This article is from the Australian Property Journal archive
INVESTORS have rebuked Cromwell, with 30.98% voting against the board’s remuneration at the annual general meeting.
The first strike was made by institutional investors and comes after a rollercoaster year for Cromwell which includes the unsuccessful takeover of Investa Office Fund (IOF), abandoning the initial listing of its European REIT in Singapore and later relaunching a scaled down version, and a weaker full year operating profit of $152.2 million in FY17 – down from $164.5 million in FY16.
Under ASX rules, if 25% or more votes are cast against the adoption of the remuneration report at two consecutive AGMs, it would trigger a spill of all board positions.
Cromwell told Australian Property Journal in a statement that, “Cromwell Property Group (Cromwell) takes all decisions involving executive remuneration seriously with securityholder interests always at the forefront of our considerations.
“We acknowledge the feedback with regards to this resolution. We will review the feedback and market and peer best practice in order to identify appropriate next steps.”
Investors voted against the board’s pay despite CEO Paul Weightman highlighting that Cromwell’s 9.83% investment in IOF generated a healthy profit, realising an internal rate of return of 18%.
“Investa offered us a way to invest in the Sydney office market. However, with a new development cycle beginning to emerge, the opportunity to make a profit depended on not just the offer price, but also having sufficient time to reposition and recycle assets to extract value, and with a decreasing window in which to do so.
“As our offers were rebuffed, the dataroom closed and access to the buildings refused, it became obvious that it wasn’t going to matter what price we offered. We subsequently decided that the best way forward was to realise our profit and reinvest the proceeds elsewhere,” he added.
Cromwell’s stoush with IOF was very public, with both sides trading blows out in the open.
Chairman Geoff Levy said that despite the misinformation and speculative rumours, “Cromwell conducted itself in accordance with its values, maintaining a principled stance with a clear focus on creating securityholder value.”
Meanwhile Weightman said risks remain elevated in the global economy and markets.
He also highlighted concerns surrounding asset prices in the event that interest rates increase.
“Within Australia, we are likely to see continued moderate economic growth and low inflation in the short term. Business investment is showing some signs of life and while the next move in interest rates is likely to be up, the timing of any move is uncertain.
“I don’t have to remind anyone that any increase in rates will put pressure on asset prices.” Weightman warned.
His comments echo that of Opteon associate director – commercial and API spokesperson Nick O’Brien who in July this year warned that a low rate environment is far more dangerous than high interest rates.
In the Australian Property Institute Opteon Commercial Market Outlook report, he said it would create an increasing debt service rate and cause a repricing of assets, and the equity wedge the investor had will be squeezed from two directions – the higher debt servicing and the price readjustment, which would in turn put pressure on rental growth to make up part of that gulf.
“An upward movement in the cash rate would translate into a general readjustment through the property market – no sector would be unscathed,” O’Brien said.
Australian Property Journal
