ANNUAL REPORT
2019
CONTENTS
150
Corporate Governance Statement
169
Securityholder Information
04
Financial Highlights
06
Chair’s Report
10
CEO’s Report
18
Annual Financial Report
20 Directors’ Report
68 Auditor’s Independence Declaration
70 Consolidated Income Statements
71 Consolidated Statements of
Comprehensive Income
72 Consolidated Statements of Financial
Position
73
Consolidated Statements of Changes in
Equity
75 Consolidated Statements of Cash Flows
76 Notes to the Financial Statements
145 Directors’ Declaration
146 Independent Auditor’s Report
400 George Street, Brisbane
2
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
Cromwell Property Group
Cromwell Property Group (ASX:CMW) (Cromwell) is a
Real Estate Investor and Manager with operations on
three continents and a global investor base. As at 30
June 2019, Cromwell had a market capitalisation of
A$3.0 billion, a direct property investment portfolio in
Australia valued at A$2.5 billion and total assets under
management of A$11.9 billion across Australia, New
Zealand and Europe.
Cromwell is included in the S&P/ASX200 and the FTSE
EPRA/NAREIT Global Real Estate Index.
Cromwell offers securityholders an attractive combination
of stable long-term cash flows, demonstrated asset
enhancement capabilities and transactional profits,
and low risk exposure to International capital flows and
European economic growth.
Cromwell maintains a strong and secure balance sheet
and long-dated Australian property portfolio which
enable it to recycle assets and reinvest into its property
investment and funds and asset management businesses.
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.cromwellpropertygroup.com
invest@cromwell.com.au
Email:
SECURITYHOLDER ENQUIRIES
All enquiries and correspondence regarding your
securityholding should be directed to Cromwell’s
Investor Services Team on 1300 268 078.
3
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT FINANCIAL HIGHLIGHTS
Statutory profit of
Operating profit up
$159.9 Million
11.1% to $174.2 Million
NTA of
$0.97
Number of securities on issue
2,236.6 Million
Total Securityholder Return (TSR)1
350
300
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150
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Cromwell Property Group
S&P/ASX 300 A-REIT Accumulation Index
Gearing
35%
Payout Ratio
90%
FY19 operating profit per security of
8.21 cps
FY19 distributions per security met guidance at
7.25 cps
(1) Stapling event in December 2006 to 30 June 2019.
4
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Financial Results Summary
FY19
FY18
Change
Statutory profit ($m)
$159.9
$204.1
(21.7%)
Statutory profit (cents per security)
Direct Property Investment
Indirect Property Investment
Funds and Asset Management
Total Segment Results
Operating profit ($m)
Operating profit (cents per security)
7.53
136.1
45.4
28.5
210.0
$174.2
8.21
10.89
120.6
23.3
35.0
178.9
$156.8
8.36
Distributions ($m)1
$157.5
$157.1
Distributions (cents per security)
Payout Ratio (%)
7.25
90%
8.34
100%
(30.9%)
12.9%
94.9%
(18.6%)
17.4%
11.1%
(1.8%)
0.2%
(13.1%)
(10.0%)
Objective
To provide security holders with
an attractive combination of
stable long-term cash flows,
demonstrated asset enhancement
capabilities and transactional
profits, and low risk exposure to
International capital flows and
European economic growth.
FY20 Guidance
FY20 operating profit guidance of not
less than 8.30 cents per security.
FY20 distribution guidance of not less
than 7.50 cents per security.
Financial Position
Total Assets
Total Liabilities
Net assets
Securities on issue (‘000)
NTA per security
(including interest rate swaps)
Gearing2
Gearing (look-through)2
Jun-19
(Actual) ($M)
3,695.7
(1,512.7)
2,183.0
2,236.6
$0.97
35%
42%
Jun-18
(Actual) ($M)
3,466.3
(1,564.8)
1,901.5
1,985.3
$0.96
37%
43%
(1)
Includes an amount of $392,000 for both Cromwell and the Trust in excess of the pro-rata
entitlement for the quarterly distribution paid to those securityholders who acquired securities in
February 2018 as part of the Security Purchase Plan.
(2) Gearing calculated as (total borrowings less cash)/(total tangible assets less cash). Look through
gearing adjusts for the 50% interest in Northpoint Tower and 35% of CEREIT.
5
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT CHAIR’S REPORT
Our ‘Invest to Manage’ strategy, which Paul Weightman details more extensively in his CEO
report, is now 12 months into the plan. The strategy represents an exciting new growth stage
in Cromwell’s journey and we are beginning to witness the fruits of the huge efforts from our
dedicated team over the last year.
Europe, where we have more than 200 people, remains the most liquid real estate market
in the world for foreign capital. It is also substantially larger than Australia and there are 34
discrete markets, each with a minimum of 2 million sqm of office space. This is the equivalent
to at least 34 office markets the same size, or bigger, than the local Brisbane or Canberra
market. Paris on its own has more than twice the office space of Australia as a whole.
Our local presence and expertise, alongside the knowledge of where to invest, when and
why, means we are fast building a reputation as a manager for potential capital partners
who consider European real estate exposure an attractive investment proposition. We are
confident this will deliver value for our securityholders as we continue to leverage off our
excellent European platform.
Our values are hugely important to us, and as we inculcate them across our many different
geographical teams, it continues to guide our purpose, which is ‘that we exist to look
after people’. Based on feedback we have re-phrased the words to describe our
values in a clearer, more distinctive way – Principled, Respectful and Responsible.
Combining our values with a genuine care for people - be they an investor,
securityholder or employee - and a clear understanding of what matters to
each of them is what drives our success. Balancing the interests of all of these
stakeholders is, and remains, of paramount importance and we are very
conscious to treat everyone, no matter who they are, in exactly the same way.
Cromwell also looks to contribute to the communities in which we work and
live via causes or initiatives that can make a difference. The great work of
the Cromwell Property Group Foundation, which donated over $250,000 this
year, reflects this. The Foundation’s 2019 beneficiary event, ‘An Evening at the
Circus’, was truly inspirational and great to be a part of.
At Board level, we sadly bid Michelle McKellar farewell at the upcoming
Annual General Meeting after 12 years of outstanding contribution to
Cromwell. Her wisdom, experience and caring personality will be missed.
On behalf of the Non-executive Directors, I would like to thank everyone
at Cromwell for their dedication to delivering on our purpose. I would
especially like to thank Paul and his Group Leadership Team for their
tireless and extensive efforts. I am confident under their stewardship all
stakeholders will benefit from a prosperous and successful year ahead.
Geoffrey H. Levy, AO
Chair
Cromwell Property Group
6
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Principled
We are principled. We set the
standards and have the
courage to do what is right,
when we think it is right
Respectful
We are respectful of others.
We are humble and
empathetic, working
collegiately to look after
our stakeholders
Responsible
We are accountable to
our stakeholders. We are
diligent and committed to
continuous improvement
and building a sustainable
and resilient business
7
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Cromwell Property Group Foundation
donates $250,000
This year, at a gala ‘Evening at the circus’ event the
Cromwell Property Group Foundation (Foundation)
announced Heart Research Australia, The Lady
Musgrave Trust and the MND and Me Foundation as
beneficiaries of its FY19 fundraising activities.
These causes, combined with Black Dog Ride, Pink Angels
and Royal Far West, the charities supported throughout
the Rotary Club of Dubbo South’s Destination Outback,
take the Foundation’s total FY19 donations to a little over
$250,000.
In a testament to a successful event an additional $58,227
was pledged on the night. A portion of the funds went
direct to the evenings three beneficiaries, while some was
directed to the Foundation, where they will form part of its
FY20 fundraising activities.
Heart Research Australia - $30,589
Heart Research Australia, whose mission is to support
world class and emerging researchers conduct ground-
breaking research into the prevention, diagnosis and
treatment of heart disease, have been provided $30,589.
The organisation aims to reduce radiotherapy-induced
heart damage in breast cancer treatment.
Heart Research Australia CEO, Nicci Dent, commented on
the Foundation’s donation.
“We at Heart Research Australia are so incredibly grateful
to the Cromwell Property Group for their generous
donation. As we don’t receive government funding, we
rely heavily on the support of donors to ensure we can
fund our world class researchers to turn their ideas into
reality and to achieve our objective of finding a cure for
Australia’s leading cause of death.”
The Lady Musgrave Trust - $40,000
Established in 1885, The Lady Musgrave Trust is
Queensland’s oldest charity, which provides life-saving
services to vulnerable women and their children when
they are facing critical homeless situations as a result of
domestic violence, family breakdown and poverty.
The Foundation has provided $40,000 towards The Lady
Musgrave Trust’s ‘Ending Homelessness for Older
Women’ project. This project will create a resource
platform for at-risk and homeless women, so they are
aware of where to go for help.
The Lady Musgrave Trust CEO, Karen Lyon Reid, stressed
the importance of the work they undertake.
“ABS census data identified a 31% increase in older
women’s homelessness over five years, which was
alarming. As such, we knew we needed to take action to
address this critical issue.”
“The Cromwell Property Group Foundation strongly
believes in supporting community – it is these company
values that will help us to make significant progress in our
charity work and particularly this project. We are grateful
to the Foundation for their support and collaboration on
this project,” Ms Reid concluded.
8
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT MND and Me Foundation - $40,000
The MND and Me Foundation was established by Scott
Sullivan, a husband and father, who was diagnosed with
Motor Neurone Disease (MND) in 2010 at the age of 38.
Sadly, Scott passed away in 2014.
However, the MND and Me Foundation continues to thrive,
raising awareness of Motor Neurone Disease and its
impact on the community. Scott saw a desperate need to
assist people living with MND, along with their families, in
order to maintain their independence and quality of life for
as long as possible.
The Foundation has donated $40,000 to the MND and
Me Foundation, facilitating financial support for MND
sufferers over the age of 65.
Paul Olds, CEO of the MND and Me Foundation, stated,
“Our aim for this very generous support is to provide much
needed assistance to our 65-year-old or older clients well
before they reach a crisis situation.”
“Due to the progressive nature of MND and the
inadequate MAC funding available, many people over 65
just cannot keep up with the pace at which their MND is
advancing. Hitting a crisis situation often means a visit to
the emergency department, which places a massive strain
on the family care unit.”
“By working closely with our clients and understanding
their future needs, this grant will allow us to hopefully
prevent emergency situations from occurring.”
About the Cromwell Property Group Foundation
The Cromwell Property Group Foundation was established
in 2014 to support charities or organisations that provide
support to, or conduct research into causes relevant to
the mature aged community. To date, the Foundation has
donated $892,000 to 14 causes, resulting in significant
change to countless lives.
Donations to the Cromwell Property Group Foundation
of more than $2 are tax deductible. To donate,
or seek more information about the Foundation or any
of the beneficiaries please visit at
www.cromwellfoundation.org.au.
FY19 Philanthropic Activity
Destination Outback
Heart Research Australia
$30,589
The Lady Musgrave Trust
$40,000
MND and Me Foundation
$40,000
$110,589
Pink Angels
$46,670
Royal Far West
$46,670
Black Dog Ride
$46,670
$140,010
$250,599
9
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT CEO’S REPORT
Paul Weightman
CEO
Cromwell Property Group
FY19 Highlights And Strategy Update
This time last year we articulated our ‘Invest to Manage’
strategy. Simply put, the strategy is to invest capital to
acquire or improve assets, to create new funds and attract
investment from capital partners.
The initiatives identified as part of the strategy are
intended to increase asset value, build enterprise value,
add to medium-term earnings and generate higher total
securityholder return.
For the last 12 months, we have been focused on
execution. This has included two large, multi-country
transactions on behalf of the Cromwell European REIT or
CEREIT. The first transaction involved the acquisition of
23 assets in five countries and the second for six assets
in two countries, for a combined value of €471 million or
$775 million.
Cromwell Property Group reported full-year FY19
statutory profit of $159.9 million. Operating profit,
considered by the Directors to best reflect the underlying
earnings of Cromwell, was up 11.1% from the prior
year to $174.2 million and, notwithstanding Cromwell’s
institutional and retail capital raisings during the year,
distributions met guidance at 7.25 cps.
As at 30 June this year, Cromwell had more than 3,800
tenant customers in 15 countries, leasing over 3.7 million
sqm of space and the total value of our assets under
management was $11.9 billion.
10
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT LDK Greenway Atrium
Artist Impression
CEREIT’s portfolio has grown by more than 50% in value
since its IPO in November 2017 and now comprises 102
properties in seven different European countries. CEREIT
is a great example of our strategy in action and I think it’s
fair to say it is now an established and successful fund
that underpins the future growth of our wider platform.
During the year we sold $64 million of balance sheet
assets and on 1 July 2019, exchanged contracts to sell
our 50% interest in Northpoint Tower to Early Light
International. The sale is subject to FIRB approval
and Cromwell will continue to manage the asset after
settlement. The sale takes the total value of capital
recycled from the start of FY18 to date to $520 million.
In August, Cromwell announced the acquisition of 400
George Street in Brisbane for $524.75 million. The
35-level building, in the prestigious North Quarter
precinct, has a total net lettable area of 43,978 sqm
spread across office, retail and childcare. A 4.9-year
Weighted Average Lease Expiry (WALE) and 99.8%
occupancy rate are underpinned by blue-chip corporate
and government tenants.
We continue to recycle capital from assets where we have
added significant value, as we have done with Northpoint
Tower, to opportunities where we can create new funds
with capital partners such as 400 George Street.
Cromwell also has a pipeline of value-add development
opportunities with a completion value of more than
$1 billion which includes the ongoing Seniors’ Living
redevelopment at Greenway, ACT, developments at
Chatswood, NSW and 700 Collins Street, VIC and a
number of other confidential projects in negotiation.
We have also exercised a pre-emptive right to acquire
third party investor interests in the Cromwell Polish Retail
Fund. The Fund contains seven retail assets with a Gross
Asset Value of approximately €600 million or $1 billion.
Our team in Poland have been managing and developing
the assets for more than a decade and know the assets
11
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 400 George Street, Brisbane
Expiry Profile NLA
25,000
20,000
A
L
N
15,000
10,000
5,000
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Income Source
88.17%
Office Income
3.25%
Retail Income
2.44%
Childcare Income
4.27%
Parking Income
1.13%
Recoveries
<1.00%
Other Income
<1.00%
Electricity Profit (2018 actuals)
12
12
CROMWELL PROPERT Y G R OU P I 2 0 1 8 ANN UAL REP OR T
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT intimately and have identified value enhancement
initiatives that we expect will drive attractive returns.
Poland is Europe’s success story. Gross Domestic
Product has grown by 4.20% on average over the last 25
years. It has been Europe’s fastest growing economy over
the past five years, and has one of the highest expected
growths in disposable income, consumer spending and
retail sales globally.
It is a market we know well and one are very positive
about. We have 34 professionals on the ground, managing
21 assets with more than 660 tenant customers and over
758,000 sqm of space. The assets will cornerstone a new
fund in which we will take a long-term co-investment
stake. We will look to conclude the acquisition by the end
of October, and further updates on the acquisition and the
fund will be provided in due course.
Capital Management Update
In December 2018, we concluded a 2 for 13 accelerated
non-renounceable entitlement offer which raised
approximately $228 million. Following on from the
December capital raising, new securities were also
allotted last month from June’s institutional placement,
which raised $375 million, and the Security Purchase
Plan, which raised a further $32.5 million.
The strong support from the market for these activities
was very pleasing and shows they are firmly behind our
‘Invest to Manage’ strategy and asset recycling initiatives.
Proceeds from both capital raisings have been used to pay
down debt and will be deployed into Cromwell’s pipeline
of value enhancing opportunities. Pro-forma gearing post
both raisings is 23.9%, and a new three-year €225 million
syndicated facility agreement was successfully executed
at the end of June.
We have a strong, secure balance sheet with liquidity
ready to be deployed. We expect gearing will fluctuate as
we acquire, warehouse and then sell down opportunities
as per our ‘Invest to Manage’ strategy. Through the cycle
our revised gearing target range is 30% to 40%.
As at 30 June 2019, Net Tangible Assets were 97 cents per
security and gearing was 35.0%, which is right within the
middle of the new revised, through the cycle target range
of 30% to 40%. Debt tenor was 4.5 years and cash and
cash equivalents were $101.6 million.
Direct Property Segment Update
Cromwell’s direct property investment segment reported
operating profit of $136.1 million, a 12.8% increase
on the prior year. The portfolio had like-for-like Net
Operating Income growth of 5.5%, a WALE of 6.9 years and
occupancy of 91.7%.
The portfolio consists of 21 assets, valued at $2.5 billion,
divided into three components:
The Core portfolio comprises ten assets, representing
69% (or $1.7 billion) of the portfolio by value, and has a
WALE of more than 9.4 years. It has 99.2% occupancy and
has recorded NOI growth of 3.3%;
The Core+ portfolio comprises six assets, represents 28%
or $700 million of the portfolio by value, has a WALE of
3.1 years and has recorded NOI growth of 5.3%. It has
occupancy of 95.4%; and
The Active portfolio consists of five assets or 3% of the
portfolio ($81 million) and a WALE of 0.6 years, occupancy
of 52.7% and shown NOI growth of 120.1%.
56,000 sqm of new and renewed lease deals were struck
during the year in 67 transactions. 24,800 sqm of renewals
were signed at HQ North with AECOM, Technology One
and Bechtel taking occupancy at the building to 94% and
its WALE to 5.7 years. Following its repositioning HQ
North has been included in the Core portfolio.
Elsewhere, 24 separate deals were concluded at
Northpoint for 9,800 sqm, the majority of which was office
- 8,200 sqm - with 1,600 sqm of retail. Kent Street also
benefited from strong demand in Sydney with 5,500 sqm
of space signed to take occupancy to 99% with a WALE of
4.3 years.
There are just three leases in the portfolio that represent
greater than 1% of income which are due to expire before
30 June 2021. One of these is Wakefield Street in Adelaide,
an active asset we have earmarked for repositioning, and
we are in active discussions with tenants on the other two
assets.
Valuations for the direct portfolio increased by $74.9
million during the year, net of property improvements,
leasing incentives and lease costs. This was equivalent to
an increase in value of approximately 3.1% or 3.3 cents
per stapled security from June 2018 valuations.
13
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Indirect Investment - CEREIT
Portfolio as at 30 June 2019
Denmark
Properties
Lettable Area (sqm)
Valuation (€ million)
% of Portfolio
Average Reversionary Yield
The Netherlands
Properties
Lettable Area (sqm)
Valuation (€ million)
% of Portfolio
Average Reversionary Yield
France
Properties
Lettable Area (sqm)
Valuation (€ million)
% of Portfolio
Average Reversionary Yield
13
151,491
83.2
4.5%
7.8%
17
260,205
627.0
34.2%
5.7%
25
370,090
358.5
19.5%
8.2%
Italy
Properties
Lettable Area (sqm)
Valuation (€ million)
% of Portfolio
Average Reversionary Yield
17
335,977
458.6
25.0%
6.0%
14
Finland
Properties
Lettable Area (sqm)
Valuation (€ million)
% of Portfolio
Average Reversionary Yield
11
61,977
115.5
6.3%
7.8%
Italy
Properties
Lettable Area (sqm)
Valuation (€ million)
% of Portfolio
Average Reversionary Yield
17
335,977
458.6
25.0%
6.0%
Germany
Properties
Lettable Area (sqm)
Valuation (€ million)
% of Portfolio
Average Reversionary Yield
Poland
Properties
Lettable Area (sqm)
Valuation (€ million)
% of Portfolio
Average Reversionary Yield
11
166,738
118.6
6.5%
6.9%
3
34,362
73.2
4.0%
8.5%
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Indirect Property Investment Segment
Our indirect property investment segment recognises
earnings arising from investments we make in assets,
mandates or funds as part of our ‘Invest to Manage’
strategy. Segment profit, after finance costs, was $45.4
million, up 95% from $23.3 million in the prior year.
Nearly all of this was attributed to Cromwell’s 35%
interest in CEREIT.
Cromwell’s share of CEREIT operating profit recorded for
the year was $44.6 million up from $23.2 million in the
prior year. CEREITs distribution per unit for the first half
of 2019 was €2.04 cents per unit which was 4.6% above
IPO forecasts.
The segment also contains earnings from Cromwell’s
50% interest in LDK Healthcare and Northpoint Tower.
The latter showed an increase in operating profit from
$5.4 million in FY18 to $7.1 million in FY19 with contracts
exchanged for sale on 1 July 2019.
The ongoing repositioning of Greenway, ACT into Seniors
Living with LDK Healthcare is progressing well with
residents due to move in next year. The premium end
of the Seniors’ Living market is benefitting from strong
demographics and growing demand.
versus the prior year. Importantly, the character of the
funds we manage in Europe has been steadily transitioned
over the last couple of years. AUM within Europe was
steady at €3.8 billion, with €668 million traded during the
year. This was substantially less than the prior period in
which €2.1 billion of assets were traded.
On the successful completion of the acquisition and
rollover of the Cromwell Polish Retail Fund, the value of
AUM in Europe underpinned by longer term capital will
increase from approximately 50 to 65%, providing a secure
foundation of recurring fee income for the platform from
which to grow.
Our local teams have done a great job of staying focused
on the needs of our investors and tenant customers while
transforming the platform and broadening our sources of
capital.
In addition to transacting on €471 million of assets for
CEREIT, Cromwell also acquired the 21,688 sqm Pirelli
Tyre Research and Development Facility in Milan for €88
million on behalf of a Korean partner. Cromwell’s Polish
team last month also completed a successful 21,000 sqm
redevelopment of the Centrum Janki shopping centre in
Warsaw for €65 million. The centre is a core asset in the
Cromwell Polish Retail Fund.
LDK will have two operational villages by next year which
is a great base from which to grow. We believe is an
opportunity that will attract substantial future investor
interest.
The level of activity in Europe remains positive. During
the year we negotiated and completed 550 leasing
transactions, over 437,000 sqm of space representing
more than ten leases per week, every week, for the year.
Funds and Asset Management
Segment
The operating profit from our Funds and asset
management segment, after finance costs, was $28.5
million down from $35 million the previous year. The
difference represents increased investment, including one
off costs in the platform to facilitate future growth and
in particular the AIFM licence and increased presence in
Luxembourg to provide insurance against any potential
fallout from Brexit.
Total segment AUM increased 3.2% to $9 billion, driven
by an increase in retail AUM of $300 million to $2.3 billion
while wholesale AUM was unchanged at $6.7 billion
In Australia, earlier in the year unitholders of the
Cromwell Ipswich City Heart Trust voted to approve an
extension of the initial term of the Trust by four and a half
years, until June 2023. A $4.1 million performance fee was
realised following the rollover.
Retail AUM increased by $300 million driven by growth
at Oyster Group in New Zealand and the Cromwell Direct
Property Fund which successfully acquired two properties
on behalf of unitholders.
420 Flinders Street in Townsville, was acquired for $63.5
million in December 2018 and Altitude Corporate Centre
in Mascot, Sydney was acquired for $113 million on 28
June 2019.
15
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Overall, the Fund is well positioned to continue to deliver
a good return for unitholders. It provides monthly liquidity
and has a WALE of 8.2 years. The distribution yield is 5.8%
per annum which is approximately 4.0% better than most
retail investors can expect to earn on cash.
In New Zealand, the value of AUM at Oyster Group reached
NZ $1.7 billion with the settlement of the 6.2-hectare
Central Park Corporate Centre for NZ $209 million in
July 2018 and the successful offer for 33 Corinthian Drive,
Albany, Auckland which settled in April 2019.
Outlook and Guidance
Now to outlook. It’s hard to ignore the noise. The ripple
effects of the US-China trade war are being felt globally.
Spiking economic policy uncertainty is leading to an
increase in market volatility, and also opportunity, around
the world.
As an open economy, Australia is not immune despite
being protected by increased demand for its mineral
wealth. Exports continue to grow, although low domestic
wage growth coupled with a soft residential housing
market has prompted the Reserve Bank to reduce interest
rates. While a recession is not the most likely scenario,
2019 Forecast GDP Growth Rates
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
16
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we can’t help but note that forecast GDP growth has been
lowered substantially.
The Eurozone economy has also slowed with Brexit
looming and 2019 GDP growth now forecast to be 1.20%.
This, however, masks sizable variances within Europe as
Poland, Czech Republic, Netherlands and Sweden are all
expected to outperform other European countries, and
Australia.
Globally, commercial real estate markets remain highly
liquid, boosted by lower bond rates. The hunt for yield
continues, albeit to different degrees in different sectors.
Office, logistics and specialist sectors continue to be
popular, while e-commerce and changing consumer tastes
are causing disruption in a number of retail markets.
We remain focused on the continuing execution of our
‘Invest to Manage’ strategy, capital recycling and value-
add development opportunities. The balance sheet is
strong and we are well positioned to take advantage of the
opportunities that we have in our pipeline, and those that
we identify in a volatile market in general.
In Australia, our Core and Core+ portfolios will
continue to drive NOI and underpin our earnings and
distribution policy. Our $1 billion pipeline of development
opportunities will provide upside in asset values and
opportunities to attract new capital partners.
In Europe, our local presence and knowledge means
we know where and how to deliver value for our capital
partners. We have demonstrated this capability with
CEREIT and, with 200 professionals in 20 offices in 12
European countries, are very well positioned for the future.
FY20 operating profit is affirmed at the upper end of
previous guidance at not less than 8.30 cps and we
confirm distributions guidance of 7.50 cps, a 3.45%
increase on FY19. This represents an operating profit per
security and distributions per security yield of 6.69% and
6.05% respectively.
I would like to thank all of Cromwell’s employees who have
worked tirelessly to execute our strategy and to my fellow
Directors for their support and counsel during the year.
Paul Weightman, CEO
Cromwell Property Group
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
Centrum Janki Shopping Centre, Poland
17
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT CONTENTS
Directors’ Report
20
43
Remuneration Report
68
Auditor’s Independence Declaration
Statements
Financial Statements
69
70 Consolidated Income
71 Consolidated Statements of
72 Consolidated Statements of
73 Consolidated Statements of
75 Consolidated Statements of
Comprehensive Income
Changes in Equity
Financial Position
Cash Flows
76
Notes to the Financial Statements
145
Directors’ Declaration
146
Independent Auditor’s Report
150
Corporate Governance Statement
169
Securityholder Information
DIRECTORY
Board of Directors:
Geoffrey Levy, AO
Michelle McKellar
Jane Tongs
Leon Blitz
David Blight
Andrew Fay
Paul Weightman
Company Secretary:
Lucy Laakso
Securities Registry:
Link Market Services Limited
Level 21, 10 Eagle Street
Brisbane QLD 4000
TEL: +61 1300 554 474 (+61 2 8280 7100)
FAX: +61 2 9287 0303
WEB: www.linkmarketservices.com.au
Registered Office:
Level 19, 200 Mary Street
Brisbane QLD 4000
TEL: +61 7 3225 7777
FAX: +61 7 3225 7788
WEB: www.cromwellpropertygroup.com
Listing:
Cromwell Property Group
is listed on the Australian
Securities Exchange
(ASX code: CMW)
Auditor:
Deloitte Touche Tohmatsu
Level 23, Riverside Centre
123 Eagle Street
Brisbane QLD 4000
TEL: +61 7 3308 7000
WEB: www.deloitte.com.au
All ASX and media releases as well as company news can be found on our webpage www.cromwellpropertygroup.com
18
18
CROMWELL PROPERT Y G R OU P I 2 0 1 9 ANN UAL REP OR T
FINANCIALS
Cromwell Property Group
Annual Financial Report
30 June 2019
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
19
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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 2019 for both:
• the Cromwell Property Group (“Cromwell”) consisting of Cromwell Corporation Limited (“the Company”) and its
controlled entities and the 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 CDPT cannot be traded separately and can only be traded as stapled securities.
Directors
The Directors of Cromwell Corporation Limited and Cromwell Property Securities Limited as responsible entity of the CDPT
(“responsible entity”) during the year and up to the date of this report are:
Directors and officers
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 Levy (AO) – Non-executive Chair
B.Com, LLB, FFIN, MAICD, 60
Director and Chair since:
17 April 2008
Independent:
Yes
Skills and Experience
Mr Levy has over 30 years of significant experience in banking and finance, funds management,
mergers and acquisitions and corporate commercial law. He held the position of Partner at
Freehills, Hollingdale and Page (now Herbert Smith Freehills) earlier in his career as well as
Principal of Wentworth Associates, which was later acquired by Investec Bank (Australia) Ltd in
2001. At Investec Bank (Australia) Ltd, he became the Chief Executive Officer, and the Executive
Chair from 2001 to 2008, and thereafter as Non-executive Deputy Chair until 2014.
Mr Levy’s extensive ASX listed board experience, over three decades, includes Non-executive
Directorships at Hoyts Cinemas Ltd, Ten Network Holdings Ltd, Specialty Fashion Group Ltd,
Mirvac Ltd, Rebel Sports Ltd, Freedom Furniture Ltd and STW Ltd. He has also been an Executive
and Non-executive Director on a number of property and private equity funds and non-listed
companies.
He also has vast regulatory and policy experience gained through chairing various Federal and
State Government entities, taskforces and panels, including as Deputy Chair of the Australian
Sports Anti-Doping Authority, Chair of Film Finance Corporation Australia Ltd, Chair of the NSW
Government Property Asset Utilisation Taskforce and Chair of the NSW Attorney General Review
into the Public Purpose Fund. He was also appointed as the Attache to the South African Olympic
Team at the 2000 Olympic Games.
He is currently the Executive Chair of Monash Private Capital and its groups of companies and
funds. He is also a founding partner of Our Innovation Fund, a venture capital firm investing in high
growth innovative digital businesses and is highly considered as a veteran investor in One Tech
Ecosystems. In June 2005, he was appointed an Officer in the Order of Australia in the Queen’s
Birthday Honours List for his significant contributions to sports, the arts and philanthropy.
20
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Ms Michelle McKellar – Non-executive Director
FAICD, FPINZ, 64
Director since:
1 March 2007
Board Committee membership:
Chair of the Investment Committee
Member of the Audit and Risk Committee
Member of the Nomination and Remuneration Committee
Independent:
Yes
Skills and Experience
Ms McKellar has over 30 years of property and portfolio management experience in senior
roles throughout the Asia-Pacific. Ms McKellar established the CBRE business in New Zealand
which she grew successfully for 12 years before being appointed as CBRE’s Hong Kong-based
Managing Director and Chief Operating Officer Greater China. During her career at CBRE, which
encompassed major investment transactions, she was responsible for introducing a significant
amount of Asian foreign investment into the region. She subsequently served as the CEO of Jen
Group of Companies, overseeing an extensive commercial and retail property portfolio across
South East Asia, Australia and New Zealand. Ms McKellar is also a founding Director of China
based QSR (quick service restaurants) company – Dash Brands – established in 2007 in Shanghai
and remained as Non-executive Director until 2017. Dash Brands acquired Domino’s Pizza China
in 2011 and owns the master franchise for China. In each of these roles encompassing real
estate, property development and the QSR industry, she developed key relationships and gained
deep property expertise that provides valuable insights into the nuances of the markets across
Asia-Pacific. Ms McKellar also served as Chair and Non-executive Director at Oyster Property
Group, a leading New Zealand commercial property and fund manager which is 50% owned by
Cromwell Property Group.
Ms McKellar is a Fellow of the Australian Institute of Company Directors and a Fellow of the
Property Institute of New Zealand. She also sits on the advisory Board of the University of
Auckland’s Business School’s Department of Property and continues to mentor graduates in the
industry. She currently serves as CEO of Australian based family company McKellar Property
Group and Joint Managing Director of MAP Group, a New Zealand based property consultancy
and advisory firm.
Ms Jane Tongs – Non-executive Director
B.Bus, MBA, FCA, FCPA, MAICD, 59
Director since:
26 November 2014
Board Committee membership:
Chair of the Audit and Risk Committee
Member of the Nomination and Remuneration Committee
Independent:
Yes
Listed Company Directorships (held within the last three years):
Chair – Netwealth Group Limited (2000 – current)
Skills and Experience
Ms Tongs has over 30 years of management expertise, serving on the boards of insurance, funds
management, property and other financial services entities. She has extensive experience in
profitably growing businesses and enhancing the profitability of established businesses. Current
examples are Netwealth Group Limited, Warakirri Asset Management Ltd and Hollard Insurance.
Her previous property experience includes Non-executive Director positions at AIMS Fund
Management Limited (formerly MacarthurCook Fund Management Limited), AIMS Investment
Managers Ltd (formerly MacarthurCook Investment Managers Ltd), Little Real Estate Pty Ltd
(formerly Run Ltd), the Heine Property Group and Warakirri Agricultural Trusts. She was a
Non-executive Director of the Australian Energy Market Operator and served as a Member and
Company Director to the Advisory Board of the South Australian Financing Authority. She developed
her leadership and management experience earlier in her career, specifically as Partner at
PricewaterhouseCoopers, specialising in the financial services sector and litigation support.
21
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
Along with her deep expertise in finance, her board experience is vast with over 20 years’
experience as a Chair, Chair of Audit and Risk Committees and Non-executive Director. She is
currently Chair of Netwealth Group Limited and of the Lend Lease Australian Prime Property
Fund Investors Committee and a Non-executive Director of Catholic Church Insurances Ltd,
Warakirri Asset Management Ltd, Hollard Insurance and Brighton Grammar School. 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.
Mr Leon Blitz – Non-executive Director
B.Com (Hons), C.A. (S.A.), 55
Director since:
28 June 2017
Board Committee membership: Member of the Audit and Risk Committee
Member of the Investment Committee
Member of the Nomination and Remuneration Committee
Independent:
Yes
Skills and Experience
Mr Blitz is the co-founder and CEO of Grovepoint, a London-based private equity and FCA
regulated investment management firm which manages and invests principal, institutional and
family office funds.
Through his role at Investec Bank, which over 20 years included Head of Principal Investments,
Private Banking and Property Lending, Mr Blitz developed a deep understanding of property,
banking and risk management. He also managed acquisition and integration processes for the
Investec Group in UK and European jurisdictions.
Mr Blitz has a significant track record as a deal maker and fundraiser and has extensive
experience in working with high performance management teams to develop and execute
corporate strategies and implementation plans. He has acted as a Non-executive Director of
a number of companies in the UK and Europe and is on the governance and advisory board of
a London-based industrial investment holding company, as well as playing a leading role in
governing a number of LLP investment and GP management partnerships.
Mr Blitz is the Chair of an international London-based chamber of commerce and plays a
leadership role in a number of charitable and communal organisations. He is a Chartered
Accountant, and trained at Arthur Andersen.
22
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Mr Andrew Fay – Non-executive Director
BAgEc (Hons), A Fin, 54
Director since:
15 October 2018
Board Committee membership:
Chair of the Nomination and Remuneration Committee
Member of the Audit and Risk Committee
Member of the Investment Committee
Independent:
Yes
Listed Company Directorships (held within the last three years):
Non-executive Director – Pendal Group Limited (2011 – current)
Non-executive Director – Spark Infrastructure Group (2010 – current)
Non-executive Director – Gateway Lifestyle Group (2015 – 2018)
Skills and Experience
Mr Fay has over 30 years’ experience in the financial services industry, bringing extensive
knowledge of investment and funds management, including the property asset classes. Whilst
a large part of his executive career was as a professional investor, he has also been directly
involved in advising and determining the strategic direction of businesses including being involved
in a range of merger and acquisition activities. These businesses come from a diverse range
of industries, including internet, medical devices, microbiology, renewable energy, financial
services and property, and have given him considerable experience in operating in international
markets. During his 14 years at Deutsche Asset Management (Australia) Ltd he held a number
of senior positions including Chair, CEO Australia, Regional Chief Investment Officer (CIO) Asia-
Pacific and CIO Australia. He was also Chair of Deutsche Managed Investments Ltd, Tasman
Lifestyle Continuum Ltd and a Non-executive Director of Gateway Lifestyle Group. He was also a
Director of DB Real Estate Australia Ltd. Earlier in his career, he held various investment roles
at AMP Capital and was also a member of the Investment Board Committee of the Financial
Services Council from 1998 to 2006. Mr Fay has substantial Board Committee experience having
chaired both Remuneration and Nomination and Audit and Risk Committees for Top 100 ASX
listed entities. He is currently a Non-executive Director of J O Hambro Capital Management
Holdings Ltd, South Australian Power Networks and is a consultant to Dexus Property Group and
Microbiogen Pty Ltd.
Mr Paul Weightman – Managing Director / Chief Executive Officer
B.Com, B.Law, 57
Director since:
6 August 1998
Board Committee membership: Member of the Investment Committee
Independent:
No
Skills and Experience
Mr Weightman was a founding Director of Cromwell, acted as its Executive Chair from 1998 to
2008 and has acted in his current role since 2008, driving Cromwell’s strategic development
from a small retail syndicator to an ASX200 international real estate investor and funds
manager. He practised as a solicitor for more than 20 years, acted as Managing Partner of a
national law firm and continues to hold a practising certificate as a solicitor of the Supreme
Court of Queensland. Mr Weightman is also a Fellow of the Royal Institution of Chartered
Surveyors and is an approved person registered with the Financial Conduct Authority (UK).
Mr Weightman sits on the Boards of Cromwell Investment Services Limited and Cromwell
EREIT Management Pte. Ltd., the latter of which is a licensed REIT manager with the Monetary
Authority of Singapore.
He has extensive Australian and international experience in real estate investment and
management and has legal, commercial and corporate experience in areas including mergers
and acquisitions, revenue matters, property development, corporate and financial structuring,
public listings, joint ventures and funds management.
23
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Mr Marc Wainer (retired) – Non-executive Director
70
Director since:
29 January 2010
Director until retired:
21 November 2018
Independent:
No
Skills and Experience
Mr Wainer has more than 40 years of experience in the property industry in South Africa. He is
an Executive Director of listed South African property group Redefine Properties Ltd, which he
founded. Mr Wainer is a Non-executive Director of RDI REIT P.L.C., a listed property investment
company in the United Kingdom, and also serves as a Non-executive Director of RBH, which owns
and manages a portfolio of hotels in the United Kingdom. Mr Wainer is a Non-executive Director
of EPP N.V.
Mr David Blight (resigned) – Non-executive Director
B.AppSc (Valuation), 57
Director since:
Director until resigned:
Independent:
1 June 2018
19 July 2019
No
Listed Company Directorships (held within the last three years):
Non-executive Director – Japara Healthcare Limited (2014 – current)
Non-executive Director – Lifestyle Communities Limited (2018 – current)
Skills and Experience
Mr Blight is currently Director and CEO of ARA Australia, the Australian business of the Singapore
based ARA Group, which is a substantial securityholder of Cromwell Property Group. He is also
Non-executive Director and Chair of the Remuneration and Nomination Committee for Japara
Healthcare Limited, an ASX listed residential aged care business and Non-executive Director of
Lifestyle Communities Limited. Mr Blight has been in the real estate investment and development
industry for nearly 35 years both in Australia and globally. He was previously Chair and CEO of
the global ING Real Estate Investment Management business and Vice Chair of ING Real Estate,
overseeing real estate assets of circa $150 billion while based in The Netherlands.
Ms Lucy Laakso – Company Secretary
B.Bus, MBA (Corporate Governance), Juris Doctor (First Class Honours), GAICD
Appointed since:
10 August 2015
Skills and Experience
Ms Laakso has 20 years of corporate and financial services experience, having worked as a
legal practitioner and in the areas of company secretariat, corporate governance, compliance
and business banking. Prior to joining Cromwell, Ms Laakso was a manager in the company
secretariat/compliance team at Access Capital Advisers (now Whitehelm Capital). She also
worked at ASX listed Suncorp Group Limited in areas including corporate secretariat, compliance
and business banking. Ms Laakso also has private practice experience at Norton Rose Fulbright
and inhouse legal experience at a fund manager. She is a member of two Property Council of
Australia national committees: the National Risk Roundtable and the Corporate Governance and
Regulation Committee.
24
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT DIRECTORS' MEETINGS
Directors
Board of Directors
Nomination and
Remuneration
Committee
Audit and Risk
Committee
Investment Committee
Meetings
attended
Meetings
eligible to
attend
Meetings
attended
Meetings
eligible to
attend
Meetings
attended
Meetings
eligible to
attend
Meetings
attended
Meetings
eligible to
attend
12
13
13
1
13
13
9
11
13
13
13
3
13
13
13
11
3
4
4
-
2
-
-
1
3
4
4
-
4
-
-
1
-
10
10
-
10
-
-
5
-
10
10
-
10
-
-
5
1
4
-
-
4
4
-
4
1
4
-
-
4
4
-
4
G Levy
M McKellar
J Tongs
M Wainer (1)
L Blitz
P Weightman
D Blight (2)
A Fay
(1) Retired 21 November 2018.
(2) Resigned 19 July 2019.
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.
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
2019
Interim distribution
Interim distribution
Interim distribution
Final distribution
2018
Interim distribution
Interim distribution
Interim distribution
Final distribution
–
–
–
–
–
–
–
–
–
–
1.8125¢
1.8125¢
1.8125¢
1.8125¢
7.2500¢
2.0850¢
2.0850¢
2.0850¢
2.0850¢
8.3400¢
1.8125¢
1.8125¢
1.8125¢
1.8125¢
7.2500¢
2.0850¢
2.0850¢
2.0850¢
2.0850¢
8.3400¢
36.1
40.4(1)
40.5
40.5
157.5
36.8
37.6
41.3(2)
41.4
157.1
–
–
–
–
–
–
–
–
–
–
28–Sep–18
23–Nov–18
31–Dec–18
22–Feb–19
29–Mar–19
24–May–19
28–Jun–19
23–Aug–19
29–Sep–17
17–Nov–17
29–Dec–17
23–Feb–18
29–Mar–18
25–May–18
29–Jun–18
24–Aug–18
(1)
(2)
Includes an amount of $2,667,000 for both Cromwell and the Trust in excess of the pro-rata entitlement for the quarterly distribution paid to those
securityholders who acquired securities in December 2018 as part of the non-renounceable entitlement offer.
Includes an amount of $392,000 for both Cromwell and the Trust in excess of the pro-rata entitlement for the quarterly distribution paid to those
securityholders who acquired securities in February 2018 as part of the Security Purchase Plan.
25
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Review of operations and results
Cromwell has an 'Invest to Manage' strategy to drive the medium-term growth of distributions and securityholder value.
Cromwell is achieving this by:
• Growing our secured cash flow generating property portfolio;
• Leveraging our unique integrated asset management platform to grow revenue from the funds we manage; and
• Generating additional returns and increased asset values from selective asset enhancement initiatives.
FINANCIAL PERFORMANCE
Cromwell recorded a profit of $159.9 million for the year ended 30 June 2019 (2018: $204.1 million). The Trust recorded
a profit of $163.4 million for the year ended 30 June 2019 (2018: $288.4 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 operating profit.
The most significant of these items impacting the profit of Cromwell for the year and not considered part of the underlying
operating profit were:
• An increase in the fair value of investment properties of $86.4 million (2018: increase of $77.4 million);
• Decrease in the recoverable amount of goodwill and other assets of $0.4 million (2018: $76.1 million);
• Costs in relation to asset classified as held for sale of $35.3 million (2018: $nil);
• Net non-operating gains in relation to equity accounted investments of $1.6 million (2018: gain of $94.8 million); and
• Net non-operating finance costs of $7.8 million (2018: $21.2 million).
Cromwell recorded an operating profit of $174.2 million for the year ended 30 June 2019, an 11% increase over the
operating profit of $156.8 million for the previous corresponding 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.
26
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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/(loss) on sale of investment properties
Gain on sale of listed securities
Loss on disposal of other assets
Finance costs attributable to disposal group / other assets
Other transaction costs
Fair value net gain / (losses)
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 or non-recurring items:
Amortisation of loan transaction costs
Net exchange loss on foreign currency borrowings
Costs in relation to asset classified as held for sale
Decrease in recoverable amounts
Amortisation and depreciation, net of deferred tax expense (1)
Relating to equity accounted investments (2)
Net foreign exchange losses
Net profit from discontinued operations
Restructure costs (reversed) / expensed (3)
Net tax losses utilised (4)
2019
$M
174.2
0.7
–
(0.3)
–
(2.9)
86.4
(10.5)
(9.2)
9.3
(18.8)
(2.0)
(7.8)
(12.7)
(35.3)
(0.4)
(2.4)
1.6
(3.0)
–
0.3
(7.3)
2018
$M
156.8
(5.0)
15.7
–
(2.1)
(5.7)
77.4
(13.7)
(3.5)
27.8
(17.8)
(1.7)
(21.2)
(10.3)
–
(76.1)
(4.4)
94.8
(3.2)
1.5
(4.7)
(0.5)
Profit for the year
159.9
204.1
(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) Relates to the transition of funds management responsibilities for the CEREIT portfolio from Europe to Singapore.
(4) Comprises tax expense attributable to changes in deferred tax assets recognised as a result of carried forward tax losses.
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 stapled security
Operating profit per stapled security
Distributions per security
2019
Cents
7.53
8.21
7.25
2018
Cents
10.89
8.36
8.34
Operating profit per security for the year was 8.21 cents (2018: 8.36 cents). This represents a decrease of approximately
2% over the prior year but was 0.21 cents (3%) above guidance. The change in operating profit per security has arisen as a
result of a number of key factors, mainly:
• An increase in the number of securities on issue following the 2 for 13 accelerated non-renounceable entitlement offer
in December 2018. The entitlement offer saw Cromwell issue of 232 million new securities for proceeds of $228 million;
• An increase in earnings of 12.9% from Direct Property Investments. This was underpinned by like for like net operating
income (NOI) growth in the core portfolio of 3.3%; and
• A decrease in earnings from funds management segment driven by higher operating costs associated with the
expansion into Singapore, the establishment of Luxembourg AIFM, ongoing investment into the integrated European
platform in expectation of future growth and lower project management fees.
27
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT STRATEGY
Cromwell’s objective is to generate sustainable returns for our securityholders from the dynamic allocation and
deployment of capital to our three business activities:
• Our direct investment portfolio;
• Our indirect investments portfolio; and
• Our funds and asset management platform
Our strategy to achieve this objective is based on the following elements:
• We maintain an allocation in our direct portfolio to Core assets that provide a strong, secure and resilient cash flow,
long WALE, strong covenants and low capex requirements which should deliver year on year growth in net operating
property income of 3%;
• We maintain an allocation in our direct portfolio to Core + assets from which we can generate value and take advantage
of short term market trends;
• We maintain an allocation in our direct portfolio to Active assets that give us the opportunity to generate
outperformance from repositioning and redevelopment;
• We generate long term recurring revenue from our retail funds management platform that offers to our retail investors
quality products that are based on a disciplined approach to asset selection;
• We make indirect investments with selected capital partners in listed and unlisted funds that we manage that exceed
our benchmark risk adjusted returns, and in doing so generate transactional and recurring returns and fund and asset
management revenues; and
• We invest in our fund and asset management platform to grow enterprise value and to be a partner of choice for global
capital providers.
Over the last 12 months Cromwell has continued to execute its strategy.
• Positive leasing outcomes have seen our 10 asset Core portfolio increase in value to $1.74 billion and return like for like
NOI growth of 3.3%. The Core portfolio is now two-thirds by value of the entire portfolio;
• The Core + portfolio continued to have strong leasing outcomes in both NSW and QLD and delivered like for like NOI
growth of 5.5%;
• Our Tuggeranong asset, which formed part of the Active portfolio, was sold into the LDK joint venture where it is being
repositioned into a Seniors Living village;
• LDK joint venture acquired one of Sydney’s premium Seniors villages, The Landings at Turramurra (The Landings) for
$60 million;
• The Direct Property Fund, one of Cromwell’s unlisted retail funds, continued to acquire assets during the year. The Fund
continued to be well supported with inflows from investors and is lowly geared. Cromwell continues to maintain a
disciplined approach to acquiring real estate for the Fund;
• Cromwell took up its full entitlement under the rights issue of CEREIT. The CEREIT raised equity in October 2018, via
384 million.
a rights issue, to acquire 23 properties across three portfolios in Europe with a total purchase price of
This was followed by a private placement in June 2019 to acquire a further 6 properties in France and Poland which
will settle after 30 June 2019. At balance date, the CEREIT represented 48% of the total assets under management
for Cromwell’s European business. This has further strengthened the European business and represents a long-term
revenue source for Cromwell; and
• During the year the European business secured its first mandate from Korean investors to acquire an
88 million
property in Italy.
Over the course of the next 12 months, Cromwell will continue to execute on its strategy. Cromwell raised capital during
the year and maintains the capacity and balance sheet liquidity to make further investments, into our active portfolio,
indirect portfolio and our funds and asset management platform. We recognise that the deployment of capital and the
timing of investments and divestments inevitably have an impact on short term earnings performance but we also
recognise that to generate sustainable returns we have to focus on initiatives that are accretive to portfolio value and
enterprise value in the medium to long-term.
28
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT ANALYSIS OF SEGMENT PERFORMANCE
During the year the analysis of Cromwell’s segments was adjusted to reflect better our objective and strategy and
the contribution of the three business activities to operating profit.
The contribution to operating profit of each of the 3 segments of Cromwell and the reconciliation to total operating profit is
set out below:
Direct property investment (i)
Indirect property investment (ii)
Funds and asset management (iii)
Total segment results
Finance income
Management and administration costs
Income tax expense
Operating profit
2019
%
64.8%
21.6%
13.6%
100.0%
2018
%
67.4%
13.0%
19.6%
100.0%
2019
$M
136.1
45.4
28.5
210.0
4.8
(39.6)
(1.0)
174.2
2018
$M
120.6
23.3
35.0
178.9
9.0
(26.7)
(4.4)
156.8
(i) Direct property investment
Summary information at 30 June 2019 about the property portfolio is included below:
Portfolio (1)
Portfolio
%
Value
($M)
Like for Like
NOI Growth
WALE
Occupancy
2019
Core
Core+
Active
Total
2018
Core
Core+
Active
Total
69%
28%
3%
100%
58%
36%
6%
100%
1,742.4
697.7
80.8
2,520.9
1,413.3
888.5
149.2
2,452.0
3.3%
5.5%
121.2%
5.5%
4.6%
1.6%
(14.8%)
1.4%
9.4 yrs
3.1 yrs
0.6 yrs
6.9 yrs
11.1 yrs
3.8 yrs
2.9 yrs
7.4 yrs
99.2%
95.4%
52.8%
91.7%
99.9%
96.1%
79.8%
94.5%
(1)
Includes 100% owned assets and assets classified as held for sale.
Core Portfolio
The Core portfolio now consists of 10 assets and represents 69% of Cromwell’s total direct portfolio by value. Successful
leasing outcomes at HQ North, QLD have resulted in this building being reclassified as part of our Core portfolio. Like for
like NOI growth was 3.3% for the year which was above the target growth of 3.0%.
Core + Portfolio
The Core + portfolio now consists of 6 assets and represents 28% of Cromwell’s total direct portfolio by value. Like for like
NOI growth was 5.5%. This was driven by NOI growth at 207 Kent Street, NSW of 8% and NOI growth at 200 Mary Street,
QLD of 21%. 200 Mary Street, QLD is now 93% occupied versus the 72% occupancy it had at the beginning of the prior year.
The Oracle Building, ACT has gone from being 70% occupied at 30 June 2018 to being 86% occupied at 30 June 2019. We
now regard this asset as stabilised and part of the Core + portfolio.
29
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Active Portfolio
Active assets include the remaining vacant land at Tuggeranong Office Park, ACT, 13 Keltie Street, ACT, Wakefield Street,
SA, and 19 National Circuit, ACT.
13 Keltie Street, ACT is currently vacant. Cromwell is in the process of identifying repositioning opportunities for the
property.
Wakefield Street, SA is currently 100% occupied with a WALE of 0.65 years. Cromwell is in the process of identifying
reletting and repurposing opportunities for the property.
19 National Circuit, ACT is currently 100% occupied with a WALE of 0.55 years. Cromwell is in the process of identifying
opportunities to increase the usable space and gross lettable area of the property.
Tuggeranong Office Park, ACT is currently undergoing a planned transformation into a site containing 350 Seniors Living
units and associated facilities. The first stage of the transformation is expected to cost approximately $110 million. The
first display suites have been completed and sales of the first units are expected to commence during 2020. Part of the
property was sold during the year to LDK Healthcare Unit Trust (LDK). LDK is a joint venture between Cromwell and
Aspire.
The remaining vacant land at Tuggeranong Office Park, ACT, will be used for future construction as opportunities arise.
Valuations for the direct portfolio increased by $74.9 million during the year (2018: $85.7 million), net of property
improvements, leasing incentives and lease costs. This is equivalent to an increase in value of approximately 3.1% or 3.3
cents per stapled security from June 2018 valuations.
Change in valuations, net of property improvements, lease costs and incentives
Non-cash adjustments for straight-lining of rentals and lease amortisation
Increase in fair value of investment properties
2019
$M
74.9
11.5
86.4
2018
$M
85.7
(8.3)
77.4
Increases were concentrated in properties in the Sydney and Melbourne metropolitan areas with long weighted average
lease expiries and strong occupancy rates. The single largest increase was at 700 Collins Street, Melbourne, which is now
99.8% occupied with a WALE of 6.2 years. The other large increases were all recorded in Sydney, being 475 Victoria
Avenue (93% occupancy with a WALE of 2.4 years), 207 Kent Street (99% occupancy with a WALE of 4.3 years) and 2-24
Rawson Place (100% occupancy with a WALE of 8.9 years).
Interest expense
Interest expense for the year increased to $47.6 million (2018: $48.0 million). The average interest rate increased from
3.28% for the year ended 30 June 2018 to 3.35% for the year ended 30 June 2019.
The fair value loss of interest rate derivatives of $13.5 million (2018: loss of $10.7 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
interest rate swaps and caps with 63% of its debt at 30 June 2019 (2018: 81%) hedged or fixed to minimise the risk of
changes in interest rates in the future. All hedging contracts expire between July 2019 and July 2024.
(ii) Indirect property investment
CEREIT
On 30 November 2017, the Cromwell European Real Estate Investment Trust (“CEREIT”) was successfully listed on the
Singapore Stock Exchange. The CEREIT was established to invest, directly or indirectly, in a diversified portfolio of income-
producing real estate assets in Europe. Cromwell owns 35.8% (2018: 35.1%) of CEREIT at the end of the year. Cromwell
accounts for its holding in CEREIT as an equity accounted investment. The share of operating profit recorded for the year
was $44.6 million (2018: $23.2 million).
The CEREIT’s distribution per unit for the first half of CY19 was €2.04 cents per unit which was 4.6% above IPO forecasts.
Outperformance has been driven by property acquisitions. At IPO, the CEREIT had 74 properties and a portfolio value of
€1.35 billion. At 30 June 2019, the CEREIT had 97 properties and a portfolio value of €1.8 billion. A further 5 properties
30
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT were acquired in July 2019 and a further property in Poland is expected to settle in September 2019. This will take the
CEREIT’s portfolio to 103 properties with an expected value of €2.1 billion in Denmark, Netherlands, Italy, Finland,
Germany, Poland and France. The successful growth of the CEREIT has been achieved by leveraging Cromwell’s
integrated European funds management platform and its ability to identify and execute off-market property acquisitions.
The property acquisitions have been funded by additional capital raisings by the CEREIT. In October 2018, CEREIT
undertook a rights entitlement, raising €224 million of new equity. Cromwell took up its full rights under the CEREIT
entitlement offer which amounted to $126.7 million. In June 2019, CEREIT announced a private placement to raise a
further €150 million of equity. Cromwell did not participate in the private placement which saw new units in CEREIT
issued in July 2019.
Northpoint
Cromwell owns 50% of the investment property located at 100 Miller Street, North Sydney (Northpoint) via a 50%
ownership in the Cromwell Partners Trust. Prior to June 2018, the investment property completed a major redevelopment
of its retail space and development of a 187-room hotel. This has seen an increase in operating profit of Cromwell
Partners Trust, of which, Cromwell receives a share, increasing Cromwell’s return to $7.1 million from $5.4 million in the
prior year.
In July 2019, Cromwell announced it had exchanged contracts to sell its 50% ownership in the Cromwell Partners Trust to
Early Light International who will take 100% ownership of the vehicle. The sale is subject to FIRB approval and expected
to settle in September 2019. Cromwell’s investment in the Cromwell Partners Trust has been recognised as held for sale
at 30 June 2019. Cromwell will remain the asset manager of the property post the sale.
The successful execution of the Northpoint sale will allow Cromwell to both realise its development gains and receive a
return on all of its investment to be recycled into future investments.
Campbell Park
Cromwell has an effective 49% interest in an investment property in Campbell, ACT. The investment was valued at $3.8
million at 30 June 2019 (30 June 2018: $11.7 million). The property is leased to the Commonwealth of Australia. Cromwell
receives 49% of the net cash flows from the property with the net cash flows representing the net rental income less
interest expense on the borrowings secured against the property and less any required capital spending. Cromwell has
the option to acquire a direct 49% interest in the property as well as an option to acquire the remaining 51%. Cromwell
will work with the current owner of the property to negotiate a new lease with the Commonwealth of Australia that would
also involve a major redevelopment of the existing building. Cromwell received distributions in the year of $nil (2018: $nil)
via the income assignment deed.
Co-investments
Cromwell has co-investments in both Australian unlisted property trusts and European real estate investment mandates.
Co-investment levels range from 1% to 28% and are accounted for as investments at fair value through profit or loss, or,
as is the case with Portgate, an equity accounted investment. Cromwell receives distributions or a share of profit from its
co-investments which also support the funds management business. Cromwell may also, from time to time, warehouse
assets to use as seed portfolios for new funds or mandates. The balance of co-investments held by Cromwell at year end
was $26 million (June 2018: $28.4 million).
(iii) Funds and asset management
Retail funds management
Retail funds management profit increased to $13.6 million for the year ended 30 June 2019 from $7.6 million for the year
ended 30 June 2018. During the year Cromwell received $8.7 million (2018: $2.1 million) in performance and acquisition
fees from retail funds management activities.
Total retail funds under management increased to $2.3 billion from $2.0 billion at 30 June 2018.
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.
31
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Direct Property Funds
The Cromwell Direct Property Fund continued to receive support from investors during the year with a further 48.8 million
units issued. The Fund acquired two properties during the year, 420 Flinders Street, Townsville for $63.5 million in
December 2018 and 163 O’Riordan Street, Mascot for $113.3 million in June 2019. Cromwell earned $3.5 million in fees
as a result of the acquisitions. The Fund now has a portfolio of 6 investment properties valued at $299.4 million and
investments in other Cromwell unlisted investment schemes valued at $65 million. At 30 June 2019 the Fund was 35%
geared. Cromwell will continue to work to identify quality assets that meet the asset size and risk criteria for inclusion in
the Fund’s portfolio.
The Cromwell Ipswich City Heart Trust was due to reach the end of its initial seven-year term on 28 December 2018. In
September 2018 unitholders of the Trust voted to approve extension of the initial term of the Trust by 4 and a half years,
until June 2023. The performance fee of $4.1 million payable to Cromwell in respect of the rollover was also approved by
the unitholders.
Cromwell’s other two direct property funds, Cromwell Riverpark Trust and Cromwell Property Trust 12, continued to
perform as expected.
Property Securities Funds
Cromwell manages two property securities funds, the Cromwell Phoenix Property Securities Fund and the Cromwell
Phoenix Core Listed Property Fund. Cromwell also manages a fund that is mostly invested in microcap securities, the
Cromwell Phoenix Opportunities Fund.
The Cromwell Phoenix Property Securities Fund was launched in 2008 and since inception has delivered excess returns
(after fees and costs) of 4.2% against its benchmark. The Fund currently has $285.1 million (30 June 2018: $252.4 million)
assets under management.
The Cromwell Phoenix Opportunities Fund was launched in 2011 and since inception has delivered excess returns (after
fees and costs) of 12.2% excluding franking credits. The Fund currently has $35 million (30 June 2018: $39.4 million)
assets under management.
The Cromwell Phoenix Core Listed Property Fund was launched in 2015. On 12 October 2018 Cromwell made the decision
to wind up the Fund. All Fund assets have now been sold and an interim distribution payment made to unitholders in
November 2018. A final distribution was paid on 28 June 2019 returning all remaining funds to the unitholders.
Oyster
Oyster Property Group’s assets under management increased to NZD$1.7 billion at 30 June 2019 (30 June 2018: NZD$1.5
billion).
WHOLESALE FUNDS MANAGEMENT
The European business continues to execute the strategy of securing longer-term and more secure revenue sources.
Wholesale funds management profit decreased to $14 million (2018: $23.1 million) as the business continues to invest in
processes and people to enhance and enable the business strategy.
The European funds management business contributed $7.9 million (2018: $24.5 million) after convertible bond finance
costs. As previously noted, the IPO of CEREIT was successfully completed in November 2017. This marked a significant
shift in the focus and nature of the European business and a major step forward in securing a stable revenue base for the
business. During the current year the first mandate from Korean investors was secured for an €88 million property in
Italy.
During the year the European business traded over €1.3 billion of real estate assets (2018: €3.9 billion, including the
assets rolled into CEREIT). The resulting acquisition and disposal fees amounted to $15.5 million (2018: $20.3 million) out
of total funds management fees of $71.1 million (2018: $80.5 million). Acquisition fees included $5.0 million (2018: $10.1
million) for CEREIT. The European funds management business also received performance fees (promotes) during the
year of $1.2 million (2018: $8.3 million).
As at 30 June 2019 the European funds management business had €3.75 billion ($6.1 billion) assets under management
(30 June 2018: €3.86 billion ($6.1 billion)).
32
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT The movement in AUM for the European business for 2019 was as follows:
Balance at 30 June 2018
Acquisitions
Disposals
Revaluations
Balance at 30 June 2019
Percentage of AUM
CEREIT
€'M
1,391
377
–
40
1,808
48%
Korean
Mandate
€'M
CPRF
(to be rolled)
€'M
EDF
(to be sold)
€'M
Other
Mandates
€'M
–
88
–
–
88
2%
495
–
–
40
535
14%
570
–
(276)
7
301
8%
1,412
20
(560)
149
1,021
28%
Total
AUM
€'M
3,868
485
(836)
236
3,753
100%
The European business will continue to broaden its focus from Private Equity Funds and Mandates and towards longer term
and more secure revenue sources. Following further acquisitions by CEREIT during the current year, the European
business now has 48% of its AUM in a long-term mandate. During the year it also secured its first mandate from Korean
investors with the result being that at balance date, 50% of European AUM is now in longer dated mandates.
As described in the prior year, the investment periods for the two largest unlisted mandates (shown above as CPRF and
EDF) were approaching expiry and in the absence of resolutions to extend the terms of the mandates the portfolios and
assets have been marketed for sale. The Cromwell Polish Retail Fund (CPRF) consists of 7 retail assets in Poland.
Subsequent to balance date Cromwell has exercised its pre-emptive right to acquire third party investor interests in CPRF.
Following the exercise of the pre-emptive right, Cromwell has a period of approximately 2 months in which to conclude the
acquisition of the remaining interests in the existing fund. Cromwell proposes to rollover the acquired interests into a new
fund which will be offered to institutional investors. If CPRF is rolled into a new fund, Cromwell is likely to underwrite or
take a co-investment stake in the new fund.
EDF is a pan-European fund with assets in France, Germany and the UK. Many of the French and German properties have
been successfully sold but uncertainties relating to BREXIT have meant the divestment of properties in the UK has been
deferred.
The remaining AUM, making up 28% of total AUM at balance date, is held in 21 mandates ranging in size from €4.8m to
€116.7m with various end dates between September 2019 and December 2022. Mandates with AUM valued at €474 million
are expected to expire over the course of the next 12 months, with disposals on expiry generating disposal fees and
performance fees for Cromwell. Growth in CEREIT and new mandates are expected to offset the value of the expiring
mandates.
Cromwell’s Australian wholesale fund, Cromwell Partners Trust (“CPA”) continued with its management of the Northpoint
property. The property has undergone a major redevelopment of its retail space and development of a 187-room hotel on
site. Construction was completed in mid-2018 and the hotel has been trading strongly since opening. As noted above,
Cromwell has exchanged contracts to sell its 50% interest in CPA with settlement expected to be in September 2019.
Cromwell earned funds management fees of $3.0 million (2018: $1.2m) from managing CPA. During 2019, Cromwell also
earned a performance fee of $3.4m (2018: $nil) from Redefine Properties for the successful sale of its 50% interest in CPA.
ASSET MANAGEMENT
Asset Services
Australian asset services recorded an operating profit for the year of $0.9 million (2018: profit of $4.3 million). This was
largely due to the timing of project management and leasing activities with the prior year including fees associated with
the Northpoint property.
LDK
Cromwell holds a 50% interest in the LDK Healthcare Unit Trust (LDK), a joint venture conducting a Seniors living
business. During the prior year, Cromwell and LDK commenced a project to repurpose the Cromwell-owned property at
Tuggeranong Office Park in the ACT into a Seniors living village under a Development lease. During the current year, LDK
acquired the Tuggeranong Office Park property (now known as “Greenway”) for $54.5 million, and the development lease
was cancelled.
33
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Display suites at Greenway have been completed and pre-sales have commenced. The site has already attracted 499
Community Members under their new membership model.
In February 2019, LDK acquired one of Sydney’s premium Seniors villages, The Landings at Turramurra (The Landings) for
$60 million. The acquisition was funded by a loan from a third-party bank and a loan from Cromwell. The site comprises
220 architecturally designed, spacious dwellings. Since taking over management of the site, 98% of residents have
elected to convert their interests from a Deferred Management Fee model to the new LDK membership model (subject to
a cooling off period that ends in December 2019). All future residents will be offered the LDK membership model.
Cromwell will receive a share of the operating profits of LDK once it becomes a profitable operation and after LDK first
recovers all previous losses. LDK made a loss for the year of $8.9 million. For most of the year LDK was only involved in
the development at Greenway. The acquisition of The Landings has provided LDK with a revenue source and further
revenue will be generated as Greenway is completed and sold and commences its operations. Cromwell’s share of
operating profits will also include a share of any development profits from initial sales at Greenway.
FINANCIAL POSITION
Total assets ($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 derivatives)
Cromwell
As at
Trust
As at
2019
3,695.7
2,183.0
2,176.2
1,254.8
35%
2,236.6
$0.97
$0.99
2018
3,466.3
1,901.5
1,907.2
1,207.4
37%
1,985.3
$0.96
$0.98
2019
3,654.1
2,183.8
2,188.4
1,301.3
36%
2,236.6
$0.97
$0.99
2018
3,447.6
1,923.4
1,933.0
1,262.4
38%
1,985.3
$0.98
$1.00
(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, restricted cash and disposal group liabilities.
A total of 10 property assets were externally revalued at June 2019, representing approximately 50% of the property
portfolio by value. The balance of the portfolio is subject to internal valuations having regard to previous external
valuations and comparable sales evidence. The weighted average capitalisation rate (WACR) was 5.8% across the
portfolio, compared with 6.1% at June 2018.
Net debt increased by $48.1 million despite total borrowings decreasing by $54 million and is largely due to Cromwell
holding liquidity in its debt facilities rather than in cash. Part of the proceeds from the entitlement offer completed in
December 2018 were used to repay borrowings during the year. Gearing decreased from 37% to 35% during the year as a
result of the decrease in borrowings and the increase in property valuations. This places Cromwell’s gearing in the
midpoint of the newly adopted range of between 30% - 40% through the cycle. It is expected that Cromwell’s gearing will
oscillate around the range depending upon investment deployment. Cromwell’s previous policy was to have gearing
between 35% - 55%.
An additional 251.3 million stapled securities were issued during the year at an average issue price of $0.98, comprising
the 232.3 million securities issued under the Entitlement Offer, the continuing operation of the distribution reinvestment
plan which resulted in the issue of 16.6 million securities during the year, and a further 2.4 million securities issued
following the exercise of performance rights.
NTA per security has increased during the year from $0.96 to $0.97, primarily as a result of an increase in property
valuations which contributed 3.3 cents to the increase in NTA, offset by the issue of additional securities.
On 2 July 2019, subsequent to balance date, Cromwell issued 326.1 million stapled securities under its institutional
placement which was announced on 26 June 2019. Proceeds (net of transaction costs) of $366.3 million were used to
repay borrowings.
34
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT The resultant impact on the financial position of Cromwell is as follows:
Pro forma Financial Position following
Institutional Placement
Cash ($M)
Total assets ($M)
Net assets ($M)
Net tangible assets ($M)
Net debt ($M)
Gearing (%)
Stapled securities issued (M)
NTA per stapled security
NTA per stapled security (excluding interest rate derivatives)
Cromwell
As at
Institutional
Placement
Cromwell
Pro Forma
2019
2 July 2019
2 July 2019
101.6
3,695.7
2,183.0
2,176.2
1,254.8
35%
2,236.6
$0.97
$0.99
366.3
326.1
467.9
4,062.0
2,549.3
2,542.5
888.5
25%
2,562.7
$0.99
$1.01
While Cromwell’s gearing has moved below the target range this will revert back once the proceeds from the placement
are invested.
OUTLOOK
Distribution and operating profit
Cromwell confirms earnings guidance for 2020 of not less than 8.30c per security (at the top of the previous guidance
range of 8.1 - 8.3c per security).
Cromwell confirms distributions of not less than 7.50c per security for 2020.
Cromwell will prudently deploy capital and execute transactions when there are opportunities to do so and always with the
focus on long-term value creation. Securing investments, deploying investment capacity and recycling balance sheet
capital will result in Cromwell’s gearing oscillating, in the short to medium term, within and around the target gearing
range of 30 – 40%. Over the longer term it is intended that normalised gearing will be maintained within the target range.
Risks
Cromwell actively identifies and manages the risks and megatrends that may impact its operations, strategy and outlook.
The Board is ultimately accountable for corporate governance and the management of risk. The Board has separate
committees to review and assess key risks. The Investment Committee is responsible for overseeing and reviewing all
major transactions. The Audit and Risk Committee is responsible for overseeing and reviewing the effectiveness of
Cromwell’s risk management framework.
Cromwell has an active enterprise-wide risk management framework which recognises that all senior managers have
a role to play in the effective management of risk. Risks are identified and assessed in a timely and consistent manner
with regular reporting back to the Board from management via the Audit and Risk Committee.
35
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Cromwell’s key risks and the controls in place to mitigate those risks are outlined in the table below:
Key Risk
Description
Mitigation
Performance
Capital Management
People and Culture
Information and
data security
Leasing
Inability to meet
market guidance and
deliver distributions.
Investments that do
not perform in line
with expectations.
Loss of AUM.
Ensuring continuous
access to debt and
equity markets
to support the
sustainability of
Cromwell.
Ensuring Cromwell
has access to and can
retain key talent.
Maintaining
Cromwell's culture.
Ensuring no loss of
data, breaches of
confidentiality.
Ensuring continuity of
IT applications.
• Defensive core portfolio with market leading WALE ensures cash flow
for 9 years
• Investment Committee and regular review of performance of
investments against targets
• Transition of Europe to long term, secure, reliable revenue streams
• Board approved 'Invest to Manage' strategy
• Board approved gearing range reduced to 30%–40%
• Prudent capital management with cash flow forecasting and available
liquidity matched to capital requirements reviewed monthly and
reported to the Board
• Long dated debt expiry profile
• Diversification of debt funding sources
• Spreading of debt maturities
• Learning and development plan for all staff
• Diversity and inclusion Working Group
• Succession planning for senior staff
• Competitive remuneration
• Performance management and review
• Annual engagement surveys of staff
• Regular training, testing and disaster recovery activities
• Privacy policy, guidelines and procedures
• Disaster recovery and business continuity plan
Inability to lease
assets in line with
asset management
plans and forecasts.
• Defensive portfolio with long WALE
• Large and diversified tenant base
• Experienced leasing team
• Active asset management with focus on repositioning, refurbishing
and re-leasing properties to enhance returns
Governance and
compliance
Ensuring continuous
compliance
with regulatory
requirements.
• Independent Compliance Committee with direct reporting into
the Audit and Risk Committee
• Board approved Task Risk Management Policy ensure ongoing
REIT status
Health and safety
• Cromwell Culture and Values entrenched in performance reviews
• Staff wellbeing program encourages the pursuit of healthy lifestyles
• Employee assistance program provides staff with access to a wide
network of health professionals to discuss any issues in confidence
• Regular façade audits of properties
• Work health and safety programs in place at owned properties
Ensuring the health,
safety and wellbeing of
all staff.
Prevention of death or
serious injury at any
Cromwell owned or
controlled property.
36
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Climate-related Financial Disclosure
Cromwell has been reporting for a number of years on its actions to improve the performance and quality of its assets,
reduce emissions and increase efficiency and resilience. We recognise the potential risks and opportunities arising from
climate change and a transition to a low-carbon economy. To support our approach to reporting on climate risk, Cromwell
has adopted the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The TCFD recommendations were introduced to support a consistent reporting approach to enable financiers, investors,
insurers and other stakeholders to understand an organisations material climate related risks, and the financial
implications and approach being undertaken to manage them.
Cromwell prepared a climate-related disclosure statement in 2018 as part of its annual sustainability report. Our intention
is to update this statement annually as part of the sustainability report and to include greater detail on the targets we have
set and our progress towards meeting the TCFD recommendations. These disclosure statements and annual sustainability
reports can be found on Cromwell’s website at www.cromwellpropertygroup.com or by following the link to
https://www.cromwellpropertygroup.com/sustainability/climate-related-financial-disclosure-statement.
The Task Force structured the disclosure recommendations around four thematic areas that represent core elements of
an organisations operations. These recommended elements and Cromwell’s response is represented below:
TCFD thematic element
Recommendations and Supporting Recommended Disclosures
Reference
Governance
What governance does
Cromwell have in place in
relation to climate risks and
opportunities
Board’s oversight of climate-related risks and opportunities:
• This is encapsulated in Cromwell’s Climate-related Financial
Disclosure Statement. and
• Reflected in Cromwell’s Climate Change Position Policy.
Management’s role in assessing and managing climate-related risks
and opportunities:
• Responsibility for Cromwell’s sustainability framework has been
delegated to the Chief Sustainability Officer (“CSO”) and the Group
Sustainability Committee, who are responsible for reviewing
economic, environmental and social topics, setting sustainability
strategy and overseeing the delivery of Cromwell’s sustainability and
corporate social responsibility policy. Regular progress reports are
submitted to the Board as well as to the Audit and Risk Committee.
• This is explained in Cromwell’s Climate-related Financial Disclosure
Statement.
Sections:
Corporate
Governance
Risk Mitigation
Framework
Section:
Strategy
Strategy
What are the material
actual and potential
impacts of climate-related
risks and opportunities on
Cromwell’s businesses,
strategy and financial
planning.
Climate-related risks and opportunities Cromwell has identified over
the short, medium and long term:
• These are identified in Cromwell’s Climate-related Financial Disclosure
Statement.
Impacts of climate-related risks and opportunities on Cromwell’s
business, strategy and financial planning:
• These are identified in Cromwell’s Climate-related Financial Disclosure
Statement.
Section:
Risk Management
Risk Mitigation
Framework
Section:
Risk Management
The resilience of Cromwell’s strategy to different climate-related
scenarios:
• This is explained in Cromwell’s Climate-related Financial Disclosure
Section:
Risk Mitigation
Framework
Statement.
37
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT TCFD thematic element
Recommendations and Supporting Recommended Disclosures
Reference
Risk Management
How does Cromwell
identify, assess and manage
climate-related risks
Cromwell’s processes for identifying and assessing climate related-
risks:
• These are detailed in Cromwell’s Climate-related Financial Disclosure
Section:
Risk Management
Statement.
Cromwell’s processes for managing climate related risks:
• These are enshrined in Cromwell’s Sustainability Pillars, details of
which can be found in Cromwell’s 2018 Sustainability Report.
The integration of Cromwell’s overall risk management with processes
for identifying, assessing and managing climate-related risks:
• These are described in Cromwell’s Sustainability Pillars, details of
which can be found in Cromwell’s 2018 Sustainability Report.
• This is also reflected in Cromwell’s Group Sustainability Policy.
Metrics and targets
What are the metrics and
targets used to assess and
manage relevant material
climate-related risks and
opportunities
The metrics used by Cromwell to assess climate-related risks and
opportunities in line with its strategy and risk management process:
Disclosure of Greenhouse Gas (“GHG”) emissions and related risks:
Targets used by Cromwell to manage climate-related risks and
opportunities and performance against these targets:
• These are disclosed in Cromwell’s 2018 Sustainability Report.
• These are also disclosed in Cromwell’s Climate-related Financial
Disclosure Statement.
Section:
Economic Pillar
Governance Pillar
Community Pillar
Environmental
Pillar
Sections:
Rating Systems and
Measurement
Environmental
Pillar
Sections:
Metrics and Targets
Direct owned
property emissions
and targets
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.
Subsequent events
Other than as disclosed in note 25, no matter or circumstance has arisen since 30 June 2019 that has significantly affected
or may significantly affect:
• Cromwell’s operations in future financial years; or
• the results of those operations in future financial years; or
• Cromwell’s state of affairs in future financial years.
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.
38
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Trust Disclosures
ISSUED UNITS
Units issued in the Trust during the year are set out in note 11 in the accompanying financial report. There were
2,236,642,691 (2018: 1,985,324,674) 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 $3,654.1 million (2018: $3,447.6 million). Net assets
attributable to unitholders of the Trust were $2,183.8 million (2018: $1,923.4 million) equating to $0.99 per unit (2018:
$0.98 per unit).
The Trust’s assets are valued in accordance with policies stated in notes to 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 be 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 2019 was $6,964,904. This amount is comprised of fixed remuneration of $4,234,369 and
variable remuneration of $2,730,535.
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.
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.
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 (Cth). 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.
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 have been rounded off to the nearest
one hundred thousand dollars, or in certain cases to the nearest dollar, unless otherwise indicated.
39
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Auditor
Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001 (Cth).
The Company may decide to employ Deloitte Touche Tohmatsu on assignments additional to their statutory duties where
the auditor’s expertise and experience with the Company and/or 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 (Cth). 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 (Cth) 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 Cromwell
are set out below:
Non-audit services
Due diligence services
Tax compliance services – Australia
Tax compliance and other services - overseas
Total remuneration for non-audit services
(1) Services provided by Deloitte Touche Tohmatsu in respect of 2019 year.
(2) Services provided by Pitcher Partners in respect of 2018 year.
2019(1)
$
208,050
30,800
181,300
420,150
2018(2)
$
63,000
-
-
63,000
In the prior year, Pitcher Partners, as auditor, received 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 was disclosed in the relevant entity’s financial reports and totalled $146,500.
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:
Non-audit services
Tax compliance services – Australia
Tax compliance and other services - overseas
Total remuneration for non-audit services
2019
$
367,123
73,541
440,664
2018
$
287,900
41,148
329,048
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 (Cth)
accompanies this report.
40
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Remuneration report
A Message from the Chair, Nominations and Remuneration Committee
Dear Securityholder
On behalf of the Board, I am pleased to present Cromwell’s Remuneration Report for the year ended 30 June 2019 (FY19).
Our Remuneration Report is designed to demonstrate the link between strategy, performance and remuneration outcomes
for Key Management Personnel (KMP). Our remuneration policy is designed to strike the right balance between
competitively and equitably rewarding our employees, who are the ‘talent’ at the core of our value proposition;
safeguarding and promoting the interests of our clients and creating long-term value for our shareholders.
At the Annual General Meeting (AGM) we will seek your support of this report and proposed changes to the FY20
Remuneration Framework.
Cromwell has committed to an 'Invest to Manage' Strategy to drive the medium-term growth in the Cromwell distributions
and security price. This will be achieved by:
• Leveraging our unique International property management platform to grow revenue from funds we manage
• Maintaining and enhancing our Australian secured cash flow generating platform
• Generating value in Australia and the other markets in which we operate from selective asset enhancement initiatives
Year in review
FY19 has been a successful one for Cromwell following the realisation of initiatives that have enabled the company to
achieve key elements of its strategy to transform from a more passive typical AREIT into an International Real Estate
Investor and Manager. Total Shareholder return in FY19 was 11% (FY18 28%). Distribution guidance was met, and profit
guidance was exceeded.
We have moved from being an Australian REIT with limited strategic opportunities and completely dependent on the
continuing strength of the Australian economy to a Group that can now leverage capital flows from Asia into investment or
management vehicles in 12 European countries, Australia, New Zealand and Singapore.
Over the course of 2019, the Singapore listed Cromwell European REIT (CEREIT) acquired a further 23 properties and at
balance date had a property portfolio worth $2.9 billion. A further 5 properties were acquired in July 2019 and another
property in Poland is expected to settle in September 2019 taking the portfolio value to $3.4 billion.
The successful growth of the CEREIT has been achieved by leveraging Cromwell’s integrated European funds management
platform and its ability to identify and execute off-market property acquisitions. This now provides Cromwell with the
ability to enhance shareholder value by taking advantage of opportunities in the International markets in which we
operate. The success of this strategy is demonstrated by the change in Assets under Management and a better balance
between short-term mandates and long-term stable revenue sources in the European business, as shown in the table in
Section 4.0.
Cromwell successfully undertook an Entitlement offer that raised $228m in December 2018. A further successful
institutional placement and security purchase plan shortly after FY19 year-end raised circa $307m and followed the
identification of over $1billion of acquisition opportunities in Australia and Europe. The need for this additional capital was
identified as part of the strategic planning process and will help to deliver on the 'Invest to Manage' Strategy in coming
years.
During FY19 the Nomination and Remuneration Committee undertook the following activities;
• Reviewed the composition of the Committee and appointed a Non-Executive Director as Chair.
• Initiated and appointed an Executive Search firm to deliver on the agreed process for Board renewal
• After reviewing performance against KPIs, recommended STI and LTI allocations for KMPs to the Board
• Received advice from two independent remuneration experts to benchmark Executive KMPs Remuneration Frameworks
• Incorporated feedback from shareholders and proxy houses on the existing Remuneration Framework for FY20
41
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT • Reviewed and determined proposed improvements to the FY20 Remunerations Frameworks for Executive KMPs which
the Committee believe exceed general market practice (see section 1 and 6)
• Determined STI and LTI KPI Hurdles that reward executives for successful delivery of the 'Invest to Manage' Strategy
and align to the experience of shareholders
• Increased the transparency, clarity and detail provided in the Remuneration Report including Chief Executive
performance against stretch hurdles
The proposed FY20 Remuneration Framework is made up of three key principles that are directly aligned to our business
strategy. Firstly, for Executive KMPs more of their remuneration will be 'at risk' with an increased weighting towards
medium and long-term share rewards because we want our employees to be aligned to our shareholders and have an
ownership mindset. Secondly, recruiting exceptional talent relies on market benchmarking, paying fairly for skills, ability
and responsibility. The third principle is performance accountability which includes delivering annual business results
within the risk tolerances set by the Board.
We will continue to review and refine our remuneration arrangements to ensure they deliver on our goals, accounting for
the ever-changing business environment, legislative reform and to reflect your feedback.
Yours sincerely
Andrew Fay
Chair
Nomination and Remuneration Committee
42
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT REMUNERATION REPORT
The remuneration report is presented for the financial year ending 30 June 2019. The report forms part of the Directors’
Report and has been prepared and audited in accordance with the requirements of the Corporations Act 2001 (Cth).
This report is where we explain how performance has been linked to reward outcomes that forge a clear alignment
between Cromwell staff and securityholders.
1
5
8
Remuneration Overview
Executive KMP Remuneration for
FY19
Remuneration and Conditions
of Employment of the KMP
5.1
Summary of
Remuneration Elements
for the CEO and Other
KMP
8.1
Cash and At-Risk Bonus
expensed or accrued in
2019
5.2
LTI Equity Based
Compensation Principles
and Application
8.2
Details of remuneration:
At-Risk cast bonuses
and performance rights
vesting and forfeiture in
2019
2
Remuneration Governance
2.1
Role of the Nomination
and Remuneration
Committee
2.2
Services from
Remuneration
Consultants
Objective of Remuneration
2.3
3
Total Vested
Remuneration for the CEO
5.3
5.4 LTI Performance
Measures for KMP other
than the CEO
6
Key Management Personnel
Improvements for FY20
4
2019 Performance
7
Non-executive Directors
Remuneration
7.1
Board Remuneration
Structure
7.2 Total Remuneration for
Non-executive Directors
Termination Provisions
Compensation for the CEO
and Other KMP
8.3 Equity Based
8.4 Employment Contract and
8.5
8.6
8.7
Other Transactions
with KMP
Securityholdings
Loans to KMP
43
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
1. Remuneration Overview
Set out below is a summary of the CEO FY19 and other KMPs Remuneration Frameworks as well as the key changes
proposed for FY20. Some of the proposed changes in FY20 will require shareholder approval at Cromwell’s November 2019
Annual General Meeting.
Key Questions
FY19
Proposed in FY20
Were any changes
made to the CEO’s
remuneration
structure in FY19 and
are there any
proposed for FY20?
The portion of pay at risk was increased to
61% at the maximum opportunity. There was
also a reweighting from the STI to the LTI
opportunity to create greater alignment to
shareholders by rewarding long term value
creation.
No change to the total opportunity nor the mix
between at risk (61%) and fixed pay (39%).
The proposed LTI hurdles will now encompass
three hurdles one of which is a relative TSR
measure.
CEO fixed pay, reduced by $100,000 to
$1,500,000, in FY18 was unchanged in FY19.
This level was determined as appropriate given
his extensive experience, skills and global
nature of the role.
CEO’s remuneration:
Short term incentive
(STI)
The maximum STI opportunity, reduced by
$700,000 to $900,000, in FY18 was unchanged
in FY19.
Financial STI hurdles were increased to 80% of
KPIs (20% non-financial). Each non-financial
hurdle had measurable KPIs.
Stretch targets were introduced with a
potential 25% bonus above target for some
KPI’s reflecting exceptional results, provided
the maximum opportunity was not exceeded.
Only one hurdle received a bonus above target
and one failed to achieve the lower bound of
the stretch targets.
FY19 STI of $797,225 was awarded (FY18
$846,000).
The STI will be paid in cash given the relative
size of the STI compared to the LTI and the
CEO’s shareholding of over 18 times fixed
remuneration.
Existing Scheme
For details on the existing scheme refer to
section 5.1.
For details of performance against STI KPIs
refer to section 5.3.
An official clawback policy on unvested rights
and deferred stock has been introduced.
Director discretion applies where a formulaic
application of relevant remuneration metrics
would lead to perverse outcomes.
Maximum opportunity remains at $900,000.
STI KPI hurdles remain 80%/20% financial to
non-financial.
An STI gateway has been introduced being
95% of guidance and adhering to cultural
related expectation including acting ethically
and responsibly.
Any exceptional bonuses remain subject to the
cap of $900,000 and in addition, guidance
Operating EPS must have been achieved.
Where any STI KPI is missed by more than
10% of the lower end of the stretch
performance range there is board discretion
when determining the award of any
exceptional bonus for another KPI, potentially
reducing the amount.
Any STI award will again be paid in cash given
the relative size of the STI compared to the LTI
and the CEO’s shareholding of over 18 times
fixed remuneration. This will be reviewed if the
CEO’s shareholding falls below 3 times Fixed
Remuneration.
44
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Key Questions
FY19
Proposed in FY20
CEO’s remuneration:
Long-term incentive
(LTI):
The LTI opportunity, increased by $700,000 to
$1,500,000 in FY18 was unchanged in FY19.
The LTI opportunity remains at $1,500,000.
The LTI KPI hurdles are linked to delivering
Cromwell’s long-term strategy.
There are two KPI hurdles: one a measure of
Total Return (25%) and the second regarding a
Return on Contributed Equity (ROCE) (75%).
Measuring and vesting are for a three-year
term.
Two of the LTI KPI hurdles are linked to
delivering Cromwell’s long-term strategy and
a third measure being a Relative TSR will be
introduced.
The two absolute KPIs will remain a measure
of Total Return and ROCE but the definitions
have been adjusted to be consistent with
market practice.
Stretch target ranges are set each year by the
Board and measured each year with an
average over the three years determining the
vesting percentage.
The measurement period will remain three
years however, a fixed stretch range has been
set for each hurdle over the three-year period.
The three LTI KPI hurdles are evenly weighted.
Vesting is at 50% at the lower bound of the
stretch target and straight-line vesting to
100% at the upper bound.
Existing Scheme
For details on the existing scheme refer to
section 5.2.
Measurement of the Relative TSR will be point
to point over the three-year period.
LTI stock that is awarded will vest 50% at three
years and 50% deferred for a further year. The
holding lock equity will participate in
dividends. There is no retesting of the KPI.
For details on Performance Rights granted to
the CEO under the existing scheme refer to
section 5.3.
Vesting has been reduced to 25% at the lower
bound of the stretch target and straight-line
vesting to 100% at the upper bound.
Good leaver and Change of Control provisions
will apply to unvested stock at a pro rata rate
and will be tested. The Board does however,
retain discretion.
Proposed New Scheme
For details on the proposed new scheme refer
to section 6.
45
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Key Questions
FY19
Proposed in FY20
Were any changes
made to the other
Executive KMPs
remuneration
structure in FY19 and
are there any
proposed for FY20?
Reflecting the increasing Global nature of the
CFO and COO roles their Fixed Remuneration
increased on average by 10.6% in FY19.
Following unforeseen time commitments due
to overseas staff departures and as an interim
step to introducing a fully developed broader
KMP STI scheme, the Board agreed to
consider the CFO and COO for a FY19 cash
only STI award.
The current LTI scheme is a backward looking
individual balance scorecard approach, based
on a fair value award, which vests after three
years.
Fixed Remuneration will increase by CPI.
Following peer benchmarking it is proposed
that other executive KMP remuneration
structure will include a formal STI opportunity
from FY20.
In addition, they will move to the same forward
looking LTI scheme as the CEO.
For the existing KMP’s (ex-CEO) this will see
their at-risk remuneration increase to 50% of
their total maximum opportunity.
50% of any STI will be deferred as stock for
one year.
As a result of the STI opportunity, the portion
of pay at risk was effectively increased to 27%
at the maximum opportunity (FY18 20%).
An official clawback policy on unvested rights
and deferred stock has been introduced.
Other KMP
remuneration:
Short term incentive
(STI)
Director discretion applies where a formulaic
application of relevant remuneration metrics
would lead to perverse outcomes.
Proposed New Scheme
For details on the proposed new scheme refer
to section 6.
In FY19 the two KMPs received a cash based
STI payment of $100,000.
For existing other KMPs the STI opportunity
will be set at 50% of fixed remuneration.
In addition to the comments above, the CEO
recognised the opportunity to ensure greater
cultural alignment between international
offices, if both KMPs assumed direct
management responsibility for the respective
roles in the European business. This involved a
significantly increased unforeseen work load,
temporarily increased direct reports and
extensive overseas office time.
Existing Scheme
For details on the FY19 STI considerations
refer to section 5.1.
It will be a balanced score card approach with
KPI hurdles 50%/50% financial to non-
financial set by the CEO and reviewed by the
Board.
Unlike the CEO, 50% of the award will be
deferred as stock for one year but will be
eligible for dividends.
In the event of a Change in Control the stock
will fully vest.
Where the STI gateway of 95% of guidance is
not relevant, the adhering to cultural related
expectation including acting ethically and
responsibly will remain.
The other terms are as per the CEO’s STI.
Proposed New Scheme
For details on the proposed new scheme refer
to section 6.
46
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Key Questions
FY19
Proposed in FY20
Other KMP
remuneration:
Long-term incentive
(LTI):
The current LTI scheme is a backward looking
individual balance scorecard approach, based
on a fair value award, which vests after three
years.
For existing other KMPs the LTI opportunity
will be set at 50% of the Fixed Remuneration.
The other terms are as per the CEO.
Existing Scheme
For details on the existing scheme and FY19
granting refer to section 5.4.
Proposed New Scheme
For details on the proposed new scheme refer
to section 6.
Other Key questions
Cromwell’s response
Further information
1. How is the Group’s
performance
reflected in this
year’s remuneration
outcomes?
2. Were there any
changes made to
total Non-executive
Directors'
remuneration pool in
2019?
At the start of FY19 Cromwell communicated
its 'Invest to Manage' strategy and gave
Operating Earnings Per Security (OEPS)
guidance of 8.0cps. The reduction in the
dividend was also foreshadowed to 7.25cps to
allow reinvestment in the platform. Despite
undertaking a $228 million capital raising in
December 2018 and using 44% of these funds
to reduce gearing and overall inherent risk in
the business, the OEPS of 8.2cps exceeded
guidance. While Total Shareholder return in
FY18 was 11% (FY18 28%), compared with
19.4% for both the S&P/ASX 300 A-REIT
accumulation index, Cromwell has
outperformed by 4.7% over the three years. In
FY19 the CEO’s STI reduced 6% to $797,225.
On an IFRS basis the CEO’s total pay has
increased by 34% to $3.936m while his actual
vested pay for FY19 was down 12% to $3.128m.
The reasons for the much higher IFRS
increase include: the delay in granting and
hence expensing part of the FY18 LTI grant in
FY18. This was owing to the 2017 negative
AGM vote on the CEO’s remuneration and the
subsequent 2018 positive AGM vote where
securityholders agreed to a greater proportion
of total remuneration being deferred at risk. In
addition, by increasing the LTI grant from
$800k to $1.5m and using two absolute
financial measures as the LTI Hurdles this
also tends to overstate the IFRS amount
compared to an LTI with peer relative hurdles.
In FY19, KMP remuneration has remained flat
at 4% of operating earnings.
No. The maximum amount approved by
securityholders currently stands at $1,000,000,
which has not changed from 2017. Total
Directors fees increased 1.9% in FY19.
Link between remuneration and performance
- refer to section 4.0.
Refer to section 7.1.
47
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Other Key questions
Cromwell’s response
Further information
Refer Sections 5.3 and 5.4 and summary 8.3.
3. Did any LTI awards
vest in 2019?
The performance period for the 2016 awards
vested during 2019. This was based on the
PRPs approved by securityholders and issued
in 2016, the performance hurdles of which are
tested annually for three years, refer to
sections 5.3 and 5.4.
4,738,497 LTI performance rights were granted
to KMP in 2019.
1,459,134 LTI performance rights vested and
were exercised by KMP in 2019.
Other Proposed Changes for FY20
4. Minimum KMP
Securityolding
Requirement
The Board has agreed to introduce minimum
securityholding requirements for KMPs.
Non-executive Directors are required to hold a
minimum of one year’s fees within three years
from July 2019 or their start date. The CEO is
required to hold a minimum of 150% of Fixed
Remuneration as securities and the other
executive KMPs a minimum of 50% of Fixed
Remuneration. KMPs have four years to
accumulate their holding. Securities in STI and
LTI holding lock are included as a KMPs total
holding. There is Director discretion based on
a staff member’s personal circumstances.
5. KMP security
issues
FY20 STI and LTI security grants will be
calculated using a Face Value methodology
with no adjustment for dividends.
6. Board base fees
and committee fees
From 1 July 2019, fees and payments to
Non-executive Directors have increased by CPI
which was 1.3%.
7. Additional KMPs
for FY20
From July 2019 the Chief Investment Officer
will become a KMP and his at-risk
remuneration will be a higher percentage than
other executive KMPs given specific
measurable aspects of his role.
8. Notice Periods for
Executive KMPs
All Executive KMPs to have their two-way
notice periods standardised to six months.
48
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 2. Remuneration Governance
2.1 ROLE OF THE NOMINATION AND REMUNERATION COMMITTEE
The Board has appointed a Nomination and Remuneration Committee (“Committee”). The Committee oversees the
Remuneration Framework and monitors remuneration outcomes. In doing so it takes into account the interests of
securityholders and the behaviours that the Group wishes to promote.
The Board approves and reviews, on an annual basis the remuneration of Cromwell’s KMP on the recommendation of the
Committee.
During the financial year the members of the Committee were:
Mr G Levy
Mr A Fay
Non-executive Director and Chair – resigned from Committee on 21 November 2018
Non-executive Director and Chair – appointed on 21 November 2018
Ms M McKellar
Non-executive Director
Ms J Tongs
Mr L Blitz
Non-executive Director
Non-executive Director
The Committee operates independently of Cromwell Management and may engage remuneration advisors directly.
Management makes recommendations to the Nomination and Remuneration Committee in relation to the development
and implementation of reward strategy and structure. The CEO provides his recommendation to the Committee on fixed
pay and incentive outcomes for his direct reports.
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.
2.2 SERVICES FROM REMUNERATION CONSULTANTS
During the year the Committee engaged the services of both KPMG and Morrow Sodali to advise on the redevelopment of
the short-term and long-term executive incentive schemes that will operate from 1 July 2019. Neither provided a
remuneration recommendation as defined by Section 9B of the Corporations Act 2001 (Cth). The Chair of the Committee
has consulted directly with a range of proxy advisors and institutional investors to understand their viewpoint on issues
relating to remuneration generally and has discussed with them the nature and circumstances of Cromwell’s business
operations and economic environments in which it operates.
2.3 OBJECTIVE OF REMUNERATION
The objective of the Cromwell remuneration strategy is to support and drive the execution of the Cromwell Strategy which
is to utilise our unique Australian and International Platform to grow value for our securityholders in a sustainable
manner. Cromwell’s remuneration strategy is designed to align behaviours with Cromwell’s strategic objectives.
Cromwell’s remuneration framework makes provision for:
• Fixed remuneration (FR) which is benchmarked to market and which is used as a tool to attract and retain executives
with the skills and experience needed to respond to the challenges of achieving Cromwell’s strategic objectives and
observing Cromwell behaviours and values.
• Short-term incentives, where deemed appropriate by the Board, to drive short term objectives such as operational
improvement, cultural transformation and the pursuit of new growth opportunities to position the group to achieve its
strategic objectives. Currently the only KMP to receive a STI is the CEO. We are reviewing applying STIs to the broader
group of executives given the current and changing strategic objectives of the Group.
• Long-term incentives that are used as both a retention tool and to create alignment between employees and the
objectives of securityholders in securing sustainable returns.
Cromwell strives to create an executive remuneration framework that drives a performance culture, ensuring there is a
strong link between executive pay and the achievement of company strategies and value to securityholders.
49
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 3. Key Management Personnel
In this report, key management personnel (KMP) are those individuals having the authority and responsibility for planning,
directing and controlling the activities of the Group, either directly or indirectly.
They comprise:
• Non-executive Directors
• The Executive Director – who is the CEO Paul Weightman
• Other Executives considered KMP
Name
Position / Title
Independent Non-executive Directors
Geoff Levy
Michelle McKellar
Jane Tongs
Leon Blitz
Andrew Fay
Marc Wainer
Non-Independent Non-executive Director
David Blight
Executive Director
Paul Weightman
Other Executives
Michael Wilde
Jodie Clark
Non-executive Chair
Non-executive Director
Non-executive Director
Non-executive Director
Full year
Full year
Full year
Full year
Non-executive Director
Commenced 15 October 2018
Non-executive Director
Retired 21 November 2018
Non-executive Director
Commenced 1 June 2018,
resigned 19 July 2019
Chief Executive Officer
Full year
Chief Financial Officer
Chief Operations Officer, Property
Licensee
Full year
Full year
Simon Garing (1)
Chief Capital Officer
From 19 December 2017
to 30 June 2018
(1) Mr Simon Garing was transitioned to the role of CEO of Cromwell EREIT Management Pte. Ltd. from 1 July 2018 and is no longer a KMP of Cromwell.
4. 2019 Performance
Cromwell has committed to an 'Invest to Manage' Strategy to drive the medium-term growth in the Cromwell
distributions and security price
This will be achieved by:
• Leveraging our unique International property management platform to grow revenue from funds we manage
• Maintaining and enhancing our Australian secured cash flow generating platform
• Generating value in Australia and the other markets in which we operate from selective asset enhancement initiatives
The IPO and listing of CEREIT marked a significant broadening of the focus and nature of the European business and a
major step forward in securing a stable revenue base for the business. Over the course of 2019, the CEREIT acquired a
further 23 properties and at balance date had a property portfolio worth $2.9 billion. A further 5 properties were acquired
in July 2019 and a further property in Poland is expected to settle in September 2019. This will take the CEREIT’s portfolio
to 103 properties with an expected value of $3.4 billion in Denmark, Netherlands, Italy, Finland, Germany, Poland and
France. The successful growth of the CEREIT has been achieved by leveraging Cromwell’s integrated European funds
management platform and its ability to identify and execute off-market property acquisitions.
50
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT The success of this strategy is demonstrated by the change in Assets under Management and a better balance between
short-term mandates and long-term stable revenue sources in the European business, as shown in the table below.
Australia
Europe – Short Term
Europe – Stable
New Zealand
Assets Under Management
$’M
4,992
4,705
4,516
4,303
3,922
$’M
3,009
3,905
5,006
5,506
5,884
$’M
3,072
2,193
–
–
–
$’M
816
681
572
469
325
Financial Year
2019
2018
2017
2016
2015
Total
$’M
11,889
11,484
10,094
10,278
10,130
Cromwell aims to deliver consistent cash flow returns from the core properties in its direct property portfolio. The core
assets in the direct property portfolio consists of 10 properties worth $1.7 billion with a combined weighted average lease
expiry of 9.4 years and 99% occupancy. The growth in like for like net operating income (NOI) derived from the core
portfolio over the last three years has been consistently above the target of 3%.
Portfolio
Core
Core +
Active
Like for Like NOI growth
2019
3.3%
5.5%
2018
4.6%
1.6%
2017
8.8%
1.9%
121.2%
(14.8%)
(23.5%)
Cromwell’s key financial measures for the last five years are set out below:
2019
2018
2017
2016
2015
Operating earnings per security
8.2 cents
8.4 cents
8.7 cents
9.4 cents
8.3 cents
Change over previous year
(2%)
(3%)
(8%)
13%
(2%)
Distribution per security
7.3 cents
8.3 cents
8.3 cents
8.2 cents
7.9 cents
Change over previous year
Gearing
Change over previous year
KMP remuneration as % of
operating earnings
Change over previous year
(12%)
35%
(5%)
4.0%
2.5%
–%
37%
(18%)
3.9%
(13%)
2%
45%
5%
4.5%
50%
4%
43%
(4%)
3.0%
11%
4%
45%
7%
2.7%
(29%)
2016 operating earnings exceeded expectations because of transactional revenue from the one-off performance fees from
Cromwell Box Hill Trust and the opportunistic acquisition of the investment in the Investa Office Fund. When these items
are considered, Cromwell has seen sustained consistent earnings levels from 2015 through to the current financial year,
despite significant investment into the European platform and reduced gearing from 45% to 35%. At the same time, KMP
remuneration has remained at a level of less than 5% of operating earnings, which reflects Cromwell’s adherence to a
disciplined approach to managing the business for the benefit of securityholders.
In 2019, as part of the 'Invest to Manage' strategy, Cromwell adjusted its distribution policy down from 95% - 100% of
operating earnings to 90% - 95% of operating earnings. The surplus funds are to be reinvested into investment
opportunities to accelerate the growth of the funds management platform.
51
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Total return of Cromwell securities
The chart below illustrates Cromwell’s performance against the S&P / ASX300 A-REIT Accumulation Index since stapling in
2006.
Cromwell Performance vs S&P / ASX 300 A-REIT Accumulation Index
350
300
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3
Cromwell Property Group
S&P/ASX 300 A-REIT Accumulation Index
Total Securityholder Returns (Annualised)
Cromwell’s Total Securityholder Return (TSR) over the last 1, 3, 5, 10 and 15 years relative to benchmark indices is shown
below.
Cromwell Annualised Performance Returns to 30 June 2019
30%
25%
20%
15%
10%
5%
0%
Cromwell Total Return
All Ordinaries Accumulation Index
S&P / ASX 300 A-REIT Accumulation Index
1 year
11.0%
11.0%
19.4%
3 year
13.1%
12.6%
8.4%
5 year
12.0%
9.0%
13.8%
10 year
15 year
18.2%
10.0%
14.0%
25.6%
8.9%
5.9%
In all but the 1 and 5-year return, Cromwell has outperformed the Property Index and over all periods has outperformed
the All Ordinaries Accumulation Index.
The Board believes the execution of the 'Invest to Manage' strategy will result in both sustainable long-term earnings and
higher overall returns to securityholders. Over the course of any short-term period, the total securityholder return of
Cromwell will vary against the index. Over the medium-term, the overall performance of Cromwell should be demonstrated
in sustained operating earnings and growth in total securityholder returns. The LTI hurdles implemented for the CEO in 2019
(which will be extended to other executives in 2020) will reward the achievement of medium-term returns.
52
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 5. Executive KMP for FY19
5.1 SUMMARY OF REMUNERATION ELEMENTS FOR THE CEO AND OTHER KMP
Component
Input
FY19 – Strategy and Performance Link
A. Fixed remuneration CEO and Other KMP
All employees receive a remuneration
package that includes a fixed pay component.
The fixed remuneration comprises cash salary,
superannuation and other salary sacrificed
benefits.
The fixed pay is a set amount to reflect the role
complexity, responsibilities and skill levels
required, with cognisance to the market.
B. At-risk cash
CEO
bonus (short term
incentives)
Short term incentives are generally included as
part of the remuneration package as the CEO
can have a material impact on the key marginal
drivers of operating earnings in any given
financial year.
The purpose of the STI 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 and reward him to achieve
stretch performance objectives that assist the
achievement of Cromwell’s strategic agenda.
Short term incentives are currently paid as
cash bonuses, and once paid there are no
forfeiture provisions.
Other KMP
Following the unforeseen time commitments
due to overseas staff departures and as an
interim step to introducing a fully developed
broader KMP STI scheme, the Board agreed to
consider the CFO and COO for a FY19 cash only
STI award.
Review of STI
In FY20 given the growth in geography and
diversity of roles, the Board has agreed to
formally broaden the STI tool to a larger cohort.
See section 6.0.
• To attract, retain and motivate executives
with the right capability and experience to
achieve results in the geographic regions
in which Cromwell operates or has set
strategic objectives.
• Reviewed annually by the Board, who
consider performance during the year,
relevant external market data, tenure and
experience.
• Cromwell’s approach is to initially set FR at
a level that allows progressive increases to
apply as the individual performs in their role
and becomes more experienced.
Limited to a maximum of $900,000. The 2019
performance measures for the CEO’s STI were:
• 20% linked to the operating profit per
stapled security
• 20% linked to achieving transactional
income targets
• 10% linked to NOI growth of Core portfolio
• 20% linked to CEREIT growth strategy
• 10% linked to Europe growth strategy
(excluding CEREIT)
• 20% linked to culture, succession planning,
management and sustainability scores
The KPIs were therefore 80% financial
measures and 20% non-financial. With
the majority of the non-financial having
measurable KPIs.
Having recognised the need for structural
changes in the European business the other
KMPs were actively involved in ensuring
greater cultural alignment between
international offices. Both KMPs assumed
direct management responsibility for the
respective roles in the European business
following agreed staff departures. In addition,
they have been instrumental in implementing a
single global scalable control platform covering
accounting, HR, marketing and IT. This involved
a significantly increased unforeseen work
load, temporarily increased direct reports and
extensive overseas office time.
53
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Component
C. At-risk equity
element
Input
CEO
A long-term equity payment aimed at
alignment and retention.
LTIs are to reward KMP for long-term
performance, encourage securityholding
retention and to deliver long-term value
creation for securityholders.
FY19 – Strategy and Performance Link
As Cromwell transitions from a pure yield
producing A-REIT to a more growth aligned
International Property Group the Board
believes its CEO should be more aligned to the
long-term value outcomes for securityholders.
In 2019, the CEO’s LTI scheme was adjusted to
incorporate the following key changes:
• Hurdles are set on a forward-looking basis
and are different from the STI hurdles
• Number of performance rights granted is
based on the face value methodology and
not fair value
• Removal of cliff vesting
Hurdles and targets are as follows:
75% – Return on Contributed Equity
Return on contributed equity is defined
as being:
(Operating earnings + NTA impact from
completed projects) / weighted average
contributed equity.
FY18 Target Range of 8%-18%
FY19 Target Range of 8% - 10%
FY20 Target Range of 9% -12%
Below minimum target no rights vest. At
the minimum target, 50% vest. 100% vest at
the maximum target. There is straight-line
vesting between the minimum target and the
maximum target.
25% – Total Return
Total return is defined as being:
(Operating earnings + change in NTA)/opening
NTA.
FY18 Target Range of 9%-12%
FY19 Target Range of 9% - 10%
FY20 Target Range 9%-12%
Below minimum target no rights vest. At
the minimum target, 50% vest. 100% vest at
the maximum target. There is straight-line
vesting between the minimum target and the
maximum target.
For information on the changes to the CEO’s
LTI for FY20 refer to section 6.0.
54
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Component
Input
FY19 – Strategy and Performance Link
C. At-risk equity
element
Other KMP
Two equally weighted measures are used:
Granting of equity-based compensation
to employees considered important to
the longer-term success of Cromwell is to
ensure alignment between these employees
and securityholders and to encourage staff
retention.
1. Achievement of Cromwell Employee Values
– 50%.
Cromwell sees its culture and values as an
essential element to its success, especially
considering it is integrating a large European
business and spreading its geographical reach.
Ensuring cultural alignment with Cromwell’s
deeply ingrained values is critical to ensure
behaviour and processes across Cromwell are
appropriate and consistent.
Measurement:
All staff are reviewed on how well they
demonstrate Cromwell’s Employee Values as
part of their annual performance review.
2. Meeting key performance indicators (KPIs)
– 50%.
KPIs for each KMP consider 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. Section 5.4 details
the 2019 KPIs.
Measurement
Although the specific KPIs for each of the
KMP is different, each KMP’s performance is
assessed according to a traditional balanced
scorecard methodology. The balanced
scorecard methodology assigns performance
and responsibility criteria across four broad
categories. Weightings and details of each
of these categories are detailed in the next
section.
Section 5.2 provides details on the current
rights scheme.
D. Total remuneration
pay mix
The remuneration mix is designed to reward
KMP for the achievement of both short and
longer-term objectives.
This aligns executive and securityholder
experiences through achievement of strategic
objectives and securityholder ownership.
It is important to note the Board via 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 and retention tool by the Board.
A significant component of the CEO
remuneration is linked to short and long-term
company performance to assist in aligning the
CEO’s interest with those of securityholders.
The relative weighting of the fixed and at-risk
components of the total target remuneration
for executive KMPs are detailed below. A
higher portion of the CEO remuneration is at
risk as he has the greatest scope to influence
Cromwell’s long-term performance.
CEO maximum opportunity at risk
remuneration: 61%
Other KMP at risk remuneration: 27%
55
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 5.2
LTI EQUITY BASED COMPENSATION PRINCIPLES AND APPLICATION
Component
Details of the Equity scheme operating in FY19
Overview
Participating employees are offered performance rights issued under Cromwell’s performance
rights plan (PRP) to fund the acquisition of stapled securities in Cromwell.
Under the PRP, if performance rights vest, they allow eligible employees to obtain stapled
securities at a discount to market value. The discount is considered when determining the value to
be issued to a participating employee.
The LTI scheme for KMPs will be further adjusted from 1 July 2019.
General criteria that
must be met before any
PRP can be awarded
The following general criteria must be met by any employee before they can be considered eligible
for the exercise of any performance rights:
• Must remain in employment with Cromwell from the date of issue until the commencement
of the exercise period;
• Meet any prescribed Cromwell Employee values;
• Meet key performance indicators – these are described separately below under the headings:
• Granted in 2019 to the CEO; and
• Application to Cromwell's other KMP and employees
Granting
Each year the Board (on recommendation from the Committee) considers whether to grant equity-
based compensation to the CEO and, if so, to what value.
Each year the Committee delegates authority to the CEO to determine which employees will
receive equity-based compensation at the end of each financial year and, if so, to what value. The
Committee considers and, if appropriate, ratifies the CEO’s determination.
In determining the total value of equity-based compensation to be granted in any one year the
performance of Cromwell is considered. This involves an assessment of whether Cromwell has
met its objectives, including a review of Cromwell’s key financial measures.
Granted in 2019
to the CEO
As a result of his performance in 2018, the CEO was granted 1,846,581 performance rights during
2019 under the PRP scheme that existed for the CEO up to 30 June 2018.
The CEO was also granted 2,505,335 performance rights during 2019 under the LTI performance
scheme. 899,297 of these performance rights will be measured over the FY18, FY19 and FY20
years based on the hurdles outlined in section 4.1. 1,606,038 of these performance rights will be
measured over the FY19, FY20 and FY21 years based on the hurdles outlined in section 4.1.
For the CEO, the Long-Term Incentive (LTI) (whether paid as performance rights or under the new
LTI performance scheme) is set by the Board and approved by securityholders.
For the CEO, the annual grant of performance rights all have three-year vesting terms. For the
CEO, the grant requires the passing of annual performance hurdles set by the Board.
For other KMP, the grant of performance rights requires the passing of tailored annual
performance hurdles set by the CEO. All performance rights have a three-year vesting period.
Once a value had been allocated, the participating employee is given the option of participation in
the PRP.
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 and remain employed by Cromwell through to the end of the vesting
period. The general vesting criteria is summarised below:
• Performance rights will vest if an employee achieves 70% or greater of their KPIs in each of
the three years comprising the vesting period. If a KMP fails to meet the required hurdle in any
given year then not only will they not be awarded any equity-based compensation for that year,
but all unvested equity-based compensation will be forfeited.
The maximum value of performance rights to be allocated to any employee in any given year, other
than the CEO, is generally limited to 25% of their fixed pay.
Application to other
Cromwell KMP and
employees
56
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Fair Value
The fair value at grant date for performance rights is determined using a Black-Scholes option
pricing model that considers the following:
• the exercise price (including the discount to market value at grant date);
• the term of the performance right;
• the security price at grant date;
• the 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.
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.
The valuation of performance rights is discussed in more detail in section (G) below.
Award Process
The process to determine if an actual award will be made to a participating employee is
summarised below:
Year 0 Annual Performance review. If annual review score >70%, review next year. If <70%,
No equity awarded.
Year 0 Equity Award. Annual Review score x 25% x Year 0 Fixed Pay.
Year 1 Annual Performance review. If annual review score >70%, review next year. If <70%, equity
award forfeited.
Year 2 Annual Performance review. If annual review score >70%, review next year. If <70%, equity
award forfeited.
Year 3 Annual Performance review. If annual review score >70%, Equity Awards vest. If <70%,
equity award forfeited.
5.3 TOTAL VESTED REMUNERATION FOR THE CEO
The total vested remuneration of the CEO for 2019 was as follows:
Total Vested Remuneration - CEO
Fixed remuneration
STI
LTI
Total Vested Remuneration - CEO
2019
$
2018
$
1,500,000
846,000
781,572
3,127,572
1,500,000
1,400,000
653,767
3,553,767
The STI amount for 2019 related to the CEO’s performance from the 2018 financial year, paid in 2019. The STI amount for
2018 related to the CEO’s performance from the 2017 financial year, paid in 2018.
The LTI amount for 2019 related to the exercise of 1,254,530 performance rights granted to the CEO in 2016 for the 2015
financial year. The rights were exercised on 17 September 2018 at an exercise price of $0.50. The value of the amount
vested is calculated as the difference between the exercise price paid and Cromwell’s security price on the date of
exercise. The LTI amount for 2018 related to the exercise of 1,440,777 performance rights granted to the CEO in 2015 for
the 2014 financial year. The rights were exercised on 27 September 2017 at an exercise price of $0.50. The value of the
amount vested is calculated as the difference between the exercise price paid and Cromwell’s security price on the date of
exercise.
57
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT STI and LTI outcomes relating to the CEO’s performance in 2019 which will vest in future years is outlined below.
The Board’s assessment of the CEO's STI performance against key performance indicators for 2019 is provided in the
following table:
Key performance indicator –
2019
Earnings per security
Minimum target – 8.00 cps
Outperformance target – 8.40 cps
Transactional Income
Minimum target – $10 million
Outperformance target – $15
million
Commentary
Actual operating EPS of 8.21 cps versus
guidance of 8.00cps.
Total transactional income earned
in 2019 was 158% above the
outperformance target. The Board
has used its exceptional performance
discretion to award the CEO 125% of the
maximum bonus allocated to this KPI.
Weighting
%
Opportunity
$
Awarded
$
20%
180,000
154,265
20%
180,000
225,000
Like for Like NOI Growth – core
assets
Actual like for like NOI growth for the
core assets was 3.3%
10%
90,000
90,000
Hurdle of 3%
CEREIT AUM growth
Minimum target – €300 million
Outperformance target – €400
million
CEREIT made €377 million of
acquisitions during 2019
20%
180,000
159,210
European AUM growth (excluding
CEREIT)
Total additional AUM in Europe
excluding CEREIT was €108 million
10%
90,000
-
Minimum target – €400 million
Outperformance target – €500
million
People, leadership and environment
Set targets relate to culture, succession
planning, improving European
management and sustainability
outcomes of GRESB / DJSI
20%
180,000
168,750
Total bonus awarded
900,000
797,225
The Board assessment of the CEO's LTI performance against success drivers is as follows:
As outlined in the 2018 remuneration report and approved by securityholders at the 2018 AGM, the LTI scheme for the CEO
was adjusted in the prior year. Under the new scheme the CEO receives $1,500,000 of performance rights granted under
the face value methodology. The rights all vest over three years based on the below hurdles and vesting conditions. The
Board sets the minimum and outperformance targets annually.
58
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Hurdle
Total Return
Weighting
Vesting
25%
Vesting
(Operating earnings plus change
in NTA)/opening NTA
Three year rolling test.
Nil exercise price
Face value methodology
Below minimum target – nil
Minimum target – 50% vest
Between minimum and outperformance target – straight-line vesting
from 50% to 100%.
Above outperformance target – Board has no discretion to award above
the maximum.
Return on Contributed Equity
75%
Vesting
(Operating earnings plus
NTA impact from completed
projects) / Average weighted
contributed equity
Three year rolling test
Nil exercise price
Face value methodology
Below minimum target – nil
Minimum target – 50% vest
Between minimum and outperformance target – straight-line vesting
from 50% to 100%.
Above outperformance target – Board has no discretion to award above
the maximum.
The targets set for 2018 and 2019 and performance against each target are as follows:
Total Return
Target range
Achieved
Vesting Percentage
Return on Contributed Equity
Target range
Achieved
Vesting Percentage
Prior Scheme (the details of the prior scheme are outlined in section 5.2 above)
Year of
Performance
LTI vesting
period
2018
21 Dec 2018 –
7 Nov 2021
2017
16 Feb 2018 –
30 Sep 2020
Performance measures and hurdles
In FY18 LTIs were awarded on the same basis of
assessment against KPIs as the KPIs for STIs. In
the year the CEO achieved 94% of his KPIs and was
allocated performance rights on this basis.
To vest the annual hurdles in each year of the option
period must be met. The hurdles were met in 2019.
Results for 2020 and 2021 are still to occur.
In FY17 LTIs were awarded on the same basis of
assessment against KPIs as the KPIs for STIs. In
the year the CEO achieved 75% of his KPIs and was
allocated performance rights on this basis.
To vest, the annual hurdles in each year of the option
period must be met. The hurdles were met in 2018 and
2019. Results for 2020 are still to occur.
2019
2018
9.0%–10.0% 9.0%–12.0%
9.4%
69.9%
19.5%
100.0%
8.0%–10.0% 8.0%–18.0%
9.5%
86.4%
13.6%
78.2%
KPI %
Achieved
Maximum
Possible
Grant
Actual
Number
Granted
94%
1,964,448
1,846,581
75%
2,442,933
1,832,200
2016
16 Dec 2016 –
1 Jan 2020
In FY16 LTIs were awarded on the same basis as STIs.
In this year the CEO achieved 87.5% of the STIs and was
awarded LTI performance rights on this basis.
87.5%
3,186,886
2,788,525
To vest, 70% of annual hurdles in two out of the three
years comprising the vesting period must be met. This
hurdle has been achieved.
59
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 5.4
LTI PERFORMANCE MEASURES FOR KMP OTHER THAN THE CEO
The weightings of each of the four balanced scorecard 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:
Measure
Weighting
Measure
1) Financial measures
40%–70%
2)
Internal Business measures
10%–30%
3) Customer measures
10%–30%
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, and the 2018
outcome are included in the Financial Measures table below.
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.
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.
4)
Innovation and learning
measures
10%–30%
Focuses on the growth of individuals, departments and corporate
culture to innovate and extend current capabilities throughout Cromwell.
Other Financial Measures:
Other financial metrics for 2018 and 2019 included but are not limited to the following:
Metric
Required outcome
FY19 Outcome
Distribution per security
Sustainable growth in distributions per security.
Distributions per security were reduced
to 7.25cps as part of 'Invest to Manage'
strategy
Gearing
2019 target of between 35%–50%.
Gearing at 35%
Debt terms
Interest rates
Long term net operating
income growth
Mitigate debt risks by maintaining 12 months
minimum expiry profile of debt.
Debt terms currently at 4.5 years
Earliest expiry is 2020
Look through gearing at 42%
Maintain interest rate hedging profile
that provides a high degree of certainty
of distributions for two 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.
Successful execution of further hedging
programme with $180 million of swaps
and caps
Entire like for like net operating income
growth of 5.5%. Core portfolio growth
of 3.3%
Lease expiries
Focus on lease expiries in core portfolio and
maintain vacancy rates at set targets.
Core portfolio occupancy level at 99.2%
Portfolio management
Meet agreed maintenance / lifecycle capex
targets.
Active portfolio
Funds management
Execute asset management plans for active
portfolio.
Successfully promote and launch new funds
and maintain performance of current open
retail funds.
Achieved
Achieved
Achieved
Cash reserves
Maximise returns from cash reserves.
Achieved
60
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT LTI performance rights issued for KMP other than the CEO
Year of Performance
LTI vesting period
Michael Wilde – CFO
KPI %
Achieved
Maximum
Possible
Grant
Actual
Number
Granted
2018
2017
2016
Jodie Clark – Chief Operations Officer
2018
2017
2016
7 Nov 2018 – 7 Nov 2021
16 Feb 2018 – 30 Sep 2020
19 Oct 2016 – 31 Nov 2019
7 Nov 2018 – 7 Nov 2021
16 Feb 2018 – 30 Sep 2020
19 Oct 2016 – 31 Nov 2019
86%
100%
88%
93%
100%
96%
216,584
218,852
147,907
216,584
235,312
152,803
186,012
218,852
130,158
200,569
235,312
146,996
6. Improvements for FY20
As outlined in the prior remuneration report, the Board has continued its program of improving the current remuneration
framework for KMP. Commencing from 1 July 2019, the key changes to the framework will be as follows::
Component
Details of the Equity scheme operating in FY2019
KMP members
From 1 July 2019, the executive management group will include:
Paul Weightman
Michael Wilde
Jodie Clark
Robert Percy
Chief Executive Officer
Chief Financial Officer
Chief Operations Officer
Chief Investment Officer
STI
All executive KMP will have the ability to earn an STI.
The percentage STI opportunity against each executive KMP’s Fixed Remuneration will vary between 50%
- 100%.
Some STI KPIs may be the same as the Group CEO’s but a large portion will be specific to the KMP’s
job function and responsibilities. The STI KPIs will have at least 50% as Financials Measures. The STI’s
KPIs will have a stretch target range to achieve varying rewards for varying levels of outperformance.
For each KPI, 50% vests at the lower bound with straight-line vesting to 100% at the maximum threshold.
There will be STI Gateways of adhering to cultural related expectations including acting ethically
and responsibly and an additional Gateway where appropriate of 95% of midpoint operating earnings
guidance.
50% of award paid as cash and 50% deferred as securities for 1 year. The goal is alignment of interest
with securityholders and aids in building minimum shareholding for executive KMPs (see below). The
CEO’s STI will remain 100% payable in cash while his securityholding remains at or above 300% of his
Fixed Remuneration.
All STI deferred as unvested securities will earn distributions either as cash paid or in grossed up
security numbers.
In the event of a successful takeover (over 50% of equity and/or effective board control), deferred portion
of the STI vests immediately.
If an executive KMP is determined as a Good Leaver (retirement, health etc) then unvested securities
remain on foot with Board discretion to accelerate vesting. If executive KMP is determined to be a Bad
Leaver then unvested securities are forfeited.
CEO/Board discretion where formulaic application is likely to produce a material and perverse
remuneration outcome.
Malus and Claw Back clause allowing unvested securities to be clawed back where a recipient has acted
fraudulently, dishonestly or where there has been a material misstatement or omission in Cromwell’s
financial statements leading to the receipt of an unfair benefit. This may also occur where the executive
KMP fails to meet the cultural related expectation including acting ethically and responsibly.
61
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Component
Details of the Equity scheme operating in FY2019
LTI
All executive KMP will be on the same LTI scheme.
Number of performance rights granted will be calculated under the face value methodology based on
the VWAP of Cromwell’s security price for the 10 days either side of year end with no adjustment for
distributions.
Two of the hurdles align with the Board agreed strategy and are measured each year and the average
over the three years used to determine vesting. The final measure is a Relative TSR using a point to point
measurement.
KPI target ranges are fixed for three years and measured over three years.
For each LTI Hurdle 25% vests at the lower bound with straight line vesting to 100% at the maximum
threshold.
At 3 years 50% of the performance determined rights vest with the other 50% vesting at year 4 (no
retest). The 50% of securities in the holding lock are entitled to distributions.
Hurdles
33.33% Total Return.
Total Return = (Distributions + Change in NTA)/Opening NTA.
Measured as an average of the 3 years. The hurdle is 8.5%-11.5% over the period. Equity Issues that
significantly impact NTA will be considered as well as significant write downs in non-tangible assets. In
the case of a write down of intangibles this would impact negatively on the achieved performance. Where
significant value is created in management driven asset enhancements this should be reflected in the
NTA and hence improve the overall return.
This hurdle aligns the underlying absolute returns that securityholders experience but removes the
general listed market movements which is out of control of management.
The stretch target range is consistent with moving from the prior Operating Earnings to Distributions,
reflects the current low return environment and is consistent with stretch target returns determined by
the successful implementation of Cromwell’s 'Invest to Manage' Strategy.
At lower bound 25% vesting with straight line to 100% vesting at the upper bound.
33.33% Return on Contributed Equity (ROCE)
ROCE=Operating Profit / Weighted Average Contributed Equity.
Measured as an average of each of the three years. With a ROCE hurdle range of 8.5%-11.5%.
This measure was chosen as it best reflects the sustainable returns achieved on securityholders
contributed equity. By removing the NTA created from completed projects a far more stable and relevant
stretch target range can be set which is accepted as being a very good measure of the performance
of management. Over the medium to long term an improving ROCE (as defined) has been shown to
correlate with upward security price movements and hence returns experienced by securityholders.
The upper end of the stretch target range has only been achieved once in the last six years and if
achieved and based on historical multiples would result in mid-teen total per annum returns to
securityholders (before distribution reinvestment). This would result in achievement of the stretch
targets contained in the successful implementation of Cromwell’s 'Invest to Manage' Strategy.
At lower bound 25% vesting with straight line to 100% vesting at the upper bound.
33.33% Relative TSR
Measured against the S&P/ASX200 A-REIT Accumulation Index on a percentile basis with 50th percentile
lower bound and 75th percentile upper bound. Measured once over measurement period.
Below Median - 0% vesting.
At median 25% vesting with straight line to 100% vesting at the 75th percentile.
62
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Component
Details of the Equity scheme operating in FY2019
Other conditions
For the LTI, in the event of a successful takeover (over 50% of equity and/or effective board control), KPI
hurdles are tested and vest on a pro-rata basis based on achievement of the hurdles. Board discretion
applies for amounts greater than pro-rata.
If the staff member is determined to be a Good Leaver (retirement, redundancy etc) unvested rights
and securities remain on foot and are tested based on the normal vesting schedule. There is Board
discretion to accelerate vesting after considering personal circumstances of the executive KMP (e.g.
illness) and quantum of outstanding award. If an Executive KMP is determined a Bad Leaver then
unvested rights and securities are forfeited.
Board discretion where formulaic application is likely to produce a material and perverse remuneration
outcome.
Malus and Claw Back clause allowing unvested rights and securities to be clawed back where a recipient
has acted fraudulently, dishonestly or where there has been a material misstatement or omission
in Cromwell’s financial statements leading to the receipt of an unfair benefit. This may also occur
where the Executive KMP fails to meet the cultural related expectation including acting ethically and
responsibly.
Minimum
securityholdings
Minimum securityholding of 150% of Fixed Remuneration for the CEO and at least 50% for the other
executive KMPs, to be accumulated within four years of initial STI participation. There is Board
discretion based on individual circumstances. Securities deferred (holding lock) are included in the total
calculation and earn distributions.
Minimum securityholding equivalent to one years of Directors’ fees for all Non-executive Directors.
Notice Periods
for Executive
KMPs
All Executive KMPs to have their two-way notice periods standardised to six months.
7. Non-executive Directors remuneration
7.1 BOARD REMUNERATION STRUCTURE
Fees and payments to Non-executive Directors reflect the market in line with 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 securityholders 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. Fees are set so that:
• Cromwell Non-executive Directors are remunerated fairly for their services, recognising the workload, and level of
skills and experience required for the role;
• Cromwell can attract and retain talented Non-executive Directors; and
• Fees are in line with market practice.
7.2 TOTAL REMUNERATION FOR NON-EXECUTIVE DIRECTORS
Non-executive Directors are paid a fixed remuneration, comprising base and committee 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.
Chair
Non-executive Director
Audit and Risk Committee – Chair
Audit and Risk Committee – Member
Nomination and Remuneration Committee – Chair (1)
Nomination and Remuneration Committee – Member
Investment Committee
2019
$
220,189
101,168
20,600
13,732
8,583
5,721
–
2018
$
216,084
99,282
20,216
13,476
N / A
5,615
–
(1) Mr G Levy has never received a fee or salary for being the Chair of the Nomination and Remuneration Committee.
In accordance with the Board policy to maintain Directors fees by CPI and consistent with prior years, from 1 July 2018,
fees and payments to Non-executive Directors have been increased by CPI.
63
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 8. Remuneration and Conditions of employment of the KMP
CASH AND AT-RISK BONUSES EXPENSED OR ACCRUED IN 2019
8 .1
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
Post-
employment
Long-term
Security based
payments
Salary (4) and
fees
Non-
monetary
benefits
At-risk
cash
bonus
Total short
term
Super-
annuation
Long service
leave
Equity based
compensation
Non-executive Directors:
$
$
$
$
–
–
–
–
–
–
–
–
201,014
197,259
120,579
118,326
116,388
114,214
42,766
99,243
120,579
11,824
109,362
92,358
5,580
75,761
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
201,014
197,259
120,579
118,326
116,388
114,214
42,766
99,243
132,403
109,362
92,358
5,580
75,761
G Levy
M McKellar
J Tongs
M Wainer
L Blitz
D Blight (1)
A Fay (2)
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
Executive management group (EMG):
P Weightman
M Wilde
J Clark
S Garing (3)
Total
remuneration
2019
2018
2019
2018
2019
2018
2018
2019
2018
1,617,302
19,153
797,225
2,433,680
1,567,888
29,994
846,000
2,443,882
801,034
15,055
100,000
704,471
22,148
–
798,018
14,052
100,000
705,333
389,441
29,105
–
–
–
916,089
726,619
912,070
734,438
389,441
3,985,799
60,084
997,225
5,043,108
4,474,452
95,815
846,000
5,416,267
(1) Mr Blight was appointed on 1 June 2018 and resigned 19 July 2019.
(2) Mr Fay was appointed on 15 October 2018.
(3) Mr S Garing was no longer a KMP from 1 July 2018.
(4)
Includes any change in accruals for annual leave.
$
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$
220,097
215,936
120,579
118,326
127,445
125,064
42,766
99,243
132,403
109,362
101,132
6,110
82,958
25,005
1,456,435
3,935,651
220
471,532
2,935,683
34,468
14,904
21,309
15,243
6,401
80,782
29,657
132,377
1,103,465
80,359
841,931
144,498
1,098,408
91,481
–
861,211
405,866
1,733,310
6,964,904
621,278
6,186,971
Total
performance
related
%
–
–
–
–
–
–
–
–
–
–
–
–
–
57%
45%
21%
10%
22%
11%
0%
37%
19,083
18,677
–
–
11,057
10,850
–
–
–
–
8,774
530
7,197
20,531
20,049
20,531
20,049
20,531
20,049
10,024
107,704
119,769
8.2
DETAILS OF REMUNERATION: AT RISK CASH BONUSES AND PERFORMANCE RIGHTS VESTING
AND FORFEITURE IN 2019
For each at-risk cash bonus and grant of performance rights options (equity-based compensation) included in the tables
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.
64
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT At-risk cash bonus
Equity based compensation
Cash bonus
paid
Cash bonus
forfeited
Years options
granted
Options vested
in 2019
%
%
P Weightman
88.6%
11.4% 2017 / 18 / 19
M Wilde
J Clark
–
–
–
–
2017 / 18 / 19
2017 / 18 / 19
%
100%(1)
100%(1)
100%(1)
Options
forfeited in
2019
%
Years options
may vest
Maximum
value of grant
to vest
$
–
–
–
2020 / 21 / 22
2,029,707
2020 / 21 / 22
2020 / 21 / 22
207,307
223,788
(1) Related to performance rights issued in 2015.
8.3 EQUITY BASED COMPENSATION FOR THE CEO AND OTHER KMP
Details of the PRP are set out in section 5.2 of the remuneration report.
All Executive Directors and employees of Cromwell are considered for participation in the PRP subject to a minimum
period of service and level of remuneration, which may be waived by the Committee. Grants to Executive Directors are
subject to securityholder approval.
Consideration for granting performance rights, grant periods, vesting and exercise dates, exercise periods and exercise
prices are determined by the Board or Committee in each case. Performance rights carry no voting rights. When
exercised, each performance right is convertible into one stapled security.
The terms and conditions of each grant of performance rights under the PRP affecting remuneration for Key Management
Personnel in the current or future reporting periods are included in the table below:
Grant date
Expiry date
Exercise price
No of performance
rights granted
Assessed value per right
at grant date
19-Oct-2016
30-Nov-2019
16-Dec-2016
01-Jan-2020
16-Feb-2018
16-Feb-2018
30-Sep-2020
30-Sep-2020
07-Nov-2018
06-Nov-2021
21-Dec-2018
06-Nov-2021
21-Dec-2018
30-Sep-2020
21-Dec-2018
30-Sep-2021
–
$0.50
–
$0.50
–
$0.50
–
–
419,145
2,788,525
454,164
1,832,200
386,581
1,846,581
899,297
1,606,038
67.6¢
22.0¢
75.9¢
28.8¢
80.8¢
35.4¢
72.2¢
87.6¢
Details of changes during the 2019 year in performance rights on issue to Key Management Personnel under the PRP are
set out below:
Opening
balance
Granted
Exercised
Forfeited
Lapsed
P Weightman
5,875,255
4,351,916 (1)
(1,254,530) (4)
M Wilde
J Clark
444,918
491,004
186,012 (2)
(95,908) (5)
200,569 (3)
(108,696) (6)
6,811,177
4,738,497
(1,459,134)
–
–
–
–
–
–
–
–
Closing
balance
8,972,641
535,022
582,877
10,090,540
(1) The value at grant date was $2,708,768.
(2) The value at grant date was $150,335.
(3) The value at grant date was $162,100.
(4) The value at grant date was $450,000. The value at exercise date was $781,572. Exercise price was fully paid.
(5) The value at grant date was $75,002. The value at exercise date was $98,114. Exercise price was fully paid.
(6) The value at grant date was $85,002. The value at exercise date was $111,196. Exercise price was fully paid.
65
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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 section 8.1 of the remuneration report.
A total of 5,145,726 performance rights were granted during 2019 (2018: 3,961,001) of which 4,738,497 (2018: 2,286,364)
were issued to Key Management Personnel. The model inputs for performance rights granted during the 2019 year are
disclosed in note 19.
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 2018 no performance rights on issue had vested.
8.4 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, exclusive of superannuation, of $1,500,000, to be reviewed annually by the Nomination and Remuneration
committee.
• Performance cash bonus of up to $900,000 with KPI targets to be reviewed annually by the Nomination and
Remuneration committee.
• Long term incentive of up to $1,500,000 by way of Performance Rights with vesting hurdles reviewed annually by the
Nomination and 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 and COO
All other Key Management Personnel
Notice period
employee
Notice period
Cromwell
6 months
3 months
6 months
3 months
66
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 8.5 SECURITYHOLDINGS
The number of stapled securities in Cromwell held during the year by Key Management Personnel of Cromwell, including
their personally related parties are as follows:
Balance at
1 July
Performance
rights
exercised
Net purchases
(sales)
Balance at 30 June
Non-executive Directors:
Mr G Levy (AO)
Ms M McKellar
Ms J Tongs
Mr M Wainer (1)
Mr L Blitz
Mr D Blight (2)
Mr A Fay
3,329,195
882,643
257,678
–
–
–
–
–
–
–
–
–
–
–
512,186
98,406
39,643
–
–
–
3,841,381
981,049
297,321
–
–
–
646,155
646,155
Executive Management Group (EMG):
Mr Paul Weightman
22,592,276
1,254,530
Mr M Wilde
Ms J Clark
228,628
242,240
95,908
108,696
–
–
–
27,532,660
1,459,134
1,296,390
23,846,806
324,536
350,936
30,288,184
(1) Mr Wainer is a Director of Redefine Properties Limited which indirectly owns Redefine Australia Investments Limited, which owns 60,000,000 (2018:
60,000,000) stapled securities in Cromwell.
(2) Mr Blight is a Director of ARA Australia which is an associate of ARA Real Estate Investors Pte. Ltd. which owns 462,606,816 (2018: 386,538,850) stapled
securities in Cromwell.
8.6 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 $1,960,001 (2018: $1,825,152).
8.7 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
the Company. Total rent paid during 2019 was $114,396 (2018: $114,396). At balance date an amount of $9,533 (2018:
$9,533) was payable. The payment of rent is on normal commercial terms and conditions and at market rates.
Although not strictly a transaction with a key Management Person, for additional transparency, securityholders are
referred to notes 7(c) and 21(c) outlining Cromwell’s investment in Portgate.
End of Remuneration Report
The Directors’ Report, including the Remuneration Report, is signed in accordance with a resolution of the Directors.
PL Weightman
Director
Dated this 28th day of August 2019
67
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Deloitte Touche Tohmatsu
ABN 74 490 121 060
Riverside Centre
Level 23, 123 Eagle Street
Brisbane QLD 4000
GPO Box 1463
Brisbane QLD 4001 Australia
DX: 10307SSE
Tel: +61 (0) 7 3308 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Board of Directors
Cromwell Corporation Limited and
Cromwell Property Securities Limited
(as responsible entity for Cromwell Diversified Property Trust)
Level 19, 200 Mary Street
Brisbane QLD 4000
28 August 2019
Dear Directors
Auditor’s Independence Declaration
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the Board of Directors of Cromwell Corporation
Limited and Cromwell Property Securities Limited as responsible entity for Cromwell
Diversified Property Trust.
As lead audit partner for the audit of the financial report of Cromwell Property Group (the
stapled entity which comprises Cromwell Corporation Limited, Cromwell Diversified
Property Trust and the entities they controlled at the end of the year or from time to time
during the year) and Cromwell Diversified Property Trust for the year ended 30 June 2019,
I declare that to the best of my knowledge and belief, there have been no contraventions
of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
David Rodgers
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
68
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
FINANCIAL STATEMENTS
70
Consolidated Income Statements
76
Notes to the Financial Statements
77
91
101
116
120
Results
Operating Assets
Finance and Capital Structure
Group Structure
Other Items
71
Consolidated Statements of Comprehensive
Income
72
Consolidated Statements of Financial Position
73
Consolidated Statements of Changes in Equity
75
Consolidated Statements of Cash Flows
69
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Consolidated Income Statements
FOR THE YEAR ENDED 30 JUNE 2019
Continuing operations
Revenue
Rental income and recoverable outgoings
Funds management fees
Development sales
Interest
Distributions
Other revenue
Total revenue
Other income
Fair value net gain from:
Investment properties
Investments at fair value through profit or loss
Share of profit of equity accounted investments
Net foreign currency gains
Gain on sale of investment property
Gain on sale of listed securities
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
Amortisation and depreciation
Loss on sale of investment properties
Fair value net loss from:
Derivative financial instruments
Investments at fair value through profit or loss
Other transaction costs
Loss on disposal of other assets
Costs in relation to asset classified as held for sale
Decrease in recoverable amounts
Net foreign currency losses
Total expenses
Profit before income tax
Income tax expense
Profit for the year from continuing operations
Discontinued operations
Net profit after tax from discontinued operation
Profit for the year
Profit/(loss) or 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)
Cromwell
Trust
Notes
2019
$M
2018
$M
2019
$M
2018
$M
3(a)
3(a)
3(a)
3(a)
3(a)
3(a)
6(c)
7(e)
6(e)
9(d)
22
6(c)
7(e)
5(c)
16
198.5
99.2
9.5
4.8
2.5
0.1
314.6
86.4
–
55.6
–
0.7
–
457.3
34.0
2.0
5.9
68.1
71.4
43.7
2.4
–
10.5
9.2
2.9
0.3
35.3
0.4
3.0
289.1
168.2
8.3
159.9
–
159.9
(2.9)
162.8
–
159.9
209.6
99.1
–
6.5
5.5
0.9
321.6
77.4
–
125.1
–
–
15.7
539.8
34.6
2.8
0.6
79.5
69.7
33.4
4.4
5.0
13.7
3.5
5.7
–
–
76.1
3.2
332.2
207.6
5.0
202.6
1.5
204.1
(83.9)
288.0
–
204.1
4(c)
4(c)
4(d)
4(d)
(0.15¢)
(0.15¢)
7.53¢
7.50¢
(4.47¢)
(4.47¢)
10.89¢
10.85¢
197.8
–
–
8.5
–
0.1
206.4
86.4
–
51.4
2.0
0.7
–
346.9
39.1
–
–
67.8
–
16.5
–
–
10.5
–
1.8
–
35.3
–
–
171.0
175.9
12.5
163.4
–
163.4
–
162.8
0.6
163.4
7.71¢
7.67¢
210.0
–
–
9.6
0.1
0.1
219.8
77.4
0.1
121.5
–
–
15.7
434.5
39.8
–
–
61.2
–
18.1
–
5.0
16.1
–
3.1
–
–
–
1.9
145.2
289.3
2.6
286.7
1.7
288.4
–
288.0
0.4
288.4
15.38¢
15.34¢
The above consolidated income statements should be read in conjunction with the accompanying notes.
70
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Consolidated Statements of Comprehensive Income
FOR THE YEAR ENDED 30 JUNE 2019
Cromwell
Trust
2019
$M
2018
$M
2019
$M
2018
$M
Profit for the year
159.9
204.1
163.4
288.4
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
Total comprehensive income
Total comprehensive income is attributable to:
Company shareholders
Trust unitholders
Non-controlling interests
Total comprehensive income
34.3
–
34.3
194.2
(0.4)
194.6
–
194.2
0.3
–
0.3
204.4
(79.0)
283.4
–
204.4
31.8
–
31.8
195.2
–
194.6
0.6
195.2
(4.6)
–
(4.6)
283.8
–
283.3
0.5
283.8
The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.
71
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Consolidated Statements of Financial Position
AS AT 30 JUNE 2019
Cromwell
Current assets
Cash and cash equivalents
Receivables
Derivative financial instruments
Inventories
Current tax assets
Other current assets
Equity accounted investment classified as held for sale
Investment property classified as held for sale
Total current assets
Non-current assets
Investment properties
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
Reserves
Retained earnings / (accumulated losses)
Equity attributable to shareholders / unitholders
Non-controlling interests
Trust unitholders
Non-controlling interests
Total equity
Notes
17(c)
10
7
6
-
6
7
8
10
17(c)
18
5(e)
17(d)
9
10
9
10
5(e)
11
12
2019
$M
101.6
72.9
–
15.6
0.9
8.0
199.0
150.4
–
349.4
2,520.9
664.1
22.6
–
121.3
4.5
5.9
–
7.0
3,346.3
3,695.7
60.3
40.5
88.0
32.4
5.6
0.7
6.9
234.4
1,268.4
4.7
0.5
4.7
1,278.3
1,512.7
2,183.0
138.4
29.4
(199.7)
(31.9)
2,214.9
–
2,183.0
2018
$M
204.6
38.1
0.1
5.8
2.4
5.4
256.4
–
0.9
257.3
2,451.1
702.4
33.0
1.7
5.9
2.3
3.5
7.4
1.7
3,209.0
3,466.3
52.3
41.4
–
37.0
4.6
0.9
5.8
142.0
1,412.0
0.7
0.4
9.7
1,422.8
1,564.8
1,901.5
118.9
24.3
(196.8)
(53.6)
1,955.1
–
1,901.5
Trust
2019
$M
47.7
182.7
–
–
–
1.9
232.3
148.4
–
380.7
2,520.9
626.3
0.8
–
125.4
–
–
–
–
3,273.4
3,654.1
31.8
40.5
88.0
32.4
–
0.4
6.9
200.0
1,261.0
4.7
–
4.6
1,270.3
1,470.3
2,183.8
1,719.0
29.4
428.5
2,176.9
–
6.9
2,183.8
2018
$M
137.6
13.8
0.1
–
–
1.7
153.2
–
0.9
154.1
2,451.1
669.3
1.3
1.7
170.1
–
–
–
–
3,293.5
3,447.6
17.3
41.4
–
37.0
–
–
5.7
101.4
1,412.4
0.7
–
9.7
1,422.8
1,524.2
1,923.4
1,496.3
(2.4)
423.2
1,917.1
–
6.3
1,923.4
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
72
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Consolidated Statements of Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2019
Cromwell
Attributable to Equity Holders of the Company
30 June 2019
Contributed
equity
$M
Other
reserves
$M
Accumulated
losses
$M
Notes
Total
$M
Non-
controlling
interests
(Trust)
$M
Total
equity
$M
Balance at 1 July 2018
118.9
24.3
(196.8)
(53.6)
1,955.1
1,901.5
Profit / (loss) for the year
Other comprehensive income
Total comprehensive income
–
–
–
–
2.5
2.5
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
11
2
19.5
–
–
19.5
–
–
2.6
2.6
(2.9)
–
(2.9)
–
–
–
–
(2.9)
2.5
(0.4)
162.8
159.9
31.8
34.3
194.6
194.2
19.5
222.7
242.2
–
2.6
22.1
(157.5)
(157.5)
–
65.2
2.6
87.3
Balance as at 30 June 2019
138.4
29.4
(199.7)
(31.9)
2,214.9
2,183.0
Attributable to Equity Holders of the Company
30 June 2018
Contributed
equity
$M
Other
reserves
$M
Accumulated
losses
$M
Notes
Balance at 1 July 2017
106.9
18.2
(112.9)
Total
$M
12.2
Non-
controlling
interests
(Trust) Total equity
$M
$M
1,627.7
1,639.9
Profit / (loss) for the year
Other comprehensive income /(loss)
Total comprehensive income
–
–
–
–
4.9
4.9
(83.9)
(83.9)
288.0
204.1
–
4.9
(4.6)
0.3
(83.9)
(79.0)
283.4
204.4
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
11
2
12.0
–
–
12.0
–
–
1.2
1.2
–
–
–
–
12.0
201.1
213.1
–
1.2
13.2
(157.1)
(157.1)
–
44.0
1.2
57.2
Balance as at 30 June 2018
118.9
24.3
(196.8)
(53.6)
1,955.1
1,901.5
The above consolidated statements of changes in equity should be read in conjunction with accompanying notes.
73
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Consolidated Statements of Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2019
Trust
Attributable to Equity Holders of the CDPT
Contributed
equity
Other
reserves
Retained
earnings
30 June 2019
Notes
$M
Balance at 1 July 2018
1,496.3
$M
(2.4)
$M
Total
$M
423.2
1,917.1
Profit / (loss) for the year
Other comprehensive income
Total comprehensive income
–
–
–
–
162.8
162.8
31.8
31.8
–
31.8
162.8
194.6
Transactions with equity holders in their capacity as equity holders:
Contributions of equity, net of
transaction costs
Distributions paid / payable
11
2
Total transactions with equity
holders
222.7
–
222.7
–
–
–
–
222.7
(157.5)
(157.5)
(157.5)
65.2
Non-
controlling
interests
$M
6.3
0.6
–
0.6
–
–
–
Total
equity
$M
1,923.4
163.4
31.8
195.2
222.7
(157.5)
65.2
Balance as at 30 June 2019
1,719.0
29.4
428.5
2,176.9
6.9
2,183.8
Attributable to Equity Holders of the CDPT
Contributed
equity
Other
reserves
Accumulated
losses
30 June 2018
Notes
$M
Balance at 1 July 2017
1,295.2
Profit for the year
Other comprehensive
income/(loss)
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
11
2
–
–
–
201.1
–
201.1
$M
2.3
–
(4.7)
(4.7)
–
–
–
$M
Total
$M
292.3
1,589.8
288.0
288.0
–
(4.7)
288.0
283.3
–
201.1
(157.1)
(157.1)
(157.1)
44.0
Non-
controlling
interests
$M
5.8
0.4
0.1
0.5
–
–
–
Total
equity
$M
1,595.6
288.4
(4.6)
283.8
201.1
(157.1)
44.0
Balance as at 30 June 2018
1,496.3
(2.4)
423.2
1,917.1
6.3
1,923.4
The above consolidated statements of changes in equity should be read in conjunction with accompanying notes.
74
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Consolidated Statements of Cash Flows
FOR THE YEAR ENDED 30 JUNE 2019
Cromwell
Trust
Note
19
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
Cash flows from investing activities
Payments for investment properties
Proceeds from sale of investment properties
Payments for equity accounted investments
Proceeds from sale of investment at fair value through
profit or loss
Payments for 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
Proceeds from the sale of property, plant and equipment
Loans to related entities and directors
Repayment of loans to related entities and directors
Transfer from restricted funds
Finance costs paid attributable to disposal group / other
assets
Payments for other transaction costs
Net cash (used in) / provided by investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payment of loan transaction costs
Proceeds from issue of stapled securities
Payment of dividends / distributions
Payment of equity issue transaction costs
Payments for settlement of derivative financial
instruments
Net cash used in financing activities
Net (decrease) / increase 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
2019
$M
331.3
(200.8)
4.3
47.7
(47.3)
(0.2)
135.0
(40.2)
0.9
(129.3)
2.5
(0.9)
–
(3.3)
(4.2)
0.1
(65.3)
5.0
–
–
(2.9)
(237.6)
178.5
(250.7)
(4.4)
229.2
(141.3)
(4.0)
(12.3)
(5.0)
(107.6)
204.6
4.6
101.6
2018
$M
320.6
(168.3)
6.3
12.7
(46.6)
(3.8)
120.9
(104.1)
153.7
(343.4)
292.8
–
6.8
(1.8)
(1.2)
–
(3.4)
–
20.0
(2.1)
(5.7)
11.6
1,719.4
(1,765.0)
(17.0)
206.1
(144.3)
(1.1)
(3.9)
(5.8)
126.7
66.9
11.0
204.6
2019
$M
227.6
(72.2)
8.1
42.7
(47.2)
(0.2)
158.8
(40.2)
0.9
(137.2)
0.5
–
–
–
–
–
(48.3)
11.8
–
–
(1.8)
(214.3)
171.0
(250.7)
(4.4)
209.7
(141.3)
(4.0)
(12.3)
(32.0)
(87.5)
137.6
(2.4)
47.7
2018
$M
235.8
(79.9)
7.3
7.3
(46.5)
(0.5)
123.5
(104.1)
153.7
(334.9)
280.8
–
–
–
–
–
(10.7)
–
–
(2.1)
(3.0)
(20.3)
1,719.4
(1,765.0)
(17.0)
194.3
(144.7)
(1.0)
(3.9)
(17.9)
85.3
32.1
20.2
137.6
The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.
75
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2019
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.
Cromwell’s annual financial report has been prepared in a format designed 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.
The notes have been organised into the following five sections for reduced complexity and ease of navigation:
77
Results
1. Operating segment information
2. Distributions
3. Revenue
4. Earnings per security
5.
Income tax
91
Investment properties
Operating Assets
6.
7. Equity accounted investments
8.
Investments at fair value through profit or loss
101
Finance and Capital Structure
9. Borrowings
10. Derivative financial instruments
11. Contributed equity
12. Reserves
13. Financial risk management
116
Group Structure
14. Parent entity disclosures
15. Controlled entities
16. Details of disposal group
Other Items 120
17. Other financial assets and liabilities
Intangible assets
18.
19. Cash flow information
20. Security based payments
21. Related parties
22. Employee benefits expense
23. Auditors’ remuneration
24. Unrecognised items
25. Subsequent events
26. Other accounting policies
76
77
82
83
86
88
91
96
100
101
104
107
108
109
116
117
119
120
122
123
127
128
132
133
134
135
136
CROMWELL PROPERTY GROUP I 2019 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 three segments, details of quarterly distributions,
the earnings per security calculation as well as details about Cromwell’s income tax items.
1. Operating segment information
(A) 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 three 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.
Operating segments below are reported in a manner consistent with the internal reporting provided to the CEO.
During the year the informational needs of the CEO in his capacity as CODM altered commensurate with the changing
nature of Cromwell and how it is managed. The operating segment information has also been altered, including
comparative information, in order replicate the improvements made to the simplified management information now
provided to the CEO.
Cromwell’s operating segments:
Business activity
Direct property investment
The ownership of investment properties located throughout Australia. This includes
investment properties held by the Trust.
Indirect property investment
Cromwell’s equity accounted investments in CEREIT and the Cromwell Partners
Trust as well as investments in Australian property trusts and European collective
investment vehicles.
Funds and asset management
Funds management represents activities in relation to the establishment and
management of external funds for retail investors and wholesale funds. Asset
management includes property and facility management, leasing and project
management.
At 30 June 2019, Cromwell managed a number of external retail funds with combined
assets under management of $2.3 billion (30 June 2018: $2.0 billion) and external
wholesale funds in Cromwell's European business, with combined assets under
management of $6.1 billion (30 June 2018: $6.1 billion).
77
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (B) ACCOUNTING POLICY
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 transactions between segments. Such transactions are priced
on an “arms-length” basis and are eliminated on consolidation.
Property expenses and outgoings which include rates, taxes and other property outgoings and other expenses are
recognised on an accruals basis.
EBITDA
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) is a measure of financial performance and is used
as an alternative to operating profit or statutory profit.
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. .
(C) SEGMENT RESULTS
The table below shows segment results as presented to the CEO in his capacity as CODM. For further commentary
on individual segment results refer to the Directors’ Report:
30 June 2019
Segment revenue
Rental income and recoverable outgoings
Operating profit of equity accounted investments
Development sales
Funds and asset management fees
Distributions
Total segment revenue
Segment expenses
Property expenses
Development costs
Funds and asset management direct costs
Other expenses
Total segment expenses
EBITDA
Finance costs
Segment profit after finance costs
Unallocated items
Finance income
Corporate costs (1)
Income tax expense
Segment profit
Direct
property
investment
$M
Indirect
property
investment
$M
Funds
and asset
management
$M
Cromwell
$M
208.0
–
9.5
–
–
217.5
38.1
5.9
–
1.2
45.2
172.3
36.2
136.1
–
51.8
–
–
2.5
54.3
–
–
–
3.4
3.4
50.9
5.5
45.4
–
2.2
–
105.4
–
107.6
–
–
60.7
12.5
73.2
34.4
5.9
28.5
208.0
54.0
9.5
105.4
2.5
379.4
38.1
5.9
60.7
17.1
121.8
257.6
47.6
210.0
4.8
(39.6)
(1.0)
174.2
(1)
Includes non-segment specific corporate costs pertaining to Group level functions such as finance and tax, legal, risk and compliance, corporate
secretarial and marketing and other corporate services.
78
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 30 June 2018
Segment revenue
Rental income and recoverable outgoings
Operating profit of equity accounted investments
Funds and asset management fees
Distributions
Total segment revenue
Segment expenses
Property expenses
Development costs
Funds and asset management direct costs
Other expenses
Total segment expenses
EBITDA
Finance costs
Segment profit after finance costs
Unallocated items
Finance income
Corporate costs (1)
Income tax expense
Segment profit
Direct
property
investment
$M
Indirect
property
investment
$M
Funds
and asset
management
$M
Cromwell
$M
198.8
–
–
–
198.8
39.2
0.6
–
1.4
41.2
157.6
37.0
120.6
–
28.5
–
3.0
31.5
–
–
–
2.7
2.7
28.8
5.5
23.3
–
1.7
107.2
–
108.9
–
–
60.3
10.3
70.6
38.3
3.3
35.0
198.8
30.2
107.2
3.0
339.2
39.2
0.6
60.3
14.4
114.5
224.7
45.8
178.9
9.0
(26.7)
(4.4)
156.8
(1)
Includes non-segment specific corporate costs pertaining to Group level functions such as finance and tax, legal, risk and compliance, corporate
secretarial and marketing and other corporate services.
The operating segments reported by Cromwell have changed from the comparable year (see note 1(a)). Accordingly, prior
year comparatives have been adjusted where applicable to reflect changes in the composition of the segments.
79
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT A reconciliation of total segment profit to statutory profit as per income statement is provided in section (d) below:
(D) RECONCILIATION OF SEGMENT PROFIT TO STATUTORY PROFIT
Cromwell
Segment profit
Reconciliation to profit for the year
Gain / (loss) on sale of investment properties
Gain on sale of listed securities
Loss on disposal of other assets
Finance costs attributable to disposal group / other assets
Other transaction costs
Fair value net gain / (losses):
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 or non-recurring items
Amortisation of finance costs
Net exchange loss on foreign currency borrowings
Costs in relation to asset classified as held for sale
Decrease in recoverable amounts
Amortisation and depreciation, net of deferred tax expense (1)
Relating to equity accounted investments (2)
Net foreign exchange losses
Net profit from discontinued operations
Restructure costs expensed / (reversed) (3)
Net tax losses utilised (4)
Profit for the year
2019
$M
174.2
0.7
–
(0.3)
–
(2.9)
86.4
(10.5)
(9.2)
9.3
(18.8)
(2.0)
(7.8)
(12.7)
(35.3)
(0.4)
(2.4)
1.6
(3.0)
–
0.3
(7.3)
159.9
2018
$M
156.8
(5.0)
15.7
–
(2.1)
(5.7)
77.4
(13.7)
(3.5)
27.8
(17.8)
(1.7)
(21.2)
(10.3)
–
(76.1)
(4.4)
94.8
(3.2)
1.5
(4.7)
(0.5)
204.1
(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) Relates to the transition of funds management responsibilities for the CEREIT portfolio from Europe to Singapore.
(4) Comprises tax expense attributable to changes in deferred tax assets recognised as a result of carried forward tax losses.
(E) RECONCILIATION OF TOTAL SEGMENT REVENUE TO TOTAL REVENUE AND OTHER INCOME
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:
Inter-segmental management fee revenue
Straight-line lease income
Lease incentive amortisation
Gain on sale of listed securities
Gain on sale of investment properties
Fair value net gain from investment properties
Operating profit from equity accounted investments
Interest revenue
Total revenue and other income
80
2019
$M
379.4
(6.1)
9.3
(18.8)
–
0.7
86.4
1.6
4.8
457.3
2018
$M
339.2
(3.8)
27.8
(17.8)
15.7
–
77.4
94.8
6.5
539.8
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (F) SEGMENT ASSETS AND LIABILITIES
30 June 2019
Segment assets
Segment liabilities
Segment net assets
Other segment information
Equity accounted investments
Acquisition of non-current segment assets (1):
Investments in associates
Investments at fair value through profit or loss
Intangible assets
Direct
property
investment
$M
Indirect
property
investment
$M
Funds
and asset
management
$M
2,709.5
980.7
1,728.8
800.1
436.6
363.5
186.1
95.4
90.7
Cromwell
$M
3,695.7
1,512.7
2,183.0
150.4
641.4
22.7
814.5
3.0
–
–
148.7
–
0.3
–
(7.9)
1.9
151.7
(7.9)
2.2
(1) For additions to investment property, forming part of the Direct property investment segment, refer to Note 6.
30 June 2018
Segment assets
Segment liabilities
Segment net assets
Other segment information
Decrease in recoverable amount – goodwill
Equity accounted investments
Acquisition of non-current segment assets (1):
Investments in associates
Investments at fair value through profit or loss
Intangible assets
Direct
property
investment
$M
Indirect
property
investment
$M
Funds
and asset
management
$M
2,599.3
1,060.6
1,538.7
–
184.5
14.0
–
–
695.4
427.5
267.9
–
495.6
464.4
–
0.6
171.6
76.7
94.9
(69.5)
22.3
1.5
3.0
1.2
Cromwell
$M
3,466.3
1,564.8
1,901.5
(69.5)
702.4
479.9
3.0
1.8
(1) For additions to investment property, forming part of the Direct property investment segment, refer to Note 6.
(G) OTHER SEGMENT INFORMATION
Geographic information
Cromwell has operations in four distinct geographical markets. These are Australia through the Cromwell Property Group
and the Australian funds it manages, United Kingdom and Europe through its European business, Asia through its
investment in the Singapore-listed CEREIT and New Zealand through its Oyster Property Funds Limited joint venture.
Non-current assets for the purpose of the disclosure below include investment property, equity accounted investments
and investments at fair value through profit or loss.
Geographic location
Australia
United Kingdom and Europe
Asia
New Zealand
Total segment revenue
Revenue from external customers Non-current operating assets
2019
$M
357.3
9.4
11.2
1.5
379.4
2018
$M
253.1
72.0
13.1
1.0
339.2
2019
$M
2,525.4
5.7
0.1
–
2,531.2
2018
$M
2,462.3
1.9
0.1
–
2,464.3
81
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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 Direct property investment and Funds and asset management segment.
Major customer
Commonwealth of Australia
Qantas Airways Limited
New South Wales State Government
Cromwell European Real Estate Investment Trust
Total income from major customers
2. Distributions
2019
$M
37.6
30.8
27.4
11.2
107.0
2018
$M
47.3
29.7
26.6
13.1
116.7
(A) OVERVIEW
Cromwell’s objective is to generate sustainable returns for our securityholders, 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 three segments (operating profit) which excludes
unrealised fair value adjustments and other non-cash income and expenses (refer to note 1).
(B) DISTRIBUTIONS FOR THE YEAR
Distributions paid / payable by Cromwell and the Trust during the year were as follows:
2019
2018
23 November 2018
17 November 2017
22 February 2019 (1)
23 February 2018
24 May 2019
23 August 2019
Total
25 May 2018 (2)
24 August 2018
2019
cents
1.8125¢
1.8125¢
1.8125¢
1.8125¢
7.2500¢
2018
cents
2.0850¢
2.0850¢
2.0850¢
2.0850¢
8.3400¢
2019
$M
36.1
40.4
40.5
40.5
157.5
2018
$M
36.8
37.6
41.3
41.4
157.1
(1)
(2)
Includes an amount of $2,667,000 for both Cromwell and the Trust in excess of the pro-rata entitlement for the quarterly distribution paid to
those securityholders who acquired securities in December 2018 as part of the non-renounceable entitlement offer.
Includes an amount of $392,000 for both Cromwell and the Trust in excess of the pro-rata entitlement for the quarterly distribution paid to
those securityholders who acquired securities in February 2018 as part of the Security Purchase Plan.
There were no dividends paid or payable by the Company in respect of the 2019 and 2018 financial years. All of Cromwell’s
and the Trust’s distributions are unfranked.
(C) FRANKING CREDITS
Currently, Cromwell’s distributions are paid from the Trust. Franking credits are only available for future dividends paid by
the Company. The Company’s franking account balance as at 30 June 2019 is $8,616,000 (2018: $7,100,000).
82
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 3. Revenue
(A) OVERVIEW
Cromwell has applied AASB 15 Revenue from Contracts with Customers for the first time during the year (see note 26(h)).
Cromwell recognises revenue to which AASB 15 pertains from the transfer of goods and services over time and at a point
in time in respect of relevant non-lease elements of rental income and recoverable outgoings, funds management fees
and development sales.
The table below presents information about revenue recognised from contracts with customers accounted for in
accordance with AASB 15, revenue from investment properties accounted for in accordance with AASB 117 Leases,
revenue accounted for in accordance with AASB 9 Financial Instruments and revenue accounted for in accordance with
AASB 128 Investments in Associates and Joint Ventures:
Cromwell
Trust
2019
$M
32.7
99.2
9.5
141.4
165.8
4.8
2.5
0.1
173.2
314.6
2018
$M
35.0
99.1
–
134.1
174.6
6.5
5.5
0.9
187.5
321.6
2019
$M
31.6
–
–
31.6
166.2
8.5
–
0.1
174.8
206.4
2018
$M
33.8
–
–
33.8
176.2
9.6
0.1
0.1
186.0
219.8
Revenue recognised under AASB 15:
Rental income and recoverable outgoings – non-lease
components
Funds management fees
Development sales
Total revenue from contracts with customers
Revenue recognised under AASB 9, AASB 117 and
AASB 128:
Rental income
Interest
Distributions
Other revenue
Total other revenue
Total revenue
(B) ACCOUNTING POLICY
Revenue – General
Rental revenue – non-lease components
Cromwell has many contracts with tenants that contain a lease coupled with an agreement to sell other goods or services
(non-lease components). For these contracts the non-lease components are identified and accounted for separately from
the lease components in accordance with AASB 15.
AASB 15 requires Cromwell to allocate consideration in a contract between the lease and non-lease components on a
stand-alone selling price basis. Cromwell enters into “gross” leases where the stand-alone selling prices for the lease
and non-lease components are separately stipulated and therefore no allocation estimate is required to be performed.
Cromwell allocates any variable payment amounts specifically related to its efforts to transfer goods or services that are
not a lease component entirely to the non-lease component(s) to which the payment specifically relates. Relevant non-
lease components include payments for maintenance activities, common area cleaning and air conditioning and other
goods and services transferred to tenants.
The service element (non-lease component) of an arrangement is considered to be an integrated service in the context of
each contract with a customer. Each increment of service is part of a series of distinct goods or services that are
substantially the same and transferred to the customer over time, resulting in a single performance obligation. Revenue
for non-lease components are recognised as the services are performed over time over the term of the contract.
Funds management fees
Funds management fee revenue is recognised in respect of the following types of service contracts with customers:
• Contracts with customers in relation to property management and fund administration services identify performance
obligations, as well as the relevant stand-alone selling price in relation to the satisfaction of the same. These services
are provided to customers as a series of distinct goods or services that are substantially the same and transferred over
83
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT time, either separately or in combination as an integrated offering, and are treated as a single performance obligation.
Variable consideration is allocated to each distinct increment of service in the series and recognised as revenue as
the service is performed over time.
• Contracts with customers in relation to equity raising, loan establishment, acquisition, project management and
leasing services identify performance obligations, as well as the relevant stand-alone selling price in relation to
the satisfaction of the same. Due to the specialised nature of these services, the customer does not benefit from the
process undertaken, but rather the outcome. Cromwell is only entitled to payment for services upon the successful
completion of the contract. Hence, revenue is recognised upon completion of the service, at a point in time.
• Certain contracts with customers identify performance obligations with regard to the outcome Cromwell achieves in
respect of its management of assets or transactions on behalf of customers (performance fees), as well as the relevant
stand-alone selling price in relation to the satisfaction of the same. The consideration in relation to these contracts
is in the form of performance fees linked to the variable returns generated by Cromwell on the customer’s behalf.
Applying the expected value method, Cromwell estimates the amount of variable consideration that it will be entitled to
under the relevant contract and constrains the amount of revenue recognised to the amount that is considered highly
probable will not result in a significant reversal. Variable consideration is assessed at each reporting period to account
for any changes in circumstances.
Development income
Development sales comprises income from the disposal of property inventories and from the provision of development
management services. Revenue is recognised at the point in time that control of the asset has been transferred to the
customer, generally upon legal settlement date.
Revenue – Performance obligations
Information about Cromwell’s performance obligations is summarised below:
Rental revenue – non-lease components
Depending on the nature of the non-lease component, the performance obligation is either satisfied at a point in time
or over time. Where Cromwell becomes entitled to the present right to payment for the service, revenue is recognised at
a point in time. Where the tenant simultaneously receives and consumes the benefits of the service, revenue is recognised
over time.
Payment for the non-lease components is generally due in advance, immediately prior to the time the service is provided.
Funds management fees – Property management, fund administration, asset management and project management services
The performance obligation for these services is satisfied and an enforceable right to payment created over time as
the services are transferred to customers. These services are provided to customers as a series of distinct goods or
services that are substantially the same and transferred over time, either separately or in combination as an integrated
offering, and are treated as a single performance obligation. Variable consideration allocated to each distinct increment
of service provided.
Payment for property management and fund administration services is generally due within 30 days from the time the
service is provided.
Funds management fees – Equity raising, loan establishment, acquisition, project management, leasing services and
performance fees
The performance obligation is satisfied at a point in time, at the completion of the service or fulfilment of the transaction
on behalf of customers (performance fees). This is due to the specialised nature of these services, where the customer
does not benefit from the process undertaken, but rather the outcome. In the case of performance fees that are outcome-
based, revenue is constrained and not recognised until the successful completion of the service or transaction when it
becomes highly probable that there will be no significant reversal of revenue in future and Cromwell has a present right
to payment.
Payment for these services is generally due within 30 days from the time the service is successfully completed.
Development income
The performance obligation is satisfied at a point in time, once control of the asset has been transferred to the customer,
generally upon legal settlement date. Payment for these services is generally due on settlement date of the sale.
84
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Revenue – Other income
Rental income
Rental income 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.
Share of profit of equity accounted investments
Cromwell’s share of its equity accounted investees post-acquisition profits or losses is recognised in profit or loss
and its share of post-acquisition movements in reserves is recognised in reserves, in accordance with AASB 128.
The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends
or distributions receivable from equity accounted investees are recognised in Cromwell’s financial statements as
a reduction of the carrying amount of the investment.
When Cromwell’s share of losses in an equity accounted investee equals or exceeds its investment in the investee,
including any other relevant unsecured receivables, Cromwell does not recognise further losses, unless it has incurred
obligations or made payments on behalf of the equity accounted investee. Unrealised gains on transactions between
Cromwell and its equity accounted investees are eliminated to the extent of Cromwell’s investment in the equity accounted
investee. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred.
Interest revenue
Interest revenue is recognised as it accrues using the effective interest method. Interest revenue is predominately earned
from financial assets including cash and trade and other receivables and is recognised under AASB 9. There has been no
change to the recognition of interest revenue as a result of the adoption of AASB 9 in the current year.
Distributions
Revenue from distributions is earned from investments and is recognised under AASB 9 when Cromwell’s right to receipt
is established.
Contract liabilities (unearned income)
Cromwell sometimes receives payments from customers in relation to future periods whereby the underlying receipt is
not actually due and payable to Cromwell. This results in a contract liability being recognised upon receipt of the cash
which is recognised in Cromwell’s Statement of financial position as unearned income.
(C) CRITICAL ACCOUNTING ESTIMATES
Rental revenue – non-lease components
There are no significant judgements or assumptions in allocating the transaction price or the timing of the performance
obligation in relation to the non-lease components of rental revenue. This is because the revenue is measured at
the transaction price agreed under the contract.
Performance fees
Certain contracts with customers identify performance obligations with regard to the outcome Cromwell achieves in
respect of its management of assets or transactions on behalf of customers (performance fees), as well as the relevant
stand-alone selling price in relation to the satisfaction of the same. The consideration in relation to these contracts is in
the form of performance fees linked to the variable returns generated by Cromwell on the customer’s behalf. Applying
the expected value method, Cromwell estimates the amount of variable consideration that it will be entitled to under
the relevant contract and constrains the amount of revenue recognised to the amount that is considered highly probable
will not result in a significant reversal. Variable consideration is assessed at each reporting period to account for any
changes in circumstances.
See above note 26(h) for further information.
85
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (D) DISAGGREGATION OF REVENUE FROM CONTRACTS
The tables below present information about the disaggregation of revenue items from Cromwell’s contracts with relevant
customers:
Cromwell
2019
2018
Point in
time
$M
Over
time
$M
Other (1)
$M
Total
$M
Point in
time
$M
Over
time
$M
Other (1)
$M
Total
$M
Direct property investment
Rental revenue – non-lease components
Development sales
12.2
9.5
20.5
–
175.3
–
208.0
9.5
14.7
–
20.3
–
163.8
–
198.8
–
Indirect property investment
Share of profit of equity accounted
investments components
Distributions
Funds and asset management
Share of profit of equity accounted
investments components
Funds management fees
Total segment revenue
Inter-segment adjustments / eliminations
and other income items
Total revenue from contracts with
customers
–
–
–
–
–
–
51.8
2.5
51.8
2.5
2.2
2.2
–
–
–
–
–
–
37.2
58.9
62.0
82.5
6.2
238.0
105.4
379.4
42.4
57.1
56.7
77.0
28.5
3.0
1.7
8.1
205.1
28.5
3.0
1.7
107.2
339.2
–
–
(238.0)
(238.0)
–
–
(205.1)
(205.1)
58.9
82.5
–
141.4
57.1
77.0
–
134.1
(1)
Includes income derived from sources other than those recognised and measured in accordance with AASB 15 Revenue from Contracts with Customers.
Trust(2)
2019
2018
Rental revenue – non-lease components
Total revenue from contracts with
customers
Point in
time
$M
Over
time
$M
Other (1)
$M
Total
$M
11.0
20.6
166.2
197.8
11.0
20.6
166.2
197.8
Point in
time
$M
13.4
13.4
Over
time
$M
20.4
Other (1)
$M
Total
$M
176.2
210.0
20.4
176.2
210.0
Includes income derived from sources other than those recognised and measured in accordance with AASB 15 Revenue from Contracts with Customers.
(1)
(2) The Trust is not considered to be separate for segment reporting purposes.
4. Earnings per security
(A) 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 (c) 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, (d) provides earnings per stapled security information.
(B) ACCOUNTING POLICY
Basic earnings per security
Basic earnings per security is calculated by dividing profit / (loss) attributable to security holders of the
Company / Trust / 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.
86
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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.
(C) EARNINGS PER SHARE / UNIT
Company
Trust
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 ($M)
Profit / (loss) attributable to ordinary equity holders
of Company / Trust ($M)
2019
(0.15)
(0.15)
159.9
(162.8)
(2.9)
2018
(4.47)
(4.47)
204.1
(288.0)
(83.9)
(D) EARNINGS PER STAPLED SECURITY
Basic earnings per stapled security (cents)
Diluted earnings per stapled security (cents)
2019
7.71
7.67
162.8
0.6
163.4
2019
7.53
7.50
Cromwell
2018
15.38
15.34
288.0
0.4
288.4
2018
10.89
10.85
Earnings used to calculate basic and diluted earnings per stapled security:
Profit for the year attributable to ordinary stapled securityholders of Cromwell ($M)
159.9
204.1
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)
Adjustment for calculation of diluted earnings per company share / trust unit:
Performance rights (number)
Weighted average number of ordinary securities and potential ordinary securities used
in calculating earnings per company share / trust unit / stapled security (number)
2,121,577,087
1,876,401,510
8,880,788
5,621,379
2,130,457,875
1,882,022,889
(E) INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES
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 20.
Convertible bonds
Convertible bonds issued during the current and prior years are considered to be potential ordinary stapled securities,
however have not been included in the determination of diluted earnings. Whilst the ASX market price of Cromwell stapled
securities has periodically risen above the convertible bond conversion prices of $1.1771 (to 23 August 2018) and $1.1656
thereafter and $1.1431 throughout the year, the actual Euro currency translation rate was more favourable to bondholders
than the fixed conversion rate. Therefore, the convertible bonds are currently considered to be antidilutive.
(F) ISSUES OF SECURITIES SUBSEQUENT TO 30 JUNE 2019
On 1 July 2019 Cromwell completed an underwritten institutional placement of stapled securities. As a result
326,086,957 securities were allotted to securityholders on 2 July 2019.
On 24 July 2019 Cromwell closed a non-underwritten Security Purchase Plan (“SPP”). As a result 28,294,234 securities
were allotted to securityholders on 31 July 2019.
87
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 5. Income tax
(A) 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. During the prior year the Trust acquired controlling interests in a number of corporate entities that are subject
to income tax. The income tax applicable to these corporate entities is represented below.
(B) 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.
Tax consolidation
The Company and its wholly-owned entities (this excludes the Trust and its controlled entities and foreign entities
controlled by the Company) 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
88
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT utilised. Any subsequent period adjustment to deferred tax assets arising from unused tax losses, as a result of revised
assessments of the probability of recoverability, is recognised by the head entity only.
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding
arrangement, which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts.
The tax funding arrangements require payments to / from the head entity equal to the current tax liability (asset) assumed
by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising
an inter-entity receivable (payable) equal in amount to the tax liability (asset) assumed. The inter-entity receivable
(payable) 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.
(C) 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
Trust
2019
$M
1.4
7.1
(0.2)
8.3
(5.0)
12.1
7.1
2018
$M
1.5
3.1
0.4
5.0
1.7
1.4
3.1
2019
$M
0.3
12.1
0.1
12.5
–
12.1
12.1
(D) NUMERICAL RECONCILIATION BETWEEN INCOME TAX EXPENSE / (BENEFIT) AND PRE-TAX PROFIT
Profit before income tax
Tax at Australian tax rate of 30% (2018: 30%)
Tax effect of amounts which are not
deductible / (taxable) in calculating taxable income:
Trust income – refer above for Taxation of the Trust
Fair value impairment not deductible
Non-deductible (income) / expenses
Change in tax losses recognised
Adjustment in relation to prior periods
Difference in overseas tax rate
Income tax expense
Cromwell
Trust
2019
$M
168.2
50.5
(35.1)
(0.3)
(9.1)
2.2
(0.1)
0.2
8.3
2018
$M
207.6
62.3
(81.2)
13.8
7.9
0.5
0.4
1.3
5.0
2019
$M
175.9
52.8
(35.1)
–
(5.2)
–
–
–
12.5
2018
$M
–
2.6
–
2.6
0.3
2.3
2.6
2018
$M
289.3
86.8
(81.2)
(6.6)
3.6
–
–
–
2.6
89
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (E) 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) / gains
Tax losses recognised
Total deferred tax assets
Movements:
Balance at 1 July
Credited / (charged) to profit or loss
Credited to other comprehensive income
Balance at 30 June
Cromwell
Trust
2019
$M
(1.7)
2.0
2.6
1.5
2.6
7.0
1.7
5.0
0.3
7.0
2018
$M
(1.9)
1.9
0.6
(0.8)
1.9
1.7
3.4
(1.7)
–
1.7
2019
$M
–
–
–
–
–
–
–
–
–
–
2018
$M
–
–
–
–
–
–
0.3
(0.3)
–
–
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 $28,957,000 (2018: $28,700,268).
(ii) Deferred tax liabilities
Deferred tax liabilities are attributable to:
Interests in managed investment schemes
Unrealised foreign currency (losses) / gains
Total deferred tax liabilities
Movements:
Balance at 1 July
Charged / (credited) to profit or loss
Credited to other comprehensive income
Balance at 30 June
Cromwell
Trust
2019
$M
4.7
–
4.7
9.7
12.1
(17.1)
4.7
2018
$M
9.2
0.3
9.5
0.9
1.4
7.4
9.7
2019
$M
4.6
–
4.6
9.7
12.1
(17.2)
4.6
2018
$M
9.2
0.3
9.5
–
2.3
7.4
9.7
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.
90
CROMWELL PROPERTY GROUP I 2019 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.
6. Investment properties
(A) 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 19 (2018: 21) commercial properties of which
17 (2018: 18) properties are predominantly office use with the remaining 2 (2018: 3) 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.
(B) ACCOUNTING POLICY
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 statement of financial position as a component of
the carrying amount of investment property and amortised over the lease period as a reduction of rental income.
Initial direct leasing costs
Initial direct leasing costs incurred by Cromwell in negotiating and arranging operating leases are recognised as an asset
in the statement of financial position as a component of the carrying amount of investment property and are amortised
as an expense on a straight-line basis over the lease term.
91
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (C) DETAILS OF CROMWELL’S AND THE TRUST’S INVESTMENT PROPERTIES
Independent valuation
Carrying amount
Fair value adjustment
Date
Amount
Title
(1)
(1)
(1)
(1)
(2)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(2)
(2)
(2)
(2)
(2)
(2)
(1)
(1)
(1)
(1)
Jun 2019
Dec 2018
SOLD
Jun 2019
Dec 2018
Jun 2019
Dec 2018
Jun 2019
Jun 2019
Dec 2018
Dec 2018
Jun 2019
Jun 2019
Jun 2019
Jun 2019
Jun 2018
Jun 2019
PART SOLD
Dec 2018
Jun 2019
Dec 2018
SOLD
200 Mary Street, QLD
HQ North, QLD
13 Musk Avenue, QLD
203 Coward Street, NSW
207 Kent Street, NSW
2-24 Rawson Place, NSW
475 Victoria Avenue, NSW
2-6 Station Street, NSW
84 Crown Street, NSW
11 Farrer Place, NSW
117 Bull Street, NSW
Regent Cinema Centre, NSW
Soward Way, ACT
TGA Complex, ACT
243 Northbourne Avenue, ACT
13 Keltie Street, ACT
19 National Circuit, ACT
Tuggeranong Office Park, ACT
700 Collins Street, VIC
Village Cinemas, VIC
Wakefield Street, SA
Vodafone Call Centre, TAS
Investment properties
Investment properties classified as held for sale
Sturton Road, SA (Lot 203)
SOLD
Total investment property
classified as held for sale
Total investment properties
(1)
$M
80.0
231.0
–
502.0
293.0
260.0
225.0
48.5
36.5
30.2
26.5
7.2
280.4
50.0
30.5
24.0
8.8
52.5
303.0
16.5
42.1
–
2,547.7
–
–
2019
$M
80.0
232.0
–
502.0
298.0
260.0
232.0
48.5
36.5
32.0
28.5
7.2
280.4
50.0
30.5
14.0
8.8
7.5
306.0
16.5
50.5
–
2,520.9
–
–
2018
$M
74.0
217.0
–
490.0
279.0
245.0
211.0
42.8
34.0
29.5
25.8
15.8
260.0
57.0
25.5
24.0
34.8
52.5
271.0
16.2
46.2
–
2,451.1
0.9
0.9
2019
$M
5.7
3.6
–
7.2
17.8
15.0
20.5
5.5
2.5
2.5
2.7
(7.9)
16.9
(7.2)
3.7
(10.0)
(27.2)
–
30.0
0.9
4.2
–
86.4
–
–
2018
$M
2.9
0.8
8.2
16.7
26.0
14.9
5.8
3.7
0.5
0.3
1.6
0.7
(12.3)
(5.4)
(2.0)
(0.9)
6.9
(5.7)
20.6
0.4
(5.9)
(0.5)
77.3
0.1
0.1
77.4
2,547.7
2,520.9
2,452.0
86.4
(1) Freehold
(2) Leasehold
(D) MOVEMENTS IN INVESTMENT PROPERTIES
A reconciliation of the carrying amounts of investment properties at the beginning and the end of the financial year is set
out below.
Cromwell
Trust
Balance at 1 July
Acquisitions
Capital works
Construction costs
Finance costs capitalised
Property improvements
Lifecycle
Disposals
Transferred to held for sale
Straight-line lease income
Lease costs and incentive costs
Lease incentive and lease cost amortisation
Net gain from fair value adjustments
2019
$M
2,451.1
–
–
–
21.9
1.9
(54.5)
–
9.3
25.6
(20.8)
86.4
2018
$M
2,357.8
51.8
13.6
1.1
6.7
2.5
(89.3)
(0.9)
27.8
22.1
(19.5)
77.4
2019
$M
2,451.1
–
2018
$M
2,357.8
51.8
–
–
21.9
1.9
(54.5)
–
9.3
25.6
(20.8)
86.4
13.6
1.1
6.7
2.5
(89.3)
(0.9)
27.8
22.1
(19.5)
77.4
Balance at 30 June
2,520.9
2,451.1
2,520.9
2,451.1
92
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (E) INVESTMENT PROPERTY SOLD
Details of the investment properties sold during the year are as follows:
Tuggeranong Office Park, ACT (1)
Sturton Rd, SA (Lot 203)
Gross sale
price
Carrying amount
at 30 June 2018
Last independent
valuation
Gain on sale
recognised
$M
54.5
0.9
$M
45.0
0.9
$M
45.0
0.9
$M
0.7
–
(1) A significant portion of the Tuggeranong property was transferred from the Trust to an associate, LDK Healthcare Unit Trust (“LDK”), during the year
as part of the planned transformation into Seniors Living units and associated facilities. The remaining portion of the site has been retained by the Trust
in order to take advantage of future development opportunities. See note 7 for further information in relation to Cromwell’s investment in LDK.
Details of investment property sold during the prior year are as follows:
13 Musk Avenue, QLD
Vodafone Call Centre, TAS
Sturton Rd, SA (Lot 204)
147-163 Charlotte Street, QLD
146-160 Mary Street, QLD
Gross sale
price
Carrying
amount at 30
June 2017
Last
independent
valuation
Loss on sale
recognised
$M
84.0
4.5
0.7
33.0
33.0
$M
76.0
5.0
0.9
34.8
34.7
$M
76.0
5.0
0.7
37.3
37.3
$M
0.7
0.1
0.2
2.0
2.0
(F) FAIR VALUE MEASUREMENT
Cromwell’s investment properties, with an aggregate carrying amount of $2,520.9 million (2018: $2,451.1 million), are
measured using the fair value model as described in AASB 140 Investment Property. Fair value is 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 11 of Cromwell’s investment properties are based on independent external
valuations representing 52% of the value of the portfolio. The balance of the portfolio is subject to internal valuations
having regard to previous external valuations and comparable sales evidence. 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.
93
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Key inputs used to measure fair value
DCF method
Income capitalisation method
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
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.
Net market rent
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.
Adopted capitalisation rate
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).
Adopted discount rate
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).
Weighted average lease expiry
(“WALE”)
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.
Occupancy
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 13).
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 (%)
2019
2018
Range
5.0–11.0
6.3–12.0
0.0–25.3
0.1–13.5
0.0–100.0
Weighted
average
5.8
6.7
15.2
7.6
98.0
Range
5.3–12.0
6.5–12.5
0.0–29.7
0.0–14.2
0.0–100.0
Weighted
average
6.1
7.0
16.9
7.1
94.6
94
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Sensitivity information
The sensitivity to changes in 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
Impact of decrease in
input on fair value
Decrease
Decrease
Increase
Increase
Increase
Increase
Increase
Decrease
Decrease
Decrease
(G) AMOUNTS RECOGNISED IN PROFIT AND LOSS FOR INVESTMENT PROPERTIES
Rental income and recoverable outgoings
Property expenses and outgoings
Total amounts recognised in profit and loss for investment properties
Cromwell
Trust
2019
$M
198.5
(34.0)
164.5
2018
$M
209.6
(34.6)
175.0
2019
$M
197.8
(39.1)
158.7
2018
$M
210.0
(39.8)
170.2
(H) 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
Total non-cancellable operating lease receivable from
investment property tenants
Cromwell
Trust
2019
$M
149.8
485.0
641.6
2018
$M
142.5
454.7
711.4
2019
$M
149.8
485.0
641.6
2018
$M
142.5
454.7
711.4
1,276.4
1,308.6
1,276.4
1,308.6
95
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 7. Equity accounted investments
(A) 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:
Equity accounted investments
CEREIT
CPA
LDK
Others
Equity accounted investments
Equity accounted investments
classified as held for sale
CPA
Total equity accounted investments
Cromwell
Trust
2019
2018
2019
2018
%
$M
%
$M
%
$M
%
$M
35.8
–
50.0
50.0
641.4
–
–
22.7
664.1
150.4
814.5
35.1
50.0
50.0
–
495.6
186.3
–
20.5
702.4
–
702.4
35.0
–
50.0
50.0
626.3
–
–
–
626.3
148.4
774.7
34.0
50.0
50.0
–
484.8
184.5
–
–
669.3
–
669.3
(B) 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 relevant 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.
96
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (C) DETAILS OF EQUITY ACCOUNTED INVESTMENTS
Cromwell European Real Estate Investment Trust
Cromwell European Real Estate Investment Trust (“CEREIT”) is a Singapore-based real estate investment trust
established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of income-
producing real estate assets in Europe. Cromwell and the Trust owned 35.8% and 35.0% (2018: 35.1% and 34.0%) of
CEREIT respectively at the end of the year. CEREIT is managed by a subsidiary of Cromwell, Cromwell EREIT Management
Pte. Ltd., which operates strictly within the listing rules imposed by the Singapore Stock Exchange and which has its own
independent Board. As such, Cromwell and the Trust are considered able to exert significant influence, but not control,
over the entity and therefore the investment has been classified as an equity-accounted investment.
Portgate
During 2016 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. $2.5 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.
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.
The Trustee of Portgate is MPC Nominees Pty Ltd which is a subsidiary of Monash Private Capital. Mr G Levy, a Director of
the Company is also a Director of the Trustee and of Monash Private Capital and owns 26% of the issued shares of Monash
Private Capital. Owing to the operations of the management committee described above, Monash Private Capital rebates
its pro-rata management fee in respect of Cromwell’s investment in Portgate to Cromwell. Cromwell provides property
management services to Portgate for an annual fee of $87,000 (2018: $85,000).
(D) DETAILS OF JOINT VENTURES
LDK Healthcare Unit Trust
During the 2018 financial year, Cromwell acquired 50% of the units in the LDK Healthcare Unit Trust (LDK), an aged care
operation. The remaining 50% of the units in LDK are held by a single investor, Aspire LDK Unit Trust (Aspire). A unit
holder agreement between Cromwell and Aspire limits the power of the trustee to management of ongoing operations of
LDK. All decisions about relevant activities of LDK require unanimous consent of the two unitholders. It has therefore been
determined that joint control of the arrangement exists between Cromwell and Aspire. Both parties have rights to the net
assets of the arrangement through the establishment of the separate LDK vehicle. The arrangement 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 “chair's” vote. A shareholder agreement between Cromwell and
the six investors outlines how Oyster will be managed.
(E) DETAILS OF EQUITY ACCOUNTED INVESTMENT CLASSIFIED AS HELD FOR SALE
Cromwell Partners Trust and CPT Operations Pty Limited (CPA)
The Trust holds a 50% interest in the units of Cromwell Partners Trust and 50% of the shares in CPT Operations Pty
Limited, together known as “CPA”. Cromwell Partners Trust owns the $600.0 million (2018: $594.5 million) Northpoint
Building in the North Sydney CBD, whilst CPT Operations Pty Limited manages the associated carpark and hotel
businesses. The remaining 50% of the interests in CPA are held by a single investor. A unit holder agreement between
the Trust 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.
The investment in CPA has been classified as held for sale because it is managements intention that the carrying amount
of the investment will be recovered through a sale transaction and the investment is in a saleable condition and has been
actively marketed. The valuation of this held for sale joint venture is primarily based upon an independent valuation less
fees and costs expected to be charged to affect the disposal. See note 25 for further information in relation to Cromwell’s
disposal of its interest in this joint venture.
97
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (F) SUMMARISED FINANCIAL INFORMATION FOR JOINT VENTURES AND EQUITY ACCOUNTED INVESTMENTS
OWNED BY CROMWELL
As at 30 June 2019
$M
As at 30 June 2018
$M
CEREIT(1)
CPA(2)
LDK(3)
Others(4)
CEREIT(1)
CPA(2)
LDK(3)
Others(4)
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
Carrying amount of investment:
Cromwell’s share of equity (%)
Cromwell’s share of net assets
Costs in relation asset
classified as held for sale
Unpaid investment consideration
Goodwill
Carrying amount
Movement in carrying amounts:
Opening balance at 1 July
Investment
Share of profit / loss
Less: dividends / distributions
received
Costs in relation to asset
classified as held for sale
Increase / (decrease) to
recoverable amount
Foreign exchange difference
Carrying amount at 30 June
Summarised statements of
comprehensive income
Revenue
Expenses
Total comprehensive income/
(loss)
Cromwell’s share in %
Share of profit / (loss)
91.6
57.4
149.0
2,969.8
28.3
2,998.1
3,147.1
207.6
73.1
280.7
1,075.4
–
1,075.4
1,356.1
1,791.0
35.8
641.4
–
–
–
641.4
495.6
148.7
53.0
13.5
3.0
16.5
598.5
1.8
600.3
616.8
6.8
0.2
7.0
233.9
4.5
238.4
245.4
371.4
50.0
185.7
(35.3)
–
–
150.4
186.3
3.0
0.4
(67.6)
(4.0)
–
–
11.7
641.4
232.1
(84.1)
148.0
35.8
53.0
(35.3)
–
–
150.4
35.2
(34.4)
0.8
50.0
0.4
1.6
5.8
7.4
351.2
0.5
351.7
359.1
221.6
5.0
226.6
25.9
117.3
143.2
369.8
(10.7)
50.0
–
–
–
–
–
–
–
–
–
–
–
–
–
14.5
9.8
24.3
55.0
13.4
68.4
92.7
7.6
1.3
8.9
31.4
30.8
62.2
71.1
21.6
–
18.6
–
(2.5)
6.6
22.7
20.5
–
2.2
(0.2)
–
–
0.2
22.7
2.0
(10.9)
(8.9)
50.0
–
38.7
(31.8)
6.9
–
2.2
84.4
45.0
129.4
2,185.6
15.8
2,201.4
2,330.8
107.1
–
107.1
777.4
30.9
808.3
915.4
1,415.4
35.0
495.6
–
–
–
495.6
–
464.4
27.1
–
–
–
4.1
495.6
163.5
(86.2)
77.3
35.1
27.1
19.6
3.3
22.9
594.5
2.2
596.7
619.6
13.3
1.4
14.7
232.4
–
232.4
247.1
372.5
50.0
186.3
–
–
–
186.3
85.6
14.0
95.0
(9.8)
–
1.5
–
186.3
205.0
(15.1)
189.9
50.0
95.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8.5
13.6
22.1
55.2
11.2
66.4
88.5
6.3
3.1
9.4
31.1
30.8
61.9
71.3
17.2
–
16.4
–
(2.5)
6.6
20.5
15.9
8.0
3.0
(0.4)
–
(5.7)
(0.3)
20.5
38.7
(32.8)
5.9
–
3.0
(1) At year end Cromwell owned 35.8% of CEREIT, the Trust owned 35.0% (2018: 35.1% and 34.0%). The Balance sheet information shown above reflects
the impact of distributions receivable to Cromwell and the Trust at 30 June 2019 which were not reflected in the 30 June 2019 financial statements
of CEREIT.
(2) At year end Cromwell and the Trust owned 50.0% of CPA (2018: 50.0%). This investment has been classified as held for sale at year end.
(3) At year end Cromwell owned 50.0% of LDK (2018: 50.0%).
(4) At year end Cromwell had various ownership interests in other joint ventures and equity accounted investments. The Trust had none (other than CEREIT
and CPA as disclosed immediately above).
98
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (G) 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. The judgements, estimates and assumptions regarding the Cromwell
European Real Estate Investment Trust (CEREIT) and LDK Healthcare Pty Ltd (LDK) are detailed below.
Cromwell European Real Estate Investment Trust
The CEREIT has been classified as being an associate and accounted for as an equity-accounted investment.
The determination of this was based on an assessment that Cromwell and the Trust are considered to be able to exert
significant influence, but not control, over the entity. This determination is pursuant to the assessment of control under
Accounting Standards and the consideration of key factors regarding the management of CEREIT as governed by
Cromwell’s Capital Markets Service Licence as issued by the Monetary Authority of Singapore (MAS) and the composition
of the Board.
These key factors include:
• A majority of the directors on the Board and Nomination Committee of the CEREIT Management entity (the Manager)
are independent. Under Cromwell’s application for its MAS licence, if a majority of independent directors is not
maintained then all directors of the CEREIT Management entity must be appointed by the unitholders of CEREIT;
• Cromwell’s Licence prevents Cromwell from exercising any decision-making power for matters relating to the CEREIT
in which Cromwell has an interest (whether directly or indirectly). This includes all decisions around the acquisition
or disposal of investment properties; and
• Following the Initial Public Offering (IPO), the Manager now operates as per the section in the prospectus entitled
“The Manager and Corporate Governance”. Specifically, this section of the prospectus may allow the MAS to exercise
its powers and instruct the Trustee to remove Cromwell as the Manager of CEREIT if an inherent conflict of interest is
assumed to arise.
Management will continue to consider the above factors as part of its ongoing assessment of control. Should any of
the above factors change, or an increase in the CEREIT shareholding occur, the determination of the investment in CEREIT
as an equity accounted investment may change. In accordance with Accounting Standards, a change from Cromwell
having ‘significant influence’ to ‘control’ would result in consolidation of the investment into the Cromwell Group.
LDK Healthcare Unit Trust
LDK has been classified as a joint venture and accounted for as an equity-accounted investment. The determination of
this was based on an assessment that Cromwell can only exercise joint control over the relevant decisions but not control,
over the entity. This determination is pursuant to the assessment of control under Accounting Standards and the
consideration of key factors regarding the management of LDK, the composition of the Board and other relevant
agreements and joint control over relevant decisions.
These key factors include:
• Equal share of equity contributed into the LDK structure by Cromwell and Aspire LDK Unit Trust (Aspire) leading to
an equal share of voting rights between the same;
• Equal split of Board members with equal voting rights and no tie-breaker voting preference, and agreement to abide
by the decision of an independent arbiter in the event of deadlock;
• All decisions regarding the commercial direction or transactions of LDK require unanimous decision and agreement
from both parties, however, a number of key items have actually been delegated in practice to Aspire or LDK itself; and
• The intention of the parties to establish a structure under their joint control.
Management will continue to consider the above factors as part of its ongoing assessment of control. Should any of
the above factors change, the determination of the investment in LDK as an equity accounted investment may change.
In accordance with Australian Accounting Standards, a change from Cromwell having 'joint control’ to ‘control’ would
result in consolidation of the investment into the Cromwell Group.
99
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 8. Investments at fair value through profit or loss
(A) OVERVIEW
This note provides an overview and detailed financial information of Cromwell’s and the Trust’s investments that are
classified as financial assets at fair value through profit or loss. Below is 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 and also any other relevant financial assets of the same classification. Such investments are
classified as investments at fair value through profit or loss which are carried at fair value in the Statement of financial
position 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 any other relevant
financial assets.
Investment in Cromwell unlisted funds
Investment in wholesale funds
Investment in other financial asset
Total investments at fair value through profit or loss
Cromwell
Trust
2019
$M
0.8
18.0
3.8
22.6
2018
$M
1.3
20.0
11.7
33.0
2019
$M
0.8
–
–
0.8
2018
$M
1.3
–
–
1.3
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 13.
(B) 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 Income statement.
Subsequent to initial recognition, Cromwell continues to measure all equity investments at fair value. The fair values
of quoted investments are based on current bid prices. If the market for a financial asset is not active (e.g. for unlisted
securities), Cromwell establishes fair value by using valuation techniques. These include reference to the fair values of
recent arm’s length transactions, involving the same instruments or other instruments that are substantially the same,
discounted cash flow analysis and pricing models to reflect the issuer’s specific circumstances.
Changes in the fair value of equity investments at fair value through profit or loss are recognised in the Income statement
as applicable.
100
CROMWELL PROPERTY GROUP I 2019 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 30%–40%.
9. Borrowings
(A) OVERVIEW
Cromwell and the Trust borrow funds from financial institutions and investors (the latter 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. A significant proportion of these borrowings are generally fixed either directly or through the use of interest
rate swaps / options and have a fixed term. This note provides information about Cromwell’s debt facilities, including
maturity dates, security provided and facility limits.
Current
Unsecured
Convertible bonds
Non-current
Secured
Loans – financial institutions
Unsecured
Convertible bonds
Unamortised transaction costs
Total
Secured loans – financial institutions
Unsecured convertible bond
Unamortised transaction costs
Total borrowings
Cromwell
Trust
2019
$M
88.0
88.0
2018
$M
–
–
2019
$M
88.0
88.0
2018
$M
–
–
931.5
1,000.0
924.1
1,000.0
353.3
(16.4)
1,268.4
931.5
441.3
(16.4)
1,356.4
426.7
(14.7)
1,412.0
1,000.0
426.7
(14.7)
1,412.0
353.3
(16.4)
1,261.0
924.1
441.3
(16.4)
1,349.0
426.7
(14.3)
1,412.4
1,000.0
426.7
(14.3)
1,412.4
(B) 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.
101
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (C) BORROWING DETAILS
Secured bilateral loan facilities
Secured bilateral loan facilities
Secured bilateral loan facilities
Convertible bond – 2020
Convertible bond – 2025
Euro facility
Euro / GBP facility
Total borrowing facilities
Note
Secured
(i)
(ii)
(iii)
(iv)
(v)
(vii)
(viii)
Yes
Yes
Yes
No
No
Yes
Yes
Maturity
Date
Jun-23
Jun-24
Jun-26
Feb-20
Mar-25
May-22
Jun-26
2019
2018
Facility
Utilised
Facility
Utilised
$M
1,100.0
200.0
60.0
88.0
353.3
7.6
364.6
2,173.5
$M
663.9
200.0
60.0
88.0
353.3
7.6
–
1,372.8
$M
1,300.0
–
–
86.4
340.3
–
–
1,726.7
$M
1,000.0
–
–
86.4
340.3
–
–
1,426.7
(i) Secured bilateral loan facilities
In June 2018 Cromwell and the Trust entered into a $1.3 billion restructure of its Australian debt. The restructure included
the refinance of both its syndicated facility and the Tuggeranong development facility formed under a Common Terms
Deed Poll. All principal amounts outstanding are due at the expiry of the facilities. All facilities are bilateral loans with a
total amount drawn of $663.9 million at 30 June 2019 (30 June 2018: $1.0 billion). Repayments of $76.1 million were made
during the year (2018: nil). The facilities are secured by first registered mortgages over a pool of investment properties
held by the Trust. Interest is payable quarterly in arrears calculated as BBSY rate plus a loan margin.
During the year, Cromwell and the Trust paid down $170.0 million following the receipt of funds raised from the
Entitlement Offer, and drew down €58.0 million ($93.8 million) to assist with funding of the CEREIT rights issue.
Also during the year, Cromwell drew down and simultaneously repaid $60.0 and €12.9 million ($20.9 million) between
syndicated lenders.
(ii) Secured bilateral loan facilities
During the year, Cromwell and the Trust exercised a 12 months extension of a facility with one of the existing lenders.
The principal amount outstanding is due at the expiry of the facility. The new expiry date of this $200 million facility is
June 2024. It was fully drawn and remained outstanding at June 2019.
(iii) Secured bilateral loan facilities
In June 2019 Cromwell and the Trust entered into a $60 million bilateral Facility Agreement with a new lender which
comes under the Common Terms Deed. The facility is a single draw facility and the entire $60 million facility was drawn
down in June 2019 to repay another participating lender. The facility is tied to clean energy initiatives and is for a term
of 7 years. The principal amount outstanding is due at the expiry of the facility.
(iv) Convertible bond – 2020
As a result of the convertible bond repurchase in the prior year (see (v) below for details), at year-end, 548 (30 June 2018:
548) convertible bonds with a face value of €100,000 each were on issue with a gross face value of €54.8 million or
$87.2 million (30 June 2018: $86.4 million). The remaining bonds bear an interest rate of 2%. The bonds are convertible
into stapled securities of Cromwell at the option of the holder from 41 days after issue date up to seven business days
prior to the final maturity date on 4 February 2020 at which point all remaining bonds are mandatorily redeemed by
Cromwell. Bond holders were notified that as of 15 December 2017 that the conversion price changed from $1.1492 to
$1.1431 per stapled security due to the announcement of an Extraordinary Distribution in respect of the stapled securities
on 24 June 2016. The conversion price remains subject to adjustments such as consolidation or subdivision of stapled
securities, bonus issues or any issues at less than the prevailing market price of Cromwell's stapled securities other
than issues upon exercise of performance rights issued to Cromwell's employees. The fixed conversion translation rate
is $1.4230 per Euro. Any conversion may be settled in cash, stapled securities of Cromwell or a combination thereof
at the discretion of Cromwell.
102
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (v) Convertible bond – 2025
During the prior year, Cromwell issued 2,300 convertible bonds with a face value of €100,000 each, amounting to a total
gross face value of €230.0 million ($370.0 million on date of issue). The bonds bear an interest rate of 2.5%. The bonds are
convertible into stapled securities of Cromwell at the option of the holder from 40 days after issue date up to seven
business days prior to the final maturity date on 29 March 2025, at which point all remaining bonds are mandatorily
redeemed by Cromwell. The conversion price is $1.1656 at year end (30 June 2018: $1.1771) per stapled security, subject
to adjustments such as consolidation or subdivision of stapled securities, bonus issues or any issues at less than the
prevailing market price of Cromwell's stapled securities, other than issues upon exercise of performance rights issued to
Cromwell's employees. The fixed conversion translation rate is $1.5936 per Euro. Any conversion may be settled in cash,
stapled securities of Cromwell or a combination thereof at the discretion of Cromwell.
Proceeds of the bonds issue were used to repurchase 952 convertible bonds with a face value of €100,000 issued in
February 2015. In total, €95.2 million ($153.1 million) of the convertible bonds issued in February 2015 were repurchased
during the year ended 30 June 2018. The remaining proceeds were used to repay debt and for other liquidity purposes.
(vi) Convertible bonds – conversion features
The conversion feature of the convertible bonds 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
bonds (which are carried at amortised cost) and separately disclosed as a derivative financial liability on the face of
the Statement of financial position. 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 bonds.
The convertible bonds are presented in the statements of financial position as noted below:
Convertible bond – issued February 2015, expires February 2020
Cromwell
Trust
Face value of bond issued – beginning of year
Derivative financial instruments – conversion feature
Convertible bond carrying amount at inception
Movements in exchange rate and amortisation of conversion
feature – previous periods
Repurchase of bonds – previous periods
Carrying amount at 1 July
Repurchase of bonds
Amortisation and derecognition of conversion features to account
for effective interest rate and repurchase – current period
Restatement of conversion feature – current period
Movements in exchange rate – current period
Carrying amount at year end
2019
$M
220.1
(17.9)
202.2
37.3
(153.1)
86.4
–
1.4
(2.2)
2.4
88.0
2018
$M
220.1
(17.9)
202.2
11.2
–
213.4
(153.1)
–
9.9
16.2
86.4
2019
$M
220.1
–
220.1
19.4
(153.1)
86.4
–
1.4
(2.2)
2.4
88.0
Convertible bond – issued March 2018, expires March 2025
Cromwell
Trust
Face value of bonds issued during the prior year
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
Amortisation to account for effective interest rate
Movements in exchange rate – current period
Carrying amount at year end
Total carrying amount at year end
2019
$M
370.0
(23.5)
346.5
(6.2)
340.3
3.3
9.7
353.3
441.3
2018
$M
370.0
(23.5)
346.5
–
346.5
0.8
(7.0)
340.3
426.7
2019
$M
370.0
(23.5)
346.5
(6.2)
340.3
3.3
9.7
353.3
441.3
2018
$M
220.1
(17.9)
202.2
11.2
–
213.4
(153.1)
–
9.9
16.2
86.4
2018
$M
370.0
(23.5)
346.5
–
346.5
0.8
(7.0)
340.3
426.7
103
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (vii) Euro facility
In May 2018, Cromwell and the Trust entered into a €4.7million ($7.6 million) facility with a four-year term, at which time
all principal amounts outstanding are due. The facility was fully drawn at year end (30 June 2018: undrawn). The facility is
secured, with interest payable monthly in arrears calculated as EURIBOR plus a margin.
(viii) Euro / GBP facility
In June 2019 Cromwell and the Trust entered into a multi-currency €225.0 million ($364.6 million) Euro / GBP revolver
facility. The revolver is a syndicated facility allowing draws both in Euro and GBP. The term of the facility is 3 years at which
time all principal amounts outstanding are due. Interest is payable in arrears, calculated as EURIBOR / LIBOR
plus a margin.
(D) FINANCE COSTS
Total interest
Amortisation of loan transaction costs
Net exchange losses on foreign currency borrowings
Total finance costs
Cromwell
Trust
2019
$M
47.6
7.8
12.7
68.1
2018
$M
48.0
21.2
10.3
79.5
2019
$M
47.5
7.5
12.8
67.8
2018
$M
47.9
9.7
3.6
61.2
Information about Cromwell’s exposure to interest rate changes is provided in note 13.
10. Derivative financial instruments
(A) OVERVIEW
Cromwell’s and the Trust’s derivative financial instruments consist of interest rate swap and interest rate cap contracts
and the conversion options on the convertible bonds issued in February 2015 and March 2018 by Cromwell. Interest rate
swap and interest rate cap contracts are used to fix interest on floating rate borrowings. During the year, the cross-
currency swap contract terminated. This was previously used in the 2017 year to swap Australian dollars into Euro’s with
the funds being used to acquire the investment in CEREIT (note 16). The conversion option amounts represent 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 as a derivative financial instrument and is carried
at fair value.
Cromwell
Trust
2019
$M
2018
$M
2019
$M
2018
$M
–
–
3.9
–
28.5
32.4
4.7
0.1
1.7
0.7
7.8
28.5
37.0
0.7
–
–
3.9
–
28.5
32.4
4.7
0.1
1.7
0.7
7.8
28.5
37.0
0.7
Current asset
Interest rate cap contract
Non-current assets
Interest rate cap contracts
Current liabilities
Interest rate swap contracts
Cross-currency swap contract
Conversion feature – convertible bond
Non-current liabilities
Interest rate swap contracts
104
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (B) 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 and cap agreements that are used to convert certain variable interest rate
borrowings to fixed interest rates. These derivatives are entered into with the objective of hedging the risk of adverse
interest rate fluctuations. Cromwell previously also entered into a cross-currency swap agreement with the objective
of swapping Australian dollars into Euro’s. Further details of derivative financial instruments are disclosed in note 13(f)
and 26(h).
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. The resultant gain or loss is recognised immediately
in the Income statement.
A derivative financial instrument with a positive fair value is recognised as a financial asset whilst a derivative with a
negative fair value is recognised as a financial liability. Derivative financial instruments are not offset in the Statement of
financial position unless Cromwell has both the legal right and intention to offset. A derivative financial instrument is
presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than
12 months and it is not expected to be realised or settled within 12 months.
(C) TYPES OF DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap contracts – 2019
During the year Cromwell and the Trust entered into a suite of interest rate swap contracts used to fix interest on floating
rate borrowings. An interest rate swap is a type of interest rate derivative in which Cromwell and Trust enter into a number
of agreements to fix interest rates on floating rate borrowings. The swap contracts fix interest on floating rate borrowings
with a notional value of $180.0 million at rates between 1.35%–1.38%.
Interest rate cap and swap contracts – 2018
During the prior year Cromwell and the Trust entered into a suite of interest rate swap and interest rate cap contracts
used to fix interest on floating rate borrowings. An interest rate cap is a type of interest rate derivative in which Cromwell
and the Trust receive payments at the end of each period if the interest rate exceeds the agreed fixed rate. The relevant
information pertaining to the cap and swap portfolio entered into in the prior year is below:
• Interest rate caps – fix interest on floating rate borrowings of between 1.92%–2.25%.
• Interest rate swaps – fix interest on floating rate borrowings of between 2.10%–2.27%.
Interest rate cap contract – 2015 (expired May 2019)
During the year, this interest rate cap which had a notional amount of $1,000 million and a capped interest rate of 3.39%,
terminated and has been replaced by the interest rate cap and swap contracts above.
(D) SWAP AND CAP MATURITIES
The table below shows the movements in the notional amounts of cap and swap coverage for Cromwell and the Trust
going forward:
Date
July 2018
June 2019
July 2019
July 2020
July 2021
July 2024
Description
Opening balance
New interest rate swaps
Expiring interest rate swaps / caps
Expiring interest rate swaps / caps
Expiring interest rate swaps / caps
Expiring interest rate swaps
Cromwell and Trust
Movement
$M
Notional amount
$M
–
180.0
(90.0)
(90.0)
(510.0)
(180.0)
690.0
870.0
780.0
690.0
180.0
–
105
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT At balance date, the notional principal amounts and period of expiry of all of Cromwell’s and the Trust’s interest rate swap
and cap contracts is as follows:
Less than 1 year
1–2 years
2–3 years
3–5 years
Cromwell and Trust
2019
$M
90.0
90.0
510.0
180.0
2018
$M
1,119.9
90.0
90.0
510.0
Cross currency swap contract – expired September 2018
A cross currency swap contract is a type of interest rate derivative in which Cromwell enters into an agreement to
exchange interest payments and principal denominated in two different currencies. In a cross-currency swap, interest
payments and principal in one currency are exchanged for equally valued principal and interest payments in a different
currency. In a prior year, as a component of the disposal group acquisition (see note 16) Cromwell entered in a cross
currency swap arrangement to swap Australian dollars into Euro's. The terms of this swap are shown below:
Effective date:
Fixed rate payer currency amount:
Fixed rate:
Floating rate payer (NAB) currency amount:
Floating rate:
Termination date:
16 June 2017
€81,209,789
0.84%
$119,902,243
AUD-BBR-BBSW 3 month rate plus 1.47%
17 September 2018
(E) BOND CONVERSION FEATURE MOVEMENTS
The movement of the conversion features since recognition since issue of the convertible bonds is as follows:
Derivative financial liability at 1 July
Derecognised on bonds repurchased
Recognised on bonds issued – March 2018
Restatement of conversion feature
Fair value gain
Foreign exchange difference
Balance at 30 June
Cromwell and Trust
2019
$M
28.5
–
–
(2.2)
3.0
(0.8)
28.5
2018
$M
2.4
(2.4)
23.5
–
5.5
(0.5)
28.5
For details about the fair value measurement of Cromwell’s and the Trust’s financial instruments refer to note 13.
106
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 11. Contributed equity
(A) 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
2019
$M
2018
$M
1,857.4
1,615.2
2019
$M
138.4
2018
$M
118.9
2019
$M
2018
$M
1,719.0
1,496.3
(B) 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.
(C) 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.
Opening balance 1 July 2017
Exercise of performance rights
Distribution reinvestment plan(1)
Security placement and SPP
Equity issue costs
Balance at 30 June 2018
Number of
securities
1,762,361,339
2,839,112
8,005,137
212,119,086
–
1,985,324,674
Exercise of performance rights
Distribution reinvestment plan(1)
Entitlement offer
Equity issue costs
Balance at 30 June 2019
2,375,686
16,640,700
232,301,631
–
2,236,642,691
Cromwell stapled
securities
Company shares
CDPT units
Issue
price
40.1¢
101.7¢
96.5¢
–
36.3¢
108.1¢
98.0¢
–
$M
1,402.1
1.2
8.1
204.9
(1.1)
1,615.2
0.9
18.0
227.7
(4.4)
1,857.4
Issue
price
2.3¢
3.9¢
5.5¢
–
1.3¢
5.9¢
8.1¢
–
$M
106.9
0.1
0.3
11.7
(0.1)
118.9
0.1
1.0
18.8
(0.4)
138.4
Issue
price
37.8¢
97.8¢
91.0¢
–
35.0¢
102.2¢
89.9¢
–
$M
1,295.2
1.1
7.8
193.2
(1.0)
1,496.3
0.8
17.0
208.9
(4.0)
1,719.0
(1) The Company / CDPT has established a dividend / distribution reinvestment plan under which holders of stapled securities may elect to have all of their
dividend / distribution entitlement 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 dividend / distribution.
During the year, Cromwell completed an Entitlement Offer to eligible securityholders, which resulted in
232,301,631 securities being issued, raising approximately $227.7 million. Proceeds from the Entitlement Offer were
used to fund Cromwell’s equity commitment in CEREIT’s entitlement offer and for the repayment of $76.1 million
of the Bilateral loan facility (see note 9(c)(i)).
107
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Immediately subsequent to year end Cromwell completed an institutional placement and an Entitlement Offer to
eligible securityholders, which resulted in 354,381,191 securities being issued, raising approximately $366.3 million.
For further information see note 25.
(D) 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.
12. Reserves
(A) 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 Statement of financial position and a description of the nature and
purpose of each reserve.
Security-based
payments reserve
Fair value through
other comprehensive
income reserve
Foreign currency
translation reserve
Total other reserves
Cromwell
$M
Trust
$M
Cromwell
$M
Trust
$M
Cromwell
$M
Trust
$M
Cromwell
$M
Trust
$M
Balance at 1 July 2017
Security based payments
Foreign exchange differences
recognised in other
comprehensive income
Attributable to non-controlling
interests
Balance at 30 June 2018
Security based payments
Foreign exchange differences
recognised in other
comprehensive income
Attributable to non-controlling
interests
Balance at 30 June 2019
6.6
1.2
–
–
7.8
2.6
–
–
10.4
–
–
–
–
–
–
–
–
–
2.3
–
–
–
2.3
–
–
–
2.3
–
–
–
–
–
–
–
–
–
9.3
–
0.3
4.6
14.2
–
2.3
–
(4.6)
(0.1)
(2.4)
–
18.2
1.2
0.3
4.6
24.3
2.6
2.3
–
(4.6)
(0.1)
(2.4)
–
2.5
31.8
2.5
31.8
–
16.7
–
29.4
–
29.4
–
29.4
Security-based payments reserve
The security based payments reserve is used to recognise the fair value of equity settled security based payments for
employee services. Refer to note 20 for details of Cromwell’s security based payments.
Fair value through other comprehensive income reserve
Changes in the fair value of investments classified as being at fair value through other comprehensive income are taken to
the relevant revaluation reserve.
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 relevant revaluation reserve over the last two
financial years.
Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entities are recognised in other comprehensive
income and accumulated in the foreign currency translation reserve. Where applicable, 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.
108
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 13. Financial risk management
(A) 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.
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.
The accounting policies with respect to the initial recognition, measurement, classification and subsequent measurement
of Cromwell’s financial assets and financial liabilities are disclosed in Note 26(h) AASB 9 Financial instruments.
Cromwell and the Trust hold the following financial instruments:
Type of financial
instrument
Financial assets
Cash and cash equivalents
Receivables
Receivables
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 per AASB 9 Financial Instruments:
(1) At amortised cost; and
(2) At fair value through profit or loss.
(1)
(1)
(2)
(2)
(2)
(1)
(2)
(1)
(2)
Cromwell
Trust
2019
$M
101.6
81.6
112.6
22.6
–
318.4
60.1
40.5
1,356.4
37.1
1,494.1
2018
$M
204.6
44.0
–
33.0
1.8
283.4
52.3
41.4
1,412.0
37.7
1,543.4
2019
$M
47.7
260.3
47.8
0.8
–
356.6
31.8
40.5
1,349.0
37.1
1,458.4
2018
$M
137.6
183.9
–
1.3
1.8
324.6
17.3
41.4
1,412.4
37.7
1,508.8
(B) 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 Statement of
financial position 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 and joint ventures 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.
109
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT The maximum exposure to credit risk at balance date is the carrying amount of financial assets recognised in
the Statement of financial position of Cromwell. Cromwell holds no significant collateral as security.
Cash is held with Australian, New Zealand, United Kingdom, Singapore and European financial institutions. Interest rate
derivative counterparties are all Australian financial institutions.
(C) LIQUIDITY RISK
Prudent liquidity risk management implies maintaining sufficient cash reserves and undrawn 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.
Cromwell
Trust
1 year
or less
2-3
years
4-5
years
Over
5 years
$M
$M
$M
$M
1 year
or less
2-3
years
4-5
years
Over
5 years
$M
$M
$M
$M
2019
Trade and other payables
Dividends / distribution
payable
Borrowings
Derivative financial
instruments
Total financial liabilities
2018
Trade and other payables
Dividends / distribution
payable
Borrowings
Derivative financial
instruments
Total financial liabilities
Total
$M
31.8
40.5
Total
$M
60.1
40.5
31.8
40.5
45.2
15.1
60.1
40.5
45.4
15.1
–
–
–
–
–
–
–
–
–
–
–
–
43.5
970.9
74.0
1,133.8
13.5
14.7
–
43.3
43.3
970.7
74.0
1,133.2
13.5
14.7
–
43.3
161.1
57.0
985.6
74.0
1,277.7
132.6
56.8
985.4
74.0
1,248.8
52.3
41.4
54.1
13.2
–
–
–
–
192.4
1,110.8
22.6
–
161.0
215.0
1,110.8
–
–
–
–
–
52.3
41.4
1,357.3
35.8
17.3
41.4
54.1
13.2
–
–
–
–
192.4
1,110.8
22.6
–
1,486.8
126.0
215.0
1,110.8
–
–
–
–
–
17.3
41.4
1,357.3
35.8
1,451.8
(D) 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 8).
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.
110
CROMWELL PROPERTY GROUP I 2019 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:
Fair value increase / (decrease) of:
+10%
-10%
2019
Cromwell
Trust
2018
Cromwell
Trust
Carrying
amount $M
Profit
$M
Equity
$M
Profit
$M
Equity
$M
22.6
0.8
33.0
1.3
2.3
0.1
3.3
0.1
2.3
0.1
3.3
0.1
(2.3)
(0.1)
(3.3)
(0.1)
(2.3)
(0.1)
(3.3)
(0.1)
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 93%
(2018: 81%) of Cromwell’s variable rate secured bank loan borrowings of $931.5 million (2018: $1,000 million) were
effectively hedged through interest rate swap contracts. The convertible bonds carry a fixed interest rate. Therefore,
interest on a total of 33% (2018: 30%) 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 and interest rate cap
contracts and the cross currency swap contract refer to note 10.
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:
+1%
-1%
2019
Cromwell
Trust
2018
Cromwell
Trust
Profit
$M
Equity
$M
Profit
$M
Equity
$M
(3.8)
(4.3)
(5.3)
(5.9)
(3.8)
(4.3)
(5.3)
(5.9)
3.8
4.3
5.3
5.9
3.8
4.3
5.3
5.9
Foreign exchange risk
Cromwell’s foreign exchange risk primarily arises from its investments in foreign subsidiaries and the investment
in CEREIT. The functional currency of these entities 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.
111
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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
Equity accounted investments
Payables – interest payable convertible bond
Borrowings – convertible bond
Derivative financial instruments – cross-currency swap
Derivative financial instruments – conversion feature
Net exposure
Cromwell
Trust
2019
$M
19.3
0.5
–
648.4
(3.2)
(441.3)
–
(28.5)
195.2
2018
$M
13.1
–
–
507.1
(3.0)
(426.7)
(7.9)
(28.5)
54.1
2019
$M
19.3
6.5
–
620.4
(3.2)
(441.3)
–
(28.5)
173.2
Amounts recognised in profit or loss and other comprehensive income
Amounts recognised in profit or loss
Net foreign exchange (losses) / gains
Exchange (losses) / gains on foreign currency borrowings included
in finance costs
Total 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
Total amount recognised in other comprehensive income
Cromwell
Trust
2019
$M
(3.0)
(12.7)
(15.7)
2.5
8.8
11.3
2018
$M
(3.2)
(10.3)
(13.5)
4.9
2.5
7.4
2019
$M
2.0
(12.8)
(10.8)
8.8
–
8.8
2018
$M
13.1
6.9
153.0
484.8
(3.0)
(426.7)
(7.9)
(28.5)
191.7
2018
$M
(1.9)
(3.6)
(5.5)
–
2.6
2.6
Sensitivity analysis – foreign exchange risk
2019
2018
Euro – Australian Dollar gains 1 cent in exchange
Euro – Australian Dollar loses 1 cent in exchange
Profit
$M
8.6
(8.8)
Equity
$M
8.6
(8.8)
Profit
$M
7.0
(7.2)
Equity
$M
6.0
(6.2)
(E) 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).
Level 3:
inputs for the asset or liability that are not based on observable market data (unobservable inputs).
112
CROMWELL PROPERTY GROUP I 2019 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 2019 and 30 June 2018:
Cromwell
Financial assets at fair value
Receivables
• Loans at fair value through profit or loss –
related parties
Investments at fair value through profit or loss
• Unlisted equity securities
• Other financial asset
Derivative financial instruments
• Interest rate cap
Total financial assets at fair value
Financial liabilities at fair value
Derivative financial instruments
• Interest rate swaps
• Interest currency swap
• Conversion features
Total financial liabilities at fair value
Trust
Financial assets at fair value
Receivables
• Loans at fair value through profit or loss –
related parties
Investments at fair value through profit or loss
• Unlisted equity securities
Derivative financial instruments
• Interest rate cap
Total financial assets at fair value
Financial liabilities at fair value
Derivative financial instruments
• Interest rate swaps
• Interest currency swap
• Conversion features
Total financial liabilities at fair value
2019
2018
Level 2
Level 3
Total
Level 2
Level 3
Notes
$M
$M
$M
$M
$M
Total
$M
17(c)
–
112.6
112.6
–
–
–
8(a)
8(a)
10(a)
10(a)
10(a)
10(a)
0.8
–
–
0.8
8.6
–
28.5
37.1
18.0
3.8
18.8
3.8
–
134.4
–
135.2
–
–
–
–
8.6
–
28.5
37.1
1.3
–
1.8
3.1
1.4
7.8
28.5
37.7
20.0
11.7
–
31.7
–
–
–
–
2019
2018
Level 2
Level 3
Total
Level 2
Level 3
Notes
$M
$M
$M
$M
$M
17(c)
–
47.8
47.8
8(a)
10(a)
10(a)
10(a)
10(a)
0.8
–
0.8
8.6
–
28.5
37.1
–
0.8
–
47.8
–
48.6
–
–
–
–
8.6
–
28.5
37.1
–
1.3
1.8
3.1
1.4
7.8
28.5
37.7
–
–
–
–
–
–
–
–
21.3
11.7
1.8
34.8
1.4
7.8
28.5
37.7
Total
$M
–
1.3
1.8
3.1
1.4
7.8
28.5
37.7
There were no transfers between the levels of the fair value hierarchy during the reporting period.
(F) 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 Statements of financial position.
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.
113
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT The convertible bonds are traded on the Singapore Exchange (SGX). At balance date the fair value of issued convertible
bonds was €287.3 million ($465.6 million) (2018: €279.8 million ($441.0 million)) compared to a carrying amount of
€272.3 million ($441.3 million) (2018: €284.8 million ($426.7 million).
(i) Valuation techniques used to derive Level 1 fair values
At balance date, Cromwell held no Level 1 assets. However, in prior years Cromwell has held Level 1 assets including
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.
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.
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 and caps
Level 2 financial assets and financial liabilities held by Cromwell include “Vanilla” fixed to floating interest rate swap,
interest rate cap and cross currency swap derivatives (over-the-counter derivatives). The fair value of these 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.
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 and
Cromwell’s effective 49% interest in an investment property in Campbell, ACT. The fair value of these investments 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.
114
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Receivable held at fair value through profit or loss
Level 3 assets held by Cromwell and the Trust include loans to the LDK joint venture. The fair value of these loans is based
on the relevant discounted net cash inflows from expected future inflows of principal and interest. The present value of
the net cash inflows is based on relevant interest rates adjusted for credit and liquidity risks specific to each loan, whilst
compensating Cromwell and the Trust with an appropriate profit margin.
The fair value is determined using valuation techniques that are not supported by prices from an observable market.
The fair value of these assets 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:
Investments at fair value through profit or loss
Opening balance as at 1 July
Additions
Disposals
Fair value (gain) / loss
Foreign exchange difference
Balance at 30 June
Cromwell
2019
$M
31.7
0.9
(9.9)
(1.3)
0.4
21.8
2018
$M
49.5
0.2
(15.0)
(4.6)
1.6
31.7
115
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Group Structure
This provides section information about the Cromwell Property Group structure including parent entity information,
information about controlled entities (subsidiaries), business combination information relating to the acquisition
of controlled entities and details of disposal group held for sale.
14. Parent entity disclosures
(A) 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 (Cth).
(B) ACCOUNTING POLICY
The financial information of the parent entities of Cromwell and the Trust has 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.
(C) SUMMARISED FINANCIAL INFORMATION
Company
CDPT
Results
(Loss) / profit for the year
Total comprehensive income for the year
Financial position
Current assets
Total assets
Current liabilities
Total liabilities
Net (liabilities) / assets
Equity
Contributed equity
Security based payments reserve
Reserves
Retained earnings / (accumulated losses)
Total equity
2019
$M
(8.7)
(8.7)
90.0
196.8
10.1
223.3
(26.5)
138.4
10.4
(0.1)
(175.2)
(26.5)
2018
$M
(78.1)
(78.1)
19.2
138.0
10.0
178.3
(40.3)
118.9
7.8
(0.5)
(166.5)
(40.3)
2019
$M
37.9
37.9
13.2
2,388.0
64.8
954.6
1,433.4
1,719.0
–
–
(285.6)
1,433.4
2018
$M
183.9
183.9
131.7
2,364.6
54.1
1,034.4
1,330.2
1,496.3
–
–
(166.1)
1,330.2
(D) COMMITMENTS
At balance date the Company and CDPT had no commitments (2018: none) in relation to capital expenditure contracted for
but not recognised as liabilities.
(E) GUARANTEES PROVIDED
The Company and CDPT have both provided guarantees in relation to the convertible bonds disclosed at note 9(c).
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 bonds. These guarantees were provided in a prior year.
(F) CONTINGENT LIABILITIES
At balance date the Company and CDPT had no contingent liabilities (2018: none).
116
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Equity Holding
2019
2018
15. Controlled entities
(A) COMPANY AND ITS CONTROLLED ENTITIES
Name
Cromwell Aged Care Holdings Pty Ltd
Cromwell Altona Fund
Cromwell BT Pty Ltd
Cromwell Capital Pty Ltd
Cromwell Finance Pty Ltd
Country of
registration
Australia
Australia
Australia
Australia
Australia
Cromwell Funds Management Limited
Australia
Cromwell Holdings No 1 Pty Ltd
Cromwell Holdings No 2 Pty Ltd
Cromwell Infrastructure Pty Ltd
Cromwell Operations Pty Ltd
Cromwell Project & Technical
Solutions Pty Ltd
Cromwell Property Securities Limited
Cromwell Property Services Pty Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Cromwell Real Estate Partners Pty Ltd
Australia
Cromwell Seven Hills Pty Limited
Lovett Developments Pty Limited
Marcoola Developments Pty Ltd
Valad Australia Pty Ltd
Votraint No. 662 Pty Limited
Gateshead Investments Limited
Upperastoria Trading & Investments
Limited
Cromwell Property Group Czech
Republic s.r.o.
LiNK Hradec Králové s.r.o.
Cromwell Denmark A / S
Cromwell Finland O / Y
Cromwell France SAS
Cromwell Germany GmbH
Equity Partnerships Fund Management
(Guernsey) Limited
Nordic Aktiv General Partner Limited
Australia
Australia
Australia
Australia
Australia
Cyprus
Cyprus
Czech Republic
Czech Republic
Denmark
Finland
France
Germany
Guernsey
Guernsey
Nordic Aktiv General Partner 2 Limited
Guernsey
German Aktiv Co-op Limited
Guernsey
German Aktiv General Partner Limited
Guernsey
Cromwell Property Group Hungary Kft
Hungary
Cromwell Property Group Italy SRL
Italy
Cromwell CPR Promote S.à r.l.
Luxembourg
Cromwell Investment Luxembourg S.à r.l. Luxembourg
Cromwell Luxembourg SA
Luxembourg
Cromwell REIM Luxembourg S.à r.l.
Luxembourg
Cromwell Central Europe B.V.
Cromwell Netherlands B.V.
Cromwell Norway A / S
Cromwell Poland Sp Zoo
Cromwell Poland No. 2 Sp Zoo
Netherlands
Netherlands
Norway
Poland
Poland
Cromwell Property Group Romania SRL
Romania
Cromwell EREIT Management Pte. Ltd
Singapore
Equity Holding
2019
2018
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
90
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
100
100
100
100
90
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
Name
Cromwell Sweden A / B
Country of
registration
Sweden
Cromwell Asset Management UK Limited United Kingdom
Cromwell Capital Ventures UK Limited United Kingdom
Cromwell CEE Coinvest LP
United Kingdom
Cromwell CEE Development Holdings
Limited
Cromwell CEE Promote LP
United Kingdom
United Kingdom
Cromwell CEREIT Holdings Limited
United Kingdom
Cromwell Coinvest CEIF LP
Cromwell Coinvest CEVAF l LP
Cromwell Coinvest ECV LP
United Kingdom
United Kingdom
United Kingdom
Cromwell Corporate Secretarial Limited United Kingdom
Cromwell Corporate Secretarial No. 2
Limited
Cromwell Development Holdings UK
Limited
Cromwell Development Management
UK Limited
Cromwell Director Limited
Cromwell Europe Limited
United Kingdom
100
United Kingdom
100
United Kingdom
United Kingdom
United Kingdom
Cromwell European Holdings Limited
United Kingdom
Cromwell European Management
Services Limited
Cromwell GP
United Kingdom
United Kingdom
Cromwell Holdings Europe Limited
United Kingdom
Cromwell Investment Holdings UK
Limited
Cromwell Investment Management
Services Limited
United Kingdom
100
United Kingdom
Cromwell Investment Services Limited United Kingdom
Cromwell Management Holdings Limited United Kingdom
Cromwell Poland Retail LLP
United Kingdom
Cromwell Poland Retail UK Limited
United Kingdom
Cromwell Promote CEIF LP
Cromwell Promote CEVAF l LP
Cromwell Promote CPRF LP
Cromwell Promote ECV LP
Cromwell Promote HIG LP
Cromwell WBP Poland LP
Cromwell YCM Coinvest LP
Cromwell YCM Promote LP
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
D.U.K.E. (Cheetham Hill) Limited
United Kingdom
D.U.K.E. Combined GP Limited
United Kingdom
Equity Partnerships (Osprey) Limited
United Kingdom
IO Management Services Limited
United Kingdom
Parc D’Activities 1 GP Limited
United Kingdom
PFM Coinvestment Partner Limited
United Kingdom
The IO Group Limited
United Kingdom
Valad Salfords Custodian Limited
United Kingdom
%
100
100
100
100
100
100
100
90
100
90
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
90
100
90
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
-
117
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (B) TRUST AND ITS CONTROLLED ENTITIES
Name
CDPT Finance Pty Ltd
CDPT Finance No. 2 Pty Ltd
Cromwell Accumulation Fund
Cromwell Bundall Corporate Centre
Head Trust
Cromwell Bundall Corporate Centre
Trust
Cromwell CPF Fund No. 1
Cromwell Diversified Property
Trust No. 2
Cromwell Diversified Property
Trust No. 3
Cromwell Health and Forestry
House Trust
Cromwell Holdings Trust No 1
Cromwell Holding Trust No 2
Cromwell Holdings Trust No 4
Cromwell HQ North Head Trust
Cromwell HQ North Trust
Cromwell Mary Street Property Trust
Cromwell Mary Street Planned
Investment
Cromwell McKell Building Trust
Cromwell Newcastle Trust
Cromwell Poland Holdings Trust
Country of
registration
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Equity Holding
2019
2018
%
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
92
100
100
100
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
92
100
100
-
Name
Cromwell Northbourne Planned
Investment
Cromwell NSW Portfolio Trust
Cromwell Penrith Trust
Cromwell Property Fund
Cromwell Property Fund Trust No 2
Cromwell Property Fund Trust No 3
Cromwell Queanbeyan Trust
Cromwell SWG Trust
Cromwell SPV Finance Pty Ltd
Cromwell Symantec House Trust
Cromwell TGA Planned Investment
Cromwell Wakefield Property Trust
Cromwell Wollongong Trust
EXM Head Trust
EXM Trust
Mascot Head Trust
Mascot Trust
MAT 2 Euro Trust
Tuggeranong Head Trust
Tuggeranong Trust
Cromwell Singapore Holdings
Pte. Ltd.
Country of
registration
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Cromwell European Finance Limited
United Kingdom
Equity Holding
2019
2018
%
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
100
100
100
All new entities have been incorporated during the year. There were no business combinations during the year. Entities,
which Cromwell or the Trust controlled in the prior year with no equity holding in the current year have either been
deregistered or disposed in the current year.
118
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 16. Details of disposal group
(A) OVERVIEW
In June 2017, Cromwell and the Trust incorporated a new entity, Cromwell European Real Estate Investment Trust
(“CEREIT”). This entity is the parent entity of a pan-European real estate investment trust which listed on the Singapore
Stock Exchange (SGX) on 30 November 2017. CEREIT acquired the Cromwell European Cities Income Fund (“CECIF”) as
its initial seed portfolio of assets in June 2017. The assets of CECIF primarily comprised a portfolio of three investment
properties located in the Netherlands with a fair value at 30 June 2017 of €209.7 million ($311.7 million).
The CECIF portfolio was combined with a number of others in a transaction that culminated on 30 November 2017 with
the entire CEREIT group being listed on the SGX. The outcome of this transaction saw Cromwell and the Trust’s existing
interest in CEREIT being significantly diluted and, as such, it is accounted for as an equity accounted investment (see
note 7).
(B) GAIN RECOGNISED IN RELATION TO DISPOSAL GROUP
In 2018, Cromwell and the Trust derived a $1.5 million and $1.7 million gain respectively in relation to the CEREIT disposal
group. This amount was not considered part of the operating profit of Cromwell so was not included in any operating
segment.
(C) ACCOUNTING POLICY
Components of the entity are classified as assets held for sale if they are currently in a saleable condition and their
carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale
is considered probable. Such assets are disclosed separately and are disclosed as current assets if a co-ordinated plan
to dispose of the assets is in place and it is expected they will be sold in less than one year from balance date.
The results of held for sale assets are presented separately on the face of the Income statement.
Held for sale assets are measured at the lower of their carrying amount and fair value less costs to sell. Non-current
assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately
from the other assets in the Statement of financial position. The liabilities and equity of a disposal group classified as held
for sale are presented separately from other liabilities and equity respectively in the Statement of financial position.
119
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Other Items
This section of the annual financial report provides information about individually significant items to the Statement
of financial position 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.
17. Other financial assets and financial liabilities
(A) 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.
(B) ACCOUNTING POLICY
Trade receivables and loans at amortised cost
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less any
expected credit losses. Operating lease receivables of investment properties are due on the first day of each month,
payable in advance.
Loans at fair value through profit or loss
Loans at fair value through profit or loss are recognised initially at fair value and subsequently measured at fair value
using techniques detailed in note 13(f)(iii).
For details about the classification, measurement and impairment of receivables as a result of the adoption of AASB 9
Financial Instruments refer to note 26(h).
Trade payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost.
These amounts represent liabilities for goods and services provided to Cromwell prior to the end of the year and which
are unpaid. The amounts are usually unsecured and paid within 30-60 days of recognition.
(C) RECEIVABLES
Current
Contract assets at amortised cost
Trade and other receivables at amortised cost
Loans at amortised cost – related parties
Receivables – current
Non-current
Loans at amortised cost – related parties
Loans at fair value through profit or loss – related parties
Trust loans at amortised cost – related party
Receivables – non-current
Loans – related parties
Cromwell
Trust
2019
$M
1.1
66.8
5.0
72.9
8.7
112.6
–
121.3
2018
$M
0.6
32.2
5.3
38.1
5.9
–
–
5.9
2019
$M
8.0
35.0
139.7
182.7
4.3
47.8
73.3
125.4
2018
$M
7.6
6.2
–
13.8
1.9
–
168.2
170.1
Current loans – Oyster joint venture
During the current year, the Trust provided a NZD $6.0 million short-term loan facility to Cromwell’s joint venture
Oyster Property Funds Limited (“Oyster”) for the initial funding of an Oyster property syndication. This facility was drawn
to NZD $1.0 million, which was fully repaid during the year. The facility has now ceased.
120
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Non-current loans – LDK joint venture
(i) Working capital loan
In the prior year, the Trust signed a Facility Agreement (‘Working capital loan’) with LDK Corporate Unit Trust, a subsidiary
of LDK Healthcare Unit Trust, to provide a facility terminating on 31 December 2020. The maximum loan facility is
$10.0 million with an interest rate of 12%. During the year, the loan was drawn down by $3.6 million. The loan balance
at year-end is $4.5 million (2018: $0.9 million).
(ii) “Waterfall” loans
During the year, Cromwell and the Trust provided a number of loan facilities to LDK Healthcare Unit Trust and a number of
its subsidiaries in order to assist in the development of the LDK business. These facilities are $240.8 million in aggregate
and do not constitute a component of Cromwell’s net investment in the joint venture itself due to the loans being either
secured or their settlement being planned and likely.
Interest rates attributable range from nil to BBSY plus various margins. However, the overall aggregate amount drawn
down is also subject to a “target” return requirement, whereby Cromwell and the Trust will receive a minimum internal
rate of return of 20% upon the relevant cash flows. These loans have been classified as being held at fair value through
profit or loss.
During the year, $112.4 million was drawn down in aggregate, whilst interest accrued at relevant rates. The total
aggregate loan balance at year-end is $112.6 million (including accrued interest).
Trust loans – related party
The Trust loans to CCL consist of four facilities as follows:
Unsecured loan:
Unsecured loan:
Investment loan:
LDK loans:
In a prior year the Trust provided CCL a loan facility of €107.6 million. CCL made no
repayments in respect of the loan during the year (2018: $nil) leaving a loan balance
of €86.2 million ($139.7 million) at balance date (2018: €86.2 million, $135.9 million).
The Euro denominated loan facility is unsecured and carries an interest rate of 2.5%.
The loan facility expires in February 2020.
In a prior year the Trust provided CCL a loan facility of €10.9 million. During the
year CCL repaid the loan in full (2018: $nil repayments). The Euro denominated loan
facility was unsecured and an interest rate of BBSY plus a margin was applicable.
In a prior year the Trust provided CCL a loan facility of $15.2 million in relation to
CCL’s acquisition of an investment. The loan was fully drawn at inception. CCL made
no repayments in respect of the loan during the year (2018: $nil). The facility is
unsecured and carries an interest rate of BBSY plus a margin. The facility expires
in March 2026.
During the year the Trust provided CCL additional aggregate loan facilities of
$60.7 million. CCL made repayments of $2.6 million during the year. At balance
date the aggregate loan balance was $58.1 million. The loan facilities are unsecured
and an interest rate of BBSY plus a margin is applicable. The facility expires in
February 2028.
(D) TRADE AND OTHER PAYABLES
Trade and other payables
Lease incentives payables
Tenant security deposits
Trade and other payables
Cromwell
Trust
2019
$M
46.9
13.3
0.1
60.3
2018
$M
47.3
4.8
0.2
52.3
2019
$M
18.4
13.3
0.1
31.8
2018
$M
12.3
4.8
0.2
17.3
121
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 18. Intangible assets
(A) OVERVIEW
At year-end, Cromwell’s intangible assets consist of software assets. During the prior year, management assessed the
carrying value of the goodwill attributable to the European business and concluded it was impaired. This was due to the
accelerated disposal of two of the largest mandates managed by the European business along with a third of the assets
that underpinned the cash flows and resultant goodwill associated with the European business being substantially
transferred into the CEREIT entity. Hence, no value could be attributed to the goodwill and it was impaired to $nil.
Similarly, related management rights were also impaired to $nil during the prior year.
(B) 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 of each underlying intangible asset 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.
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 currently carries software as intangible assets. Software is amortised on a straight-line basis over two to
five years.
This note provides information about the movements in intangible assets:
2019
Cost
Accumulated amortisation
Total intangible assets
Balance at 1 July 2018
Additions
Disposals
Amortisation
Foreign exchange differences
Balance at 30 June 2019
Goodwill
$M
Management
rights
$M
Software
$M
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.3
(4.8)
4.5
2.3
3.7
(1.0)
(0.6)
0.1
4.5
Total
$M
9.3
(4.8)
4.5
2.3
3.7
(1.0)
(0.6)
0.1
4.5
122
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 2018
Cost
Accumulated amortisation
Decrease in recoverable amount
Total intangible assets
Balance at 1 July 2017
Additions
Amortisation
Decrease in recoverable amount
Foreign exchange differences
Balance at 30 June 2018
Goodwill
$M
Management
rights
$M
Software
$M
151.1
–
(151.1)
–
66.6
–
–
(69.5)
2.9
–
19.3
(17.2)
(2.1)
–
4.4
–
(2.4)
(2.1)
0.1
–
7.0
(4.7)
–
2.3
1.3
1.8
(0.8)
–
–
2.3
Total
$M
177.4
(21.9)
(153.2)
2.3
72.3
1.8
(3.2)
(71.6)
3.0
2.3
19. Cash flow information
(A) 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.
(B) 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.
Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
• Where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost
of acquisition of an asset or as part of an item of expense, or
• For receivables and payables which are recognised inclusive of GST.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or
payables. Cash flows are included in the cash flow statement on a gross basis.
The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to,
the taxation authority is classified within operating cash flows.
123
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (C) 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
Share of (profits) / losses – equity accounted investments (net of
distributions and impairments)
Net foreign exchange loss / (gain)
Amortisation of loan transaction costs
Gain on disposal of listed securities
(Gain) / loss on sale of investment properties
Costs in relation asset classified as held for sale
Decrease / (increase) in recoverable amounts
Fair value net (gain) / loss from:
Investment properties
Derivative financial instruments
Investments at fair value through profit or loss
Payment for other transaction costs
Finance costs attributable to disposal group
Changes in operating assets and liabilities
(Increase) / decrease in:
Receivables
Tax assets / liabilities
Other current assets
Increase / (decrease) in:
Trade and other payables
Provisions
Unearned revenue
Net cash provided by operating activities
(D) NON CASH TRANSACTIONS
Stapled securities / units issued on reinvestment of distributions
CEREIT fees received in units:
Acquisition fees
Management fees
CEREIT transferred in lieu of cash:
Restructure costs
Total non-cash outflow transactions
2019
$M
159.9
2.4
20.8
(9.3)
2.5
13.5
10.1
7.8
–
(0.7)
35.3
0.4
(86.4)
10.5
9.2
2.9
–
(40.1)
(9.0)
(2.6)
5.6
1.1
1.1
135.0
2018
$M
204.1
4.4
19.5
(27.8)
1.2
(128.4)
0.1
20.3
(15.7)
5.0
–
76.1
(77.4)
13.7
3.5
5.7
2.1
(3.1)
8.5
(0.9)
11.6
0.7
(2.3)
120.9
2019
$M
163.4
–
20.8
(9.3)
–
15.6
10.7
7.5
–
(0.7)
35.3
–
(86.4)
10.5
–
1.8
–
(29.1)
12.3
(0.2)
5.4
–
1.2
158.8
Cromwell
Trust
2019
$M
18.0
4.9
16.4
0.6
39.9
2018
$M
8.1
10.1
–
–
18.2
2019
$M
17.0
–
–
–
17.0
2018
$M
288.4
–
19.5
(27.8)
–
(111.0)
(0.7)
9.7
(15.7)
5.0
–
–
(77.4)
16.1
(0.1)
3.0
2.1
5.0
9.3
(0.1)
(0.4)
–
(1.4)
123.5
2018
$M
7.8
–
–
–
7.8
124
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (E) RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Cromwell
Dividends /
distributions
payable
Derivative
financial
instruments
Borrowings
Opening balance 1 July 2017
Changes from financing cash flows:
Proceeds from borrowings
Repayments of borrowings
Payment of loan transaction costs
Payments for settlement of derivative financial instruments
Payment of dividends / distributions
Total changes from financing cash flows
Other movements:
Exchange rate gains / losses
Fair value net gains / losses
Amortisation of loan transaction costs
Stapled securities / units issued on reinvestment of distributions
Distributions for the year
Recognition of bond conversion features
Balance at 30 June 2018
Changes from financing cash flows:
Proceeds from borrowings
Repayments of borrowings
Payment of loan transaction costs
Payment of dividends / distributions
Payments for settlement of derivative financial instruments
Total changes from financing cash flows
Other movements:
Exchange rate gains / losses
Fair value net gains / losses
Payment of loan transaction costs
Amortisation of loan transaction costs
Stapled securities / units issued on reinvestment of distributions
Distributions for the year
Recognition of bond conversion features
Balance at 30 June 2019
$M
1,462.4
1,719.4
(1,765.0)
(17.0)
–
–
(62.6)
12.3
–
21.2
–
–
(21.3)
1,412.0
178.5
(250.7)
(4.4)
–
–
(76.6)
15.4
–
–
7.8
–
–
(2.2)
1,356.4
$M
36.7
–
–
–
–
(144.3)
(144.3)
–
–
–
(8.1)
157.1
–
41.4
–
–
–
(140.4)
–
(140.4)
–
–
–
–
(18.0)
157.5
–
40.5
$M
3.2
–
–
–
(3.9)
–
(3.9)
1.7
15.4
–
–
–
21.3
37.7
–
–
–
–
(12.3)
(12.3)
0.8
8.7
–
–
–
–
2.2
37.1
Total
$M
1,502.3
1,719.4
(1,765.0)
(17.0)
(3.9)
(144.3)
(210.8)
14.0
15.4
21.2
(8.1)
157.1
–
1,491.1
178.5
(250.7)
(4.4)
(140.4)
(12.3)
(229.3)
16.2
8.7
–
7.8
(18.0)
157.5
–
1,434.0
125
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Trust
Dividends /
distributions
payable
Derivative
financial
instruments
Borrowings
Opening balance 1 July 2017
Changes from financing cash flows:
Proceeds from borrowings
Repayments of borrowings
Payment of loan transaction costs
Payments for settlement of derivative financial instruments
Payment of dividends / distributions
Total changes from financing cash flows
Other movements:
Exchange rate gains / losses
Fair value net gains / losses
Amortisation of loan transaction costs
Stapled securities / units issued on reinvestment of distributions
Distributions for the year
Recognition of bond conversion features
Balance at 30 June 2018
Changes from financing cash flows:
Proceeds from borrowings
Repayments of borrowings
Payment of loan transaction costs
Payment of dividends / distributions
Payments for settlement of derivative financial instruments
Total changes from financing cash flows
Other movements:
Exchange rate gains / losses
Fair value net gains / losses
Payment of loan transaction costs
Amortisation of loan transaction costs
Stapled securities / units issued on reinvestment of distributions
Distributions for the year
Recognition of bond conversion features
Balance at 30 June 2019
$M
1,473.8
1,719.4
(1,765.0)
(17.0)
–
–
(62.6)
15.0
–
9.7
–
–
(23.5)
1,412.4
171.0
(250.7)
(4.7)
–
–
(84.3)
15.7
–
–
7.5
–
–
(2.2)
1,349.0
$M
36.8
–
–
–
–
(144.7)
(144.7)
–
–
–
(7.8)
157.1
–
41.4
–
–
–
(141.4)
–
(141.4)
–
–
–
–
(17.0)
157.5
–
40.5
$M
0.8
–
–
–
(3.9)
–
(3.9)
(0.7)
18.0
–
–
–
23.5
37.7
–
–
–
–
(12.3)
(12.3)
0.8
8.8
–
–
–
–
2.2
37.1
Total
$M
1,511.4
1,719.4
(1,765.0)
(17.0)
(3.9)
(144.7)
(211.2)
14.3
18.0
9.7
(7.8)
157.1
–
1,332.5
171.0
(250.7)
(4.7)
(141.4)
(12.3)
(238.0)
16.5
8.8
–
7.5
–
–
–
1,426.6
126
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 20. Security based payments
(A) OVERVIEW
Cromwell operates a security based compensation scheme, the Performance Rights Plan (PRP). 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 securityholder approval. The PRP is designed to provide long-term
incentives for employees to continue employment and deliver long-term securityholder returns.
This note provides information below on the security based compensation schemes Cromwell currently operates.
(B) PRP
Cromwell established a PRP 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.
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 three 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
2019
2018
Weighted
average
exercise price
Number of
performance
rights
Weighted
average
exercise price
Number of
performance
rights
$0.37
$0.24
$0.36
–
$0.32
–
11,256,742
6,751,764
(2,375,686)
–
15,632,820
–
$0.38
$0.35
$0.40
$0.00
$0.37
–
10,276,844
3,961,001
(2,839,112)
(141,991)
11,256,742
–
The weighted average price per security at the date of exercise of options exercised during the year ended 30 June 2019
was $0.96 (2018: $0.96). No options expired during the years covered in the table above.
The weighted average remaining contractual life of the 15,632,820 performance rights outstanding at the end of
the financial year (2018: 11,256,742) was 1.5 years (2018: 1.5 years).
127
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Fair value of performance rights granted
The fair value of performance rights granted during the year was between $0.34 per option for PRP with an exercise price
of $0.50 and $0.88 per option for PRP with an exercise price of $nil (2018: 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(s):
Share price at grant date(s):
Expected price volatility:
Expected dividend yield(s):
Risk free interest rate(s):
Expiry date(s):
$0.00 to $0.50 (2018: $0.00 to $0.50)
7-Nov-18 and 21-Dec-18 (2018: 16-Feb-18)
$1.023 and $0.995 (2018: $0.95)
13%, 14% and 17% (2018: 13%)
7.14%, 7.25% and 8.87% (2018: 8.73%)
2.06%, 2.11% and 1.94% (2018: 2.16%)
7-Dec-21, 30-Sep-20 and 30-Sep-21 (2018: 1-Nov-20)
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.
(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
21. Related parties
Cromwell
Trust
2019
$M
2.6
2018
$M
1.2
2019
$M
–
2018
$M
–
(A) 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.
128
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (B) 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
2019
$
5,043,108
107,704
80,782
1,733,310
6,964,904
2018
$
5,416,267
119,769
29,657
621,278
6,186,971
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 $1,960,001 (2018: $1,825,152).
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 $114,396 (2018: $104,000). The payment of rent is on normal commercial
terms and conditions and at market rates.
(C) 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 15.
(ii) Transactions with joint ventures and associates
Cromwell European Real Estate Investment Trust
Cromwell and the Trust hold 35.8% and 35.0% interests in CEREIT (refer to note 7(e) for further details). Cromwell and the
Trust received $68.6 million and $66.6 million in distributions from CEREIT during the year (2018: nil and nil). In December
2018 Cromwell and the Trust acquired a further 212,168,483 units in CEREIT as a result of participation in a rights issue
and disposed of 825,880 in the course of operations.
Cromwell EREIT Management Pte. Ltd. (“CEM”), a wholly owned subsidiary of Cromwell, is the manager for CEREIT. A
number of other wholly owned, European-domiciled, subsidiaries of Cromwell provide property related services to CEREIT
at normal commercial terms. The following income was earned by Cromwell from CEREIT:
Paid / payable by CEREIT to Cromwell and its subsidiaries
Fund management fees
Property management fees
Leasing fees
Project management fees
Distributions
Balances outstanding with CEREIT at year end:
Distribution receivable
Aggregate amounts receivable
Cromwell
2019
$M
2018
$M
12.5
18.2
3.0
0.8
41.0
25.6
16.1
13.8
8.4
–
0.3
–
–
10.4
During the year Cromwell received 25,953,109 units in CEREIT as consideration for the part-settlement of Acquisition fees
and Management fees (2018: 11,914,000), which equated to $8.2 million (2018: $10.1 million).
129
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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 7 for further details). Cromwell received $3.4 million in distributions
from CPA during the year (2018: $9.8 million).
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:
Paid / payable by CPA to Cromwell and its subsidiaries:
Fund management fees
Property management fees
Leasing fees
Project management fees
Distributions
Balances outstanding with CPA at year end:
Distribution receivable
Aggregate amounts receivable
Cromwell
2019
$M
2018
$M
2.8
0.8
0.2
0.4
3.9
1.4
2.2
1.2
0.8
0.4
0.7
9.8
2.6
3.2
LDK Healthcare Unit Trust
Cromwell holds a 50% interest in the LDK Healthcare Unit Trust (LDK), a joint venture conducting an aged care operation.
During the prior year, Cromwell and LDK commenced a project to repurpose the Cromwell-owned property at
Tuggeranong Office Park in the ACT into a Seniors living village under a Development lease. During the current year,
LDK acquired the Tuggeranong Office Park property (now known as “Greenway”) for $54.5 million, and the development
lease was cancelled (see below).
Cromwell has the following loans and related party transactions with the LDK joint venture:
(a) Working capital loan
In the prior year, Cromwell and Trust signed a Facility Agreement (‘Working capital loan’) with a subsidiary of LDK, for
a facility terminating on 31 December 2020 at which time all principal amounts outstanding are due. The maximum loan
facility is $10.0 million, with an interest rate of 12%. The purpose of the facility is to provide initial liquidity support to
the LDK business. During the year, the loan was drawn down by $3.6 million. The loan balance at year-end, including
applicable interest, is $4.7 million (2018: $0.9 million);
(b) Start up loan and Development lease
In the prior year, in order to facilitate the development of the Cromwell-owned property at Tuggeranong Office Park in
the ACT, Cromwell signed a Loan and Security Agreement (‘Start up loan’) and a Development lease agreement with
a subsidiary of LDK.
The loan facility had a termination date of 30 June 2024 and an interest rate applicable of 7%. The purpose of the facility
was to fund the costs of the Tuggeranong development project. The Development lease agreement was for the lease
of the Tuggeranong property for a term of 10 years. Rent and interest income of $1.8 million of was recognised during
the year (2018: $0.3 million). The loan was fully repaid during the year and the Development lease and loan facility have
now been cancelled;
(c) “Waterfall” loans
During the year, Cromwell and the Trust provided a number of loan facilities to LDK Healthcare Unit Trust and a number of
its subsidiaries in order to assist in the development of the LDK business. These facilities are $240.8 million in aggregate
and do not constitute a component of Cromwell’s net investment in the joint venture itself due to the loans being either
secured or their settlement being planned and likely.
130
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Interest rates attributable range from nil to BBSY plus various margins. However, the overall aggregate amount drawn
down is also subject to a “target” return requirement, whereby Cromwell and the Trust will receive a minimum internal
rate of return of 20% upon the relevant cash flows. These loans have been classified as being held at fair value through
profit or loss.
During the year, $112.4 million was drawn down in aggregate, whilst interest accrued at relevant rates. The total
aggregate loan balance at year-end is $112.6 million (including accrued interest).
Oyster Property Group Limited
Cromwell holds a 50% interest in the Oyster joint venture, a New Zealand based property syndicator and funds manager.
During the year, the Trust provided a NZD $6.0 million short-term loan facility to Cromwell’s joint venture Oyster Property
Funds Limited (“Oyster”) for the initial funding of an Oyster property syndication. Interest payable on the facility is 10%
annually, and a facility fee of NZD $0.6 million was charged and paid. The facility was drawn to NZD $1.0 million, which
was fully repaid during the year and the facility has now ceased.
Portgate Estate Unit Trust
Cromwell holds a 28% interest in Portgate Estate Unit Trust (Portgate), which holds the Portgate property located at the
Port of Brisbane. During the prior year Cromwell paid an additional $6.5 million in consideration for the investment,
leaving $2.5 million of unpaid acquisition consideration outstanding. For further information in relation to Cromwell’s
investment in Portgate see note 7(c).
During the year Cromwell provided property management services for which Portgate paid $87,000 (2018: $85,000).
Portgate paid no distributions during the year (2018: $107,000).
Cromwell Direct Property Fund
During the year, the Trust entered into a short-term subscription agreement with Cromwell Direct Property Fund (“DPF”),
the responsible entity of which is a wholly owned subsidiary of Cromwell Corporation Limited, whereby, subject to
conditions, the Trust agrees to subscribe for up to $25.0 million of equity in DPF. At balance date the facility, which
terminates in January 2020, had not been called upon.
(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.
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
Received / receivable by the Trust from the Company and its subsidiaries:
Interest
Rent and recoverable outgoings
Balances outstanding at year-end with the Company and its subsidiaries:
Aggregate amounts payable
Aggregate amounts receivable
Trust
2019
$M
2018
$M
14.1
6.1
1.3
1.5
0.7
7.6
3.0
13.3
6.4
2.9
2.2
0.5
7.4
4.2
4.5
219.0
2.0
175.1
The amount receivable from the Company and its subsidiaries includes loans of $213.0 million (2018: $168.2 million). For
further details regarding these loans refer to note 17(c).
131
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 22. Employee benefits expense
(A) 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
Restructure costs (reversed) / expensed
Total employee benefits expense
Cromwell
Trust
2019
$M
58.8
1.2
3.4
2.6
5.7
(0.3)
71.4
2018
$M
51.3
1.2
3.0
1.2
8.3
4.7
69.7
2019
$M
2018
$M
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(B) ACCOUNTING POLICY
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 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.
132
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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 $4.0 million (2018: $3.3 million) is included in current provisions on the Statement of
financial position. 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 Statement of financial position was
$1.5 million (2018: $1.3 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 Statement of financial position was $0.6 million
(2018: $0.5 million).
23. Auditors’ remuneration
(A) OVERVIEW
The independent auditors of Cromwell in Australia (Deloitte Touche Tohmatsu) (2018: 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 Deloitte and Pitcher Partners and component audit firms during
the year:
Deloitte Touche Tohmatsu
Audit and other assurance services
Auditing or reviewing of financial reports
Auditing of controlled entities’ AFS licences
Auditing of the Trust’s compliance plan
Other services
Due diligence services
International taxation advice
Total remuneration of Deloitte Touche Tohmatsu
Cromwell
Trust
2019
$
2018
$
2019
$
2018
$
322,000
7,000
499,560
828,560
208,050
212,100
1,248,710
–
–
175,000
175,000
–
–
175,000
172,800
–
–
172,800
–
–
172,800
–
–
–
–
–
–
–
133
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Cromwell
Trust
2019
$
2018
$
2019
$
2018
$
–
–
34,000
34,000
–
25,000
59,000
398,000
10,500
34,000
442,500
63,000
–
505,500
–
–
444,757
444,757
–
–
34,000
34,000
–
–
–
–
–
245,500
–
34,000
279,500
–
–
279,500
–
–
367,123
73,541
440,664
1,748,374
287,900
41,148
773,805
1,454,305
–
–
–
206,800
–
–
–
279,500
Pitcher Partners
Audit and other assurance services
Auditing or reviewing of financial reports
Auditing of controlled entities’ AFS licences
Auditing of the Trust’s compliance plan
Other services
Due diligence services
Valuation services
Total remuneration of Pitcher Partners
Other 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 other audit firms
Total auditors’ remuneration
24. Unrecognised items
(A) OVERVIEW
Items that have not been recognised on Cromwell’s and the Trust’s Statement of financial position include contractual
commitments for future expenditure and contingent liabilities which are not sufficiently certain to qualify for recognition as
a liability on the Statement of financial position. This note provides details of any such items.
(B) 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
Greater than five years
Total operating lease commitments
Cromwell
Trust
2019
$M
3.3
7.2
4.5
15.0
2018
$M
2.7
4.4
0.7
7.8
2019
$M
2018
$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.
134
CROMWELL PROPERTY GROUP I 2019 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
Capital contributions
Total capital expenditure commitments
Cromwell
Trust
2019
$M
8.8
0.4
9.2
2018
$M
8.1
4.1
12.2
2019
$M
8.8
–
8.8
2018
$M
8.1
–
8.1
(C) CONTINGENT LIABILITIES
The Directors are not aware of any material contingent liabilities of Cromwell or the Trust (2018: nil).
25. Subsequent events
Other than those disclosed below, no matter or circumstance has arisen since 30 June 2019 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.
(A) ISSUES OF SECURITIES SUBSEQUENT TO 30 JUNE 2019
On 1 July 2019 Cromwell and the Trust completed an underwritten institutional placement of stapled securities. As a
result 326,086,957 securities were allotted to securityholders on 2 July 2019. Proceeds (net of transaction costs) of $366.3
million were used to repay borrowings.
On 24 July 2019 Cromwell and the Trust closed a non-underwritten Security Purchase Plan (“SPP”). As a result 28,294,234
securities were allotted to securityholders on 31 July 2019. Proceeds (net of transaction costs) of $32.5 million were used
for general liquidity purposes.
(B) SALE OF INVESTMENT IN NORTHPOINT (CPA) SUBSEQUENT TO 30 JUNE 2019
On 1 July 2019 Cromwell and the Trust exchanged contracts to sell its 50% interest in Northpoint (“CPA”) for $300.0
million. The sale is subject to Foreign Investment Review Board (“FIRB”) approval and is expected to settle in mid-
September 2019. The CPA investment has been classified as held for sale to reflect this state of affairs. For further
information see note 7.
(C) ACQUISITION OF PROPERTY AT 400 GEORGE STREET, BRISBANE, SUBSEQUENT TO 30 JUNE 2019
On 22 August 2019 Cromwell and Trust exchanged contracts to acquire the building at 400 George Street, Brisbane, for
$524.75 million. The acquisition has been funded by a mixture of funds from the institutional placement and SPP and
capital to be recycled from the disposal of CPA (see above). The building is approximately ten years old, has a net lettable
area of 43,978 sqm, a WALE of 4.9 years and is currently 99.8% occupied.
This transaction is subject to FIRB approval and is due to settle in September 2019.
(D) CROMWELL POLAND RETAIL FUND
On 28 August 2019, Cromwell exercised its pre-emptive right to acquire third party investor interests in the Cromwell
Poland Retail Fund (CPRF). Following the exercise of the pre-emptive right, Cromwell has a period of approximately 2
months in which to conclude the acquisition of the remaining interests in the existing fund. Cromwell proposes to rollover
the acquired interests into a new fund which will be offered to institutional investors. If CPRF is rolled into a new fund,
Cromwell is likely to underwrite or take a co-investment stake in the new fund.
135
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 26. Other accounting policies
(A) OVERVIEW
This note provides an overview of 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 Consolidated statements
of financial position or Consolidated income statements have been included in the respective note.
(B) 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 (Cth). 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;
• investments at fair value through profit or loss are measured at fair value; and,
• disposal group held for sale is measured at carrying 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, unless otherwise indicated.
Comparatives
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.
(C) 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;
2.)
3.)
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 Statement of financial position.
The Trust’s contributed equity and retained earnings / accumulated losses are shown as a non-controlling interest in
this Financial Report in accordance with AASB 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.
136
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries as at 30 June 2019 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 26(d)).
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 Statement of financial position respectively.
Investments in subsidiaries are accounted for at cost in the individual financial statements of the Company. A list of
subsidiaries appears in note 15 to the consolidated financial statements.
(D) 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.
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.
(E) 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.
137
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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
2019
0.62
1.05
2018
0.63
1.09
2019
0.63
1.07
2018
0.65
1.07
(F) IMPAIRMENT OF ASSETS
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 have been previously impaired are reviewed for possible reversal of
the impairment at each reporting date.
(G) INVENTORIES
Inventories relate to land and property developments that are held for sale or developments and sale in the normal course
of business. Inventories are carried at the lower of cost or net realisable value. Net realisable value is the estimated
selling price in the normal course of business, less the estimated costs of completion and selling expenses.
(H) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
New accounting standards adopted by Cromwell
Cromwell and the Trust have adopted all applicable new Australian accounting standards and interpretations. Hence,
the accounting standards detailed below are now applicable for the first time for the year ended 30 June 2019:
AASB 9 Financial Instruments
AASB 15 Revenue from Contracts with Customers
Application date
of the Standard
Application date
to Cromwell –
year commencing
1 Jan 2018
1 Jan 2018
1 Jul 2018
1 Jul 2018
138
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT AASB 9 Financial Instruments
Cromwell has applied AASB 9 Financial Instruments for the first time in the current year. The date of initial application,
being the date on which Cromwell assessed its existing financial assets and financial liabilities in terms of the
requirements of AASB 9, is 1 July 2018. The new standard replaces AASB 139 Financial Instruments: Recognition and
Measurement.
The new standard addresses the classification, measurement and derecognition of financial assets and financial liabilities.
It replaces all previous versions of AASB 9 and introduces new classification and measurement models for financial
assets. New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the
risk management activities of entities along with requirements for financial assets and amendments to the classification
and measurement for certain debt instruments. In relation to the impairment of financial assets requirements under
AASB 9, the new standard requires an ‘expected credit loss’ model as opposed to an incurred credit loss model.
Impact of adoption
The adoption of AASB 9 has had no material impact on the classification and measurement of Cromwell’s financial assets
and financial liabilities, or Cromwell’s accounting policies relating to these instruments.
Financial assets
The impact of the adoption of the Standard on financial assets is set out below:
• Classification – Cromwell’s trade and other receivables are held to collect contractual cash flows. These continue to be
measured at amortised cost. Derivative financial instruments and other investments at fair value through profit or loss
continue to be measured at fair value through the profit or loss;
• Measurement – at initial recognition, Cromwell continues to measure financial assets at their fair value, plus
transaction costs (if any) directly attributable to the acquisition of the asset;
• Impairment of financial assets – Cromwell assesses the expected credit losses associated with financial assets carried
at amortised cost using an ‘expected credit loss’ model as prescribed by the new standard, rather than the previously
used incurred loss model. Under AASB 9, expected credit losses on financial assets are to be recorded either on
a 12-month or lifetime basis. Eligible financial assets are assessed under the simplified approach permitted by
the standard and related expected lifetime losses are recognised immediately in the Income statement.
The below table provides information about the impact upon classification and measurement of financial assets under
AASB 9 and AASB 139 at the date of initial application:
Financial assets
Original
classification
under AASB 139
New classification
under AASB 9
Original carrying
amount under
AASB 139
New carrying
amount under
AASB 9
Cash and cash equivalents
Receivables (current and non-current)
Derivative financial instruments
Loans and
receivables
Loans and
receivables
Fair value through
profit or loss
Investments at fair value through profit or loss Fair value through
profit or loss
Financial assets at
amortised cost
Financial assets at
amortised cost
Financial assets at
fair value through
profit or loss
Financial assets at
fair value through
profit or loss
$M
204.6
44.0
1.8
33.0
$M
204.6
44.0
1.8
33.0
139
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Financial liabilities
The adoption of AASB 9 has had no material impact on the classification and measurement of Cromwell’s financial
liabilities, or Cromwell’s accounting policies relating to financial liabilities.
The below table provides information about the impact upon classification and measurement of financial liabilities under
AASB 9 and AASB 139 at the date of initial application:
Financial liabilities
Original
classification
under AASB 139
New classification
under AASB 9
Original carrying
amount under
AASB 139
New carrying
amount under
AASB 9
Trade and other payables
Derivative financial instruments
Borrowings
Financial liabilities
at amortised cost
Fair value through
profit or loss
Financial liabilities
at amortised cost
Financial liabilities
at amortised cost
Financial liabilities
at fair value
through profit or
loss
Financial liabilities
at amortised cost
$M
52.3
37.7
$M
52.3
37.7
1,412.0
1,412.0
Transition and disclosure
As permitted by the Standard, the comparative results for the year ended 30 June 2018 need not be restated. Owing to
the immaterial impacts on Cromwell on transition, restatement has not been necessary.
Accounting policies under AASB 9
Initial recognition and measurement
Financial assets and financial liabilities are recognised in Cromwell’s Statement of financial position when it becomes
a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. On initial recognition, financial assets and
financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are recognised
net of transaction costs directly attributable to the acquisition of these financial assets or financial liabilities. Transaction
costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are
recognised immediately in the Income statement.
Financial assets
Classification and subsequent recognition and measurement
Subsequent to initial recognition Cromwell classifies its financial assets in the following measurement categories:
• Those to be measured at fair value (either through other comprehensive income, or through profit or loss); and
• Those to be measured at amortised cost.
The classification depends upon the whether the objective of Cromwell’s relevant business model is to hold financial
assets in order to collect contractual cash flows (business model test) and whether the contractual terms of the cash
flows give rise on specified dates to cash flows that are solely payments of principal and interest (cash flow test).
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows
are solely payment of principal and interest.
For assets measured at fair value, gains and losses will either be recorded in the Income statement or Statement of other
comprehensive income. For investments in equity instruments that are not held for trading, the classification will depend
upon whether Cromwell has made an irrevocable election at the time of initial recognition to account for the equity
investment at fair value through other comprehensive income.
Cromwell does not carry financial assets that are classified as 'fair value through other comprehensive income’, and
currently does not apply hedge accounting.
140
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Financial assets recognised at amortised cost
Trade and other receivables are held for collection of contractual cash flows where those cash flows represent solely
payments of principal and interest and are measured at amortised cost. Interest income from these financial assets is
included in finance income using the effective interest rate method.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and
the sum of the consideration received and receivable is recognised in the Income statement.
Collectability of trade and other receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible
are written off.
Financial assets recognised at fair value through profit or loss
Assets that do not meet the criteria for amortised cost or recognition at fair value through other comprehensive income
are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair
value through profit or loss is recognised in the Income statement and presented net within other gains / (losses) in
the period in which it arises.
Impairment
Cromwell recognises a loss allowance for expected credit losses on trade receivables that are measured at amortised cost
and contract assets. The amount of expected credit losses is updated at each reporting date to reflect changes in credit
risk since initial recognition of the respective financial instrument.
For trade receivables, Cromwell applies the simplified approach permitted by AASB 9, which requires expected lifetime
credit losses to be recognised from initial recognition of the receivables. The expected credit losses on these financial
assets are estimated using a provision matrix based on Cromwell’s historical credit loss experience adjusted for factors
that are specific to the debtors, general economic conditions and an assessment of both the current as well as the
forecast direction of conditions at the reporting date, including time value of money where appropriate.
Cromwell impairs a financial asset when there is information indicating that the debtor is in severe financial difficulty and
there is no realistic prospect of recovery.
Financial liabilities and equity
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities.
Equity instruments issued by Cromwell are recognised at the value of the proceeds received, net of direct issue costs.
Repurchase of Cromwell’s own equity instruments is recognised and deducted directly in equity. No gain or loss is
recognised in the Income statement on the purchase, sale, issue or cancellation of Cromwell’s own equity instruments.
Compound instruments
The component parts of convertible loan notes issued by Cromwell are classified separately as financial liabilities and
equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and
an equity instrument. A conversion option that will not be settled by the exchange of a fixed amount of cash or another
financial asset for a fixed number of Cromwell’s own equity instruments is an embedded derivative and not an equity
instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a
similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis using the effective
interest method until extinguished upon conversion or at the instrument’s maturity date.
The conversion option classified as an embedded derivative is determined by deducting the amount of the liability
component from the fair value of the compound instrument in its entirety. This component is recognised and classified as
a financial liability and categorised as being at fair value through profit or loss. This amount is subsequently remeasured
(see “Embedded derivatives” section below).
141
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest method or at fair value
through profit or loss.
Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held-for-trading,
or designated as at fair value through profit or loss, are subsequently measured at amortised cost using the effective
interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter
period, to the amortised cost of a financial liability.
Derecognition of financial liabilities
Cromwell derecognises financial liabilities when, and only when, its obligations are discharged, cancelled or have expired.
The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable
is recognised in the Income statement.
When Cromwell exchanges one debt instrument for another with substantially different terms with an existing lender,
such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new
financial liability. Similarly, Cromwell accounts for the substantial modification of terms of an existing liability or part of it
as an extinguishment of the original financial liability and the recognition of a new financial liability.
Derivative financial instruments
For information in relation to the accounting policies for derivative financial instruments, refer note 10(b).
Embedded derivatives
An embedded derivative is a component of a hybrid contract that also includes a non-derivative host – with the effect
that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. Derivatives
embedded in hybrid contracts with hosts that are financial liabilities are treated as separate derivatives when they meet
the definition of a derivative, their risks and characteristics are not closely aligned to those of the host contracts and
the host contracts are not measured at fair value through profit or loss.
An embedded derivative is presented as a non-current asset or non-current liability if the remaining maturity of the hybrid
instrument to which the embedded derivative relates is more than 12 months and is not expected to be realised or settled
within 12 months.
AASB 15 Revenue from Contracts with Customers
Cromwell has applied AASB 15 Revenue from Contracts with Customers for the first time in the current year. AASB 15
replaces AASB 118 Revenue, which applied to contracts for goods and services, and AASB 111 Construction Contracts
which applied to construction contracts. The new standard introduces a 5-step approach to revenue recognition and
the principle that revenue is recognised when (or as) a performance obligation is satisfied, i.e when control of a good
or service underlying the particular performance obligation is transferred to a customer – the notion of control of
the performance obligation replaces the existing notion of risks and rewards.
Impact of adoption
Cromwell has elected to adopt AASB 15 using the fully retrospective approach in accordance with paragraph C3(a) of
the standard, whereby the cumulative effect of retrospective application is recognised by adjusting opening retained
profits or other relevant components of equity for the earliest comparative period presented (which for Cromwell is
the comparative period beginning 1 July 2017).
The impact of the adoption is immaterial to Cromwell and as such, the prior year results have not been restated.
Accounting policies regarding revenue recognised under AASB 15 are disclosed at note 3.
142
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT (I) 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:
AASB16 Leases
AASB Interpretation 23 Uncertainty over Income Tax Treatments
Application date of
the Standard
Application date to
Cromwell –
year commencing
1 Jan 2019
1 Jan 2019
1 Jul 2019
1 Jul 2019
AASB 16 Leases
The AASB has issued a new standard for leases. This will replace AASB 117 Leases (AASB 117). 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 in the statement of financial position, to be recognised
on the statement of financial position as a right-of-use asset with a corresponding financial liability, except for short-term
leases and leases of low value assets.
The right-of-use asset will initially be measured at cost and subsequently at cost less accumulated depreciation and
impairment losses, adjusted for any remeasurement of the lease liability. Depreciation will be charged on a straight-line
basis over the lease term. The lease liability is initially measured at the present value of the lease payments that are not
paid at that date. Subsequently the lease liability is adjusted for interest and lease payments, as well as the impact of
lease modifications, amongst others.
Furthermore, the classification of cash flows will also be affected as operating lease payments under AASB 117 are
presented as operating cash flows, whereas under the AASB 16 model, the lease payments will be split into a principal
and an interest portion which will be presented as financing and operating cash flows respectively.
In contrast to lessee accounting, AASB 16 substantially carries forward the lessor accounting requirements in AASB 117,
and continues to require a lessor to classify a lease either as an operating lease or a finance lease.
1. Accounting as lessor
The Directors have performed an assessment of the new requirements of AASB 16 in respect of Cromwell as a lessor and
found that there will be no significant impact on Cromwell and its operating lease arrangements except for a change in
the definition of a lease period, which will include renewal options if there is reasonable certainty they will be exercised,
which may affect straight-line rent recognised for such leases.
2. Accounting as lessee
The new standard applies to a number of lease contracts Cromwell has entered into. Based on the Directors assessment,
it is expected that adopting AASB 16 by applying the cumulative catch-up approach allowed by the new standard on
1 July 2019 will have the following impacts on the financial statements:
• Relevant leases entered into by Cromwell include those for commercial office space and office equipment. These
assets will be measured at the net present value of the future amounts payable under the relevant lease, including
optional renewal periods where Cromwell assesses that the probability of renewal is reasonably certain.
• In the Income statement, rental / lease expense will be replaced by interest expense and amortisation expense.
Upon adoption from 1 July 2019, management estimates the impact upon net profit before tax for FY2020 will be
approximately $1.3 million. Assets at 1 July 2019 will increase by approximately $15.2 million and liabilities will increase
by approximately $12.3 million.
143
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT The forecast impact of the application of the new standard to Cromwell’s operating lease arrangements in the Statement
of financial position has been assessed and is disclosed below:
Forecast statement of financial position at adoption of standard:
Right of use asset
Non-current assets
Current lease obligation
Current liabilities
Non-current lease obligation
Non-current liabilities
Equity
2020
$M
15.2
15.2
4.2
4.2
12.3
12.3
(1.3)
The forecast impact of the application of the new standard to Cromwell’s operating lease arrangements in the Income
statement and Equity in the Statement of Financial Position has been assessed as being immaterial.
A schedule of current operating lease commitments is disclosed in note 24.
AASB Interpretation 23 Uncertainty over Income Tax Treatments
The AASB has issued a new interpretation in order to reduce diversity in practice regarding the recognition and
measurement of current tax liabilities, deferred tax liabilities and deferred tax assets as defined by paragraph 5 of AASB
112 Income Taxes. The interpretation is to be applied to the determination of taxable profit (or losses), tax bases, unused
tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments. The interpretation
requires an entity to use judgement to determine whether each tax treatment should be considered independently or
whether some tax treatments should be considered together.
Cromwell maintains and executes robust and comprehensive income tax management procedures and no contentious or
uncertain tax positions have currently been identified. Hence, the impact of the application of this interpretation is
expected to be immaterial.
(J) 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
Revenue
Fair value of investment property
Equity accounted investments
Investments at fair value through profit or loss
Fair value of derivative financial instruments
Note
3
6
7
8
13
Each of the new accounting standards adopted in the current year requires the application of judgements and use of
estimation as follows:
AASB 9
AASB 9’s expected credit loss model requires forecasts of future credit losses, together with an assessment of credit
risk to determine whether expected lifetime or 12-month credit losses should be included in the loss allowance.
During the year, there were no changes in the estimation techniques used, or assumptions used in those estimations.
AASB 15
Estimation and judgement is required in relation to the application of variable consideration constraint of performance
fees. See above and note 3 for further information.
144
CROMWELL PROPERTY GROUP I 2019 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 (Cth), 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 Trusts financial position as at 30 June 2019 and of
their performance, for the financial year ended on that date; and
(b)
the financial report also complies with International Financial Reporting Standards as disclosed in note 26; and
(c)
there are reasonable grounds to believe that Cromwell and the Trust will be able to pay its debts as and when
they become due and payable.
The Directors have been given the declarations by the chief executive officer and chief financial officer for the financial
year ended 30 June 2019 required by section 295A of the Corporations Act 2001 (Cth).
This declaration is made in accordance with a resolution of the Directors.
PL. Weightman
Director
28 August 2019
145
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Deloitte Touche Tohmatsu
ABN 74 490 121 060
Riverside Centre
Level 23, 123 Eagle Street
Brisbane QLD 4000
GPO Box 1463
Brisbane QLD 4001 Australia
DX: 10307SSE
Tel: +61 (0) 7 3308 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Independent Auditor’s Report to the Stapled Security
Holders of Cromwell Property Group and the Unitholders
of Cromwell Diversified Property Trust
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of:
Cromwell Property Group (“the Group”) which comprises the consolidated statement of
financial position as at 30 June 2019, the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated statement of changes in equity and
the consolidated statement of cash flows for the year then ended, notes comprising a
summary of significant accounting policies and other explanatory information, and the
Directors’ declaration of the consolidated entity Cromwell Property Group, being the
consolidated stapled entity. The consolidated stapled entity comprises Cromwell Corporation
Limited (“the Company”), Cromwell Diversified Property Trust, and the entities they
controlled at the year end or from time to time during the year; and
Cromwell Diversified Property Trust (“the Trust”) which comprises the consolidated
statement of financial position as at 30 June 2019, the consolidated income statement, the
consolidated statement of comprehensive income, the consolidated statement of changes in
equity and the consolidated statement of cash flow for the year then ended, notes comprising
a summary of significant accounting policies and other explanatory information, and the
Directors’ declaration of Cromwell Property Securities Limited, as Responsible Entity of the
Trust. The consolidated entity comprises Cromwell Diversified Property Trust and the entities
it controlled at the year end or from time to time during the year.
In our opinion, the accompanying financial reports of the Group and Trust are in accordance with
the Corporations Act 2001, including:
giving a true and fair view of the Group’s and Trust’s financial position as at 30 June 2019
and of their financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to the directors of the Company, would be in the same terms if given to the directors as
at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
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CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial reports for the current period. These matters were addressed in the
context of our audit of the financial reports as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Key Audit Matter
How the scope of our audit responded to the Key
Audit Matter
Valuation of investment properties
At 30 June 2019, Cromwell Property
Group recognised investment properties
valued at $2,520.9 million as disclosed
in Note 6.
its
value
properties.
Cromwell Property Group utilises a
combination of valuation methodologies
to
The
capitalisation of net income method
applies
to
normalised market net operating
income. The discounted cash
flow
method uses a 10 year cash flow
forecast and terminal value calculation
discounted to present value.
capitalisation
rate
a
process
valuation
The
requires
significant judgment and estimation in
the following key areas:
• forecast cash flows,
• capitalisation rates, and
• discount rates.
•
•
•
•
•
Our procedures included but, were not limited to:
•
the
and
Assessed the design and tested the operating
effectiveness of key controls within management’s
valuation assessment, as well as assessed the
oversight applied by the directors
independence, competence and
Assessed
objectivity of the external valuers, as well as
competence and objectivity of internal valuers
Performed an overall analytical review and risk
assessment of the portfolio, assessing the key inputs
and assumptions
Assessed the assumptions used in the portfolio, with
particular focus on the capitalisation rate and
discount rate with reference to external market
trends
those
assumptions where appropriate
Enquired of management to obtain an understanding
of portfolio movements and their identification of any
additional property specific matters
Tested on a sample basis, both externally and
internally valued properties, for the following:
the completeness and accuracy of
the
‒
information in the valuation by agreeing key
inputs such as net operating
income to
underlying records and source evidence;
the forecasts used in the valuations with
reference to current financial results such as
revenues and expenses, capital expenditure
requirements, vacancy
lease
renewals; and
transactions,
rates and
challenging
‒
‒ The mathematical accuracy of the models.
We also assessed the appropriateness of the disclosures
included in the notes to the financial statements.
Other Information
The directors of the Company and the directors of Cromwell Property Securities Limited as
Responsible Entity for the Trust (collectively referred to as “the directors”) are responsible for the
other information. The other information comprises the Directors’ Report, which we obtained prior
to the date of this auditor’s report, and also includes the following information which will be included
in the Group’s annual report (but does not include the financial report and our auditor’s report
thereon): Financial highlights, Chairman’s Report, CEO’s Report, Corporate Governance Statement
and Securityholder Information, which is expected to be made available to us after that date.
Our opinion on the financial report does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed on the other information that we obtained prior
to the date of this auditor’s report, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
147
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
When we read the Financial highlights, Chairman’s Report, CEO’s Report, Corporate Governance
Statement and Securityholder Information, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to the directors and use our professional
judgement to determine the appropriate action.
Responsibilities of the Directors for the Financial Report
The directors are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud
or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group
and the Trust to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to
liquidate the Group or the Trust or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as
intentional omissions,
involve collusion,
fraud may
misrepresentations, or the override of internal control.
forgery,
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’s and Trust’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s and Trust’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to the related disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group and Trust to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group and Trust to express an opinion on the
financial report. We are responsible for the direction, supervision and performance of the
Group’s and Trust’s audit. We remain solely responsible for our audit opinion.
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CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 18 to 41 of the Directors’ Report for
the year ended 30 June 2019.
43
67
In our opinion, the Remuneration Report of the Company, for the year ended 30 June 2019, complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
David Rodgers
Partner
Chartered Accountants
Brisbane, 28 August 2019
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CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT
CORPORATE GOVERNANCE STATEMENT
The Board is committed to Cromwell Property Group meeting securityholders’ and stakeholders’ expectations of good
corporate governance. 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 and stakeholders.
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 2019 financial year.
This Statement is current as at 1 September 2019 and has been approved by the Board.
Cromwell Property Group comprises Cromwell Corporation Limited (or the Company) and the Cromwell Diversified
Property Trust (or the CDPT), the Responsible Entity of which is Cromwell Property Securities Limited (or CPS).
Principle 1: Lay solid foundations for management and oversight
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) (Corporations Act) 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. The Directors’ Report discloses the names of the Directors, the number of times that the Board met during the
2019 financial year and the individual attendances of the Directors at those meetings. For easy reference, the information
(including percentages of total) is shown below:
Director
Mr Geoffrey Levy (Chair)
Ms Michelle McKellar
Ms Jane Tongs
Mr Marc Wainer (retired 21 November 2018)
Mr Leon Blitz
Mr Paul Weightman
Mr David Blight (resigned 19 July 2019)
Mr Andrew Fay (appointed 15 October 2018)
Meetings attended
(% of meetings eligible to attend)
Meetings eligible to attend
(100%)
12 (92%)
13 (100%)
13 (100%)
1 (33%)
13 (100%)
13 (100%)
9 (69%)
11 (100%)
13 (100%)
13 (100%)
13 (100%)
3 (100%)
13 (100%)
13 (100%)
13 (100%)
11 (100%)
Management prepares Board papers to inform and focus the Board’s attention on key issues. Standing items include
progress against strategic objectives, financial performance and corporate governance (including compliance with
material legal and regulatory requirements and any conduct that is materially inconsistent with Cromwell Property
Group’s values and Code of Conduct).
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 and Risk Committee;
• Investment Committee; and
• Nomination and Remuneration Committee.
Details of the role, responsibilities and composition of the Board Committees are contained elsewhere in this Statement.
The Directors’ Report discloses (for each Board Committee) the members of the Board Committee, the number of times
150
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT that the Board Committee met during the 2019 financial year and the individual attendances of the members at those
meetings. For easy reference, the information (including percentages of total) is shown below:
Audit and Risk Committee
Director
Meetings attended (% of
meetings eligible to attend)
Meetings eligible to attend
(100%)
Ms Michelle McKellar
Ms Jane Tongs (Committee Chair)
Mr Leon Blitz
Mr Andrew Fay (appointed to Committee on 21 November 2018)
10 (100%)
10 (100%)
10 (100%)
5 (100%)
10 (100%)
10 (100%)
10 (100%)
5 (100%)
Investment Committee
Director
Meetings attended (% of
meetings eligible to attend)
Meetings eligible to attend
(100%)
Mr Geoffrey Levy (retired from Committee on 29 May 2019)
Ms Michelle McKellar (Committee Chair)
Mr Leon Blitz (appointed to Committee on 29 May 2019)
Mr Paul Weightman
Mr Andrew Fay (appointed to Committee on 29 May 2019)
1 (100%)
4 (100%)
4 (100%)
4 (100%)
4 (100%)
1 (100%)
4 (100%)
4 (100%)
4 (100%)
4 (100%)
Nomination and Remuneration Committee
Director
Mr Geoffrey Levy (retired from Committee and as Committee
Chair on 21 November 2018)
Ms Michelle McKellar
Ms Jane Tongs
Mr Leon Blitz
Mr Andrew Fay (appointed to Committee and as Committee
Chair on 21 November 2018)
Meetings attended (% of
meetings eligible to attend)
Meetings eligible to attend
(100%)
3 (100%)
4 (100%)
4 (100%)
2 (50%)
1 (100%)
3 (100%)
4 (100%)
4 (100%)
4 (100%)
1 (100%)
Day to day management of Cromwell Property 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 Cromwell
Property Group).
What you can find on the Corporate Governance page on our website:
• Board Charter
• Audit and Risk Committee Charter
• Nomination and Remuneration Committee Charter
• Delegation of Authority Policy
• Constitution of Cromwell Corporation Limited
• Constitution of the Cromwell Diversified Property Trust
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
151
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT RECOMMENDATION 1.2
Cromwell Property Group undertakes appropriate checks before appointing a Director or senior executive, 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 and
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 Cromwell Property 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 the candidate brings 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. In line with the fourth edition
of the Recommendations, commencing in 2019, this statement will be expanded to include a summary of the reasons
why; 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 as a whole 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
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 Property Group has provided each Non-executive Director with a written letter of appointment which details the
terms of their appointment, including:
• the requirement to disclose interests and any matters which could affect the Director’s independence;
• remuneration and expected time commitments;
• the requirement to comply with key corporate policies, including Cromwell Property Group’s Code of Conduct and
Securities Trading Policy;
• the requirement to seek the Chair’s consent before accepting any new role that could impact on the time commitment
expected of the Director, and to notify the Board about anything that may lead to an actual or potential conflict of
interest or duty;
• Cromwell Property Group’s policy on when Directors may seek independent professional advice at the expense of the
entity;
• indemnity and insurance arrangements and ongoing rights of access to corporate information; and
• ongoing confidentiality obligations.
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.
Cromwell Property Group has a Board-approved Securities Trading Policy under which Directors, senior executives and
employees are restricted in their ability to deal in Cromwell Property Group securities. Appropriate closed periods are in
place during which Directors, senior executives and employees are not permitted to trade. Directors, senior executives and
employees are made aware of the policy and receive training annually. The policy is reviewed at least annually.
What you can find on the Corporate Governance page on our website:
• Code of Conduct
• Securities Trading Policy
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
(1)
In this Statement, AGM means (together) the Annual General Meeting of the Company and the General Meeting of the CDPT.
152
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT RECOMMENDATION 1.4
The Company Secretary is accountable to the Board (through the Chair) 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 and regularly with the Company Secretary on Board matters. Similarly, the
Company Secretary communicates directly and regularly 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.cromwellpropertygroup.com/securityholder-centre/corporate-governance
RECOMMENDATION 1.5
Cromwell Property Group 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 Board (on recommendation from the Nomination and 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 2019 financial year and the Group’s performance against
those objectives as at 30 June 2019.
153
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT FY19 gender diversity objective
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.
Succession plans and leadership programmes are designed to assist in the
development of a diverse pool of future senior executives and managers and are
regularly reviewed.
At least one corporate event is held to which staff can bring family members.
Flexible working arrangements are available for staff with caring responsibilities.
All staff receive diversity and related training at least once a year.
At least 80% of females taking parental leave return to work.
10
Average training hours undertaken by females are at least equivalent to the
average training hours undertaken by male counterparts.
The Group’s performance
as at 30 June 2019
Achieved.
Achieved.
Achieved.
Achieved.
Not achieved.
Achieved.
Achieved.
Not achieved.
Not applicable – no scheduled
returns from parental leave
during FY19.
Achieved.
As at the date shown, the respective proportions of males and females on the Board, in senior executive positions and
across the employee workforce were as follows:
Date
As at 30 June 2019
As at 19 July 2019
As at 30 June 2019
As at 30 June 2019
Body
Females (% of total)
Males (% of total)
Total (100%)
Board
Board
Senior executive²
Employees3
2 (29%)
2 (33%)
1 (33%)
68 (48%)
5 (71%)
4 (67%)
2 (67%)
75 (52%)
7 (100%)
6 (100%)
3 (100%)
143 (100%)
(2) Recommendation 1.5(c)(1) requires the Group to define what it means by ‘senior executive’. In this case, ‘senior executive’ means the key management
personnel (KMP) other than Non-executive Directors. As at 30 June 2019, the ‘senior executive’ comprised the Chief Executive Officer, the Chief
Operations Officer and the Chief Financial Officer. Please refer to the FY19 Remuneration Report for further information about KMP.
(3) Excludes European business, Singapore business, Phoenix Portfolios, Oyster Property Group and LDK Healthcare.
Cromwell Property Group is a ‘relevant employer’ under the Workplace Gender Equality Act 2012 (Cth) (WGEA). The Group’s
most recent ‘Gender Equality Indicators’, as defined in and published under the WGEA, are as follows:
Gender equality indicator
1. Gender composition of workforce
2. Gender composition of governing bodies
3. Equal remuneration between women and men
4.
Flexible working and support for employees with family and caring responsibilities
5. Consultation with employees on issues concerning gender equality in the workplace
6.
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:
• Diversity Policy
• Nomination and Remuneration Committee Charter
• Gender Diversity Objectives (current financial year and previous financial years)
• WGEA Report
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
154
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT What you can find on the Sustainability page on our website:
• Sustainability Report (current report and previous reports)
www.cromwellpropertygroup.com/sustainability
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 can make comments or raise any issues they have in relation to the
performance. The results are compiled by the Company Secretary and discussed at a subsequent Board meeting. For the
2019 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:
• Nomination and Remuneration Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
RECOMMENDATION 1.7
Cromwell Property Group has an established, rigorous process for the performance review of all employees, 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 and 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 2019 financial year.
What you can find on the Corporate Governance page on our website:
• Nomination and Remuneration Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
155
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Principle 2: Structure the board to add value
RECOMMENDATION 2.1
Nomination and Remuneration Committee
The Board’s Nomination and Remuneration Committee has four members, all of whom are independent Directors. The
Committee is chaired by an independent Director who is not the Chair of the Board.
The Nomination and Remuneration Committee operates under a Board-approved written Charter. The Charter sets out
the Nomination and Remuneration Committee’s various responsibilities, including reviewing and making
recommendations to the Board in relation to:
• Board succession planning generally;
• induction and continuing professional development programmes for Directors;
• the development and implementation of a process for evaluating the performance of the Board, Board Committees and
Directors;
• the process for recruiting new Directors;
• the appointment, or re-election, of Directors to the Board;
• the performance and education of Directors;
• reviewing and recommending remuneration arrangements for the Directors, the CEO and senior executives; and
• ensuring succession plans are in place with regard to the CEO and other senior executives.
The Nomination and 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 independent professional advice from appropriate
external advisors (at Cromwell Property Group’s cost); and
• may meet with external advisors without management being present.
The minutes of each Nomination and Remuneration Committee meeting are included in the papers for the next Board
meeting after the Committee has approved those minutes. The Chair of the Nomination and Remuneration Committee
reports the Committee’s findings to the next Board meeting after each meeting of the Committee.
The Directors’ Report discloses the members of the Nomination and Remuneration Committee, the number of times that
the Committee met during the 2019 financial year and the individual attendances of the members at those meetings.
For easy reference, the information (including percentages of total) is shown below:
Director
Mr Geoffrey Levy (retired from Committee and as Committee
Chair on 21 November 2018)
Ms Michelle McKellar
Ms Jane Tongs
Mr Leon Blitz
Mr Andrew Fay (appointed to Committee and as Committee
Chair on 21 November 2018)
Meetings attended (% of
meetings eligible to attend)
Meetings eligible to attend
(100%)
3 (100%)
4 (100%)
4 (100%)
2 (50%)
1 (100%)
3 (100%)
4 (100%)
4 (100%)
4 (100%)
1 (100%)
What you can find on the Corporate Governance page on our website:
• Nomination and Remuneration Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
156
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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.
Skills and experience
Leadership and Culture
• Non-executive Director and Board Committee experience in a publicly listed company in Australia or overseas
• Experience at an executive level in business including the ability to assess the performance of the CEO and senior
management
• Understanding, implementing and monitoring good organisational culture
Property and Asset Management
• Experience in, and appropriate knowledge of, the Australian commercial property market in one or more of the
following areas: acquisitions and disposals; asset management; property management; leasing; facilities management;
and development
• Experience in, and knowledge of, other property markets in other relevant jurisdictions (i.e. international) and other
property market sectors
Funds/Investment Management
• Significant experience and knowledge of wholesale and retail funds management, in Australia and globally
Commercial Capability
• Deep experience at a Board or executive level with a listed company(ies) in the ASX300, with an understanding of capital
raising, takeovers, continuous disclosure and corporate governance
• Ability to think strategically and identify and critically assess strategic opportunities and threats and develop effective
strategies to meet Cromwell Property Group’s identified objectives
Financial Acumen
• Understanding of key financial statements; critically assess financial viability and performance; contribute to financial
planning; monitor operating and capital expenditure budgets; and monitor debt levels and funding arrangements; and/or
• Experience as a partner in a top tier accounting firm, or as a CFO in a listed company in the ASX300, with a deep
understanding of the accounting standards applicable to Cromwell Property Group’s financial reports and Cromwell
Property Group’s financial accountability process
Risk Oversight
• Ability to identify or recognise key risks to Cromwell Property Group across its various operations and monitor risk
management frameworks
Debt Management
• Experience in the banking industry or in a corporate treasury department giving an understanding of the debt market in
Australia or elsewhere
People
• Experience in managing human capital, remuneration and reward, industrial relations, workplace health and safety and
strategic workforce planning
Public Policy, Government, Economics
• Experience with either Federal or State government ministers or departments giving a knowledge of agendas, policies
or processes
• Understanding of key macro and micro economic indicators and market cycles and their impact on Cromwell Property
Group and the environment in which it operates
157
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Sustainability
• Demonstrate an understanding of health and safety practices
• Understanding of risks and opportunities regarding climate change
• Former or current role with direct accountability for environment practices including energy, water management,
emissions and land management
The above table outlines the experience and skills represented by the current composition of the Board, and of those
desirable by the Board. This revised Board Skills Matrix has been consolidated and reconfigured, and detailed descriptions
have been provided of each skill and experience. The Board Skills Matrix now includes ‘Leadership and Culture,’ ‘People’
and ‘Sustainability’, which the Board endeavours to address when considering succession planning. The Board regularly
reviews and updates its Board Skills Matrix to reflect the strategy and direction of Cromwell Property Group and will
consider enhancements in future reporting.
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. For easy reference, attendances at
meetings are reproduced in this Statement.
The Nomination and Remuneration Committee refers to the Board Skills 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 and Remuneration Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/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 six Directors, with an independent Chair and a majority of independent Non-executive
Directors:
Director (age)
First appointed
Status
Mr Geoffrey Levy (AO) (Chair) (60)
Ms Michelle McKellar (64)
Ms Jane Tongs (59)
Mr Leon Blitz (55)
Mr Andrew Fay (54)
Mr Paul Weightman (57)
17 April 2008
1 March 2007
26 November 2014
28 June 2017
15 October 2018
6 August 1998
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Executive Director, Managing Director/CEO
Mr Marc Wainer (70) retired as a Non-executive Director on 21 November 2018 and Mr David Blight (57) resigned as a
Non-executive Director on 19 July 2019.
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 shown in the table above.
158
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Mr Levy joined the Group as an independent Non-executive Director and independent Chair of the Board in 2008 and has
been serving on the Board since that time. The Board is satisfied that the length of Mr Levy’s service as Director and Chair
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 Property Group as a whole and its securityholders
generally.
Ms McKellar, who is retiring by rotation at the end of the 2019 AGM in accordance with clause 65 of the Company’s
Constitution, will not be seeking re-election as a Director of the Company at the AGM.
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 Property Group 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.
Cromwell Property Group’s independent Non-executive Directors (including the Chair) are considered by the Board to
meet the test of independence under the third edition and fourth edition of the Recommendations.
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.cromwellpropertygroup.com/securityholder-centre/corporate-governance
RECOMMENDATION 2.4
The Board comprises six Directors, with an independent Chair and a majority of independent Non-executive Directors.
The independent Non-executive Directors confer periodically as a group without senior executives present.
What you can find on the Corporate Governance page on our website:
• Board Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
RECOMMENDATION 2.5
The Chair of the Board – Mr Geoffrey 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 Chair 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 Chair, 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 Cromwell Property Group are addressed.
What you can find on the Corporate Governance page on our website:
• Board Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
159
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT RECOMMENDATION 2.6
An induction programme ensures that new independent Directors can participate fully and actively in decision making, and
add value, upon their appointment. The Chair of the Board, with the assistance of the Company Secretary, has developed
the induction programme. The programme includes meeting with fellow Directors (including the CEO) and the senior
executive team, receiving briefings on Cromwell Property Group’s strategy and reviewing corporate governance materials
and policies.
Each year, the Nomination and Remuneration Committee also considers and recommends to the Board a professional
development programme for Directors. This includes training relevant to each skill area of the Board Skills Matrix and on
key issues relevant to Cromwell Property Group’s operations, financial affairs and governance. The professional
development programme is compiled in light of recent or potential developments (internal and external) as well as any
skills or knowledge gaps identified by the Nomination and Remuneration Committee. Directors also have access to the
inhouse training sessions provided by Cromwell Property Group’s Legal and Compliance team. On an ongoing basis,
Directors are provided with briefings on changes to accounting standards as well as updates on legal, regulatory and
corporate developments relevant to Cromwell Property Group.
During the 2019 financial year, Directors undertook site visits at a number of Cromwell Property Group property assets
and visited a number of Cromwell Property Group offices.
What you can find on the Corporate Governance page on our website:
• Nomination and Remuneration Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
Principle 3: Act ethically and responsibly
RECOMMENDATION 3.1
Cromwell Property Group is a ‘values led’ organisation, with its corporate beliefs represented as follows:
Principled
We are principled. We set the
standards and have the
courage to do what is right,
when we think it is right
Respectful
We are respectful of others.
We are humble and
empathetic, working
collegiately to look after
our stakeholders
Responsible
We are accountable to
our stakeholders. We are
diligent and committed to
continuous improvement
and building a sustainable
and resilient business
160
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Such values underpin Cromwell Property Group’s:
• purpose – to exist to look after people; and
• vision – to be globally recognised as the value driven real estate investor and manager of choice.
Cromwell Property Group’s Directors, senior executives and employees are required to maintain high standards of ethical
conduct. This is reinforced by the values and the various practices and policies of the Group. All Directors, senior
executives and employees are expected to act with integrity and strive at all times to enhance the reputation and
performance of Cromwell Property Group. The Board and the senior executives reinforce Cromwell Property Group’s
values in their interactions with Cromwell’s broader workforce.
To reinforce this culture, Cromwell Property Group has a Code of Conduct to provide guidance about the attitudes and
behaviour necessary to maintain stakeholder confidence in the integrity of Cromwell Property Group and comply with the
Group’s legal obligations.
The Code of Conduct is made available to all Directors, senior executives and employees 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
employees at induction sessions, regular refresher training and team meetings.
Compliance with Board-approved policies (including the Code of Conduct) is monitored via monthly checklists completed
by key management and proactive testing programmes and by investigation following any report of a breach. Compliance
monitoring is undertaken by the Legal and Compliance team under the direction of the Company Secretary who reports
directly to the Board. The Board and the Audit and Risk Committee are notified of any material breaches of the Code of
Conduct. The Directors and senior executives take appropriate and proportionate disciplinary action against those who
breach the Code of Conduct.
Cromwell Property Group has a Board-approved 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 and any concerns about poor or unacceptable practice and misconduct in
the workplace. The Audit and Risk Committee is informed of any incidents reported under Cromwell Property Group’s
Whistleblower Policy.
What you can find on the ‘Our Values’ page on our website:
• Our Values
www.cromwellpropertygroup.com/about/our-values
What you can find on the Corporate Governance page on our website:
• Code of Conduct
• Breach Reporting Policy
• Whistleblower Policy
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
161
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Principle 4: Safeguard integrity in corporate reporting
RECOMMENDATION 4.1
Audit and 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 and Risk Committee. The Board’s Audit and Risk Committee has four members, all of
whom are independent Directors. The Committee is chaired by an independent Director who is not the Chair of the Board.
The Audit and Risk Committee operates under a Board-approved written Charter, which sets out the Audit and 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 Cromwell Property Group’s financial statements reflect the understanding of the Audit and Risk
Committee members, 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 and Risk Committee meeting are included in the papers for the next Board meeting after the
Committee has approved those minutes. The Chair of the Audit and Risk Committee reports the Committee’s findings to
the next Board meeting after each meeting of the Committee.
The Directors’ Report discloses:
• the relevant qualifications and experience of the members of the Audit and Risk Committee; and
• the number of times that the Audit and Risk Committee met during the 2019 financial year and the individual
attendances of the members at those meetings. For easy reference, the information (including percentages of total) is
shown below:
Director
Meetings attended (% of
meetings eligible to attend)
Meetings eligible to attend
(100%)
Ms Michelle McKellar
Ms Jane Tongs (Committee Chair)
Mr Leon Blitz
Mr Andrew Fay (appointed to Committee on 21 November 2018)
10 (100%)
10 (100%)
10 (100%)
5 (100%)
10 (100%)
10 (100%)
10 (100%)
5 (100%)
The Audit and 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 auditors to seek explanations and information from them (without management being present);
• may seek professional advice from employees of the Group and independent professional advice from appropriate
external advisors (at Cromwell Property Group’s cost); and
• may meet with external advisors without management being present.
During the 2019 financial year, the external auditor attended the majority of the meetings of the Audit and Risk Committee;
at those meetings, time was made available for the Committee to meet with the external auditor without management
being present.
The external auditor has declared its independence to the Board and to the Audit and Risk Committee. The Board is
satisfied the standards for auditor independence and associated issues have been met.
What you can find on the Corporate Governance page on our website:
• Audit and Risk Committee Charter
• External Auditor – Selection, Appointment and Rotation
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
162
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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
Cromwell Property 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, Cromwell Property 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 reasonably practicable after lodgement with the ASX.
The Group has a Market Disclosure Protocol which includes policies and procedures designed to ensure compliance with
the continuous disclosure obligations under the ASX Listing Rules.
The Board receives copies of all market announcements promptly after such announcements have been released. This
ensures that the Board has visibility of the nature and quality of information disclosed and the frequency of disclosures.
When Cromwell Property Group is giving a presentation, a copy of the presentation materials is released on the ASX
Market Announcements Platform ahead of the presentation. Examples of such presentations are those delivered for half
year results and full year results and at the AGM and any general meeting.
In addition, for the AGM and any general meeting, Cromwell Property Group releases the script of the Chair’s address and
the CEO’s address and provides live webcasting of the meeting so that securityholders can hear proceedings online.
Cromwell Property Group is committed to providing securityholders with the opportunity to engage and participate in
presentations and meetings.
What you can find on the Corporate Governance page on our website:
• Market Disclosure Protocol
• Investor Relations Policy
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
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;
• key corporate governance documents, including constitutions, charters and policies;
• a link to key events in the Corporate Governance calendar;
• a link to a description of the Group’s stapled security dividends/distributions policy and information about the Group’s
dividend/distribution history;
• a link to download relevant securityholder forms; and
• materials referred to in this Statement.
163
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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 Cromwell Property Group securities;
• ahead of the AGM (or any general meeting), information including time and venue and a copy of the Chair’s address, the
CEO’s address and the presentation materials;
• contact details for enquiries from securityholders, analysts or the media; and
• contact details for its securities registry.
Our website address:
www.cromwellpropertygroup.com
The Corporate Governance page on our website:
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
RECOMMENDATION 6.2
Cromwell Property Group has 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 of
securityholders and financial market participants 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.cromwellpropertygroup.com/securityholder-centre/corporate-governance
RECOMMENDATION 6.3
Cromwell Property Group facilitates and encourages participation at meetings of securityholders.
The Chair 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 Chair and CEO take any comments and questions received from securityholders during or after their address.
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 Chair reminds
securityholders of the opportunity to ask questions about the audit.
The Chair 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 and near paid carparking locations. 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 securityholder meetings so that securityholders can hear proceedings online.
At the AGM in 2018, all resolutions were decided by way of a poll rather than by a show of hands.
164
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT The Corporate Governance page on our website:
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
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.
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 page on
the Group’s website provides the email address for contacting the Group and the securities registry.
Principle 7: Recognise and manage risk
RECOMMENDATION 7.1
Audit and 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’s Audit and Risk
Committee has four members, all of whom are independent Directors. The Committee is chaired by an independent
Director who is not the Chair of the Board. The Audit and Risk Committee operates under a Board-approved written
Charter, which 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
• reviewing the general insurance programme, and assessing and recommending to the Board for adoption the scope,
cover and cost of corporate insurance.
The Audit and 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 auditors to seek explanations and information from them (without management being present);
• may seek professional advice from employees of the Group and independent professional advice from appropriate
external advisors (at the Group’s cost); and
• may meet with external advisors without management being present.
The minutes of each Audit and Risk Committee meeting are included in the papers for the next Board meeting after the
Committee has approved those minutes. The Chair of the Audit and Risk Committee reports the Committee’s findings to
the next Board meeting after each meeting of the Committee.
The Directors’ Report discloses:
• the relevant qualifications and experience of the members of the Audit and Risk Committee; and
• the number of times that the Audit and Risk Committee met during the 2019 financial year and the individual
attendances of the members at those meetings. For easy reference, the information (including percentages of total) is
shown below:
Director
Meetings attended (% of
meetings eligible to attend)
Meetings eligible to attend
(100%)
Ms Michelle McKellar
Ms Jane Tongs (Committee Chair)
Mr Leon Blitz
Mr Andrew Fay (appointed to Committee on 21 November 2018)
10 (100%)
10 (100%)
10 (100%)
5 (100%)
10 (100%)
10 (100%)
10 (100%)
5 (100%)
What you can find on the Corporate Governance page on our website:
• Audit and Risk Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
165
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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
compliance frameworks and controls are in place.
As outlined in its Board-approved Charter, the Audit and 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;
• 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 approach to proactive, enterprise wide risk management. There is also a wide range of
underlying internal policies and procedures, which are designed to mitigate the Group’s material business risks. The
Group’s approach to enterprise risk management is guided by relevant International Standards and regulatory guidance
and the Recommendations.
Reviews of the enterprise risk management framework were completed in the 2019 financial year. The Audit and Risk
Committee and the Board were satisfied the framework continues to be sound and that Cromwell Property Group
operates within the risk appetite set by the Board.
Compliance Committee
A Compliance Committee – comprised of a majority of independent external 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. Shortly after the conclusion of the 2019 financial year, the Chair of the Compliance Committee
met with the Audit and Risk Committee, with part of that meeting conducted without management being present (the
meeting was held in July 2019). The roles and responsibilities of the Compliance Committee are outlined in a Charter,
which is reviewed annually by the Compliance Committee. The Board of the Responsible Entity may change the Charter at
any time by resolution.
What you can find on the Corporate Governance page on our website:
• Board Charter
• Audit and Risk Committee Charter
• Enterprise Risk Management Policy
• Compliance Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
RECOMMENDATION 7.3
Although the Group does not have a designated internal audit function, throughout the year the Legal and Compliance
team conducts tests of the effectiveness of the controls and the appropriateness of the monitoring strategies in place for
those risks with an inherent risk rating of Very High or High. Relevant management confirm (monthly, quarterly or
annually as appropriate given the residual risk rating) 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 and Risk Committee.
166
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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 Sustainability page on our website:
• Sustainability Report (current edition and previous editions)
www.cromwellpropertygroup.com/sustainability
Principle 8: Remunerate fairly and responsibly
RECOMMENDATION 8.1
Nomination and Remuneration Committee
The Board has a long-established Nomination and Remuneration Committee, which operates under a Board-approved
written Charter. The Charter sets out the Nomination and 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
• whether there is any gender or other inappropriate bias in remuneration policies and practices.
The Nomination and 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 independent professional advice from appropriate
external advisors (at the Group’s cost); and
• may meet with external advisors without management being present.
The minutes of each Nomination and Remuneration Committee meeting are included in the papers for the next Board
meeting after the Committee has approved those minutes. The Chair of the Nomination and Remuneration Committee
reports the Committee’s findings to the next Board meeting after each meeting of the Committee. The Nomination and
Remuneration Committee has four members, all of whom are independent Directors.
The Directors’ Report discloses the members of the Nomination and Remuneration Committee, the number of times that
the Committee met during the 2019 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 and Remuneration Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
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; and
• 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 and committee 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.
167
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 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. Key performance
indicators (KPIs) for each KMP consider 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. This is achieved by providing remuneration packages which
consist of the following three elements (or a combination thereof) where appropriate:
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 rights 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.
Each of the CEO, the Chief Operations Officer and the Chief Financial Officer was awarded a short-term incentive (an
at-risk cash bonus) in the 2019 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 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 and Remuneration Committee and the Board.
What you can find on the Corporate Governance page on our website:
• Nomination and Remuneration Committee Charter
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
RECOMMENDATION 8.3
In accordance with the remuneration policy, the Group operates a Performance Rights Plan and has issued performance
rights 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.
What you can find on the Corporate Governance page on our website:
• Plan Rules for the Cromwell Property Group Performance Rights Plan
www.cromwellpropertygroup.com/securityholder-centre/corporate-governance
168
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT SECURITYHOLDER INFORMATION
The securityholder information set out below was applicable as at 30 August 2019, 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
2,266,468,727
310,663,049
12,139,786
6,020,943
356,210
2,595,648,715
1,240
8,660
1,578
2,041
1,141
14,660
Unmarketable Parcels
The number of stapled securityholdings held in a less than marketable parcel was 701.
Substantial Securityholders
Holder
The Vanguard Group, Inc
Haiyi Holdings Pte. Ltd., SingHaiyi Group Ltd
ARA Real Estate Investors XXI Pte. Ltd.
Stapled Securities
Date of Notice
140,734,048
175,052,515
462,606,816
18/06/2018
19/03/2018
02/07/2019
Voting Rights
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.
169
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT 20 Largest Securityholders
Rank
Investor
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
ARA REAL ESTATE INVESTORS XXI PTE LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
ARA REAL ESTATE INVESTORS XXI PTE LTD
NATIONAL NOMINEES LIMITED
REDEFINE GLOBAL (PTY) LTD
BNP PARIBAS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
CS FOURTH NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
STARA INVESTMENTS PTY LTD
HUMGODA INVESTMENTS PTY LTD
MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
PAUL LOUIS WEIGHTMAN
PANMAX PTY LTD
BNP PARIBAS NOMS PTY LTD
NATIONAL NOMINEES LIMITED
WALLACE SMSF PTY LTD
Number
of Stapled
Securities Held
% Held of Issued
Stapled Securities
340,657,056
331,826,872
287,872,078
207,824,743
174,734,738
64,505,864
60,000,000
40,049,336
14,655,671
13,970,950
10,515,810
10,096,525
8,315,900
7,924,271
7,240,598
6,893,628
6,813,958
6,307,163
6,150,802
4,898,736
15.23%
14.84%
12.87%
9.29%
7.81%
2.88%
2.68%
1.79%
0.66%
0.62%
0.47%
0.45%
0.37%
0.35%
0.32%
0.31%
0.30%
0.28%
0.28%
0.22%
Total
1,611,254,699
72.04%
Provision of Information for Securityholders
Cromwell is committed to ensuring its securityholders are fully informed on the financial and operational status of the
Group as well as its future prospects, in accordance with the rules and guidelines of the Australian Securities Exchange
(ASX) and other regulatory bodies. The following information can also be found on the Cromwell website at
www.cromwellpropertygroup.com.
ASX LISTING
Cromwell Property Group is listed on the Australian Securities Exchange (ASX code: CMW).
SECURITYHOLDING DETAILS
Securityholders can access information on their holdings and update their details through Cromwell’s securities registry
provider:
Link Market Services Limited
Level 21, 10 Eagle Street
Brisbane Qld 4000
Telephone:
Fax:
Web:
Email:
+61 1300 554 474
+61 2 9287 0303
www.linkmarketservices.com.au
info@linkmarketservices.com.au
170
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT Securityholders can change or update details in a number of ways:
• Send written authorisation to the registry quoting your SRN / HIN and signing the request;
• Log on to www.linkmarketservices.com.au; or
• Call the registry.
You will have to verify your identity by providing your personal details. Bank detail changes must be requested in writing or
electronically and cannot be made over the phone. Address changes must be requested in writing to the registry or your
CHESS Sponsor.
Securityholders are not obliged to quote their TFN, ABN or exemption. However, if these details are not lodged with the
registry, Cromwell is obliged to deduct tax from unfranked portions of dividend payments and distribution payments and
up to the highest marginal tax rate, depending on residency.
DISTRIBUTIONS/DIVIDENDS
Cromwell Property Group Dividends/Distributions
During the year the following distributions/dividends have been paid:
Quarter Ending
Amount per Security
Ex Date
30 June 2019
31 March 2019
1.81250 cents
1.81250 cents
27 June 2019
Record Date
28 June 2019
Payment Date
23 August 2019
28 March 2019
29 March 2019
24 May 2019
31 December 2018
1.81250 cents
28 December 2018
31 December 2018
22 February 2019
30 September 2018
1.81250 cents
27 September 2018
28 September 2018
23 November 2018
Further Information
The Cromwell website provides a comprehensive range of information on the Group, past performance and products.
The website address is www.cromwellpropertygroup.com. Requests for further information about the Group, its dealings
and key securityholder communications should be directed to:
Investor Relations Manager
Cromwell Property Group
GPO Box 1093
Brisbane QLD 4001 Australia
TEL: +61 7 3225 7777
FAX: +61 7 3225 7788
EMAIL: invest@cromwell.com.au
LISTING:
Cromwell Property Group is listed on the Australian Securities Exchange (ASX code: CMW).
SECURITIES REGISTRY:
Link Market Services Limited
Level 21, 10 Eagle Street
Brisbane QLD 4000
TEL: +61 1300 554 474
FAX: +61 2 9287 0303
WEB: www.linkmarketservices.com.au
AUDITOR:
Deloitte Touche Tohmatsu
Level 23, Riverside Centre
123 Eagle Street
Brisbane QLD 4000
TEL:
WEB: www.deloitte.com.au
+61 7 3308 7000
171
CROMWELL PROPERTY GROUP I 2019 ANNUAL REPORT