This article is from the Australian Property Journal archive
THE battle between Cromwell and its largest shareholder ARA Asset Management has intensified with ARA proposing to acquire a further 29% stake in the real estate fund manager, arguing that Cromwell’s strategy is failing.
Cromwell labelled ARA’s proportional takeover bid to acquire 29 out of every 100 stapled securities for $0.90 per security, as unsolicited and opportunistic and advised investors to take no action.
“Cromwell notes the unsolicited and opportunistic nature of the proportional offer and that the proportional offer is not an offer to acquire all securities held by securityholders in Cromwell. Cromwell will provide a further announcement in due course when it has evaluated and assessed the terms of the proportional offer.” Cromwell said in a statement.
ARA is the largest securityholder in Cromwell with a holding of 24.0%. CEO John Lim said ARA has been left with no choice but to pursue this course to try and restore value for the benefit of ARA and all security holders in Cromwell.
“We seek change based on our strong belief that the existing Cromwell strategy is failing and exposing our investment to unacceptable risks. This is magnified by poor cost control by management, at times inexcusable largesse, and weak corporate governance,” Lim said.
“Among several reasons, including as a result of a lack of proprietarial oversight, Cromwell security holders have suffered from continued operational underperformance. This is evident by a number of factors including significant deterioration in Cromwell’s operating EPS that dropped every year between FY17 and FY19 despite strong rental growth and capital appreciation in the commercial real estate markets during the same period.
“A material 13.1% reduction in distributions per security from 8.34cps in FY17 to 7.25cps in FY19;
“Increased debt on a reported basis to the top of the board’s target gearing range of 30-40%, while look-through gearing is materially above this range, with leverage used to fund the acquisition of high risk Polish retail assets.
“A poor international track record with continued investment into the European property market at the expense of investing in one of the best commercial property markets in Australia’s history. For example, management has used shareholder funds to acquire Valad Europe for $208m with transaction goodwill of $143m subsequently written off within 3 years of the acquisition.
“And acquire, on balance sheet, a portfolio of Polish shopping centres for close to $1 billion which is now likely subject to significant value reduction,” he added.
Lim said despite the poor performance in Cromwell, corporate costs have ballooned by 48.3% and CEO’s statutory remuneration increased by 34.1% from FY18 to FY19.
“In addition, we are yet to see any announcement around reductions in compensation by Cromwell’s management team or board of directors that has prevailed amongst many of Cromwell’s ASX listed peers during COVID-19,” he continued.
The Cromwell and ARA stoush has been playing out publicly since last year after ARA sought to appoint its representative Gary Weiss to the Cromwell board.
In March Weiss failed to secure a seat on the boast for the second time, after narrowly missing out in November last year.
Cromwell previously argued that Weiss was not a suitable candidate to join its board because of his involvement with Ardent Leisure and Estia Health, both ASX-listed companies facing their own unique challenges.
At the time, Cromwell said: “Cromwell welcomes Dr. Weiss’ belated acknowledgement of his over-boarding. However, Dr Weiss remains Chair of Ardent Leisure and Estia Health, companies which are each dealing with significant corporate issues, including fighting a class action, potential criminal prosecution under Queensland workplace laws, and the aged care royal commission. Including these two very challenging chairmanships, Dr Weiss will continue to hold the equivalent of eight director appointments.
“It is troubling to Cromwell’s board and many securityholders that ARA continue to insist Dr Weiss is the only suitable candidate to sit on Cromwell’s Board. A reduction from nine to eight appointments still makes Dr Weiss one of the most over-boarded directors in Australia. The flippant comment that he ‘doesn’t play golf’ is, in Cromwell’s view, concerning given ARA’s steadfast refusal to require an alignment with best practice corporate governance standards expected by Australian investors.”
