I would now like to hand the conference over to Mr. Gary Weiss, Cromwell Chair. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining us today for Cromwell Property Group's Annual Results for the Financial Year Ending 30 June 2025. I open today's presentation by acknowledging the traditional custodians of the land from where the call is being hosted, the Gadigal people of the Eora Nation. We pay our respects to their elders past and present. During the 2025 financial year, we made significant progress in simplifying the business and strengthening our financial position. The successful sale of non-core assets, including the European platform and associated investments offshore, marks a major step in streamlining our structure and, as a result, significantly reduced group gearing. Today, we farewell Rob Blain from our board, although he will stay on in an advisory capacity. Cromwell has elected not to replace Rob in order to align the board structure with the group's streamlined operational model. We thank Rob for his outstanding service, leadership, and contributions to Cromwell's transformation. ESR's exit from Cromwell's investor register was expected, with the group deeming their investment to be non-core in early 2023. Their exit will help to promote increased liquidity and further diversification across the register, both of which should benefit Cromwell's trading price. Cromwell is now well-capitalized and firmly focused on the Australian and New Zealand markets. With capital ready to deploy, we're ready to pursue value-accretive growth opportunities as the market becomes more active. We're optimistic about the road ahead with a clear path forward. Over the next financial year, our focus will be on delivering that growth, underpinned by secure income streams for our security holders. I now pass to Jonathan to speak more about the financial year that's just ended.
Thank you, Gary, and good morning to everyone on the call today, and thank you all for dialing in. As Gary mentioned, we've had an eventful year. These events are highlighted on slides four and five. Following the completion of $1.6 billion of asset and business sales, the Cromwell business has been greatly simplified. Cromwell now manages $4.2 billion of assets in Australia and New Zealand, underpinned by a secure, stable income stream. This strong foundation allows the group to provide distribution guidance for the first time in several years, expected to be $0.03 per security for the 2026 financial year. We are executing on our Australian growth strategy. The Barton, our ACT development, announced in July, provides an attractive asset for our funds management business with a 15-year pre-lease agreement with a Commonwealth government entity and impeccable sustainability credentials. Cromwell's investment portfolio occupancy is leading the sector at 97.6%, with positive strides in reducing listed risk over the prior 12-month period. Income from the investment is stable, with 69% derived from government, Qantas, and Metro Trades. Cromwell has a solid platform and is in a strong financial position to move forward. Our platform gearing remains low and is expected to be 28.2% following the sale of our Chatswood asset. We have $504 million in available liquidity to support our growth pipeline. In May and June 2025, ESR sold their stake in Cromwell in two tranches. An initial 10.8% was sold through a book build to multiple institutions and sophisticated investors. The second tranche of 19.9% was sold through an off-market sale to Brookfield. We believe the sell-down process reflects positive interest in Cromwell's platform, strategic direction, and value proposition. On slide seven, we call out some of the group's ESG highlights, and we're proud to share several key achievements across the group. We achieved an 11% reduction in absolute emissions, reflecting our continued commitment to environmental performance. Scope two net zero targets were achieved, marking a significant milestone in our decarbonization journey. Our renewable energy target was met, supporting our transition to cleaner energy sources. High NABERS ratings were maintained across both the investment portfolio and Cromwell Direct Property Fund, demonstrating strong energy efficiency standards. The launch of Cromwell's Reflect RAP shows our commitment to building a cultural awareness and long-term relationship with our First Nation communities. Our governance framework remains a core strength, deeply embedded across all areas of Cromwell's operations, ensuring transparency, accountability, and long-term operational excellence. I will now hand over to Michelle to review the financial performance of the year to 30 June 2025.
Thanks, Jonathan. Turning to slide 10, Cromwell reports today operating profit of $108.6 million, driven primarily by the strong ongoing performance of the investment portfolio. This number is 20% lower than FY24 due to the European exit and a one-off fee received in relation to Campbell Park in FY24. The group reports funds from operations of $105.7 million, which is equivalent to $0.04 per security. The payout ratio to FFO is 74.2%, up on FY24 of 59.8%. Net tangible assets are $0.56 per security, with the fall from last June driven mainly by a fall in fair value of $97.4 million to properties in the investment portfolio in the first half of the financial year. Encouragingly, the value of the investment portfolio rose by $3.5 million in the second half of the financial year. We see this as a sign that the broader market has found a bottom for this cycle. As you can see from this chart on slide 11, Australian earnings remain strong, with income from the investment portfolio up from FY24 at $157.4 million and earnings from funds management at $8.4 million. The exit of the European platform impacted overall group earnings, but it leaves the group with a clean balance sheet and firepower for growth. Corporate costs are down by 14.5%, and net financing costs are down 40% over the financial year. Outlined on slide 12, gearing is expected to be 28.2% following the sale of our share of the Chatswood asset, down significantly from 38.9% only 12 months ago. Group net debt has been reduced by 68% since the group's asset sales program commenced in 2022. As you can see from the chart on the left of slide 12, gearing is now below the group's target range of 30% - 40%. The group has liquidity of $504.3 million, providing strong capital reserves to support investment in value-accretive growth opportunities. Turning to slide 13, in June 2025, we successfully renegotiated our bilateral debt facilities, securing more favorable terms, greater flexibility in covenants, and extended duration. As a result, Cromwell's weighted average drawn credit margin has improved significantly, down from 1.77% to 1.31%. This reflects the group's strengthened financial position, underpinned by a materially lower net debt and gearing limits. Our weighted average cost of debt remained broadly stable over the financial year, sitting at 4.9% over the year to 30 June 2025. The debt expiry in FY26 relates to the Chatswood Joint Venture, which we expect to complete in late September 2025. Debt expiry in FY27 and FY28 are well within manageable levels. Cromwell's hedging remains well within our target range, using option contracts as part of the hedge group to benefit from interest rate cuts as they occur. I'll now hand to Rob to review the investment portfolio and funds management performance.
Thanks, Michelle. Good morning, everyone. I'll start with Cromwell's investment portfolio. As Michelle mentioned, valuations appear to be stabilizing across the market, with external valuations for our portfolio up $3.5 million for the second half of the financial year. Occupancy is 97.6%, the highest of our peer group, and has improved by 3.5% over the 12 months to June. The group leased over 51,000 square meters of space during the financial year, including signing a new 19,800 sq m lease to the Commonwealth Government and our development in Barton, ACT, which, as Jonathan mentioned, we believe will be an attractive future funds management product. Weighted average lease expiry by income sits currently at a healthy five years. As you can see on slide 17, the tenant mix across Cromwell's investment portfolio continues to be strongly weighted towards government, providing a solid foundation of secure rental income. Our top five tenants, the Commonwealth Government, the Queensland Government, the New South Wales Government, Qantas, and Metro Trades contribute 69% of total portfolio income. Alongside these, we are supported by a diverse range of other tenant types, ensuring healthy tenant diversification and resilience across the portfolio. Cromwell's integrated leasing and property management teams have done an outstanding job enhancing our assets. By reworking space to support tenant engagement through learning hubs, meeting rooms, and breakout areas, we've created environments that not only serve our tenants' needs, but can also be leased to deliver added value. These initiatives, along with lobby pop-ups and other targeted tenant activations, have contributed to a strong uplift in satisfaction. We are proud to report an overall tenant satisfaction score of 90, up from FY24 and well above the industry benchmark. Cromwell's lease expiry profile continues to strengthen year -on -year, as you can see by the lease expiry profile on slide 18. At 400 George Street in Brisbane, we have a heads of agreement in place for five floors, which accounts for 55% of total portfolio FY26 expires. This is to a government-funded group, further reinforcing the portfolio's income security. A key near-term focus area is 207 Kent Street in Sydney, where we're confident interest from prospective tenants will grow, particularly following the launch of the new tenant-exclusive co-lab space. It's a compelling addition that enhances the building's appeal and supports our leasing strategy. On slide 20, as we announced in July, we've officially kicked off our first growth project, the development of a new building in Barton, ACT, for a Commonwealth Government tenant. When the time is right, we intend to bring in third-party capital and move the asset into our funds management business. The government has committed to a 15-year lease with an option to extend for a further five years. The building will be just under 20,000 sq m , fully electric, and designed to achieve six-star environmental ratings. We're targeting completion in 2027. Turning to our funds management update on slide 22, Cromwell manages third-party funds of $1.3 billion across six separate funds. The Cromwell Direct Property Fund, being the largest, is valued at $537 million and manages six direct assets and two investments into other Cromwell funds. Leasing across the assets and CDPF remains positive during the financial year, with space leased totaling just under 10,000 sq m . CDPF has strong occupancy of 96.6%, weighted to 56% to government and ASX-listed corporate tenants. During July 2025, CDPF held a full liquidity event, which occurs every five years. We expect to know the outcome of that event at the end of September 2025. If greater than 50% of unit holders wish to leave the fund, we will proceed to realize the assets and ultimately wind up the fund. This may take some time. The unit holders in the Cromwell River park Trust, which owns Energex House in Brisbane, voted to extend the fund term for a further term of up to two years to December 2026. This provides more time to allow us to achieve the best exit outcome for investors. I'll now pass back to Jonathan.
Our strategy remains focused on growing our fund and investment management platform, serving retail, wholesale, and institutional investors through the investment and management of traditional real estate assets. This growth will be driven through three key channels. First, we'll focus on organic growth by creating new funds and mandates. Second, we'll grow our existing funds, product, and assets through strategic partnerships and by leveraging our scale to boost returns. Lastly, we'll pursue opportunities to acquire or merge with other investment platforms, which will help us grow faster and expand our capabilities. We will remain focused on traditional sectors of office, logistics, and retail, given they fit well with our existing track record and provide scale, stable income, and opportunities for value creation through active management and repositioning. In the near term, we reaffirm our commitment to Cromwell' s growth in a disciplined, orderly, and value-accretive manner. We will deliver stable returns over the long term through prudent capital management, with targeted deployment of our balance sheet central to our strategy. A key part of this is maintaining high occupancy across our ports, which supports income stability and enhances asset performance. This approach ensures we remain resilient in changing market conditions while positioning the business for sustainable growth. As I mentioned previously, the group is providing distribution guidance for the first time in several years. Distributions are expected to be $0.03 per security for the 2026 financial year. Thank you for dialing in today to hear our group update. I will now hand back to the operator to open the Q&A portion of the call.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star and two. If you are using a speakerphone, please pick up your handset to ask a question. The first question comes from the line of Solomon Zhang with JP Morgan. Please go ahead.
Morning, Jonathan. Thanks for your time. Maybe a follow-up question for Michelle. Just on your corporate cost line, that's come down quite a bit year -on -year, and I guess even more so half and half. It seems like you're running at a run rate of just shy of $30 million per annum. It seems to be a bit less in terms of a corporate cost run rate than what you previously did do. Can you just talk through what has changed there and maybe provide a bit of a steer for 2026? Are there some further cost benefits to come through there?
Yeah, nothing wrong with your maths there, mate. The second half of the year was a bit over $14 million. You can probably double that and come up to a number that's close enough for what a normalized full year looks like. Headcount's come down quite a bit. We're sitting around about 118 people, down from a little under 150 a couple of years ago. Some of that had been happening over a period of years, but there was quite a few over the last year. That's mostly been in attrition. As people have been leaving, we haven't been replacing them. We've restructured a few teams, and there's been a few redundancies as well. We're obviously, you know, there's some corporate head costs that we were allocating to the European business, ballpark $4 million, so $3 million or $4 million. People here that were working on the European business, and that shows up in corporate costs now. We've been actively looking to reduce costs across the board. Most of it's headcount, but we're watching the pennies on everything. We're moving to one of our own buildings. While there's a payment cost staple, effectively, rent for us in the office will be free until we can move on with the growth trajectory that Jonathan was talking about, and we'll have a better idea of how big we're going to be in Sydney in the longer term.
Thanks. That's helpful. I appreciate you putting in The Barton development timeline and some additional details there. I'm just interested in when you'd be looking to bring in a capital partner in terms of that development timeframe. Can you touch on perhaps your early discussions with capital so far, Jonathan, and perhaps Rob?
We've been open to approaches and discussions for a while now, Solomon. We haven't had the right approach yet. I think we're going to start putting a little bit more effort into it this year, and we're kicking off a process now. We're really keen on getting the right partner, the right structure, rather than rushing it, because we're pretty confident we could sell it tomorrow if we wanted to. We're just looking for the right fit for our business.
Yeah, probably more of the 26 story at this rate.
I would be happy if we had, effectively by the end of this year, we'd done a deal by the end of this year. That would be, I'd be very close with that.
That's good to hear. Just on CDPF, I'm assuming that you have received all the liquidity requests. Could you talk through high level whether you're at risk of hitting that 50% level where you'd sort of be looking to wind up the fund?
Thanks, Solomon. I'll take that one. We have to do a full audit because obviously the implications of moving across this fee are very different to being under. We've got tallies through, but I can't comment on them at the moment. The audit is being done by our registry Boardroom, and you'll appreciate a lot of these are older investors that still submit paper copies. There's a fair bit of checking. We've already found a number of double ups. I can't really comment until the audit is complete, which will be end of September.
Right, that makes sense. You've done a good amount of leasing during this period and during this financial year. Could you just talk through some of the economics there, just releasing spreads, where incentives are sitting, perhaps just on your renewals as well as your new leases, I guess ex-The Barton?
Yeah, sure. The key one that we've done just recently, which really is the main one since the half year, was at 400 George. You'll recall there's two major expiry coming there, 2026 and 2027, being federal and then state government. In fact, what we've managed to do during the course of the half is lease effectively the vast majority of that federal government expiry, which is during FY2026. That's about 7,000 sq m, 7.,500 sq m . It's done on rental of about $9.95 growth and an incentive of just under 40% on a new 10-year deal. That really brings back the near-term expiry. I can go through, I think the last, the other big ones we talked about last time were obviously Bureau, which was done on a Melbourne incentive with over 50%. That was a 10-year push out and they were handing back around 6,000 sq m, 7,000 sq m of their 18. That handback doesn't actually come through till 2027. You'll see that in the upcoming expiry, which we're working on right now. A couple of the other main leases at HQ were done around this 40% incentives.
Very helpful. Thanks for your time, guys.
Thank you. Once again, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. There are no further questions at this time. With that, we conclude today's conference.