Home Archives for kaitlyn.chivers@cromwell.com.au

May 14, 2025

An inside look: Transforming office spaces

We often showcase the impressive results of office fitouts conducted by Cromwell within our assets, which help secure rental income by driving tenant retention and attracting new tenants. But what does the fitout process actually involve? Cromwell combines a unique blend of tenant focus and expertise, backed by a strong track record of managing and delivering complex refurbishments and integrated tenant fitouts. We collaborate with multiple stakeholders to ensure projects are completed on time, within budget, and to the highest specifications.

In this edition, we sit down with the architects from Gray Puksand, along with our dedicated Development and Leasing teams, to delve into the processes behind the Cromwell office fitout. Cromwell occupies two floors in the Cromwell Direct Property Fund’s 100 Creek Street asset in Brisbane.

What were the initial steps involved in a fitout project?

Brendan Sim, Cromwell Development Manager: We begin our fitout projects by thoroughly understanding the tenant or prospective tenants’ requirements through a series of meetings and workshops. In this case, the tenant, Cromwell wanted a post-COVID workspace that was comfortable, inclusive, functional and timeless to minimise need for future refurbishment. Key requirements included fostering in-office collaboration, creating areas for different types of work, ensuring accessibility and incorporating sustainable practices. Flexibility for future growth and reconfiguration was also essential.

With these requirements in hand, we created a comprehensive project brief and conducted a competitive design and construct tender process, ensuring that the selected contractor had the expertise to meet both budgetary and sustainability goals. Gray Puksand was chosen as the architect. From there, we collaborated closely with both contractors to refine the design, ensuring it met all the tenants needs and goals. This collaborative approach is crucial to efficiently addressing challenges and ensuring a fitout project’s success.

Since 2010, Cromwell has applied the Soft Landings Framework to ensure long-term performance and tenant-focused outcomes. This framework involves engaging stakeholders to critically appraise design and construction, delivering solutions that meet user needs and provide support through all phases of use. Key consultants, contractors, and suppliers commit to an aftercare plan beyond project completion, ensuring ongoing responsibility and interest in the project’s success.

How did you integrate a new way of working into the design?

Maria Correia, Gray Puksand: In answer to the brief, we introduced the “Cromwell Lifestyle” concept. This concept embodies a curated experience that connects people, spaces, and technology, promoting community, wellbeing, and learning. Central to our approach was a deep understanding of Cromwell’s post-COVID needs and values.

The inclusion of native plants, natural light, and a light colour palette created a sense of place that felt authentically Queensland. We addressed diverse user needs by incorporating varied settings, such as collaborative zones, focus rooms, a sunroom, a library, wellness rooms, and a multifaith room. This allows staff to find spaces that suit their work styles, enhancing productivity and comfort.

The emotional aspect of our design drew inspiration from residential and hospitality spaces, creating environments that felt special and encouraged staff to engage. By blending functional and emotional elements, we crafted a workspace that not only met but exceeded the brief, fostering a strong sense of belonging and culture among staff.

By blending functional and emotional elements, we crafted a workspace that not only met but exceeded the brief, fostering a strong sense of belonging and culture among staff.

What were the key challenges and successes of the project?

Brendan Sim, Cromwell Development Manager: We are proud of our track record of delivering projects on time, to scope and to budget. Despite having four separate contractors working simultaneously within the building, we delivered the project under budget and handed it over early.

Cromwell is a strong believer in integrating ESG principles into every aspect of our operations. With this project, we aimed to create a pinnacle example of what we can achieve on behalf of tenants and are proud to have met an extensive list of goals.

We prioritised reuse and refurbishment wherever possible to reduce fitout costs, waste and embodied carbon, recycling 92 workstations and 132 desk chairs from our existing fitout and purchasing second-hand desks and chairs from marketplace for focus rooms. The existing intertenancy staircase was refurbished and reclad. We achieved a 96% waste diversion from landfill, including the removal of the existing fitout to make way for the Cromwell fitout and ensured a fully electric site with no use of fossil fuels.

We understand that ESG encompasses more than just environmental impacts. We achieved a 50:50 gender diversity across the project delivery team and 3.75% First Nations procurement based on contract value. Furthermore, 84% of the work was completed within 7 am – 5 pm, Monday to Friday, which is more socially sustainable for people working on-site.

Maria Correia, Gray Puksand: Sustainability was a cornerstone of the project. We used climate-positive materials and implemented energy-efficient LED lighting with sensors. Cradle-to-cradle certified carpets and refurbished workstations extend the workspace’s lifecycle, contributing to a regenerative circular economy. Our approach ensures durability, easy repair, and repurposing, reducing costs and waste.

How do you optimise a fitout design?

Brendan Sim, Cromwell Development Manager: When creating a fitout, we focus on using the space effectively. This is obviously important to a tenant so that they can get the most out of a space. For example, in the Cromwell fitout we transformed what would be a “dead” space – the back of house corridor – into a functional locker and storage area. We placed all meeting rooms and focus rooms at the buildings core, while positioning office desks, where staff would spend most of their time, around the perimeter of the space to ensure ample natural light throughout the day. Modularity throughout the fit-out design was a clear focus. This will allow meeting rooms or break out spaces to be amended efficiently to accommodate workstations pods or other break out spaces as the requirements of the business evolve over time, giving Cromwell the ability to grow within the current floorplate.

Maria Correia, Gray Puksand: As we move to the AI workplace and the uncertainty of what that will bring, prioritising the ‘human’ component of the workplace will be critical. The design acknowledges the diverse needs of the workforce, recognising that individuals have varying working styles and preferences. The workplace settings at Cromwell are thoughtfully designed to encourage collaboration and inclusivity, providing spaces for socialising and connecting. Additionally, areas like the library, sunroom, wellness room, multifaith room, and focus rooms cater to individual needs, offering retreats for focus and relaxation.

What are the current trends and cultural shifts in the office landscape, and how are these influencing your designs?

Maria Correia, Gray Puksand: Cultural shifts in workspace design have evolved significantly over the past few decades, driven by changes in work practices, technology, employee preferences, and broader societal trends. There are several trends emerging some of which we have integrated into the Cromwell workspace however with the rise of the AI workplace, I think moving forward it would be good to focus on the ‘human centric’ workplace trends outlined below.

Health and Wellness Focus

With the rise of workers health and wellbeing due to the stresses of work and the sedentary nature of desk work more and more business are embracing designs that prioritise employee health and wellness, including features like ergonomic furniture, biophilic design (integrating nature into the workspace), natural light, and spaces for relaxation. We integrated this design trend throughout the Cromwell workspace.

Employee-Centred Design

Employee feedback is increasingly being sought to shape workspace design. Cromwell undertook an extensive amount of consultation with their users to arrive at the brief. We then conducted some informal group interviews to further understand user’s needs. This “user-centric” approach allowed us to all consider the preferences, needs, and behaviours of employees, fostering a sense of ownership and satisfaction. This collaborative design process informed our design approach to create open spaces for group gatherings e.g. breakout / town hall and quieter more intimate social spaces e.g. library.

Work-Life Integration

Work-life balance was often viewed as a separate concept from work, with offices being places where work and personal life were strictly separate. Modern workspace designs are focused on work-life integration, offering amenities that make the office a more comfortable and accommodating place to work, such as wellness rooms, daycare facilities, or even spaces for socialising. Our Concept of ‘The Cromwell Lifestyle’ begins to bring to life this Work-life integration to help users balance personal and professional responsibilities, leading to higher job satisfaction and engagement.

How does the fitout help with leasing activity at 100 Creek?

Stephen Rutter, Cromwell National Manager Project Leasing: We tailor our leasing strategy to each building by listening to tenants, staying attuned to market trends, and developing spaces accordingly. At 100 Creek Street, our approach includes a mix of cold shells, warm shells, and speculative fitouts when marketing spaces for lease.

Cold Shell: A blank canvas that allows tenants to customise the space to their specific needs.
Warm Shell: Provides a head start with some basic infrastructure in place.
Speculative Fitout: A plug-and-play solution, ideal for tenants without a dedicated team to manage a new fit-out, making it easier for them to move into a new tenancy.

The fit-out has significantly enhanced the appeal of 100 Creek Street. We walk prospective tenants through the space to showcase the building’s flexibility and the high-quality office fit-outs that can be achieved.

The fit-out serves as an excellent example for prospective tenants interested in cold shell spaces, demonstrating the transformation from a blank canvas to fully functional offices that meet modern working demands. This project has set a new benchmark for office spaces in the area. Combined with the Business Hub, an important facility for tenants—particularly small-to-medium tenants—who wish to use boardroom or training facilities but don’t have access to these as part of their own tenancy, and the local amenities, it makes 100 Creek Street a highly desirable location.

As of March 30, 2025, 100 Creek Street boasts a 94.2% occupancy rate.

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May 14, 2025

Stock in Focus – Nam Cheong Limited

Jordan Lipson, Portfolio Manager of the Cromwell Phoenix Global Opportunities Fund

The Cromwell Phoenix Global Opportunities Fund added 2.1% in absolute terms over the March quarter, outperforming global indices large and small. Nam Cheong Limited (NCL) was the biggest contributor, rising meaningfully as investors become more comfortable with its post-bankruptcy future. This article delves into NCL’s journey, its strategic partnerships, and the factors contributing to its compelling risk/reward opportunity.

Almost 70 years ago, a 14-year-old Tan Sri Datuk Tiong Su Kouk (Tan Sri) was given 3.40 Malaysian Ringgit (less than AUD 2) to start a career as a fishmonger. A hard work ethic and a focus on customers ensured early success. In his 20s, Tan Sri saw the benefits of technology from Japan, in particular the newly discovered food freezing technology. Malaysians were initially unwilling to trust that frozen food would be edible, so Tan Sri gave out frozen food for free to convince customers to buy his produce. This innovation led to the creation of CCK Consolidated, a vertically integrated leader in frozen foods in Malaysia, which is still in business, controlled by Tan Sri and listed on the Malaysian Stock Exchange. Staying close to the seas, Tan Sri subsequently partnered with Chinese shipbuilders to start a business known as Nam Cheong Limited (NCL).

NCL today is the owner of 36 offshore support vessels (OSVs) which service the Malaysian offshore energy sector. Running NCL has been anything but smooth sailing. The company built and acquired as many boats as it could during the last offshore drilling boom, heavily relying on debt, much like others in the industry. This business is exceptionally cyclical and NCL was forced to initially restructure its debt in 2018 to meet payments to creditors. Whilst business was hardly thriving, things somewhat steadied, until the COVID-19 pandemic caused oil prices to retreat and cripple the OSV business.

This led to NCL declaring bankruptcy. Share trading was halted, and negotiations began with lender banks. With a recovery on the horizon, after meaningful negotiations, the final restructure agreement was signed and approved on 1 March 2024. Under the terms of the deal, much of the debt would be converted to equity, Tan Sri would provide more capital to the business in return for new equity, and the remaining debt would be converted into “equity friendly” liabilities, to be repaid over an extended period at below market interest rates.

Phoenix in the Market

Phoenix has followed the OSV market for some time, with the domestic Cromwell Phoenix Opportunities Fund initially investing in MMA Offshore (MRM). This investment was a significant contributor to performance as it eventually received a takeover bid at a robust valuation. This portfolio has also successfully invested in industry leader Tidewater (NYSE:TDW) previously. Both these investments provided relevant background for assessing NCL upon its restructure and eventual relisting on the Singapore Stock Exchange. In particular, valuations could be more precisely assessed using the independent expert’s report associated with MRM’s takeover.

What happened next?

Upon relisting, NCL’s shareholders included the banks who had converted their debt to equity, prior NCL investors who had been diluted and were forced to hold their shares through bankruptcy for 4 years and Tan Sri, who was unlikely to trade his shares. Unsurprisingly, the banks were large scale sellers upon relisting, trying to recoup some of their investment as quickly as possible. Furthermore, any potential buyers would have to assess both complex financial statements and detail provided in the bankruptcy documents to gain an understanding of the current state of the NCL business.

Despite the rocky history, the truth was that business was booming. As a result of the cyclical downturn in the sector, the number of OSVs in operation had shrunk materially and there was no prospect of any new vessels being built, given that day rates were less than half of what was needed for newbuilds to break even. Further aiding NCL is Malaysian law, which preferences Malaysian-flagged vessels for Malaysian offshore activities, which are dominated by state owned enterprise, Petronas, which has increased activity in recent periods. NCLs fleet is also (almost incomparably) young at just over 7 years old. NCL’s current financials are encumbered by existing contracts, which were set at historic day rates. Profitability is likely to improve when these contracts conclude, and pricing is reset at current market rates.

Upon relisting, NCL traded at less than SGD 0.15 per security. Sadly, we missed this initial opportunity, however after assessing the detail of the transaction, we initially purchased a stake in NCL at SGD 0.365 per security. Using somewhat conservative estimates, NCL’s market net asset value (NAV) was assessed to be at least SGD 1.30, making this opportunity appear highly attractive. It is worth noting that NCL is not at all promotional, continues to have (temporarily) complex financials, and does not provide market updates beyond legal requirements.

Tan Sri does however have a history of solid governance and has demonstrated care for stakeholders, so we were happy to partner with him over the medium term as NCL’s value became evident. This has occurred more rapidly than anticipated, with NCL finishing the period at a share price of SGD 0.66. We sold some of our holding in NCL during the quarter as the risk/reward proposition has now become less compelling and to limit position sizing given the volatile nature of the OSV sector.

Cromwell Global Opportunities Fund

Value of $100 invested at inception

Past performance is not a reliable indicator of future performance

Conclusion

At period end, NCL remains a top 5 holding as it continues to trade at a substantial discount to NAV. Recent market updates have been mixed, with the global OSV industry somewhat slowing due to the decline in the oil price. However, Malaysian competitor Keyfield Services recently released a strong result and provided an optimistic outlook statement. In particular, Keyfield stated “based on supply and demand analysis of OSVs in Malaysia, there will be a critical shortage of AHTS < 80MT beyond 2030, unless owners acquire new vessels”. These vessels represent the majority of NCL’s NAV. There is no doubt NCL operates in a cyclical industry which has seen countless bankruptcies over time, so an investment is not without risk. However, with a young fleet, market tailwinds, extremely shareholder friendly debt and an aligned controlling shareholder, NCL still represents a compelling risk/reward opportunity.

Cromwell Global Opportunities Fund Performance

For more in-depth performance commentary on select undervalued international securities, sign up to the Cromwell Global Opportunities Fund quarterly update!

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April 29, 2025

March 2025 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index fell 6.6% over the March quarter under-performing the broader equity market, despite all the geopolitical tensions gripping investors’ minds.

The benchmark is dominated by Industrial heavyweight Goodman Group (GMG), which performed poorly over the quarter, closing down just over 20%. For more on GMG, see the Performance Commentary section of the latest quarterly report. Sticking with the Industrial sub-sector, while a very different investment proposition to GMG, recently listed DigiCo REIT, with its focus on digital infrastructure including data centres was also a very weak performer, down 32.6%. There is little doubt around the demand for ever increasing data centre capacity, but we also expect a significant supply response around the world, and like all things technology related, making long term forecasts is difficult. Anchored by more traditional industrial sheds, both Dexus Industria REIT (DXI) and Centuria Industrial REIT (CIP) posted positive returns of 2.0% and 3.6% respectively. CIP comprises 87 high quality assets, located in core urban infill markets and delivered like-for-like income growth of 6.4% for the first half of the 2025 financial year. The stock is benefitting from striking new leases at material premiums to expiring leases. That premium averaged 50% for the 7% of the portfolio that re-leased during the 6 months to December 2024. CIP closed the quarter at a 25% discount to its underlying book value and is well held in the Fund.

Office property owners saw a rebound from the very weak December quarter, with Dexus (DXS) up 6.3%, Centuria Office REIT up 4.6% and Mirvac Group (MGR), which holds an office-heavy investment portfolio up 11.5%. Other office names were more subdued with Abacus Group (ABG) and Cromwell Property Group both posting less than 1% falls. There is growing chatter, along with some fundamental improvements in office metrics, that the turning point in office markets is close. Depending on your perspective, it seems that owners of quality prime assets such as MGR are in the “flight to quality” camp, while owners of a wider range of office assets point to a “flight to value”. Phoenix has a blend of exposures to the office sector but is predominantly in the young and prime end of the market where cashflows look strongest.

Among the larger style shopping centre owners, Unibail-Rodamco-Westfield (URW), which owns Westfield branded centres in the USA, UK and continental Europe rose 10.3%. URW has a December year-end, so the results announced in February were for the full year. Tenant sales were up 4.5% and footfall up 2.6% over the prior year. The company also made a somewhat surprising announcement to retain its exposure to its US assets, having previously indicated a “radical reduction” in that geography. Scentre Group (SCG), owner of the domestic Westfield-branded malls, did less well and posted a small positive return for the quarter. Interestingly, SCG is looking to rezone many of its vacant land sites around its malls, having already received rezoning approval at Westfield Hornsby in Sydney and Westfield Belconnen in Canberra that now provides the opportunity for large scale residential development at both sites. Vicinity Centres (VCX) and Charter Hall Retail REIT produced solid returns over the quarter, up 7.6% and 13.7% respectively.

Property fund managers showed huge variation in outcomes over the quarter. Aside from GMG referred to elsewhere, Qualitas Limited (QAL) which focuses largely on real estate debt products, closed down 12.2%, Centuria Capital closed down 10.4%, while at the other end of the spectrum was Charter Hall Group (CHC) which closed up 12.8%. With asset values stabilising, and strong inflows via the wholesale partnerships channel, CHC upgraded guidance for the full year and now expects to deliver earnings growth of approximately 7%.

Market outlook

The listed property sector is in good shape and provides investors with the opportunity to gain exposure to high quality commercial real estate at a discount to independently assessed values. While share market volatility may be uncomfortable at times, the offset is liquidity, enabling investors to rebalance portfolios without the risk of being trapped in illiquid vehicles.

Rising interest rates have been a headwind for many asset classes, with property, both listed and unlisted, a particularly interest rate sensitive sector. In February, the Reserve Bank of Australia made its first cut to the cash rate target since November 2020, heralding a more buoyant environment for the property sector. The February reporting season also saw stocks providing solid updates, valuation stability and an expectation of liquidity returning to the property transaction market. Long term valuations are driven by “normalised” interest costs, meaning the impact of short term hedges maturing is mostly immaterial. Should current expectations for further interest rate cuts eventuate, the sector should perform well.

The industrial sub-sector continues to be the most sought after, given the tailwinds of e-commerce growth, the potential onshoring of key manufacturing categories and the decision by many corporates to build some redundancy into supply chains to cope with current disruptions. All of these factors are contributing to ongoing demand for industrial space, which has been evidenced by rapidly accelerating market rents and vacancy rates at historic lows of around 2% in many markets. While rental growth has recently cooled, construction costs remain elevated making additions to supply difficult and thereby prolonging robust conditions.

We remain cognisant of the structural changes occurring in the Retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving higher. It is interesting to note the juxtaposition of very high retail sales figures despite very low levels of consumer confidence, no doubt impacted by rising costs of living. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants.

The jury is still out on exactly how tenants will use office space moving forward, but demand for good quality well located space remains solid and there is growing momentum from companies to get staff back into the office. Leasing activity is beginning to pick up, and transactional activity is also returning, with discounts to book values materially reduced. Incentives on new leases remain elevated.

We expect to see limited further downside to asset values in office markets but elsewhere expect market rent growth to largely offset cap rate expansion, particularly in industrial assets. Listed pricing provides a buffer to such movements.

The content above is taken from the Cromwell Phoenix Property Securities Fund quarterly report. Sign up here to be the first to access the latest report and to gain a deeper insight into the Fund’s performance.

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Learn

An inside look: Transforming office spaces

What were the initial steps involved in a fitout project?

How did you integrate a new way of working into the design?

What were the key challenges and successes of the project?

How do you optimise a fitout design?