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Summary
- The property market has undergone a severe change due to COVID-19 outbreak and the lockdown imposed across Australia.
- Property companies have resorted to cancelling and deferring distribution guidance, as well as suspending earnings guidance.
- Cromwell Properties has decided to pay its shareholders distribution for the quarter ending June 2020.
- Cromwell also looks forward to continuing its strategy of “Invest to Manage”.
The global economy and commercial real estate markets across various economies, have seen varying degrees of unprecedented uncertainty and dislocation due to the COVID-19 pandemic. Governments across the globe have been trying to mitigate the impact of COVID-19 through various schemes and stimulus packages. However, the companies in the property segment are feeling the intense heat from the growing worries around COVID-19 and delays in rebooting of the operations.
A lot of property stocks listed on ASX have withdrawn and many deferred their distributions and financial guidance while struggling with liquidity and cash management challenges.
Real estate investment trust, BWP Trust (ASX:BWP) had withdrawn its distribution guidance for the FY2O ending June 2020, with acceleration in the impact of COVID-19 throughout the sector and the economy as a whole. According to an update, provided by the Company in the month of March 2020, BWP had robust balance sheet and debt position standing at $129 million of cash and committed undrawn bank facilities available.
Moreover, another Australia based real estate investment trust, Shopping Centres Australasia Property Group (ASX:SCP) had also withdrawn its distribution guidance, as well as the forward-looking statements in the month of March 2020 due to the uncertainty surrounding the impact and duration of the COVID-19 pandemic.
Further, in order to strengthen its balance sheet and provide funding flexibly to continue to deliver on its strategy of investing in convenience-based supermarket-anchored centres, SCP completed a Unit Purchase Plan (to raise $50 million) together with an institutional placement (to raise $250 million).
Vicinity Centres (ASX:VCX) has also determined not to pay any distribution for the six months ending 30 June 2020 due to the impact from a number of factors, including VCX’s profitability, retained earnings, capital requirements and available cashflow.
Also, on 2 June, the Company notified the market on successfully concluding a 100% underwritten placement of fully paid New Securities at price (offer) of $1.48/New Security (as previously notified on 1 June). The Placement obtained solid support of the current stakeholders and demand from new investors (potential) and ended up raising $1.2k million.
Moreover, the Company also withdrew its FY20 earnings and distribution guidance announced earlier in March, as it is not able to ascertain reliable earnings forecast in the current environment. More importantly, the Board of VCX may decide to cancel or defer previously announced distributions, and there is no guarantee that any distribution will be paid by Vicinity.
However, ASX-listed Property sector player, Cromwell Property Group (ASX:CMW) has decided to bite the bullet and pay the distribution for June 2020 quarter of 1.875 cents per security in full and in cash to its shareholders in line with its original guidance, as announced on 4 June 2020.
Moreover, the Company also suspended its distribution reinvestment plan in connection with the June 2020 quarter distribution citing several relevant factors. The Company has accessed that the security price of CMW is presently below the per unit NTA and believes that it is not in the interests of Cromwell’s security holders as a whole for securities to be issued under the DRP.
Let us look at the distribution strategy of Cromwell Properties in detail.
CMW Undertook Measures Against Potential Fallout
With the emergence of severity in the impact of COVID-19, Cromwell Property Group had taken several measures to ensure that Cromwell was insulated against potential fallout. Cromwell’s investment in systems, processes and people ensured that there was no interruption in its business, despite having its entire workforce working remotely.
Safety and wellbeing of its people and their families have been a priority for Cromwell to minimise and mitigate the commercial and financial impact of the current pandemic on the Company, and to safeguard the interests of its security holders and investors.
CMW Eyeing $670 Million in Cash and Available Undrawn Facilities
The Board of Cromwell Properties had taken prudent steps like drawing down undrawn lines to maximise liquidity and protect against potential bank default or changes in lending policy. Cromwell looks forward to maintaining $670 million in combined cash and available undrawn facilities on 30 June 2020.
The Board and Management have been ensuring that the impact of COVID-19 was monitored, and appropriate actions were implemented while maintaining careful management of expenses, reprioritising non-essential and flexible expenditure, freezing non-critical hires. The Company reviewed all non-essential projects and initiatives across the organisation and that all expenses were tightly managed.
The Company strongly believes that the existing infrastructure, including systems, processes, people and regulatory approvals and licences, will be able to support strong growth in funds under management when the crisis abates.
Cromwell’s business operated at full capacity, with minimal disruption to its services. Its performance over the last few months has reinforced the resilience of the business and the optimism that it will continue to perform as markets recover.
As of now, it is difficult for businesses to project the exact impact of the COVID-19; however, Cromwell believes that its business is well-positioned to navigate through this period of uncertainty and benefit with improvement in market conditions. The Board’s optimism lies on 44% of gross passing rent coming from government sources for Cromwell in Australia.
Continuity in CMW’s Strategy
CMW would keep on executing its ‘Invest to Manage’ strategy, though at a more measured pace due to the impact of COVID-19 on market activity, willingness of investors to deploy capital in uncertain times and their ability to inspect properties. Moreover, the Company had taken the following initiatives:
- Settlement of the sale of a 50% stake in 475 Victoria Avenue, Chatswood on 21st May 2020 for $120 million to a BlackRock managed private fund and entered a joint venture association with BlackRock for the expansion of the asset.
- Pause in negotiations with capital partners for 400 George Street, Brisbane until travel restrictions wipe out and the building is 97% occupied with government tenant-customers offering 72% of gross passing income.
- Several Federal Government tenders are outstanding, out of which success to anyone would significantly boost CMW’s exposure to AAA-rated tenant-customers.
- Achieved Practical completion and handover of the first stage of Greenway Views to LDK on 15th May 2020 and sales are on track with 51 apartments sold and deposits been received for an additional 19 apartments in Stage 2.
Currently, CMW is in negotiations with several tenant-customers on the potential for restructuring leases in situations where there has been a significant impact on the business and capacity to meet lease obligations.
Around $8.2 million (just 3.7% of total rent receivable in FY20) in rental income has not been paid for the months of March, April and May 2020 and the Company does not anticipate providing abatements on material leases.
Post the announcement, the CMW stock moved up by 4.192% intraday on 04 June 2020, closing at a price of $0.87, with a market capitalisation of $2.18 billion.
(Note- All currency reported in AUD unless otherwise stated)
