)
–
0.5
0.4
(0.6)
33.1
(2.9)
36.8
9.5
16.6
(3.0)
79.4
12.0
10.8
–
(5.4)
(0.2)
2.0
(2.3)
–
4.6
3.2
26.9
2.8
37.5
6.4
2,224.5
2,061.0
2,274.0
2,101.0
263.2
(7.7)
(2.5)
(0.8)
5.9
–
(8.8)
0.7
3.3
(2.3)
11.6
(0.3)
(33.0)
(14.3)
11.6
1.9
–
5.2
2.1
(0.3)
6.5
3.5
8.4
1.6
0.8
16.1
2.3
19.7
1.2
32.4
200 Mary Street, QLD
Terrace Office Park, QLD
Oracle Building, ACT
Henry Waymouth Centre, SA
Village Cinemas, VIC
Vodafone Call Centre, TAS
Regent Cinema Centre, NSW
700 Collins Street, VIC
19 National Circuit, ACT
475 Victoria Avenue, NSW
Synergy, QLD
Tuggeranong Office Park, ACT
TGA Complex, ACT
203 Coward Street, NSW
HQ North, QLD
Bundall Corporate Centre, QLD
43 Bridge Street, NSW
13 Keltie Street, ACT
Sturton Road, SA
147-163 Charlotte Street, QLD
146-160 Mary Street, QLD
4-6 Bligh Street, NSW
117 Bull Street, NSW
11 Farrer Place, NSW
207 Kent Street, NSW
84 Crown Street, NSW
2-24 Rawson Place, NSW
2-6 Station Street, NSW
Total investment properties
(1) Freehold;
(2) Leasehold.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT ACCOUNTING POLICIES
Investment properties
Investment properties are initially measured at cost including transaction costs and subsequently measured at fair value,
with any change therein recognised in profit or loss.
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 flow 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.
Investment properties under construction are classified as investment property and carried at fair value. Finance costs
incurred on investment properties under construction are included in the construction costs.
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 fit out costs or relocation costs. They are recognised as an asset in the balance sheet as a component of the carrying
amount of investment property and amortised over the lease period as a reduction of rental income.
61
Initial direct leasing costs
Initial direct leasing costs incurred by Cromwell in negotiating and arranging operating leases are recognised as an asset
in the balance sheet 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.
(A) MOVEMENTS IN INVESTMENT PROPERTIES
Balance at 1 July
Additions
Capital Works
Construction costs
Property improvements
Lifecycle
Disposals
Transferred to held for sale
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
Cromwell
Trust
2016
$M
2,101.0
–
47.2
2.1
2.6
(150.9)
–
2.3
21.7
(15.2)
263.2
2,274.0
2015
$M
2,249.5
8.0
–
16.5
6.8
(205.8)
(36.6)
5.5
37.7
(13.0)
32.4
2,101.0
2016
$M
2,101.0
–
47.2
2.1
2.6
(150.9)
–
2.3
21.7
(15.2)
263.2
2,274.0
2015
$M
2,249.5
8.0
–
16.5
6.8
(205.8)
(36.6)
5.5
37.7
(13.0)
32.4
2,101.0
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT INVESTMENT PROPERTY SOLD
(B)
Details of investment properties sold during the year are as follows:
Terrace Office Park, QLD
Henry Waymouth Centre, SA
4-6 Bligh Street, NSW(1)
43 Bridge Street, NSW(1)
Total investment property sold during the year
Gross sale
price
$M
Carrying
amount at
30 June 2015
$M
Last
independent
valuation
$M
Gain on sale
recognised
$M
31.0
73.0
68.0
37.0
209.0
22.0
62.1
67.4
36.6
188.1
22.0
62.1
62.0
31.0
177.1
8.5
10.9
–
–
19.4
(1) Both investment properties, 4-6 Bligh Street, NSW and 43 Bridge Street NSW, were carried at their expected sale price. The difference between the
sale price and independent valuation amount was recognised as a fair value gain in the 2015 financial year. 43 Bridge Street, NSW was classified as
investment property held for sale as at 30 June 2015 as the sale contract for the property was unconditional as at that date.
62
In the previous year Cromwell sold the investment property located at 321 Exhibition Street, VIC for $208 million.
This property was carried at $205.9 million at 30 June 2014. The last independent valuation prior to the sale of the
property was $190 million. A gain on sale of $1.1 million was recognised for the year ended 30 June 2015 in relation
to the transaction.
INVESTMENT PROPERTY UNDER CONSTRUCTION
(C)
In May 2015 Cromwell and the Trust commenced the construction of a second $172 million building on the excess
land at Tuggeranong Office Park in the ACT. The Commonwealth of Australia has agreed to a 15 year lease of the
modern 30,700 square metre property due to commence in mid/late 2017. Cromwell and the Trust spent $49.5 million
on construction costs (including interest on the project funding facility) during the year. These costs are included in
the carrying amount of the Tuggeranong Office Park investment property.
(D) FAIR VALUE MEASUREMENT
Cromwell’s investment properties, with an aggregate carrying amount of $2,274.0 million, are measured using the
fair value model as described in AASB 140 Investment Property. Fair value is thereby defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
Property valuations
At balance date the adopted valuations for Cromwell’s investment properties are all based on independent external
valuations, except for the vacant block of land at Sturton Road, SA, which was independently value at 31 December 2015.
Cromwell’s valuation policy requires all properties to be valued by an independent professionally qualified valuer with
a recognised relevant professional qualification at least once every two years.
All property valuations utilise a combination of valuation models based on discounted cash flow (“DCF”) models and
income capitalisation models supported by recent market sales evidence.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Key inputs used to measure fair value:
DCF method
Income capitalisation method
Annual net property income
Net market rent
Adopted capitalisation rate
Adopted discount rate
Weighted average lease expiry
(“WALE”)
Occupancy
Under the DCF method, a property’s fair value is estimated using explicit assumptions
regarding the benefits and liabilities of ownership over the asset’s life including an exit
terminal value. The DCF method involves the projection of a series of cash flows on a
real property asset. To this projected cash flow series, an appropriate, market derived
discount rate is applied to establish the present value of the income stream associated
with the real property.
This method involves assessing the total net market income receivable from the
property and capitalising this perpetually, using an appropriate, market derived
capitalisation rate, to derive a capital value, with allowances for capital expenditure
reversions such as lease incentives and required capital works payable in the near
future and overs/unders when comparing market rent with passing rent.
Annual net property income is the contracted amount for which the property space is
leased. In the net property income, the property owner recovers outgoings from the
tenant.
A net market rent is the estimated amount for which a property or space within a
property could be leased between a willing lessor and a willing lessee on appropriate
lease terms in an arm’s length transaction, after proper marketing and wherein the
parties have each acted knowledgeably, prudently and without compulsion.
63
The rate at which net market income is capitalised to determine the value of the
property. The rate is determined with regards to market evidence (and the prior
external valuation for internal valuations).
The rate of return used to convert a monetary sum, payable or receivable in the future,
into present value. It reflects the opportunity cost of capital, that is, the rate of return
the capital can earn if put to other uses having similar risk. The rate is determined with
regards to market evidence (and the prior external valuation for internal valuations).
WALE is used to measure the overall tenancy risk of a particular property to assess
the likelihood of a property being vacated. WALE of a property is measured across all
tenants’ remaining lease terms (in years) and is weighted with the tenants’ income
against total combined income.
Property occupancy is used to measure the proportion of the lettable space of a
property that is occupied by tenants under current lease contracts and therefore how
much rent is received from the property as percentage of total rent possible if the
property was fully occupied.
All the significant inputs noted above are not observable market data, hence investment property valuations are
considered level 3 fair value measurements (refer fair value hierarchy described in note 12).
Significant unobservable inputs associated with the valuations of Cromwell’s investment properties are as follows:
Inputs
Capitalisation rate (%)
Discount rate (%)
Annual net property income ($M)
WALE (years)
Occupancy (%)
Range
Weighted average
5.5 – 11.0
7.25 – 12.0
0.5 – 22.6
0 – 16.5
0.0 – 100.0
7.1
8.4
13.4
8.4
93.9
Sensitivity information
The relationships between the significant unobservable inputs and the fair value of investment properties are as follows:
Inputs
Capitalisation rate
Discount rate
Annual net property income
WALE
Occupancy
Impact of increase
in input on fair
value
Decrease
Impact of
decrease in input
on fair value
Increase
Decrease
Increase
Increase
Increase
Increase
Decrease
Decrease
Decrease
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Highest and best use
Fair value for investment properties is calculated for the highest and best use whether or not current use reflects highest
and best use. All of Cromwell’s investment properties current use is also their highest and best use, with the exception
of the following:
• 147-163 Charlotte Street, QLD; and
• 146-160 Mary Street, QLD.
The properties, which are adjacent to each other, have been valued based on a development feasibility model for
a residential re-development. Significant unobservable inputs included a discount rate of 10% and completion value
of $219.0 million.
(E) AMOUNTS RECOGNISED IN PROFIT AND LOSS FOR INVESTMENT PROPERTIES
64
Rental income and recoverable outgoings
Property expenses and outgoings
Cromwell
Trust
2016
$M
215.4
(36.4)
179.0
2015
$M
236.0
(40.3)
195.7
2016
$M
215.5
(41.8)
173.7
2015
$M
234.8
(44.7)
190.1
(F) NON-CANCELLABLE OPERATING LEASE RECEIVABLE FROM INVESTMENT PROPERTY TENANTS
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 Cromwell’s investment properties not
recognised in the financial statements are receivable as follows:
Within one year
Later than one year but not later than five years
Later than five years
Cromwell
Trust
2016
$M
146.9
385.3
496.7
2015
$M
179.3
407.7
537.0
2016
$M
146.9
385.3
496.7
2015
$M
179.3
407.7
537.0
1,028.9
1,124.0
1,028.9
1,124.0
6 Equity Accounted Investments
OVERVIEW
This note provides an overview and detailed financial information of Cromwell’s and the Trust’s investments that are
accounted for using the equity method of accounting. These include joint ventures where Cromwell or the Trust have
joint control over an investee together with one or more joint venture partners and investments in associates, which are
entities over which Cromwell is presumed to have significant influence but not control or joint control by virtue of holding
20% or more of the associates’ issued capital and voting rights, but less than 50%.
Cromwell’s and the Trust’s equity accounted investments are as follows:
Cromwell and Trust equity accounted investments:
CPA – joint venture (owned by Trust)
Cromwell equity accounted investments:
Oyster – joint venture
Portgate – joint venture
Others
Total equity accounted investments
Ownership interest
2016
%
2015
%
Carrying amount
2016
$M
2015
$M
50
50
28
50
50
–
74.5
7.5
3.3
1.4
86.7
71.5
4.9
–
0.8
77.2
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT ACCOUNTING POLICY
Joint arrangements
Investments in joint arrangements are classified as either joint operations or joint ventures. The classification 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 financial statements using the equity method.
Cromwell’s share of its joint ventures’ post-acquisition profits or losses is recognised in profit 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 joint ventures are
recognised in Cromwell’s financial statements as a reduction of the carrying amount of the investment.
When Cromwell’s share of losses in a joint venture equals or exceeds its investment in the joint venture, including any
other unsecured receivables, Cromwell does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the joint venture. Unrealised gains on transactions between Cromwell and its joint ventures are
eliminated to the extent of Cromwell’s investment in the joint venture. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset transferred.
For joint operations Cromwell recognises its direct right to the assets, liabilities, revenues and expenses of and its share
of any jointly held or incurred assets, liabilities, revenues and expenses, and these are incorporated in the financial
statements under the appropriate headings.
65
(A) DETAILS OF JOINT VENTURES
CPA
Cromwell and the Trust hold a 50% interest in the units of CPA which owns the $280 million Northpoint Building in
the North Sydney CBD. The remaining 50% of the units in CPA are held by a single investor. A unit holder agreement
between Cromwell and the other investor limits the power of the trustee to management of ongoing operations of CPA.
All decisions about relevant activities of CPA require unanimous consent of the two unitholders. The entity is therefore
classified as a joint venture.
Oyster
Oyster is a New Zealand based retail property fund syndicator that provides fund and property management services
throughout New Zealand. Oyster is jointly owned by Cromwell and six original Oyster shareholders. Oyster is classified
as a joint venture as 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.
Portgate
During the year Cromwell acquired 14,284,000 units in the Portgate Estate Unit Trust representing 28% of the issued units
by Portgate for a consideration of $13,620,000, including acquisition costs. $9 million of acquisition consideration is yet
to be paid and will be paid as required by Portgate. Portgate was established for the ownership of land, comprising an
existing site and a development site at the Port of Brisbane. The existing site contains tenanted warehouses. Cromwell’s
investment funds will be used to develop further industrial buildings at the development site. All the relevant activities
of Portgate are managed and approved by a management committee requiring unanimous consent on all decisions.
Cromwell and the trustee each provide two representatives to the management committee. The entity is therefore
classified as a joint venture.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (B) SUMMARISED FINANCIAL INFORMATION FOR JOINT VENTURES
CPA
Oyster
2016 in $M
Portgate
Others
CPA
2015 in $M
Oyster
Others
Summarised Balance Sheets:
Cash and cash equivalents
Other current assets
Total current assets
Investment properties
Other non–current assets
Total non–current assets
Total assets
Financial liabilities
Other current liabilities
Total current liabilities
Financial liabilities
Other non–current liabilities
Total non–current liabilities
Total liabilities
Net assets
66
Carrying amount of investment:
Cromwell’s share of equity (%)
Cromwell’s share of net assets
Unpaid investment consideration
Goodwill
Carrying amount
Movement in carrying amounts:
Opening balance at 1 July
Investment
Share of profit/(loss)
Less: dividends/distributions received
Decrease to recoverable amount
Foreign exchange difference
Carrying amount at 30 June
13.3
1.7
15.0
280.0
–
280.0
295.0
145.5
0.5
146.0
–
–
–
146.0
149.0
50
74.5
–
–
74.5
71.5
12.8
(3.1)
(6.7)
–
–
74.5
Summarised Statements of Comprehensive Income:
Revenue
Expenses
Total comprehensive income
Cromwell’s share in %
Share of profit/(loss)
22.2
(28.3)
(6.1)
50
(3.1)
2.2
3.7
5.9
–
6.0
6.0
11.9
6.5
–
6.5
0.9
–
0.9
7.4
4.5
50
2.3
–
5.2
7.5
4.9
1.4
1.1
–
–
0.1
7.5
9.3
(7.1)
2.2
50
1.1
4.7
10.4
15.1
70.0
–
70.0
85.1
1.7
–
1.7
39.8
–
39.8
41.5
43.6
28
12.3
(9.0)
–
3.3
–
4.8
(0.8)
(0.3)
(0.4)
–
3.3
3.7
(6.5)
(2.8)
28
(0.8)
1.7
0.8
2.5
–
1.0
1.0
3.5
0.7
–
0.7
–
–
–
0.7
2.8
1.4
–
–
1.4
0.8
–
0.7
(0.1)
–
–
1.4
4.1
(2.3)
1.8
0.7
9.7
0.8
10.5
280.0
–
280.0
290.5
8.0
0.5
8.5
138.9
–
138.9
147.4
143.1
50
71.5
–
–
71.5
72.5
–
6.7
(7.7)
–
–
71.5
26.2
(12.7)
13.5
50
6.7
1.4
0.8
2.2
–
2.0
2.0
4.2
0.8
0.1
0.9
1.1
–
1.1
2.0
2.2
50
1.1
–
3.8
4.9
4.6
(0.4)
0.7
–
–
–
4.9
6.1
(4.6)
1.5
50
0.7
1.5
0.6
2.1
–
0.3
0.3
2.4
0.6
0.1
0.7
–
–
0.7
0.7
1.7
0.8
–
–
0.8
0.4
–
0.4
–
–
–
0.8
2.4
(1.4)
1.0
0.4
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 7
Investments at Fair Value Through Profit or Loss
OVERVIEW
This note provides information about Cromwell’s and the Trust’s investments in listed and unlisted property related
entities whereby Cromwell and the Trust hold less than 20% of the issued capital in the investee. Such investments are
classified as investments at fair value through profit or loss which are carried at fair value in the balance sheet with
adjustments to the fair value recorded in profit or loss. Such investments include investments in Cromwell managed
unlisted funds, co-investments in European wholesale funds managed by Cromwell and investments in listed securities.
Investment in listed securities
Investment in Cromwell unlisted funds
Investment in wholesale funds
Cromwell
Trust
2016
$M
258.4
1.3
36.5
296.2
2015
$M
–
2.0
35.6
37.6
2016
$M
258.4
1.3
–
259.7
2015
$M
–
2.0
–
2.0
67
ACCOUNTING POLICY
Investments at fair value through profit or loss are financial assets held for trading which are acquired principally for
the purpose of selling in the short term with the intention of making a profit. Financial assets at fair value through
profit or loss also include financial assets which upon initial recognition are designated as such. These include financial
assets that are not held for trading purposes and which may be sold. These are investments in exchange traded equity
instruments and unlisted trusts.
At initial recognition, Cromwell measures a financial asset at its fair value. Transaction costs of financial assets carried
at fair value through profit or loss are expensed in the statement of comprehensive income.
Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value. Gains
and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented
in the statement of comprehensive income within net gains/(losses) on financial instruments held at fair value through
profit or loss in the period in which they arise.
For methods used to measure the fair value measurement of Cromwell’s and the Trust’s investments at fair value
through profit or loss refer to note 12.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Finance and Capital Structure
This section of the annual financial report provides further information on Cromwell’s debt finance and
associated costs, and Cromwell’s capital.
Capital is defined as the combination of securityholders’ equity, reserves and net debt (borrowings less cash).
The Board of Directors is responsible for Cromwell’s capital management strategy. Capital management is an
integral part of Cromwell’s risk management framework and seeks to safeguard Cromwell’s ability to continue
as a going concern while maximising securityholder value through optimising the level and use of capital
resources and the mix of debt and equity funding. Cromwell’s preferred portfolio gearing range is 35% - 55%.
Consistent with this strategy Cromwell announced during the year that Moody’s has assigned a senior secured
rating of Baa2 to Cromwell’s secured bank facilities and a senior unsecured Baa3 rating for Cromwell’s
convertible bonds. Cromwell as a senior unsecured issuer received a rating of Baa3. The ratings are important
as they reflect the investment grade credit rating of Cromwell which allows Cromwell access to global capital
markets.
68
8 Borrowings
OVERVIEW
Cromwell and the Trust borrow funds from financial institutions and investors in the form of convertible bonds to
partly fund the acquisition of income producing assets, such as investment properties, securities or the acquisition of
businesses. Cromwell’s and the Trust’s borrowings are generally fixed either directly or through the use of interest rate
swaps and have a fixed term. This note provides information about Cromwell’s debt facilities, including maturity dates,
security provided and facility limits.
Current
Secured
Loans – financial institutions
Unsecured
Loan notes
Non-current
Secured
Loans – financial institutions
Unsecured
Convertible bond
Unamortised transaction costs
Total
Secured loans – financial institutions
Loan notes
Unsecured convertible bond
Unamortised transaction costs
Total borrowings
Cromwell
2016
$M
2015
$M
Trust
2016
$M
2015
$M
129.8
–
129.8
40.5
23.8
64.3
129.8
–
129.8
40.5
–
40.5
920.4
902.5
920.4
902.5
210.7
(12.9)
202.0
(11.0)
223.9
(10.2)
218.4
(7.7)
1,118.2
1,093.5
1,134.1
1,113.2
1,050.2
–
210.7
(12.9)
943.0
23.8
202.0
(11.0)
1,050.2
–
223.9
(10.2)
943.0
–
218.5
(7.8)
1,248.0
1,157.8
1,263.9
1,153.7
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT ACCOUNTING POLICY
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 financial liability are spread over its expected life.
The fair value of the borrowing portion of a convertible bond is determined using a market interest rate for an equivalent
non-convertible bond. This amount is recorded as a borrowing liability on an amortised cost basis until extinguished on
conversion or maturity of the bonds. The remainder of the proceeds is allocated to the derivative conversion feature. This
is recognised as a financial liability if the convertible bond does not meet the “fixed-for-fixed” rule contained in AASB 132
Financial Instruments: Presentation, otherwise it is included in shareholders’ equity.
Borrowing costs incurred on funds borrowed for the construction of a property are capitalised, forming part of the
construction cost of the asset. Capitalisation ceases upon practical completion of the property. Other borrowing costs are
expensed.
(A) BORROWING DETAILS
Syndicated facility – Tranche 1
Syndicated facility – Tranche 2
Tuggeranong – Tranche A
Tuggeranong – Tranche B
Margin loan facility
Convertible bond
Loan notes
Total borrowing facilities
69
Note
Secured
Maturity date
(i)
(i)
(ii)
(ii)
(iii)
(iv)
(v)
Yes
Yes
Yes
Yes
Yes
No
No
Jan–20
Jan–21
May–18
May–18
Apr–17
Feb–20
Sep–15
2016
2015
Facility
$M
Utilised
$M
Facility
$M
Utilised
$M
270.5
590.6
36.1
159.5
125.0
223.9
–
270.5
590.6
36.1
29.9
123.2
223.9
–
325.5
577.0
40.5
–
–
218.5
23.8
325.5
577.0
40.5
–
–
218.5
23.8
1,405.6
1,274.2
1,185.3
1,185.3
(i) Syndicated facility – tranche 1 and 2
In March 2016 Cromwell renegotiated the terms of its syndicated finance facility extending the term of the facility by
1.7 years. The facility is secured by first registered mortgages over a pool of the investment properties held by the Trust
and is split into two tranches, one of $270.5 million, which expires in January 2020 and one of $590.6 million which expires
in January 2021. Interest is payable monthly in arrears at variable rates based on the 30 day BBSY rate which was 1.90%
(30 June 2015: 2.09%) at balance date plus a loan margin. The facility was fully drawn at balance date.
(ii) Tuggeranong facility – tranche A and B
During the year Cromwell and the Trust refinanced the short-term extension of the Tuggeranong debt facility which
expired in October 2015. The new facility, which expires in May 2018, is split into two tranches. Tranche A, which is fully
drawn, refinanced the existing $40.5 million debt facility and requires monthly repayments of $0.6 million for 18 months.
Tranche B with a total facility limit of $159.5 million is used as project funding for the construction of a modern
30,700 square metre building on surplus land of the existing Tuggeranong Office Park property. At year-end $29.9 million
of the facility was drawn down. Interest is payable monthly in arrears at variable rates based on the 30 day BBSY rate
which was 1.90% (30 June 2015: 2.09%) at balance date plus a loan margin.
(iii) Margin loan facility
During the year Cromwell and the Trust entered into a $125 million short-term margin loan facility. The facility is secured
over Cromwell’s and the Trust’s listed investments at fair value through profit or loss and expires in April 2017. Interest
is payable monthly in arrears at variable rates based on the 30 day BBSW rate plus a loan margin. The facility requires
Cromwell to hold cash of at least $54 million at all times. This cash amount has been classified as restricted cash as it is
effectively not available for use by Cromwell. Refer to note 15(b).
(iv) Convertible bond
At period end 1,500 (30 June 2015: 1,500) convertible bonds with a face value of €100,000 each were on issue with a
gross face value of €150 million or $223.9 million (30 June 2015: $218.5 million). The bonds bear an interest rate of 2%.
There have been no changes to the terms and conditions of the convertible bond since the last annual financial report
for the year ended 30 June 2015.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The convertible bonds are presented in the balance sheets as follows:
Face value of bonds issued – February 2015
Derivative financial instruments – conversion feature
Convertible bond carrying amount at inception
Movements in exchange rate and amortisation of conversion
feature – previous periods
Carrying amount at 1 July/inception
Amortisation of conversion feature to account for effective
interest rate – current period
Movements in exchange rate – current period
Carrying amount at period end
Cromwell
Trust
2016
$M
220.1
(17.9)
202.2
(0.2)
202.0
3.3
5.4
210.7
2015
$M
220.1
(17.9)
202.2
–
202.2
1.4
(1.6)
202.0
2016
$M
220.1
–
220.1
(1.6)
218.5
–
5.4
223.9
2015
$M
220.1
–
220.1
–
220.1
–
(1.6)
218.5
70
The conversion feature of the convertible bond represents an embedded derivative financial instrument in the host debt
contract. The embedded derivative is measured at fair value and deducted from the carrying amount of the convertible
bond (which is carried at amortised cost) and separately disclosed as a derivative financial liability on the face of the
balance sheet. The conversion feature represents the parent entity’s obligation under the convertible bond terms and
conditions to issue Cromwell stapled securities should bond holders exercise their conversion option. The Trust’s
borrowing obligation in respect of the convertible bond is considered to be the gross amount payable of the convertible
bond.
(v) Loan notes
Pursuant to the Share Purchase Agreement to acquire Valad Europe the portion of the cash consideration paid to acquire
the interests of two executives of Valad Europe, being €16.3 million was lent back on a short-term basis to Cromwell via
loan notes. These notes were repaid in full during the year.
(B) FINANCE COSTS
Total Interest
Amortisation of loan transaction costs
Net exchange (gains)/losses on foreign currency borrowings
Total finance costs
Cromwell
Trust
2016
$M
54.6
5.8
5.5
65.9
2015
$M
59.5
4.4
(1.6)
62.3
2016
$M
54.6
1.3
0.6
56.5
2015
$M
59.5
2.2
–
61.7
Information about Cromwell’s exposure to interest rate changes is provided in note 12.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 9 Derivative Financial Instruments
OVERVIEW
Cromwell’s and the Trust’s derivative financial instruments consist of interest rate swap contracts and the conversion
options on the convertible bonds issued by Cromwell. Interest rate swap contracts are used to fix interest on floating rate
borrowings. The conversion option amount represents the additional value provided to convertible bond holders compared
to the same corporate bond that would have no feature to convert the bonds into Cromwell stapled security at the end
or during the term of the bond. For accounting purposes such a conversion feature is accounted for separately from the
bond liability and is carried at fair value.
Non-current assets
Interest rate swap contract
Current liabilities
Interest rate swap contracts
Conversion feature – convertible bond
Non-current liabilities
Interest rate swap contracts
Cromwell
2016
$M
2015
$M
Trust
2016
$M
2015
$M
0.5
11.0
9.3
20.3
3.0
6.1
14.3
14.2
28.5
10.7
0.5
11.0
–
11.0
3.0
6.1
14.3
–
14.3
10.7
71
ACCOUNTING POLICY
Derivative financial 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 fixed interest rates. The derivatives are entered into with the objective of hedging the risk of adverse interest rate
fluctuations. While Cromwell has determined that these arrangements are economically effective, they have not satisfied
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 profit or loss.
Interest rate derivative contracts
The fixed or limited interest rates range between 3.39% and 5.95% (2015: 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 1.90% (2015: 2.09%). At balance date, the
notional principal amounts and period of expiry of Cromwell’s and the Trust’s interest rate swap contracts is as follows:
Less than 1 year
1 – 2 years
2 – 3 years
3 – 4 years
Cromwell and Trust
2016
$M
2015
$M
270.0
286.5
443.6
–
1,000.1
31.7
270.0
286.5
278.8
867.0
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT In order to manage future interest rate risk when existing interest rate swap contracts expire Cromwell and the Trust
have entered into an interest rate cap contract that will cap Cromwell’s and the Trust’s interest rate at a maximum
of 3.39% on the notional amount of the cap contract. The notional amount will increase as Cromwell’s and the Trust’s
existing interest rate contracts expire as follows:
Date of reset of cap notional amount
At 30 June 2016
July 2016
August 2016
June 2017
September 2017
November 2017
December 2017
Notional amount
$M
443.6
543.6
623.6
713.6
800.0
900.0
1,000.0
Conversion feature – convertible bond
The movement of the conversion feature since recognition upon issue of the convertible bond is as follows:
72
Derivative financial liability at 1 July (2015: inception)
Fair value (gain)/loss
Foreign exchange difference
Balance at 30 June
Cromwell and Trust
2016
$M
2015
$M
14.2
(5.2)
0.3
9.3
17.9
(3.7)
–
14.2
For details about the fair value measurement of Cromwell’s and the Trust’s financial instruments refer to note 12.
10 Contributed Equity
OVERVIEW
The shares of Cromwell Corporation Limited (the “Company”) and the units of Cromwell Diversified Property Trust
(the “CDPT”) are combined and issued as stapled securities. The shares of the Company and units of the CDPT cannot be
traded separately and can only be traded as stapled securities.
Below is a summary of contributed equity of the Company and the CDPT separately and for Cromwell’s combined stapled
securities. The basis of allocation of the issue price of stapled securities to Company shares and CDPT units post stapling
is determined by agreement between the Company and the CDPT as set out in the Stapling Deed.
Contributed equity
Cromwell stapled securities
Company shares
CDPT units
2016
$M
1,394.0
2015
$M
1,382.8
2016
$M
106.5
2015
$M
105.4
2016
$M
1,287.5
2015
$M
1,277.4
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (A) MOVEMENTS IN CONTRIBUTED EQUITY
The following reconciliation summarises the movements in contributed equity. Issues of a similar nature have been
grouped and the issue price shown is the weighted average. Detailed information on each issue of stapled securities is
publicly available via the ASX.
Cromwell stapled
securities
Company
shares
CDPT
units
Number
of securities
Issue price
$M
Issue price
Opening balance 1 July 2014
1,727,280,850
–
1,372.1
Exercise of performance rights
3,066,340
34.3¢
Distribution reinvestment plan
9,412,108
103.0¢
1.0
9.7
Balance at 30 June 2015
1,739,759,298
–
1,382.8
Exercise of performance rights
2,522,034
20.0¢
Distribution reinvestment plan
10,049,876
101.6¢
Balance at 30 June 2016
1,752,331,208
1.0
10.2
1,394.0
–
3.3¢
9.8¢
–
1.9¢
9.8¢
$M
104.4
0.1
0.9
105.4
0.1
1.0
106.5
Issue price
$M
–
31.0¢
93.2¢
–
18.1¢
91.8¢
1,267.7
0.9
8.8
1,277.4
0.9
9.2
1,287.5
The Company and CDPT have established a distribution reinvestment plan under which holders of stapled securities may
elect to have all of their distribution entitlements satisfied by the issue of new stapled ordinary securities rather than
being paid in cash. Stapled securities are issued under the plan at a discount to the market price as determined by the
Directors before each distribution.
73
ACCOUNTING POLICY
The ordinary shares of the Company are stapled with the units of the Trust and are together referred to as stapled
securities. Stapled securities are classified 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 Cromwell’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.
(B) STAPLED SECURITIES
Stapled securities 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.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 11 Reserves
OVERVIEW
Reserves are balances that form part of equity that record other comprehensive income amounts that are retained in the
business and not distributed until such time the underlying balance sheet item is realised. This note provides information
about movements in the other reserves line item of the balance sheet and a description of the nature and purpose of each
reserve.
Security-based
payments reserve
Trust
$M
Cromwell
$M
Available
for sale reserve
Cromwell
$M
Trust
$M
Foreign currency
translation reserve
Trust
$M
Cromwell
$M
Total
other reserves
Cromwell
$M
Trust
$M
Balance at 1 July 2014
Security based payments
Foreign exchange differences
recognised in other comprehensive
income
74
Attributable to non-controlling
interests
Balance at 30 June 2015
Security based payments
Foreign exchange differences
recognised in other comprehensive
income
Attributable to non-controlling
interests
Balance at 30 June 2016
3.6
1.0
–
–
4.6
0.9
–
–
5.5
–
–
–
–
–
–
–
–
–
2.3
–
–
–
2.3
–
–
–
2.3
–
–
–
–
–
–
–
–
–
–
–
6.2
(1.7)
4.5
–
7.7
(2.1)
10.1
–
–
0.6
–
0.6
–
1.1
–
1.7
5.9
1.0
6.2
(1.7)
11.4
0.9
7.7
(2.1)
17.9
–
–
0.6
–
0.6
–
1.1
–
1.7
Security-based payments reserve
The share based payments reserve is used to recognise the fair value of equity settled security based payments for
employee services. Refer to note 18 for details of Cromwell’s security based payments.
Available for sale reserve
Changes in the fair value of investments classified as available-for-sale are taken to the available-for-sale financial
assets revaluation reserve. Amounts are recognised in profit 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 financial assets
revaluation reserve over the last two financial years.
Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income
and accumulated in foreign currency translation reserve. Any foreign currency differences arising from inter-group
loans are transferred to the foreign currency translation reserve upon consolidation as such loans form part of the net
investment in the respective controlled entity. The cumulative amount recognised in the foreign currency translation
reserve is reclassified to profit or loss when the net investment is disposed of.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 12 Financial Risk Management
OVERVIEW
Cromwell’s activities expose it to a variety of financial risks which include credit risk, liquidity risk and market risk.
This note provides information about Cromwell’s risk management strategy in relation to each of the above financial risks
to which Cromwell is exposed to.
Cromwell’s overall risk management program focuses on managing these risks and seeks to minimise potential adverse
effects on the financial performance of Cromwell. Cromwell uses derivative financial 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 flow 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 specific 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.
75
Cromwell and the Trust hold the following financial instruments:
Financial assets
Cash and cash equivalents
Receivables
Other current financial assets
Investments at fair value through profit or loss
Derivative financial instruments
Total financial assets
Financial liabilities
Trade and other payables
Dividends/distributions payable
Borrowings
Derivative financial instruments
Total financial liabilities
Type of
financial
instrument
(1)
(1)
(1)
(2)
(3)
(4)
(4)
(4)
(3)
2016
$M
41.6
33.9
54.0
296.2
0.5
426.2
52.1
36.9
1,248.0
23.3
1,360.3
Cromwell
Trust
2015
$M
109.0
19.1
23.8
37.6
6.1
195.6
46.3
34.7
1,157.8
39.2
1,278.0
2016
$M
39.2
179.0
–
259.7
0.5
478.4
31.5
37.4
1,263.9
14.0
1,346.8
2015
$M
48.6
221.9
–
2.0
6.1
278.6
32.0
34.9
1,153.7
25.0
1,245.6
Type of financial instrument as per AASB 139 Financial Instruments: Recognition and Measurement:
(1) Loans and receivables;
(2) At fair value through profit or loss – designated;
(3) At fair value through profit or loss – held for trading;
(4) At amortised cost.
(A) CREDIT RISK
Credit risk is the risk that a counterparty will default on its contractual obligations under a financial instrument and result
in a financial loss to Cromwell. Cromwell has exposure to credit risk on all financial assets included in the balance sheet
except investments at fair value through profit or loss.
Cromwell manages this risk by:
• establishing credit limits for customers and managing exposure to individual entities;
• monitoring the credit quality of all financial 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 financial
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.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The maximum exposure to credit risk at balance date is the carrying amount of financial assets recognised in the balance
sheet of Cromwell. Cromwell holds no significant collateral as security.
Cash is held with Australian, New Zealand, United Kingdom and European financial institutions. Interest rate derivative
counterparties are all Australian financial institutions.
(B) LIQUIDITY RISK
Prudent liquidity risk management implies maintaining sufficient cash reserves and finance facilities to meet the ongoing
operational requirements of the business. It is Cromwell’s policy to maintain sufficient 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 flow. Cromwell monitors the maturity profile of borrowings and puts in place
strategies designed to ensure that all maturing borrowings are refinanced in the required timeframes.
The contractual maturity of Cromwell’s and the Trust’s financial liabilities at balance date are shown in the table below.
It shows undiscounted contractual cash flows required to discharge Cromwell’s financial liabilities, including interest at
current market rates.
76
2016
Trade and other payables
Dividends/distribution payable
Borrowings
Derivative financial instruments
Total financial liabilities
2015
Trade and other payables
Dividends/distribution payable
Borrowings
Derivative financial instruments
Total financial liabilities
1 year
or less
$M
Cromwell
Over 1 year to
5 years
$M
52.1
36.9
161.3
11.0
261.3
46.3
34.7
99.8
14.4
195.2
–
–
1,253.7
4.2
1,257.9
–
–
1,212.6
5.1
1,217.7
Total
$M
52.1
36.9
1,415.0
15.5
1,519.5
46.3
34.7
1,312.4
19.5
1,412.9
1 year
or less
$M
Trust
Over 1 year to
5 years
$M
31.5
37.4
161.3
11.0
241.2
32.0
34.9
76.0
14.4
157.3
–
–
1,253.7
4.2
1,257.9
–
–
1,212.6
5.1
1,217.7
Total
$M
31.5
37.4
1,415.0
15.5
1,499.4
32.0
34.9
1,288.6
19.5
1,375.0
(C) MARKET RISK
Market risk is the risk that the fair value or future cash flows of Cromwell’s financial instruments fluctuate due to market
price changes. Cromwell is exposed to the following market risks:
• Price risk – equity securities;
• Interest rate risk; and
• Foreign exchange risk.
Price risk – Listed and unlisted equity securities
Cromwell and the Trust are exposed to price risk in relation to its listed and unlisted equity securities (refer note 7).
Cromwell and the Trust use the ASX closing price to determine the fair value of their listed securities. For unlisted
securities Cromwell and the Trust use the fair value of the net assets of the unlisted entity to determine the fair value of
their investments. The fair value of the net assets of unlisted entities is predominantly dependent on the market value of
the investment properties they hold. Any movement in the market value of the investment properties will impact on the
fair value of Cromwell and the Trust’s investment.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Sensitivity analysis – equity securities price risk
The table below details Cromwell’s and the Trust’s sensitivity to movements in the fair value of Cromwell’s financial
assets at fair value through profit or loss:
2016
Cromwell
Investments at fair value through profit or loss
Trust
Investments at fair value through profit or loss
2015
Cromwell
Investments at fair value through profit or loss
Trust
Investments at fair value through profit or loss
Carrying
amount
$M
+10%
-10%
Profit
$M
Equity
$M
Profit
$M
Equity
$M
296.2
259.7
37.6
2.0
29.6
26.0
3.8
0.2
29.6
26.0
3.8
0.2
(29.6)
(29.6)
(26.0)
(26.0)
(3.8)
(0.2)
(3.8)
(0.2)
77
Interest rate risk
Cromwell’s interest rate risk primarily arises from borrowings. Borrowings issued at variable rates expose Cromwell to
cash flow interest rate risk. Borrowings issued at fixed 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 96% (2015:
92%) of Cromwell’s variable rate secured bank loan borrowings of $1,050 million (2015: $943 million) were effectively
hedged through interest rate swap contracts. The convertible bond and the loan note both carry fixed interest rates.
Therefore, interest on a total of 97% (2015: 94%) of Cromwell’s total borrowings is effectively fixed at balance date.
For details about notional amounts and expiries of Cromwell’s and the Trust’s interest rate swap contracts refer to note 9.
Sensitivity analysis – interest rate risk
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.
Interest rate increase/decrease of:
2016
Cromwell
Trust
2015
Cromwell
Trust
+1%
Profit
$M
Equity
$M
2.6
2.0
12.6
12.0
2.6
2.0
12.6
12.0
-1%
Profit
$M
(2.6)
(2.0)
(12.6)
(12.0)
Equity
$M
(2.6)
(2.0)
(12.6)
(12.0)
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Foreign exchange risk
Cromwell’s foreign exchange risk primarily arises from its investments in foreign subsidiaries. The functional currency
of these subsidiaries is Euro. The acquisition of the foreign subsidiaries was financed through a convertible bond also
denominated in Euro effectively providing a natural hedge against foreign exchange movements between the Australian
Dollar and the Euro. No hedge accounting was applied in relation to the net investment in the foreign subsidiaries.
Cromwell’s and the Trust’s exposure to Euro foreign currency risk at the end of the year, expressed in Australian dollars,
was as follows:
Cash and cash equivalents
Receivables – interest receivable – related parties
Receivables – Trust loans – related parties
Payables – interest payable convertible bond
Borrowings – convertible bond
78
Borrowings – loan notes
Derivative financial instruments – conversion feature
Net exposure
Cromwell
Trust
2016
$M
0.1
–
–
(1.8)
(210.7)
–
(9.3)
(221.7)
2015
$M
0.8
–
–
(1.7)
(202.0)
(23.8)
(14.2)
(240.9)
2016
$M
0.1
2.0
165.1
(1.8)
(223.9)
–
–
(58.5)
2015
$M
0.8
1.3
217.6
(1.7)
(218.5)
–
–
(0.5)
Amounts recognised in profit or loss and other comprehensive income
Amounts recognised in profit or loss
Net foreign exchange gain/(loss)
Exchange gains/(losses) on foreign currency borrowings included in
finance costs
Total income/(expense) recognised in profit or loss
Amounts recognised in other comprehensive income
Translation of foreign operations
Translation differences on inter-group loans that form part of the net
investment in the foreign operation
Sensitivity analysis – foreign exchange risk
Euro – Australian Dollar gains 1 cent in exchange
Euro – Australian Dollar loses 1 cent in exchange
Cromwell
2016
$M
2015
$M
Trust
2016
$M
2015
$M
(2.2)
(5.5)
(7.7)
5.6
2.1
7.7
Profit
$M
(4.4)
4.4
(7.9)
1.6
(6.3)
4.5
1.7
6.2
–
(0.6)
(0.6)
–
1.1
1.1
(0.7)
–
(0.7)
–
0.6
0.6
2016
2015
Equity
$M
(1.8)
1.8
Profit
$M
3.2
(3.2)
Equity
$M
0.1
(0.1)
(D) FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
Cromwell uses a number of methods to determine the fair value of its financial instruments as described in AASB 13 Fair
Value Measurement. The methods comprise the following:
Level 1:
Level 2:
quoted prices (unadjusted) in active markets for identical assets or liabilities.
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:
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The table below presents Cromwell’s and the Trust’s financial assets and liabilities measured and carried at fair value at
30 June 2016 and 30 June 2015:
2016
2015
Notes
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
Cromwell
Financial assets at fair value
Investments at fair value through profit
or loss
Listed equity securities
Unlisted equity securities
Derivative financial instruments
Interest rate swaps
Total financial assets at fair value
Financial liabilities at fair value
Derivative financial instruments
Interest rate swaps
Conversion feature
Total financial liabilities at fair value
Trust
Financial assets at fair value
Investments at fair value through profit
or loss
Listed equity securities
Unlisted equity securities
Derivative financial instruments
Interest rate swaps
Total financial assets at fair value
Financial liabilities at fair value
Derivative financial instruments
Interest rate swaps
Total financial liabilities at fair value
79
7
7
9
9
9
7
7
9
9
258.4
–
–
258.4
–
1.3
0.5
1.8
–
36.5
258.4
37.8
–
0.5
36.5
296.7
–
–
–
14.0
9.3
23.3
258.4
–
–
258.4
–
1.3
0.5
1.8
–
–
14.0
14.0
–
–
–
–
–
–
–
–
–
14.0
9.3
23.3
258.4
1.3
0.5
260.2
14.0
14.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
6.1
8.1
24.8
14.2
39.0
–
2.0
6.1
8.1
24.8
24.8
–
35.6
–
35.6
–
–
–
–
–
–
–
–
–
–
37.6
6.1
43.7
24.8
14.2
39.0
–
2.0
6.1
8.1
24.8
24.8
There were no transfers between the levels of the fair value hierarchy during the financial year.
Disclosed fair values
The fair values of investments at fair value through profit or loss (Levels 2 and 3) and derivative financial instruments
(Level 2) are disclosed in the balance sheet.
The carrying amounts of receivables, other current assets and payables are assumed to approximate their fair values
due to their short-term nature. The fair value of non-current borrowings (other than the convertible bond) is estimated
by discounting the future contractual cash flows at the current market interest rates that are available to Cromwell for
similar financial instruments. The fair value of these borrowings is not materially different from the carrying value due to
their relatively short-term nature.
The convertible bond is traded on the Singapore Exchange (SGX). At balance date the fair value of issued convertible
bonds was €147.0 million ($219.4 million) (2015: €144.4 million ($210.4 million)) compared to a carrying amount of
€150 million ($223.9 million).
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (i) Valuation techniques used to derive Level 1 fair values
Level 1 assets held by Cromwell include listed equity securities. The fair value of financial assets 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 7 to the financial
statements.
A financial 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.
(ii) Valuation techniques used to derive Level 2 fair values
The fair value of financial 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 specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is
included in Level 2.
80
Fair value of investments at fair value through profit or loss
Level 2 assets held by Cromwell include unlisted equity securities in Cromwell managed investment schemes. The fair
value of these financial instruments is based upon the net tangible assets as publicly reported by the underlying unlisted
entity, adjusted for inherent risk where appropriate.
Fair value of interest rate swaps
Level 2 financial assets and financial liabilities held by Cromwell include “Vanilla” fixed to floating 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 flow 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 specific features
of the derivatives and counterparty or own credit risk. All counterparties to interest rate derivatives are Australian
financial institutions.
Fair value of conversion feature – convertible bond
The fair value of the convertible bond conversion feature has been determined by comparing the market value of the
convertible bond to the value of a bond with the same terms and conditions but without an equity conversion feature (bond
floor). The difference between the two types of bonds is considered to represent the fair value of the conversion feature of
the convertible bond.
(iii) Valuation techniques used to derive Level 3 fair values
If the fair value of financial instruments is determined using valuation techniques and if one or more of the significant
inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity
securities.
Fair value of investments at fair value through profit or loss
Level 3 assets held by Cromwell include co-investments in Cromwell Europe managed wholesale property funds. The fair
value of the investment is determined based on the value of the underlying assets held by the fund. The assets of the fund
are subject to regular external valuations which are based on discounted net cash inflows from expected future income
and/or comparable sales of similar assets. Appropriate discount rates determined by the independent valuer are used
to determine the present value of the net cash inflows based on a market interest rate adjusted for the risk premium
specific to each asset. The fair value is determined using valuation techniques that are not supported by prices from an
observable market. The fair value of these investments recognised in the statement of financial position could change
significantly if the underlying assumptions made in estimating the fair values were significantly changed.
Reconciliation from the opening balances to the closing balances for
fair value measurements in Level 3 of the fair value hierarchy:
Opening balance as at 1 July
Additions
Disposals
Fair value (gain)/loss
Foreign exchange difference
Balance at 30 June
Cromwell
2016
$M
35.6
5.5
(6.3)
2.8
(1.1)
36.5
2015
$M
–
35.2
0.8
(1.9)
1.5
35.6
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Group Structure
This section will provide information about the Cromwell Property Group structure including parent entity
information, information about controlled entities (subsidiaries) and business combination information relating
to the acquisition of controlled entities.
13 Parent Entity Disclosures
OVERVIEW
The financial information below on Cromwell’s parent entity Cromwell Corporation Limited (the “Company”) and the
Trust’s parent entity Cromwell Diversified Property Trust (the “CDPT”) as stand-alone entities has been provided in
accordance with the requirements of the Corporations Act 2001.
(A) SUMMARISED FINANCIAL INFORMATION
Company
CDPT
81
Results
Profit/(loss) for the year
Total comprehensive income for the year
Financial position
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Share based payments reserve
Available for sale reserve
Retained earnings/(accumulated losses)
Total equity
2016
$M
(34.6)
(34.6)
20.7
183.1
20.5
159.7
23.4
106.5
5.5
(0.9)
(87.7)
23.4
2015
$M
1.2
1.2
31.4
210.7
14.7
154.4
56.4
105.4
4.6
(0.5)
(53.1)
56.4
2016
$M
237.8
237.8
62.9
2,021.9
178.1
914.3
1,107.6
2015
$M
124.3
124.3
55.8
1,896.7
98.8
871.7
1,025.0
1,287.5
1,277.4
–
–
(179.9)
1,107.6
–
–
(252.4)
1,025.0
ACCOUNTING POLICY
The financial information of the parent entities of Cromwell and the Trust have been prepared on the same basis as
the consolidated financial statements except for investments in subsidiaries and equity accounted investments.
Investments in subsidiaries and equity accounted investments are accounted for at cost less accumulated impairment
charges in the financial report of the parent entity. Distributions and dividends received from subsidiaries and equity
accounted investments are not eliminated and recognised in profit or loss.
(B) COMMITMENTS
At balance date the Company and CDPT had no commitments (2015: none) in relation to capital expenditure contracted
for but not recognised as liabilities.
(C) GUARANTEES PROVIDED
The Company and CDPT both have provided guarantees in relation to the convertible bond. Both entities unconditionally
and irrevocably guarantee the due and punctual payment of all amounts at any time becoming due and payable in respect
of the convertible bond. These guarantees were provided in the prior year.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (D) CONTINGENT LIABILITIES
At balance date the Company and CDPT had no contingent liabilities (2015: none).
14 Controlled Entities
(A) COMPANY AND ITS CONTROLLED ENTITIES
Country of
registration
Equity holding
2015
2016
%
%
Name
82
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 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
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Cromwell European Holdings Limited
United Kingdom 100
Valad (Europe) Limited
United Kingdom 100
Valad Capital Ventures (UK) Limited
United Kingdom 100
Valad Investment Services Limited
United Kingdom 100
Valad (Holdings) UK Limited
United Kingdom 100
Gateshead Investment Limited
Cyprus
Industrial Investment Partnership (LP
United Kingdom
100
80
No. 1) Limited
IO Management Services Limited
United Kingdom 100
German Activ General Partner Limited
United Kingdom
80
100
100
Upperastoria Trading & Investments Limited
Natchez Sp Zoo
Parc D’Activities 1 GP Limited
Valad Central Europe BV
Valad Czech Republic SRO
Valad Real Estate SLR
Valad Denmark A/S
Cyprus
Poland
Hungary
Netherlands
Czech Republic
Romania
Denmark
100
–
100
100
100
100
100
Valad Fund Management Holdings
United Kingdom 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
100
100
100
Valad Finland O/Y
Valad France SAS
Valad Luxembourg SA
Valad Netherlands BV
EHI Fund GP (Netherlands) BV
Valad Norway A/S
Valad Sweden A/B
The IO Group Limited
Equity holding
2015
2016
%
%
Country of
registration
Finland
France
Luxembourg
Netherlands
Netherlands
Norway
Sweden
100
100
100
100
100
100
100
United Kingdom 100
EHI Carried Interest Partner Limited
United Kingdom 100
EHIF Limited
United Kingdom 100
Industrial Investment Partnership
United Kingdom
80
(General Partner) Limited
Valad Germany Gmbh
100 B8F No.1 Limited
B8F No.2 Limited
SFW (Reading) LLP
Valad CEE Coinvest LP
Valad CEE Promote LP
Valad Coinvest ECV LP
Valad Coinvest CEIF LP
Germany
100
United Kingdom 100
United Kingdom 100
United Kingdom 100
United Kingdom 100
United Kingdom
60
United Kingdom 100
United Kingdom
90
Valad Development Management (UK) Limited United Kingdom 100
Valad GP
United Kingdom 100
Valad Investment Management
United Kingdom 100
80
Services Limited
Valad Promote ECV LP
Valad Coinvest VEDF LP
United Kingdom
United Kingdom
55
90
Valad Secretarial Services Limited
United Kingdom 100
100 Nordic Aktiv General Partner 2 Limited
United Kingdom 100
Valad YCM Coinvest LP
Valad YCM Promote LP
Valad Hungary Limited
Valad Italy SRO
Valsec Newco (No. 2) Limited
Valad Poland Retail LLP
United Kingdom 100
United Kingdom 100
Hungary
Italy
100
100
United Kingdom 100
United Kingdom 100
Valad Poland Retail (UK) Limited
United Kingdom 100
Valad Next Sp Zoo
PFM Coinvestment Partner Limited
United Kingdom 100
80
Nordic Aktiv General Partner Limited
United Kingdom 100
(UK) Limited
EHI CV1 UK Limited
EHI CV3 UK Limited
United Kingdom
80
Valad Polish Retail Fund Poland Sp
United Kingdom 100
80
Zoo
Valad Asset Management (UK) Limited
United Kingdom 100
Equity Partnerships Fund Management (
United Kingdom 100
Guernsey) Limited
100
100
Valad REIM Luxembourg Sárl
Valad VPR Promote Sárl
Valad Poland Sp Zoo
Poland
Poland
Luxembourg
Luxembourg
Poland
100
–
100
100
100
50
Equity Partnerships (Osprey) Limited
United Kingdom 100
100
Valad Promote CEIF LP
United Kingdom
Valad HIG LP
Valad Promote VEDF LP
United Kingdom 100
United Kingdom
60
–
60
Valad WP Poland LP
Valad Promote VPRF LP
United Kingdom 100
United Kingdom 100
100
100
100
100
100
100
100
100
100
100
80
100
100
100
100
100
60
100
–
100
100
100
55
90
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
–
–
–
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (B) TRUST AND ITS CONTROLLED ENTITIES
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
Cromwell Diversified Property Trust No 2
Cromwell Diversified Property Trust No 3
Cromwell Mary Street Property Trust
Cromwell Mary Street Planned Investment
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Cromwell Northbourne Planned Investment
Australia
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 TGA Planned Investment
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
–
–
100
100
100
100
100
100
92
100
100
100
100
100
100
100
100
100
100
Country of
registration
Equity holding
2015
2016
%
%
Name
Country of
registration
Equity holding
2015
2016
%
%
100 Cromwell HQ North Head Trust
100 Cromwell Health and Forestry House Trust
100 Cromwell HQ North Trust
Australia
Australia
Australia
100 Cromwell Bundall Corporate Centre Head Trust
Australia
100 Cromwell Bundall Corporate Centre Trust
100 Cromwell Property Fund
100 Cromwell Property Fund Trust No 2
100 Cromwell Property Fund Trust No 3
92
CPF Loan Note Issuer Pty Ltd
100 Cromwell Accumulation Fund
100 Cromwell CPF No. 1 Fund
100 Cromwell NSW Portfolio Trust
100 Cromwell Bligh House Trust
100 Cromwell Newcastle Trust
100 Cromwell Queanbeyan Trust
100 Cromwell Symantec Trust
100 Cromwell Wollongong Trust
100 Cromwell McKell House Trust
100 Cromwell Penrith Trust
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
100
100
100
100
100
100
100
100
100
100
100
100
83
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Cromwell European Finance Limited
United Kingdom 100
Cromwell SPV Finance Pty Ltd
Australia
100
100
100
Terrace Office Park Planned Investment
Terrace Office Park Property Trust
All new entities have been incorporated during the year. There was no business combination during the year. Entities,
which Cromwell or the Trust controlled in the prior year and there is no equity holding in the current year have all been
deregistered in the current year.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Other Items
This section of the annual financial report provides information about individually significant items to the balance
sheet or the income statement and items that are required to be disclosed by Australian Accounting Standards,
including unrecognised items and the basis of preparation of the annual financial report.
15 Other financial assets and liabilities
OVERVIEW
This note provides further information about material financial assets and liabilities that are incidental to Cromwell’s and
the Trust’s trading activities, being receivables and trade and other payables, as well as information about restricted cash.
(A) RECEIVABLES
84
Current
Trade and other receivables
Loans – joint venture
Receivables – current
Non-current
Loan – Director
Trust loans – related parties
Receivables – non-current
Cromwell
2015
$M
Trust
2016
$M
2015
$M
18.5
–
18.5
0.6
–
0.6
12.7
1.2
13.9
–
165.1
165.1
4.3
–
4.3
–
217.6
217.6
2016
$M
31.6
1.2
32.8
1.1
–
1.1
ACCOUNTING POLICY
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less
provision for impairment. Operating lease receivables of investment properties are due on the first day of each month,
payable in advance.
Collectability 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
may 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 flows,
discounted at the original effective interest rate. Cash flows 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 profit or loss.
Loans – related parties
Loan – Director
Cromwell has provided loans to Mr P Weightman, a Director of the Company, for the exercise of his employee options
under Cromwell’s Performance Rights Plan. Each loan term is three years, limited recourse and interest free. At balance
date $1.1 million (2015: $0.6 million) remained outstanding on the loans.
Loans – joint venture
The Trust provided a number of short-term loan facilities to Cromwell’s joint venture Oyster Property Funds Limited
(“Oyster”) for the initial funding of Oyster property syndications. These loans are to be repaid by Oyster as soon as
sufficient equity is raised in the syndication. At balance date a total of NZD 1.3 million (AUD 1.1 million) of loans were
outstanding (2015: $nil).
Trust loans – related parties
In the prior year a subsidiary of the Trust issued a €150 million convertible bond. Substantially all of the proceeds were
on-lent to the ultimate parent entity of the Trust, the Company or its subsidiaries (“CCL”). The proceeds of the loans from
the Trust (the “Trust loans”) were used by the Company to acquire Valad Europe.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The Trust loans to CCL consist of three facilities as follows:
Unsecured loan:
Redeemable preference shares:
Senior debt facility:
In the prior year the Trust provided CCL a loan facility of €107.6 million ($160.8
million). CCL repaid $8.0 million of the loan during the year leaving a loan balance of
$152.8 million at balance date. The Euro denominated loan facility is unsecured and
carries an interest rate of 2.5%. The loan expires in February 2020.
In the prior year the Trust subscribed to redeemable preference shares (“RPS”)
issued by a subsidiary of the Company. The total subscription amount was €27.5
million ($41.0 million). The RPS are redeemable at the election of the Trust on 31
December 2025 and cannot be converted into ordinary share capital of the issuing
company. The RPS rank above ordinary share capital upon winding up of the issuing
company up to the paid up sum.
In the prior year a subsidiary of the Trust provided a loan facility of €14.4 million
($21.5 million) to a subsidiary of CCL. €10.0 million were repaid during the year. The
loan balance at balance date was $6.5 million. The Euro denominated loan facility is
unsecured and carries an interest rate of 2%. The loan expires in February 2020.
At balance date, Cromwell and the Trust had $1.5 million receivables which were past due date but not impaired (2015:
$1.1 million). The Trust recognised a decrease in the recoverable amount of the redeemable preference share loan to
a CCL subsidiary by $35.3 million, following the decrease in the recoverable amount of goodwill recognised by the CCL
subsidiary in relation to Cromwell’s European business. For further details refer note 16. There were no other receivables
impaired at balance date (2015: $0.5 million).
85
(B) OTHER FINANCIAL ASSETS
Restricted cash
Cromwell
Trust
2016
$M
54.0
2015
$M
23.8
2016
$M
–
2015
$M
–
In the current year Cromwell and the Trust entered into a margin loan facility to partially fund the acquisition of listed
securities (refer note 8.) Terms of the loan agreement require Cromwell and the Trust to hold no less than $54 million
in cash at any time making the amount unavailable for any other use during the term of the loan. Subsequent to balance
date the terms of the facility were renegotiated reducing restricted cash to $20 million.
Prior year’s restricted cash related to effectively unpaid cash consideration payable on the Valad Europe acquisition.
This amount was paid during the year.
(C) TRADE AND OTHER PAYABLES
Trade and other payables
Lease incentives payables
Tenant security deposits
Trade and other payables
Cromwell
Trust
2016
$M
40.1
11.5
0.5
52.1
2015
$M
32.2
13.1
1.0
46.3
2016
$M
19.5
11.5
0.5
31.5
2015
$M
17.9
13.1
1.0
32.0
ACCOUNTING POLICY
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.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 16 Intangible assets
OVERVIEW
Cromwell’s intangible assets consist of goodwill and management rights relating to Cromwell’s European business
acquired in the prior year and software assets. Goodwill represents the excess of consideration paid for the acquisition
over identifiable net assets of the business acquired. Management rights relate to contractual rights to fund management
fees in place at the date of acquisition. This note provides information about the movements in intangible assets, how
intangible assets are accounted for by Cromwell and details about the impairment test undertaken by Cromwell on the
recognised goodwill in relation to Cromwell’s European business.
2016
Cost
Accumulated amortisation
Decrease in recoverable amount
86
Total intangible assets
Balance at 1 July 2015
Additions
Amortisation
Decrease in recoverable amount
Foreign exchange differences
Balance at 30 June 2016
2015
Cost
Accumulated amortisation
Total intangible assets
Balance at 1 July 2014
Acquisition of business
Additions
Amortisation
Foreign exchange differences
Balance at 30 June 2015
Goodwill
$M
Management
rights
$M
Software
$M
Total
$M
151.4
–
(84.5)
66.9
147.7
–
–
(86.2)
5.4
66.9
19.5
(9.7)
–
9.8
16.7
–
(7.6)
–
0.7
9.8
5.2
(3.6)
–
1.6
1.3
0.9
(0.6)
–
–
1.6
176.1
(13.3)
(84.5)
78.3
165.7
0.9
(8.2)
(86.2)
6.1
78.3
Goodwill
$M
Management
rights
$M
Software
$M
Total
$M
147.7
-
147.7
-
143.4
-
-
4.3
147.7
18.9
(2.2)
16.7
-
18.4
-
(2.2)
0.5
16.7
3.8
(2.5)
1.3
1.1
-
0.7
(0.5)
-
1.3
170.4
(4.7)
165.7
1.1
161.8
0.7
(2.7)
4.8
165.7
ACCOUNTING POLICY
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired
in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortisation and accumulated impairment losses.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method
for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in
the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are
considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting
estimates and adjusted on a prospective basis. The amortisation expense on intangible assets with finite lives is
recognised in profit or loss.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually
or at the cash-generating unit level.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss when the asset is
derecognised.
Cromwell carries the goodwill, management rights and software as intangible assets. Goodwill has an indefinite useful
life and is therefore not amortised. Instead, goodwill is tested annually for impairment. Funds management rights are
amortised over the length of the contractual rights to which they relate in accordance with forecast cash flows from these
rights in the respective period. At balance date the terms of the contracts ranged between six months and 8.5 years.
Software is amortised on a straight-line basis over three years.
IMPAIRMENT TESTS FOR GOODWILL
(A)
Goodwill has an indefinite useful life and is not subject to amortisation. Goodwill is tested for impairment annually
or more frequently if events or changes in the circumstances indicate that it may be impaired. An impairment loss is
recognised for the amount by which the carrying amount exceeds its recoverable amount, being the higher of fair value
less costs to sell and value in use. Goodwill is assessed for impairment on the lowest level at which it is monitored by
management and allocated to cash-generating units (“CGU”s). The allocation is made to those CGUs that are expected
to benefit from the business combination.
87
Significant estimate – decrease in recoverable amount of goodwill
For the purpose of the impairment test goodwill was fully allocated to Cromwell’s European wholesale funds
management business CGU which forms part of the Funds Management – Wholesale operating segment.
The recoverable amount has been determined using a value in use calculation based on cash flow projections over
the next 5 years. Below are the key assumptions for the value in use calculation:
Long-term growth rate:
Pre-tax discount rate:
0.0%
19.8%
At balance date the recoverable amount of the entire CGU was $80.2 million. The carrying amount of the CGU has been
reduced to its recoverable amount by recognising a decrease in recoverable amount in profit or loss of $86.2 million
against the goodwill balance of the CGU. The decrease in the recoverable amount was the result of both delayed
timing and more conservative assumptions on the future timing of the deployment of investment capacity as a result
of financial uncertainty in the financial markets in Europe.
Sensitivity to changes in assumptions
A significant decline in property values in the markets in which Cromwell’s European wholesale funds management
business operates may reduce forecast cash inflows from managed mandates and also result in a higher discount
rate applied to the discounted cash flow forecast. The recoverable amount of the CGU would decrease by $3.5 million
if the pre-tax discount rate increased by 1%. The recoverable amount of the CGU would increase by $2.1 million if
the long-term growth rate increased by 1%.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
17 Cash flow information
OVERVIEW
This note provides further information on the consolidated cash flow statements of Cromwell and the Trust. It reconciles
profit for the year to cash flows from operating activities and information about non-cash transactions.
(A) RECONCILIATION OF PROFIT FOR THE YEAR TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Cromwell
Trust
Net profit
Amortisation and depreciation
Amortisation of lease costs and incentives
Straight-line rentals
Security-based payments
88
Share of (profits)/losses – equity accounted investments (net
of distributions)
Net foreign exchange (gain)/loss
Net foreign exchange (gain)/loss on foreign currency borrowings
Amortisation of loan transaction costs
Finance costs expensed relating to the convertible bond
conversion feature
(Gain)/loss on sale of other assets
(Gain)/loss on sale of investment properties
Decrease in recoverable amounts
Fair value net (gain)/loss from:
Investment properties
Derivative financial instruments
Investments at fair value through profit or loss
Business combination transaction costs
Other transaction costs
Changes in operating assets and liabilities
(Increase)/decrease in:
Receivables
Tax assets
Other current assets
Increase/(decrease) in:
Trade and other payables
Provisions
Unearned revenue
2016
$M
329.6
9.2
15.2
(2.3)
0.9
9.2
2.2
5.5
5.8
–
0.3
(19.4)
86.6
(263.2)
(10.6)
(6.0)
–
1.8
(12.9)
–
0.2
7.1
0.2
(0.3)
2015
$M
148.8
3.3
13.0
(5.5)
1.0
(0.1)
7.9
(1.6)
3.9
0.4
(0.3)
(1.0)
2016
$M
371.4
–
15.2
(2.3)
–
9.7
–
0.6
1.3
–
0.1
(19.4)
35.3
(32.4)
(263.2)
1.8
1.2
2.4
–
1.0
(2.0)
0.1
3.4
–
(1.1)
(5.4)
(2.5)
–
–
(8.4)
–
0.6
1.0
–
(1.3)
2015
$M
156.7
–
13.0
(5.5)
–
1.0
0.7
–
2.2
–
(0.2)
(1.0)
–
(32.4)
5.5
(0.2)
–
–
(2.3)
–
–
2.4
–
(1.1)
Net cash provided by operating activities
159.1
144.2
132.7
138.8
ACCOUNTING POLICY
Cash and cash equivalents includes cash on hand, deposits held at call with financial 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 insignificant risk of changes in value.
(B) NON CASH TRANSACTIONS
Stapled securities/units issued on reinvestment of distributions
Cromwell
Trust
2016
$M
10.2
2015
$M
9.7
2016
$M
9.2
2015
$M
8.8
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 18 Security based payments
OVERVIEW
Cromwell operates two security based compensation schemes, the Performance Rights Plan (PRP) and the Tax Exempt
Plan (TEP). Under the PRP, eligible employees, including executive directors, have the right to acquire Cromwell
securities at a consideration of between $0.00 and $0.50 subject to certain vesting conditions. Eligibility is by invitation of
the Board of Directors and participation in the PRP by executive Directors is subject to security holder approval. The PRP
is designed to provide long-term incentives for employees to continue employment and deliver long-term securityholder
returns. The TEP allows eligible employees to acquire up to $1,000 of stapled securities on-market in a tax effective
manner.
This note provides information below on the security based compensation schemes Cromwell currently operates.
(A) PRP
Cromwell established a Performance Rights Plan in September 2007. All full-time and part-time employees who meet
minimum service, remuneration and performance requirements, including executive Directors, are eligible to participate
in the PRP at the discretion of the Board. 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.
89
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. Set out
below is a summary of movements in the number of performance rights outstanding at the end of the financial year:
As at 1 July
Granted during the year
Exercised during the year
Forfeited during the year
As at 30 June
Vested and exercisable
2016
2015
Average
exercise price
Number of
performance
rights
Average
exercise price
Number of
performance
rights
$0.40
$0.36
$0.41
$0.34
$0.39
–
9,769,961
2,375,686
(2,522,034)
(1,029,662)
8,593,951
–
$0.38
$0.42
$0.34
$0.50
$0.40
–
9,410,308
4,463,229
(3,066,340)
(1,037,236)
9,769,961
–
The weighted average share price at the date of exercise of options exercised during the year ended 30 June 2016 was
$1.09 (2015: $0.98). No options expired during the years covered in the table above.
The weighted average remaining contractual life of the 8,593,951 performance rights outstanding at the end of the
financial year (2015: 9,769,961) was 1.3 years (2015: 1.4 years).
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Fair value of performance rights granted
The fair value of performance rights granted during the year was between $0.32 per option for PRP with an exercise price
of $0.50 and $0.78 per option for PRP with an exercise price of $nil (2015: fair value between $0.29 and $0.50).
Performance rights do not have any market-based vesting conditions. The fair values at grant date are 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 included:
Exercise price:
Grant date:
$0.00 to $0.50 (2015: $0.00 to $0.50)
02-Nov-15 and 11-Dec-15 (2015: 16-Oct-14)
Share price at grant date:
$1.00 and $1.03 (2015: $0.945)
Expected price volatility:
Expected dividend yield:
Risk free interest rate:
Expiry date:
90
19% (2015: 16%)
7.97% and 7.74% (2015: 8.32%)
1.84% and 2.06% (2015: 2.80%)
02-Dec-18 and 10-Oct-18 (2015: 01-Oct-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.
(B) TEP
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 employees participated in the Tax Exempt Plan during the current or
prior year.
(C) EXPENSE ARISING FROM SECURITY BASED PAYMENTS
Expenses arising from share based payments recognised during the year as part of employee benefits expense were as
follows:
Performance rights issued under the PRP
19 Related parties
Cromwell
Trust
2016
$M
0.9
2015
$M
1.0
2016
$M
–
2015
$M
–
OVERVIEW
Related parties are persons or entities that are related to Cromwell as defined by AASB 124 Related Party Disclosures.
These include directors and other key management personnel and their close family members and any entities they control
as well as subsidiaries, associates and joint ventures of Cromwell. They also include entities which are considered to have
significant influence over Cromwell, that is securityholders that hold more than 20% of Cromwell’s issued securities.
This note provides information about transactions with related parties during the year. All of Cromwell’s transactions with
related parties are on normal commercial terms and conditions and at market rates.
(A) KEY MANAGEMENT PERSONNEL DISCLOSURES
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Security-based payments
Total key management personnel compensation
Cromwell
2016
$M
2015
$M
4,284,232
3,386,708
119,010
216,055
495,548
114,364
61,596
367,716
5,114,845
3,930,384
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Loans to key management personnel
Cromwell has provided loans to Mr P Weightman, a Director of the Company, for the exercise of his employee options
under Cromwell’s Performance Rights Plan. Each loan term is three years, limited recourse and interest free.
The outstanding balance at balance date was $1,066,067 (2015: $588,433).
Other transactions with key management personnel
Cromwell rents an apartment, located at 185 Macquarie Street, Sydney, which is owned by Mr P Weightman, a Director of
Cromwell. Total rent paid during year was $98,982 (2015: $93,600). The payment of rent is on normal commercial terms
and conditions and at market rates.
(B) OTHER RELATED PARTY TRANSACTIONS
(i) Parent entity and subsidiaries
Cromwell Corporation Limited is the ultimate parent entity in Cromwell. Cromwell Diversified Property Trust is
the ultimate parent entity in the Trust. Details of subsidiaries for both parent entities are set out in note 14.
(ii) Transactions with joint ventures
Cromwell Partners Trust
Cromwell and the Trust hold a 50% interest in the Cromwell Partners Trust joint venture (“CPA”) which holds the
Northpoint property in North Sydney (refer to note 6 for further details). Cromwell received $6.7 million in distributions
from CPA during the year (2015: $6.2 million).
91
Cromwell Real Estate Partners Pty Ltd (“CRE”), a wholly owned subsidiary of Cromwell, acts as trustee for CPA. Cromwell
Property Services Pty Ltd and Cromwell Project and Technical Solutions Pty Ltd, wholly owned subsidiaries of Cromwell
provide property related services to CPA at normal commercial terms. The following income was earned by Cromwell
from CPA:
Fund management fees
Property management fees
Leasing fees
Project management fees
Balances outstanding with CPA at year end:
Distribution receivable
Cromwell
2016
$M
2015
$M
0.7
0.8
0.2
0.2
1.9
0.7
0.8
0.1
0.1
1.6
Oyster Property Group Limited
Cromwell holds a 50% interest in the Oyster joint venture, a New Zealand based property syndicator and funds manager
(refer to note 6 for further details).
The Trust provided a number of short-term loan facilities to Oyster for the initial funding of Oyster property syndications.
These loans are repaid by Oyster as soon as sufficient equity is raised in the syndication. At balance date a total of
NZD 1.3 million (AUD 1.2 million) of loans were outstanding (2015: $nil).
(iii)
Transactions between the Trust and the Company and its subsidiaries (including the responsible entity of
the Trust)
Cromwell Property Securities Limited (“CPS”), a wholly owned subsidiary of Cromwell Corporation Limited (“CCL”) acts
as responsible entity for the Trust. For accounting purposes the Trust is considered to be controlled by CCL. CCL and its
subsidiaries provide a range of services to the Trust. A subsidiary of CCL rents commercial property space in a property
owned by the Trust. All transactions are performed on normal commercial terms.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The Trust made the following payments to and received income from CCL and its subsidiaries:
Paid/payable by the Trust to the Company and its subsidiaries:
Fund management fees
Property management fees
Leasing fees
Project management fees
Accounting fees
Interest
Received/receivable by the Trust from the Company and its subsidiaries:
Interest
Rent and recoverable outgoings
92
Trust
2016
$M
2015
$M
10.2
6.6
1.6
0.5
0.5
–
2.0
5.0
10.7
6.4
1.8
0.4
0.5
20.7
1.1
4.4
Balances outstanding at year-end with the Company and its subsidiaries:
Aggregate amounts payable
Aggregate amounts receivable
2.2
167.7
1.6
219.0
The amount receivable from the Company and its subsidiaries includes loans of $165.1 million (2015: $217.6 million).
For further details regarding these loans refer to note 15(a).
20 Employee benefits expense
OVERVIEW
This note provides further details about Cromwell’s employee benefits expenses and its components, leave balances
outstanding at year end as well as employee benefits expense related accounting policies.
Salaries and wages, including bonuses and on-costs
Directors fees
Contributions to defined contribution superannuation plans
Security-based payments
Other employee benefits expense
Total employee benefits expense
Cromwell
2016
$M
51.2
0.7
2.4
0.9
4.0
59.2
2015
$M
24.4
0.8
1.5
1.0
1.0
28.7
Trust
2016
$M
2015
$M
–
–
–
–
–
–
–
–
–
–
–
–
ACCOUNTING POLICIES
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits, 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 benefit obligations are presented as payables.
Superannuation
Contributions are made by Cromwell to defined contribution superannuation funds and expensed as they become payable.
Other long-term employee benefit obligations
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 benefits 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
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT relevant discount rates at the end of the reporting period that match, as closely as possible, the estimated future cash
outflows. Re-measurements as a result of experience adjustments and changes in actuarial assumptions are recognised
in profit or loss.
Security-based payments
The fair value of options and performance rights granted is recognised as an employee benefit 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 reflect the probability of market vesting
conditions being met, but excludes the impact of any non market vesting conditions (for example, profitability 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, Cromwell revises its estimate of the number of
options or performance rights that are expected to become exercisable. The employee benefit expense recognised each
period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised
in profit or loss with a corresponding adjustment to equity.
93
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.
Leave balances outstanding at year-end
Accrued annual leave at year-end of $2.3 million (2015: $2.1 million) is included in current provisions on the balance
sheet. Based on experience, Cromwell expects substantially all employees to take the full amount of accrued annual
leave within the next 12 months.
The portion of accrued long service leave included in current provisions on the balance sheet was $1.0 million (2015:
$0.7 million). This is the amount expected to be settled within 12 months where the employee had reached the required
service term to take the long service leave (generally 10 years). The non-current liability for long service leave included
within non-current provisions on the balance sheet was $0.4 million (2015: $0.6 million).
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 21 Auditors’ remuneration
OVERVIEW
The independent auditors of Cromwell in Australia (Pitcher Partners) and component auditors of overseas
subsidiaries and their affiliated firms have provided a number of audit and other assurance related services as well
as other non-assurance related services to Cromwell and the Trust during the year.
Below is a summary of fees paid for various services to Pitcher Partners and component audit firms during the year:
Pitcher Partners Brisbane
Audit and other assurance services
Auditing or reviewing of financial reports
Auditing of controlled entities’ AFS licences
Auditing of the Trust’s compliance plan
94
Other services
Due diligence services
Total remuneration of Pitcher Partners Brisbane
Non Pitcher Partners audit firms
Audit and other assurance services
Auditing of component financial reports
Other services
Tax compliance services
International tax advice on acquisitions
Total remuneration of non Pitcher Partners audit firms
Total auditors’ remuneration
22 Unrecognised items
Cromwell
Trust
2016
$
2015
$
2016
$
2015
$
312,000
5,000
28,000
345,000
302,000
5,000
28,000
335,000
205,000
200,000
–
28,000
233,000
–
28,000
228,000
23,000
368,000
400,000
735,000
–
233,000
20,000
248,000
613,062
613,062
606,547
606,547
438,505
–
1,051,567
1,419,567
222,786
392,857
1,222,190
1,957,190
–
–
–
–
–
–
–
–
–
–
233,000
248,000
OVERVIEW
Items that have not been recognised on Cromwell’s and the Trust’s balance sheet include contractual commitments for
future expenditure and contingent liabilities which are not sufficiently certain to qualify for recognition as a liability on
the balance sheet. This note provides details of any such items.
(A) COMMITMENTS
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 five years
Total operating lease commitments
Cromwell
Trust
2016
$M
2.5
2.6
5.1
2015
$M
3.0
3.7
6.7
2016
$M
–
–
–
2015
$M
–
–
–
Operating leases primarily comprise the lease of Cromwell’s Sydney and European office 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.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Capital expenditure commitments
Commitments in relation to capital expenditure contracted for at reporting date but not recognised as a liability are as
follows:
Investment property
Cromwell
Trust
2016
$M
112.3
2015
$M
158.3
2016
$M
112.3
2015
$M
158.3
(B) CONTINGENT LIABILITIES
The Directors are not aware of any material contingent liabilities of Cromwell or the Trust (2015: nil).
23 Subsequent events
No matter or circumstance has arisen since 30 June 2016 that has significantly affected or may significantly affect:
• Cromwell’s and the Trust’s operations in future financial years; or
• the results of those operations in future financial years; or
• Cromwell’s and the Trust’s state of affairs in future financial years.
95
24 Accounting policies
OVERVIEW
This note provides an overview over Cromwell’s accounting policies that relate to the preparation of the financial report
as a whole and do not relate to specific items. Accounting policies for specific items in the balance sheet or statement of
comprehensive income have been included in the respective note.
(A) BASIS OF PREPARATION
The financial report is a general purpose financial 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. The Financial Reports of Cromwell and the Trust have been presented
jointly in accordance with ASIC Corporations (Stapled Group Reports) Instrument 2015/838 relating to combining accounts
under stapling and for the purpose of fulfilling the requirements of the Australian Securities Exchange. Cromwell and
the Trust are for-profit entities for the purpose of preparing the financial statements.
Compliance with IFRS
The financial report complies with the International Financial Reporting Standards (IFRS) and interpretations adopted by
the International Accounting Standards Board.
Historical cost convention
The financial report is prepared on the historical cost basis except for the following:
• investment properties are measured at fair value;
• derivative financial instruments are measured at fair value; and
• investments at fair value through profit or loss are measured at fair value.
Rounding of amounts
Cromwell is an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 and in accordance with that instrument amounts in the Directors’ report and financial report have been rounded
off to the nearest one hundred thousand dollars, or in certain cases to the nearest dollar.
Comparatives
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (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 identified and an in-substance acquisition to be recognised. In
relation to the stapling of the Company and CDPT, the Company is identified 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;
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
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 profit/(loss) arising from these net assets have been
separately identified in the statement of comprehensive income and the balance sheet.
(2)
(3)
96
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 3 Business Combinations. Even though the interests of the equity holders of the
identified 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 financial statements incorporate the assets and liabilities of all subsidiaries as at 30 June 2016 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 financial statements of subsidiaries are included
in the consolidated financial 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 24(c)).
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 the balance sheet respectively.
Investments in subsidiaries are accounted for at cost in the individual financial statements of the Company. A list of
subsidiaries appears in note 14 to the consolidated financial statements.
(C) 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. Identifiable
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 identifiable 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
identifiable assets acquired are recorded as goodwill. If those amounts are less than the fair value of the net identifiable
assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised
directly in profit or loss as a bargain purchase.
CROMWELL PROPERTY GROUP I 2016 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 financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are
subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
(D) FOREIGN CURRENCY TRANSLATION
Functional and presentation currency
Items included in the financial statements of each of Cromwell’s entities are measured using the currency of the primary
economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are
presented in Australian dollars, which is the Company’s and the Trust’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the consolidated statement of comprehensive income, except when they are attributable to part of the net
investment in a foreign operation.
97
Foreign exchange gains and losses that relate to borrowings are presented in the income statement, within finance costs.
All other foreign exchange gains and losses are presented in the income statement on a net basis.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at
the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are
reported as part of the fair value gain or loss.
Foreign operations
Subsidiaries, joint arrangements and associates that have functional currencies different from the presentation currency
translate their income statement items using the average exchange rate for the year. Assets and liabilities are translated
using exchange rates prevailing at balance date. Exchange variations resulting from the retranslation at closing rate of
the net investment in foreign operations, together with their differences between their income statement items translated
at average rates and closing rates, are recognised in the foreign currency translation reserve. For the purpose of foreign
currency translation, the net investment in a foreign operation is determined inclusive of foreign currency intercompany
balances. The balance of the foreign currency translation reserve relating to a foreign operation that is disposed of, or
partially disposed of, is recognised in the statement of comprehensive income at the time of disposal.
The following spot and average rates were used:
Euro
NZ Dollar
Spot rate
Average rate
2016
$M
0.67
1.05
2015
$M
0.69
1.13
2016
$M
0.66
1.09
2015
$M
0.70
1.08
IMPAIRMENT OF ASSETS
(E)
Goodwill and intangible assets that have an indefinite 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
identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash
generating units). Assets other than goodwill that suffer impairment are reviewed for possible reversal of the impairment
at each reporting date.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT (F) CRITICAL ACCOUNTING ESTIMATES
The preparation of financial 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 and are based on historical or professional
experience and other factors such as expectations about future events. Revisions to accounting estimates are recognised
in the period in which the estimate is revised and in any future periods affected.
The areas that involved a higher degree of judgement or complexity and may need material adjustment if estimates and
assumptions made in preparation of these financial statements are incorrect are:
Area of estimation
Fair value of investment property
Fair value of derivative financial instruments
Recoverable amount of goodwill
98
Note
5
12
16
(G) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
(i) New and amended standards adopted
During the year no new accounting standards came into effect. Amendments to existing accounting standards that came
into effect have not affected Cromwell’s accounting policies or any of the disclosures.
(ii) New standards and interpretations not yet adopted
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:
AASB 9 Financial Instruments
AASB 15 Revenue from Contracts with Customers
AASB 16 Leases
Application
date of
Standard
Application
date for
Cromwell
1 Jan 2018
1 Jan 2018
1 Jan 2019
1 Jul 2018
1 Jul 2018
1 Jul 2019
AASB 9 Financial Instruments
AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities and
introduces new rules for hedge accounting. In December 2014, the AASB made further changes to the classification and
measurement rules and also introduced a new impairment model. These latest amendments now complete the new
financial instruments standard.
The new classification, measurement and derecognition rules of AASB 9 may only affect financial assets that are
classified as available-for-sale or are designated at fair value through profit or loss and are held both for collecting
contractual cash flows and sales integral to achieving the objective of the business model as well as financial liabilities
designated at fair value through profit or loss. Cromwell does not carry such financial assets or financial liabilities
and therefore the directors do not expect that the new Accounting Standard will have a material impact on Cromwell’s
accounting for financial assets or financial liabilities.
The new hedging rules align hedge accounting more closely with an entity’s risk management practices. As a general rule
it will be easier to apply hedge accounting going forward as the standard introduces a more principles-based approach.
The new standard also introduces expanded disclosure requirements and changes in presentation. Cromwell currently
does not apply hedge accounting. The Directors have not yet assessed whether Cromwell’s hedging arrangements would
be affected by the new rules. Cromwell intends to adopt the new standard from 1 July 2018.
AASB 15 Revenue from Contracts with Customers
The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts
for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle
that revenue is recognised when control of a good or service transfers to a customer – so the notion of control replaces
the existing notion of risks and rewards.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The standard introduces a new five-step model to determine when to recognise revenue and at what amount. The area
that may be affected by the new rules is funds management revenue, in particular the timing and amount of the
recognition of performance fees. At this stage the Directors are not able to estimate the impact of the new rules on
Cromwell’s financial statements. The directors will make a more detailed assessment of the impact closer to mandatory
adoption date. Cromwell intends to adopt the new standard from 1 July 2018.
AASB 16 Leases
The AASB has issued a new standard for leases. This will replace AASB 117 Leases. The accounting standard introduces
a single accounting model for leases by lessees and effectively does away with the operating lease concept. It requires all
operating leases, which are currently not recorded on the balance sheet, to be recognised on the balance sheet together
with a right-of-use asset. Subsequently the lease liability is measured at amortised cost using the effective interest rate
method. The right-to-use asset will be measured at cost less accumulated depreciation with depreciation charged on a
straight-line basis over the lease term.
There will be no change to lease accounting for lessors, that is Cromwell will record investment properties and lease
income as currently done.
The Directors have performed an initial assessment of the new requirements of AASB 16 and found that there will be no
significant impact on Cromwell and its operating lease arrangements as lessor of investment properties, except for a
change in the definition of a lease period, which will include renewal options if they are likely to be exercised, which may
affect straight-line rent recognised for such leases.
99
However, Cromwell’s tenants will be affected. All tenants will be required to account for their leases of premises on
their balance sheets.
CROMWELL PROPERTY GROUP I 2016 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 Diversified Property Trust (collectively referred to as “the Directors”):
(a)
the attached financial 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’ financial position as at 30 June 2016 and of
their performance, for the financial year ended on that date; and
(b)
(c)
the financial report also complies with International Financial Reporting Standards as disclosed in note 24(a); and
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 officer and chief financial officer for the financial
year ended 30 June 2016 required by section 295A of the Corporations Act 2001.
100
This declaration is made in accordance with a resolution of the Directors.
P.L. Weightman
Director
Dated this the 24th day of August 2016
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
101
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT 102
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT
The Board is committed to Cromwell Property Group meeting securityholders’ expectations of good corporate
governance, while seeking to achieve superior financial performance over the medium and long term. The Board
is proactive with respect to corporate governance and actively reviews developments to determine which corporate
governance arrangements are appropriate for Cromwell Property Group and its securityholders.
This Corporate Governance Statement (Statement) reports on how Cromwell Property Group (or Cromwell or Group)
complied with the third edition of the ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations (the Recommendations) during the 2016 financial year.
This Statement is current as at 30 June 2016 and has been approved by the Board.
Cromwell Property Group comprises Cromwell Corporation Limited (or the Company) and the Cromwell Diversified
Property Trust (the CDPT), the Responsible Entity of which is Cromwell Property Securities Limited (or CPS).
Principle 1: Lay solid foundations for management and oversight
103
RECOMMENDATION 1.1
The Board of Directors of Cromwell Corporation Limited is identical to the Board of Directors of Cromwell Property
Securities Limited (together, the Board; severally, the Directors). The Board’s responsibilities include to provide
leadership to Cromwell Property Group and to set its strategic objectives. The Board has adopted a formal, written
Board Charter, which sets out the Board’s role and responsibilities including to:
• oversee the process for ensuring timely and balanced disclosure of all ‘price sensitive’ information in accordance with
the Corporations Act 2001 (Cth) and the ASX Listing Rules; and
• ensure an appropriate risk management framework is in place and set the risk appetite within which the Board expects
management to operate.
The Board generally holds a scheduled meeting every second calendar month and additional meetings are convened
as required. Management prepares Board papers so as to focus the Board’s attention on key issues. Standing items
include progress against strategic objectives, corporate governance (including compliance) and financial performance.
The Board has the following long established Board Committees to assist it in carrying out its responsibilities, to share
detailed work and to consider certain issues and functions in detail:
• Audit & Risk Committee;
• Nomination & Remuneration Committee; and
• Investment Committee.
Details of the role, responsibilities and composition of the Board Committees are contained elsewhere in this
Statement.
Day to day management of the Group’s affairs and implementation of agreed strategic objectives are delegated
by the Board to management under the direction of the Managing Director/Chief Executive Officer (CEO). This has
been formalised in the Board Charter and a Board approved Delegation of Authority Policy. The Board reviews these
documents at least annually to ensure their effectiveness and appropriateness (given the evolving needs of the Group).
What you can find on the Corporate Governance page on our website:
• Board Charter
• Audit & Risk Committee Charter
• Nomination & Remuneration Committee Charter
• Delegation of Authority Policy
• Constitution of the Cromwell Diversified Property Trust
www.cromwell.com.au/investors/securityholders/corporate-governance
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
RECOMMENDATION 1.2
Cromwell undertakes appropriate checks before appointing a person, or putting forward to securityholders a candidate
for election or re-election, as a Director. The checks are into matters such as the person’s character, experience,
education, criminal record and bankruptcy history. The Board and Nomination & Remuneration Committee also
consider whether or not the candidate has sufficient time available, given their other roles and activities, to meet
expected time commitments to Cromwell.
When securityholders are asked at the Group’s annual general meeting (AGM)1 to elect, or re-elect, a Director to the
Board, Cromwell will provide them with the following information to enable them to make an informed decision:
• biographical information, including relevant qualifications, experience and the skills they bring to the Board;
• details of any other current material directorships;
• a statement as to whether the Board supports the candidate’s election or re-election; and
• (for a candidate standing for election as a Director for the first time) any material adverse information revealed by
background checks; details of any interest, position, association or relationship that might influence, or reasonably be
perceived to influence, in a material respect the candidate’s capacity to bring an independent judgement to bear on
issues before the Board and to act in the best interests of the Group and its securityholders generally; and a statement
from the Board as to the candidate’s independence; or
• (for a candidate standing for re-election) the term of office currently served and a statement from the Board as to the
104
candidate’s independence.
The information will be provided in the relevant notice of meeting. Securityholders also have the opportunity to ask
questions of candidates at the AGM.
RECOMMENDATION 1.3
Cromwell has provided each Non-executive Director with a written letter of appointment which details the terms of
their appointment, including remuneration, interest disclosures, expected time commitments and the requirement to
comply with applicable corporate policies.
The CEO (an Executive Director) has a written formal job description, an employment contract (outlining the terms of
appointment as a senior executive) and a letter of appointment for the role as Executive Director.
Other senior executives have written employment contracts that outline the terms of their appointment.
RECOMMENDATION 1.4
The Company Secretary is accountable to the Board (through the Chairman) on all matters to do with the proper
functioning of the Board.
The Company Secretary’s responsibilities include:
• advising the Board and Board Committees on governance matters;
• monitoring that Board and Board Committee policies and procedures are followed;
• coordinating the timely completion and despatch of the Board and Board Committee papers;
• ensuring that the business at the Board and Board Committee meetings is accurately captured in minutes; and
• helping to organise and facilitate the induction and professional development of Directors.
Directors can, and do, communicate directly with the Company Secretary on Board matters. Similarly, the Company
Secretary communicates directly with the Directors on such matters.
The Board Charter states that the Board is responsible for appointing and removing the Company Secretary.
What you can find on the Corporate Governance page on our website:
• Board Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
(1)
In this Statement, AGM means (together) the Annual General Meeting of the Company and the General Meeting of the CDPT.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
105
RECOMMENDATION 1.5
Cromwell recognises the many benefits of diversity and strives, through its recruitment and selection practices,
to ensure that a diverse range of candidates is considered and that conscious and unconscious biases that might
discriminate against candidates are avoided.
Cromwell Property Group has a Board approved Diversity Policy which sets out the framework the Group has in place
to achieve appropriate diversity in its Board, senior executive and broader workforce. Pursuant to the Diversity Policy,
each financial year the Nomination & Remuneration Committee sets measurable objectives for achieving diversity. An
annual assessment of progress against those objectives is also undertaken.
The table below shows the gender diversity objectives set for the 2016 financial year and the Group’s performance
against those objectives as at 30 June 2016.
FY16 gender diversity objective
The Group’s performance as at 30 June 2016
1
2
3
4
5
6
7
8
9
The Group has at least two female Directors and at least two
female senior executives/senior managers.
At least one female will be interviewed for all advertised
management positions.
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.
Remuneration continues to be benchmarked against market
data taking into consideration experience, qualification and
performance and without regard to age, gender and race.
Achieved.
Achieved.
Achieved.
Achieved.
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.
Achieved.
At least one corporate event is held to which staff can bring
partners and children.
Achieved.
Parents (or carers) are offered flexible work arrangements.
Achieved.
All staff undergo ‘equal employment opportunity’ training at least
once a year.
Achieved.
At least 80% of females taking parental leave return to work.
Achieved.
10 Training hours undertaken by females are at least equivalent to
Achieved.
those undertaken by male counterparts.
As at 30 June 2016, the respective proportions of males and females on the Board, in senior executive positions in
Cromwell and across the Group were as follows:
Body
Board
Senior executive2
Group3
Females
Males
2
1
48
5
3
67
Total
7
4
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(2) Recommendation 1.5(c)(1) requires the Group to define what it means by ‘senior executive’. In this case, ‘senior executive’ means the Chief Executive
Officer, the Chief Operations Officer, the Chief Financial Officer and Head of Property.
(3) Excludes European business, Phoenix Portfolios and Oyster Group.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
Cromwell is a ‘relevant employer’ under the Workplace Gender Equality Act 2012 (WGEA). The Group’s most recent
‘Gender Equality Indicators’, as defined in and published under the WGEA, are as follows:
Gender equality indicator
1
2
3
4
5
6
Gender composition of workforce
Gender composition of governing bodies
Equal remuneration between women and men
Flexible working and support for employees with family and caring responsibilities
Consultation with employees on issues concerning gender quality in the workplace
Sex-based harassment and discrimination
Cromwell’s latest WGEA Report is available on the Corporate Governance page on the Group’s website.
What you can find on the Corporate Governance page on our website:
106
• Diversity Policy
• Nomination & Remuneration Committee Charter
• FY2016 Gender Diversity Objectives
• FY2017 Gender Diversity Objectives
• WGEA Report
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 1.6
The Board undertakes an annual formal performance assessment, which includes an evaluation of the performance
of the Board, Board Committees and individual Directors and also a self-evaluation. Under the annual formal
performance assessment, Directors complete a questionnaire and are able to make comments or raise any issues
they have in relation to the performance. The results were compiled by the Company Secretary and discussed at a
subsequent Board meeting. For the 2016 financial year, the formal performance assessment was conducted and did
not raise any governance issues that needed to be addressed.
What you can find on the Corporate Governance page on our website:
• Board Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 1.7
The Group has an established, rigorous process for the performance review of all staff, including senior executives. The
performance of senior executives and whether they have met their individual key performance indicators is formally
evaluated annually by the CEO, with regular feedback being provided during the performance period. At the time of the
reviews, the professional development of the senior 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 was completed during the reporting period.
Under its Charter, the Nomination & Remuneration Committee is responsible for facilitating an annual review of the
performance of the CEO (an Executive Director). This annual review was completed during the 2016 financial year.
What you can find on the Corporate Governance page on our website:
• Nomination & Remuneration Committee Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Principle 2: Structure the board to add value
RECOMMENDATION 2.1
Nomination & Remuneration Committee
The Board has a long established Nomination & Remuneration Committee, which operates under a Board approved
written Charter. The Charter sets out the Nomination & Remuneration Committee’s various responsibilities, including
reviewing and making recommendations to the Board in relation to:
• Board succession planning generally;
• the appointment, or reappointment, of Directors to the Board. The Charter details the procedure for appointing new
Directors;
• the performance and education of Directors;
• reviewing and recommending remuneration arrangements for the Directors, the CEO and senior executives;
• induction and continuing professional development programs for Directors; and
• the development and implementation of a process for evaluating the performance of the Board, Board Committees and
Directors.
The Nomination & Remuneration Committee:
107
• may seek any information it considers necessary to fulfil its responsibilities;
• has access to management to seek explanations and information;
• may seek professional advice from employees of the Group and from appropriate external advisers (at the Group’s
cost); and
• may meet with external advisers without management being present.
The minutes of each Nomination & Remuneration Committee meeting are included in the papers for the next Board
meeting after each meeting of the Committee. The Chairman of the Nomination & Remuneration Committee reports
the Committee’s findings to the Board after each Committee meeting. The Nomination & Remuneration Committee has
four members, all of whom are independent Directors4.
The Directors’ Report discloses the members of the Nomination & Remuneration Committee, the number of times that
the Committee met during the 2016 financial year and the individual attendances of the members at those meetings.
What you can find on the Corporate Governance page on our website:
• Nomination & Remuneration Committee Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 2.2
Board Skills Matrix
The Board has adopted a Board Skills Matrix, which sets out the collective skills and attributes of the Board. In
summary, the Board Skills Matrix includes (but is not limited to) such key skills and experience as strategy, property,
investment/funds management, financial performance, risk oversight, economics and executive management, as well
as other characteristics and attributes.
The Board considers that its current members have an appropriate mix of skills, personal attributes and experience
that allows the Directors individually, and the Board collectively, to discharge their duties effectively and efficiently. 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.
The Directors’ Report provides the following information about each Director:
• profile, including qualifications and experience; and
• special responsibilities and attendances at Board and Board Committee meetings.
(4) Mr Robert Pullar (independent Non-executive Director) was Chairman of the Nomination & Remuneration Committee until his resignation as at 25
November 2015.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The Nomination & Remuneration Committee refers to the Matrix when considering Board succession planning and
professional development initiatives for the Directors.
What you can find on the Corporate Governance page on our website:
• Nomination & Remuneration Committee Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 2.3
The Board
The Group recognises that independent Directors are important in reassuring securityholders that the Board properly
fulfils its role. The Board comprises seven Directors, with an independent Chairman and a majority of independent
Non-executive Directors:
Director
Status
108
Geoffrey H Levy, AO (Chairman)
Independent Non-executive Director
Michelle McKellar
Richard Foster
Jane Tongs
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Robert Pullar (resigned 25 November 2015)
Independent Non-executive Director
Marc Wainer
Andrew Konig
Paul Weightman
Non-executive Director
Non-executive Director
Executive Director, Managing Director/CEO
Each year, independence status is assessed using the guidelines and factors set out in the Recommendations and the
independent Non-executive Directors also confirm to the Board, in writing, their continuing status as an independent
Director.
In assessing a Director’s independence 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) as disclosed in its last audited financial accounts.
The length of time that each independent Director has served on the Board is set out below:
Independent Director
First appointed
Geoffrey H Levy, AO (Chairman)
Michelle McKellar
Richard Foster
Jane Tongs
2008
2007
2005
2014
Mr Richard Foster joined the Company as its independent Chairman in 2005 and has been serving on the Board since
that time. The Board is satisfied that the length of Mr Foster’s service as a Director will not interfere, or will not
reasonably be seen to interfere, with his capacity to bring an independent judgement to bear on issues before the
Board and to act in the best interests of Cromwell and its securityholders generally.
The Board is comfortable that no Director has served for a period such that their independence may have been
compromised. The Board also recognises that the interests of Cromwell and its securityholders are well served by
having a mix of Directors, some with a longer tenure with a deep understanding of Cromwell and its business and
some with a shorter tenure with fresh ideas and perspective.
The Group’s independent Non-executive Directors (including the Chairman) are considered by the Board to meet the
test of independence under the Recommendations.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
Each independent Non-executive Director has undertaken to inform the Board as soon as practical if they think their
status as an independent Director has or may have changed.
What you can find on the Corporate Governance page on our website:
• Board Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 2.4
The Board comprises seven Directors, with an independent Chairman and a majority of independent Non-executive
Directors.
What you can find on the Corporate Governance page on our website:
• Board Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
109
RECOMMENDATION 2.5
The Chairman of the Board – Mr Geoffrey H Levy, AO – is an independent Non-executive Director. Mr Paul Weightman
is an Executive Director and the CEO of Cromwell Property Group. This is consistent with the Board Charter, which
stipulates that the Chairman of the Board will not be the same person as the CEO and ideally will be an independent
Non-executive Director.
The Board Charter sets out the responsibilities of the Chairman, including:
• leading the Board;
• facilitating the effective contribution and ongoing development of all Directors;
• promoting constructive and respectful relations between Board members and between the Board and management; and
• facilitating Board discussions to ensure that core issues facing the Group are addressed.
What you can find on the Corporate Governance page on our website:
• Board Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 2.6
A formal induction program ensures that new independent Directors can participate fully and actively in decision making
upon their appointment. The Chairman of the Board, with the assistance of the Company Secretary, has developed the
induction program. The program includes meeting with fellow Directors (including the CEO) and the senior executive team,
receiving briefings on the Group’s strategy and reviewing corporate governance materials and policies.
Each year, the Nomination & Remuneration Committee also considers and recommends to the Board a professional
development program for Directors. This includes training on key issues relevant to the Group’s operations, financial
affairs and governance. The professional development program is compiled in light of recent or potential developments
as well as any skills or knowledge gaps identified by the Nomination & Remuneration Committee. Directors also
have access to the internal training sessions provided by the Group’s Legal & Compliance team. On an ongoing basis,
Directors are provided with briefings on changes to accounting standards as well as updates on legal and corporate
developments relevant to the Group. During the 2016 financial year, Directors undertook site visits at a number of
Group property assets.
What you can find on the Corporate Governance page on our website:
• Nomination & Remuneration Committee Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Principle 3: Act ethically and responsibly
RECOMMENDATION 3.1
The Group’s Directors, senior executives and staff are required to maintain high standards of ethical conduct. This is
reinforced by the various practices and policies of the Group. All Directors, senior executives and staff are expected to
act with integrity and strive 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 confidence in the integrity of the Group and comply with the Group’s legal
obligations.
The Code of Conduct is made available to all Directors, senior executives and 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 sessions and staff meetings.
The Board has approved a Breach Reporting Policy and a Whistleblower Policy. 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.
110
The Board has also approved a Securities Trading Policy under which Directors, senior executives and staff are
restricted in their ability to deal in the Group’s securities. Appropriate closed periods are in place during which
Directors, senior executives and staff are not permitted to trade. Directors, senior executives and staff are made aware
of the policy and receive training annually. The policy is reviewed at least annually.
Compliance with Board approved policies is monitored via monthly checklists completed by key management and by
investigation following any report of a breach. Compliance monitoring is undertaken by the Legal & Compliance team
under the direction of the Company Secretary who reports directly to the Board.
What you can find on the Corporate Governance page on our website:
• Code of Conduct
• Breach Reporting Policy
• Whistleblower Policy
• Securities Trading Policy
www.cromwell.com.au/investors/securityholders/corporate-governance
Principle 4: Safeguard integrity in corporate reporting
RECOMMENDATION 4.1
Audit & Risk Committee
The Board is responsible for the integrity of the Group’s corporate reporting. To assist in discharging this function, the
Board has a long established Audit & Risk Committee. The Audit & Risk Committee operates under a Board approved
written Charter, which sets out the Audit & Risk Committee’s:
• objectives, including to maintain and improve the quality, credibility and objectivity of the financial accountability
process (including financial reporting on a consolidated basis); and
• responsibilities, including reviewing and making recommendations to the Board in relation to:
• whether the Group’s financial statements reflect the understanding of the Audit & Risk Committee members of, and
otherwise provide a true and fair view of, the financial position and performance of the Group;
• the appropriateness of any significant estimates or judgements in the financial reports (including those in any
consolidated financial statements); and
• the appointment or removal, and review of effectiveness and independence, of the external auditor.
The minutes of each Audit & Risk Committee meeting are included in the papers for the next Board meeting after
each meeting of the Committee. The Chairman of the Audit & Risk Committee reports the Committee’s findings to the
Board after each Committee meeting. The Audit & Risk Committee has three members, all of whom are independent
Directors. The Audit & Risk Committee is chaired by an independent Director who is not the Chairman of the Board.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The Directors’ Report discloses:
• the relevant qualifications and experience of the members of the Audit & Risk Committee; and
• the number of times that the Audit & Risk Committee met during the 2016 financial year and the individual
attendances of the members at those meetings.
The Audit & Risk Committee:
• may seek any information it considers necessary to fulfil its responsibilities;
• has access to management to seek explanations and information;
• has access to internal and external auditors to seek explanations and information from them (without management
being present);
• may seek professional advice from employees of the Group and from appropriate external advisers (at the Group’s
cost); and
• may meet with external advisers without management being present.
The external auditor has declared its independence to the Board and the Audit & Risk Committee. The Board is
satisfied the standards for auditor independence and associated issues have been met.
111
What you can find on the Corporate Governance page on our website:
• Audit & Risk Committee Charter
• External Auditor – Selection, Appointment and Rotation
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 4.2
Before it approves the Group financial statements for a financial period, the Board receives from the CEO and CFO
a written declaration that, in their opinion, the financial records of the entity have been properly maintained and the
financial statements comply with the appropriate accounting standards and give a true and fair view of the financial
position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk
management and internal control which is operating effectively.
RECOMMENDATION 4.3
The external auditor attends the Group’s AGM and is available to answer securityholders’ questions relevant to the audit.
Principle 5: Make timely and balanced disclosure
RECOMMENDATION 5.1
The Group believes that all stakeholders should be informed in a timely and widely available manner of all the major
business events and risks that influence the Group. 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 continuous disclosure obligations under the ASX Listing Rules.
What you can find on the Corporate Governance page on our website:
• Market Disclosure Protocol
www.cromwell.com.au/investors/securityholders/corporate-governance
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT Principle 6: Respect the rights of securityholders
RECOMMENDATION 6.1
Cromwell Property Group aims to keep securityholders informed on an ongoing basis of the Group’s performance and
all major developments. Securityholders receive regular reports and the Group uses its website as its primary means
of providing information to securityholders and the broader investment community about the Group’s business, history,
corporate structure, corporate governance and financial performance.
The Corporate Governance page on the Group’s website provides:
• a link to information about the Board of Directors and senior executives;
• key corporate governance documents, including constitutions, charters and policies;
• a Key Events Calendar;
• a link to a description of the Group’s stapled security dividends/distributions policy and information about the
Group’s dividend/distribution history;
• links to download relevant forms; and
• materials referred to in this Statement.
112
The Group’s website also provides:
• overview of the Group’s current business;
• description of how the Group is structured;
• summary of the Group’s history;
• documents that the Group releases publicly (such as annual reports, ASX announcements, notices of meeting and
company news items);
• historical information about the market prices of the Group’s securities;
• ahead of the AGM (or any extraordinary general meeting), information including time and venue;
• contact details for enquiries from securityholders, analysts or the media; and
• contact details for its securities registry.
Our website address:
www.cromwell.com.au
The Corporate Governance page on our website:
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 6.2
The Group has implemented a Board approved Investor Relations Policy, which has been designed to facilitate effective
two way communication with securityholders.
The Policy also sets out the policies and processes that the Group has in place to encourage participation in the AGM.
This is important to the Group because it assists with ensuring a high level of accountability and identification with the
Group’s strategies and goals.
What you can find on the Corporate Governance page on our website:
• Investor Relations Policy
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 6.3
Cromwell Property Group facilitates and encourages participation at meetings of securityholders.
The Chairman and the CEO each address the meeting of securityholders and provide securityholders with an update
on the Group’s business, governance and financial performance and any areas of concern or interest to the Board and
management. The Chairman and CEO take any comments and questions received from securityholders during or after
their address.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The current audit partner attends the AGM and is available to answer securityholders’ questions about the audit. The
notice of meeting for the AGM advises that securityholders entitled to cast their vote at the AGM may submit written
questions to the auditor relevant to the content of the auditor’s report or the conduct of the audit of the annual financial
report being considered at the AGM. A securityholder wishing to submit a question to the auditor is asked to submit
the question in writing to the Company Secretary up to a week before the AGM. A list of the questions submitted to
the auditor is made available to securityholders attending the AGM at or before the start of the AGM. At the AGM, the
Chairman reminds securityholders of the opportunity to ask questions about the audit.
The Chairman provides securityholders with an opportunity to ask questions about and discuss the specific resolutions
put to the meeting. Securityholders have the opportunity to ask questions about or comment on the management of the
Group.
Securityholder meetings are held during business hours at the Group’s registered office in Brisbane, which is
accessible by public transport. The notice of meeting invites securityholders to join the Directors for morning tea or
afternoon tea (as applicable) after the meeting.
The Group provides live webcasting of its AGM so that securityholders can hear proceedings online.
RECOMMENDATION 6.4
Cromwell Property Group gives its securityholders the option to receive communications from the Group and from its
securities registry electronically. Many securityholders have elected to receive all communications electronically, while other
securityholders have elected to receive all communications electronically with payment statements received by post.
113
Electronic communications sent by the Group and by the securities registry are formatted in a reader friendly and
printer friendly format.
Securityholders can send communications to the Group and to the securities registry electronically. The Contact Us
page on the Group’s website provides the email address for contacting the Group and a link to create an email to the
securities registry.
Principle 7: Recognise and manage risk
RECOMMENDATION 7.1
Audit & Risk Committee
The Group is exposed to various risks across its business operations and recognises the importance of effectively
identifying and managing those risks so that informed decisions on risk issues can be made. The Board has a long
established Audit & Risk Committee, which operates under a Board approved written Charter. The Charter sets out the
Committee’s various responsibilities, including:
• assessing the adequacy of the internal risk control system;
• receiving reports from management of any actual or suspected fraud, theft or other breach of internal controls; and
• assessing and recommending to the Board for adoption the scope, cover and cost of professional insurance.
The Audit & Risk Committee:
• may seek any information it considers necessary to fulfil its responsibilities;
• has access to management to seek explanations and information;
• has access to internal and external auditors to seek explanations and information from them (without management
being present);
• may seek professional advice from employees of the Group and from appropriate external advisers (at the Group’s
cost); and
• may meet with external advisers without management being present.
The minutes of each Audit & Risk Committee meeting are included in the papers for the next Board meeting after each
meeting of the Committee. The Chairman of the Audit & Risk Committee reports the Committee’s findings to the Board
after each Committee meeting. The Audit & Risk Committee has three members, all of whom are independent Directors.
The Audit & Risk Committee is chaired by an independent Director who is not the Chairman of the Board.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT The Directors’ Report discloses:
• the relevant qualifications and experience of the members of the Audit & Risk Committee; and
• the number of times that the Audit & Risk Committee met during the 2016 financial year and the individual attendances
of the members at those meetings.
What you can find on the Corporate Governance page on our website:
• Audit & Risk Committee Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 7.2
The Board is responsible for:
• ensuring an appropriate risk management framework is in place;
• setting the risk appetite within which the Board expects management to operate; and
• reviewing and ratifying systems of internal compliance and control and legal compliance to ensure appropriate
114
compliance frameworks and controls are in place.
As outlined in its Board approved Charter, the Audit & Risk Committee’s responsibilities include:
• overseeing the establishment and implementation of risk management and internal compliance and control systems
and ensuring there is a mechanism for assessing/reviewing the efficiency and effectiveness of those systems at least
annually to satisfy itself that it continues to be sound;
• approving and recommending to the Board for adoption policies and procedures on risk oversight and management to
establish an effective and efficient system for:
• identifying, assessing, monitoring and managing risk; and
• disclosing any material change to the risk profile; and
• regularly reviewing and updating the risk profile.
Under the direction of the CEO, management is responsible for ensuring that the Group operates within the risk
appetite set by the Board. It does so by identifying relevant business risks, designing controls to manage those risks
and ensuring those controls are appropriately implemented. 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 is
also a wide range of underlying internal policies and procedures, which are designed to mitigate the Group’s material
business risks. The risk management system operates in accordance with the Australian/New Zealand Standard for
Risk Management (AS/NZS 4360:2004 Risk Management).
A comprehensive review of the enterprise risk management framework was completed in the 2016 financial year.
The Audit & Risk Committee and the Board were satisfied the framework continues to be sound and that Cromwell
operates within the risk appetite set by the Board.
A Compliance Committee – comprised of a majority of external, independent members – monitors the extent to which
Cromwell Property Securities Limited (as Responsible Entity for the CDPT) complies with the CDPT’s compliance
plan and the underlying compliance framework. The Board of Cromwell Property Securities Limited receives regular
reports from the Compliance Committee. The roles and responsibilities of the Compliance Committee are outlined in a
Charter, which is reviewed annually by the Compliance Committee and the Board of the Responsible Entity.
What you can find on the Corporate Governance page on our website:
• Board Charter
• Audit & Risk Committee Charter
• Enterprise Risk Management Policy
• Compliance Committee Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT
RECOMMENDATION 7.3
Although the Group does not have a designated internal audit function, throughout the year the Legal & Compliance
team conducts internal audit tests of the adequacy of controls for those risks which are inherently extreme or high.
Relevant management confirm (monthly, quarterly or annually as appropriate) that the controls remain appropriate
and identify any new risks and any new controls that should be put in place. The Company Secretary reports findings to
the Audit & Risk Committee.
RECOMMENDATION 7.4
The Group’s Sustainability Report discloses the extent to which the Group has material exposure to economic,
environmental and social sustainability risks and explains how such risks are and will be managed.
What you can find on the Corporate Governance page on our website:
• Sustainability Report
www.cromwell.com.au/investors/securityholders/corporate-governance
Principle 8: Remunerate fairly and responsibly
RECOMMENDATION 8.1
Nomination & Remuneration Committee
The Board has a long established Nomination & Remuneration Committee, which operates under a Board approved
written Charter. The Charter sets out the Nomination & Remuneration Committee’s various responsibilities, including
reviewing and making recommendations to the Board in relation to:
• the remuneration framework for Non-executive Directors, including the allocation of the pool of Directors’ fees;
• Executive Director and senior executive total remuneration;
• the design of any equity based incentive plan; and
• any gender or other inappropriate bias in remuneration policies and practices.
The Nomination & Remuneration Committee:
• may seek any information it considers necessary to fulfil its responsibilities;
• has access to management to seek explanations and information;
• may seek professional advice from employees of the Group and from appropriate external advisers (at the Group’s
cost); and
• may meet with external advisers without management being present.
The minutes of each Nomination & Remuneration Committee meeting are included in the papers for the next Board
meeting after each meeting of the Committee. The Chairman of the Nomination & Remuneration Committee reports
the Committee’s findings to the Board after each Committee meeting. The Nomination & Remuneration Committee has
four members, all of whom are independent Directors5.
The Directors’ Report discloses the members of the Nomination & Remuneration Committee, the number of times that
the Committee met during the 2016 financial year and the individual attendances of the members at those meetings.
115
What you can find on the Corporate Governance page on our website:
• Nomination & Remuneration Committee Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
(5) Mr Robert Pullar (independent Non-executive Director) was Chairman of the Nomination & Remuneration Committee until his resignation as at
25 November 2015.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT RECOMMENDATION 8.2
The Directors’ Report (the section titled Remuneration Report) discloses information, including the policies and
practices regarding the remuneration of:
• Non-executive Directors;
• the Executive Director and other senior executives.
The respective policies and practices reflect the different roles and responsibilities of Non-executive Directors and the
Executive Director and other senior executives.
As disclosed in the Remuneration Report, the Group’s Non-executive Directors are paid a fixed 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 benefits other
than statutory superannuation.
The Remuneration Report details the nature and amount of remuneration of the Chief Executive Officer (Executive
Director) and other senior executives (Key Management Personnel or KMP). Remuneration packages are designed to
align the KMP’s interests with those of securityholders by specifically designing their performance indicators to their
particular role and responsibilities. This is achieved by providing remuneration packages which consist of the following
three elements (or a combination thereof) where appropriate:
116
1. Fixed component in the form of a cash salary;
2. An at-risk cash bonus that is linked solely to performance of a tailored set of objectives, where appropriate; and
3. At-risk longer term equity payment. This third element is equity based remuneration aimed at alignment and
retention.
The Group does not have a policy regarding the deferral of performance based remuneration and the reduction,
cancellation or clawback of performance based remuneration in the event of a material misstatement in the Group’s
financial statements. However, performance rights under Cromwell Property Group’s Performance Rights Plan lapse
under certain circumstances including a determination by the Plan Committee that the performance right should
lapse because the participant, in the Plan Committee’s opinion, has committed any act of fraud, defalcation or gross
misconduct in relation to the affairs of a body corporate in the Group. Securities acquired under the Cromwell Security
Loan Plan and therefore pursuant to a loan with the Group are forfeited where the employee ceases employment with
the Group prior to the end of the loan period.
Other than the CEO, no KMP was awarded a short term incentive (an at-risk cash bonus) in the 2016 financial year. The
nature of the performance based remuneration is an ‘at risk’ payment rather than a ‘bonus’ payment.
For all KMP except the CEO and Non-executive Directors, the CEO is responsible for setting key performance indicator
(KPI) targets and assessing annually whether those targets have been met. The KPI targets for the CEO are set, revised
and reviewed annually by the Nomination & Remuneration Committee and the Board.
What you can find on the Corporate Governance page on our website:
• Nomination & Remuneration Committee Charter
www.cromwell.com.au/investors/securityholders/corporate-governance
RECOMMENDATION 8.3
In accordance with the remuneration policy, the Group operates a Performance Rights Plan and a Security Loan Plan
and has issued performance rights (or options over Group securities) to a number of senior executives, including the
CEO (an Executive Director). The Group does not currently pay any other form of security based remuneration.
The terms of the Group’s Performance Rights Plan do not allow participants, whether Executive Directors or other
employees, to hedge or otherwise limit the economic risk of their participation in the Plan.
Previous participation in the Performance Rights Plan by the CEO (an Executive Director) was approved by
securityholders at an AGM. Pursuant to the ASX Listing Rules, any further participation would also need to be approved
by securityholders.
CROMWELL PROPERTY GROUP I 2016 ANNUAL REPORT SECURITYHOLDER INFORMATION
The securityholder information set out below was applicable as at 31 August 2016, unless stated otherwise.
Spread of Stapled Securityholders
Category of Holding
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Number of Securities
Number of Holders
1,457,171,413
275,980,971
14,419,149
6,309,277
278,739
1,754,159,549
1,056
8,269
1,821
2,008
918
14,072
117
Unmarketable Parcels
The number of stapled securityholdings held in a less than marketable parcel was 632.
Substantial Securityholders
Holder
The Vanguard Group, Inc
Redefine Properties Limited
Voting Rights
Stapled Securities
Date of Notice
106,680,474
446,538,850
02/06/2016
03/09/2015
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 PROPERTY GROUP I 2016 ANNUAL REPORT 20 Largest Securityholders
Rank
Investor
Number of Stapled
Securities Held
% Held of Issued
Stapled Securities
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
118
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Redefine Global (Pty) Ltd
Buttonwood Nominees Pty Ltd
Buttonwood Nominees Pty Ltd
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
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