Property profile

The property is located in the heart of the South Australian capital and provides direct linkages to major transport routes, as well as connectivity to Adelaide’s premier retail precinct, Rundle Mall, and the grassy Hindmarsh Square. The parallel Pirie Street has also emerged as a leading entertainment, food and beverage destination for locals and visitors to the City of Churches.

The property façade was last upgraded in 2017 and features a steel structured lightbox fitted with contemporary LED lighting coupled with translucent panels. The lighting can be programmed remotely to adjust the colour, luminosity, and function of the lightbox, providing a striking visual appearance.

Inside the building, a double-height entrance lobby gives way to a working lounge and café, as well as a 7-metre feature green wall, fitted with engineered grow lights and an irrigation system. The foyer space provides quiet, sophisticated meeting spaces for tenants to use.

March 1, 2024

Actively managing our assets: 100 Creek Street, Brisbane

100 Creek Street, Brisbane was acquired in December 2021 on behalf of unitholders in Cromwell Direct Property Fund (DPF), and has been home to the global headquarters of Cromwell Property Group since January 2024.

Cromwell has an in-house property management team, with a full suite of property services, to maximise the performance of properties within our Funds.

In-building amenity

Creation of a Business Hub for tenants

The desire for more functional spaces has increased significantly since the end of the COVID-19 pandemic. As office building owners entice tenants to return to city CBDs, this collective need has been factored into making building more desirable. For example, business hubs provide 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.

Cromwell listened to our tenants’ needs and opened the 100 Creek Street Business Hub in late 2023. This space includes:

a 41 sqm Wi-Fi-enabled boardroom, with room to seat 16 occupants
a 63 sqm function room, designed to accommodate 40 people for meetings, training, and corporate events
a 37sqm kitchen/break-out area to support meeting activities
a 10sqm wellness/multi-purpose room for prayer, meditation, or other wellness practices.

These spaces are designed for the exclusive and complimentary use of 100 Creek Street tenants.

End-of-trip facilities

Located on Level 1 of the building, the end-of-trip facility provides for male and female amenities, 150 lockers, ironing, and drying facilities. In addition to the facilities located on Level 1, there are two caged bike store facilities located on the basement level, which include a bicycle repair station in each.

100 Creek Street tenants awarded Cromwell a satisfaction level 6% higher than the Tenant Survey Index

Property profile

The 24-storey, 100 Creek Street office tower is located in the heart of Brisbane’s central business district, approximately 250-metres from the city’s Central train station – one of the busiest transport hubs in Queensland – and is within walking distance to hundreds of shops, cafes and restaurants, banks, as well as Brisbane’s pristine botanic gardens. It has long been considered an extremely attractive location by prospective tenants.

The property was acquired in December 2021 on behalf of unitholders in Cromwell Direct Property Fund (DPF), and has been home to the global headquarters of Cromwell Property Group since January 2024.

Sitting on a 1,722 sqm parcel of land, the property features floor-to-ceiling glass windows, which provide an excellent natural light source, as well as view corridors towards Queen Street, the Anzac Square, and the Brisbane River. An eye-catching LED feature wall in the lobby projects vivid Australian landscapes and coastal scenes, while marble walls are complemented by metallic finishings and soft, ambient lighting.

As of January 2024, all the building’s tenants are The building also has an impressive 5.0-Star NABERS Energy rating and a 4.5-Star NABERS Water rating.

The total net lettable area of 100 Creek Street is 20,223 sqm and rental income is underpinned by a diverse mix of tenants, including Australian Government, major corporate, law, and financial tenants.

The ground floor lobby, lift lobbies, and additional amenities have recently been refurbished, and end-of-trip facilities, and a business hub have been added to the site.

January 22, 2024

Cromwell releases annual ESG report, details full scope 3 inventory

In January, Cromwell released its most detailed, comprehensive ESG report to date. This report serves as a snapshot of how the business is progressing towards meeting our environmental, social, and governance commitments over the short and long-term.

The report was developed in collaboration with all relevant disciplines across the global business, and aligns with major reporting standards, including the Sustainability Accounting Standards Board and the Global Reporting Initiative. It has been designed to provide transparency through qualitative and quantitative data, while showcasing the Group’s effort to deliver tangible positive impacts, citing case studies from across the business.

Most significantly, in line with the organisation’s desire for greater transparency, this recent report details Cromwell’s full scope 3 emissions inventory disclosure for the first time.

This report covers Cromwell Property Group’s environmental, social and governance (ESG) performance for the year ending 30 June 2023.

Download the report

The significance of understanding scope 3 emissions

Scope 3 emissions – also known as ‘value chain’ emissions – are indirect greenhouse gas emissions both upstream and downstream of an organisation’s main operation. Consequently, for this reason, they are also traditionally the most challenging emissions scope to calculate and address for many businesses as they are not directly controlled by the organisation.

Regardless, the UN Global Compact has found that scope 3 emissions generally make up more than 70% of an organisation’s total emissions footprint and it is accepted that understanding them is critical to identifying the greatest reduction hotspots, avoiding future value chain risks associated with the transition to a zero-carbon economy, and mitigating against greenwashing.

Group Head of ESG Lara Young said that reducing scope 3 emissions, and including this emission scope in net zero carbon targets, is critical to ensuring legitimate net zero targets that deliver tangible change. Addressing scope 3 emissions, she said, can deliver substantial business benefits by providing a clear transparency, understanding, governance, and oversight of an organisation’s full value chain and the evidence of the positive impacts delivered.

“Despite the industry challenges of data quality and availability for scope 3 emissions, the Group is proactive with joint venture partners in Oceania – and its supply chain partners, clients, and tenants globally – to collate scope 3 data via the roll-out its green lease initiative and ESG schedules,” said Ms. Young.

“Cromwell has committed to positively contributing to the communities in which we operate, and that goal involves supporting tenants and investors with achieving their net zero targets and evolving ESG needs.”

“Cromwell’s FY23 ESG report is the first time that Cromwell will publicly disclose scope 3 emissions, and this will place the Group among the minority of industry peers that publicly disclose this data. This outcome is a testament of the Group’s capability and desire for full transparency.”

Cromwell’s FY23 ESG report is the first time that Cromwell will publicly disclose scope 3 emissions, and this will place the Group among the minority of industry peers that publicly disclose this data.

Lara Young – Group Head of ESG, Cromwell Property Group

McKell Building case study

One of the largest, and most involved, ESG-led projects this year was the electrification of the McKell Building in Sydney’s CBD.

The multi-million-dollar project has involved converting the building’s existing commercial gas-fired heating system to an electric heat-recovery reverse cycle heating, ventilation, and air conditioning (HVAC) system.

Cromwell’s Head of Property Operations, Tessa Morrison, said the upgrade of the 24-storey building has been designed to help ‘future-proof’ the asset by replacing outdated, 1970s-era infrastructure with modern, energy saving equipment.

““The McKell building is a 1970s-constructed building with an existing NABERS 5.5 Star energy rating, so while it is already significantly energy efficient, we are undertaking this project to reduce emissions and drive further energy efficiencies,” said. Ms. Morrison.

“This is the first time that a multistorey, 25,000sqm commercial building in the Sydney CBD has undergone an electrification upgrade – and we’re excited to have engaged experienced mechanical air conditioning contractor Velocity Air to help deliver the project.”

Efficiencies in the new reverse cycle HVAC system will mean that hot air removed as part of the building’s air conditioning process will be recycled back into the system for use elsewhere, including heating the building’s water.

January 9, 2024

Build to Rent – an emerging asset class in Australia

Stuart Cartledge, Managing Director, Phoenix Portfolios

SC_mirvac

In October 2023, Phoenix participated in an Investor Day, hosted by listed REIT, Mirvac Group, that focussed on “Living Sectors”. Aside from the joy of wearing a high-vis jacket, those with an eye for detail will notice the badge, clearly indicating that the occupant of the jacket is a “Young Worker”.

In this article we share with you some of the lessons learned by that young worker from the day.

Australia has a housing crisis. We may have had an inkling of this one before the tour, but with an estimated 1,000,000 new immigrants expected to arrive in Australia over the next 3 years, requiring approximately 400,000 dwellings, we’re going to have to get cracking with the government’s new housing targets.

The chart below puts these figures into the context of what has been delivered in the past. The key takeaway for us, is that the Australian Government may well be having another Utopia moment.

With demand likely to remain robust, and rental markets as tight as a drum, the opportunity for an entity such as Mirvac Group to deliver product into this environment is compelling.

Built-to-rent

Financial metrics are interesting

Financial modelling for BTR is made a little tricky by some big movements in construction costs over the last few years, which ordinarily would lower returns, combined with some offsetting and also significant market rental increases in the residential sector. For MGR, the end result is a stabilised yield on cost of 4.5% – 5.0%. Along with rental growth, maintenance costs and ancillary income, the investment return (Internal Rate of Return) is estimated to be around 7% – 7.5%.

MGR’s investment in the sector is structured in a joint venture as shown in the diagram below.

External investors sit alongside MGR, and enjoy investment returns that benefit from MGR’s active management and can take comfort that MGR’s interests are very much aligned with theirs.

In addition to the returns on capital invested in the joint venture, MGR also earns funds management, development management and asset management fees across the platform. This fee stream is more volatile but adds to the returns that MGR shareholders enjoy.

Mirvac-summary_btr

Phoenix assumes that MGR is able to build out its current pipeline of BTR opportunities and will be able to identify future projects to reach its medium term target of 5,000 apartments on the platform. Importantly, we also assume that the company will be able to continue to partner with external investors to deliver a solid outcome for all stakeholders.

We expect the BTR market to get more competitive, but with penetration rates so low and the demand for housing so high, we forecast a solid runway for the foreseeable future. The only sad thing about the day, was the discovery that BTR is typically targeting the affluent renters, aged between 25 and 39. The “young worker” on this tour is more likely a target for the over 55 land lease portfolio, which we will write about in subsequent articles.

November 29, 2023

In conversation with… Roxanne Ewing

Head of Corporate Operations, Cromwell Property Group

As one of the senior leaders within Cromwell, Roxanne has spent years helping guide the direction of the business – including fostering an environment where staff can thrive. As workplaces continue to evolve, Roxanne continues to explore how Cromwell can be a positive work environment.

1. It’s safe to say you’ve got a wide-ranging role at Cromwell, Roxanne – can you walk us through some of the key responsibilities you take on?

I do have a broad role here – and that means every day is different, which I love.

I am accountable for the People and Culture, Marketing, and Operations teams at Cromwell – so, in a nutshell, I’m responsible for ensuring that Cromwell has the right talent to execute on its strategy and deliver for our investors; execute on marketing strategies that attract and retain investors; and support the operations of the business from an office and administrative perspective.

2. You’ve been Cromwell’s Head of People and Culture in the past – and helped shape our current organisational values. How did that process come about?

Everyone has heard the old “culture eats strategy for breakfast” adage but, for me, culture eats everything; culture is everything. Without the right culture, an organisation cannot succeed – and values are at the core of that. Values are the handful of words that attempt to sum up the enormity of an organisation’s culture and vision.

It’s no secret that Cromwell has undergone a significant amount of evolution of the past few years, as all organisations do. Like any organisation, we’re not stagnant – and we had shifted significantly enough to justify redefining the terms that captured both who we were, and who we wanted to be.

And we could only achieve that by engaging everyone in the conversation. Over a three-month period, we engaged with our entire business – we asked people what our vision meant to them, who they felt we needed to be in order to achieve their best, as well as what our current strengths were that we could leverage. We also had transparent discussion about what activities we needed to stop doing.

It was a surprisingly simple process. There was general consensus about our strengths – we’re respectful, we care, we’re inclusive and we’ve got great people – as well as about those areas that we would need to focus on if we’re to achieve our vision: increased agility, collaboration, and innovation.

We solidified the values that we would live by during the next stage of our evolution as Collaborative, Progressive and Accountable.

Roxanne Ewing – Head of Corporate Operations, Cromwell Property Group

6. How has post-Covid hybrid working been addressed by Cromwell, and how are we shaping our office space to suit the needs of our workforce?

We have an ‘agile working’ approach at Cromwell. This approach dictates how and when our people work, and we recognise that agile working comes in all different shapes and sizes and will mean different things for different people and different roles.

Our people work flexible work hours, whether they be part-time, job-sharing, or simply altering their start and finish times to suit their lifestyle. It may also include different types of time-off and/or breaks from work altogether with our Career Break option. And, of course, it pertains to location in terms to where work happens, whether that be in a Cromwell office, at an employee’s home or somewhere altogether different.

At first, we felt compelled to put all sorts of rules and guidelines around agile working, but we’ve stripped a lot of these away. Our culture is one of trust, accountability, and strong relationships between employees and their leaders. On the whole, we generally leave it to the employee and the people leader to agree an agile working approach for each individual; something that works for them.

Collaboration is one of the company values and we do love to see our people connecting and collaborating when it suits them. As a result, we’ve designed a new Brisbane office to cultivate more meaningful relationships between our teams. We’re taking up residence in one our DPF assets, 100 Creek Street. It’s a conveniently located facility with great amenities that align with what we want to offer our people.

The new office is designed specifically for our people – and around our agile working approach. It’s designed to be light, green, comfortable, accessible and to have a space for every activity our people may want to undertake. We know that our people will work remotely when they want quiet, focused time and therefore we have put a focus on oversupplying formal and informal break out and collaboration spaces in the office. We also recognise that life doesn’t stop just because you’ve chosen to work from the office, so we have incorporated wellbeing spaces such as the wellbeing and multi-faith rooms. It’s a really exciting time for Cromwell and we can’t wait to welcome people to our new workspace in January 2024.

The new office is designed specifically for our people – and around our agile working approach. It’s designed to be light, green, comfortable, accessible and to have a space for every activity our people may want to undertake.

7. Are there any initiatives that Cromwell has rolled out that you’re particularly proud of?

Yes! There’s too many to list here, really. I’ll focus on a few of the more recent ones.

Over the last 12 months, we have partnered with some causes that are really closed aligned with our culture, strategy and values.

This includes Relove – a charitable organisation that partners with corporate entities to rescue furniture and whitegoods and use them to furnish homes for people experiencing domestic violence or seeking asylum. As part of our participation in ‘16 Days of Activism’ against gender-based violence, we were able to help them furnish five homes as part of their 100 Homes Appeal.

Likewise, during the FIFA Women’s World Cup, we were the principal sponsor of the Moriarty Foundations’ Indigenous Footballer’s “call time on inequality” campaign. The John Morarity Football programme is Australia’s longest running, and most successful, Indigenous football initiative, with more than 2,000 Indigenous girls and boys participating.

I’m also really proud of our work in the gender equality space. We’re an active member of the Property Champions of Change Coalition, a property industry coalition working to achieve a significant and sustainable increase in the representation and equality of women in the property industry. Though we joined the charge relatively late in the game, we have made enormous headway and currently have some of the best family-friendly policies and the second lowest gender pay gap within the coalition.

And finally, I’m proud of the major cultural shift that we’ve undergone in the last 12 to 24 months. We’ve taken firm stances on our view of diversity, equity, inclusion and respect and we’ve put our money where our mouth is and significantly improved our flexibility, wellbeing, family-friendly, remuneration, and time off benefits.

8. What do you enjoy most about your role?

The fact that I get to do all the above! I have so much ability to influence the lives of our people, and those in our broader community. Absolutely every day is different, but the one thing they have all have in common is the power to make a difference, in one way or another.

I have been with Cromwell for a very long time and my role has never stagnated. I love the people that I work with in the Marketing, People and Culture and Operations teams as well as our broader Australian team and I’m inspired by what we’re here to do.

November 28, 2023

Cromwell achieves new highs results in Global Real Estate ESG Assessment

Real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell) has delivered record high company benchmarks in the annual Global Real Estate Sustainability Benchmark (GRESB) global rankings.

GRESB is an independent organisation that provides validated ESG performance data and peer benchmarks for investors and managers to improve business intelligence, industry engagement, and strategic decision-making.

The 2023 GRESB ESG Benchmark has become increasingly competitive, growing to cover more than USD$ 8.8 trillion of gross asset value across 2,084 real estate entities. GRESB data is utilised as an investment decision-making tool by over 170 institutional investors with more than US$51 trillion AUM.

Group Head of ESG, Lara Young, said Cromwell Property Group our longstanding participation in the assessment is a good opportunity for the organisation to demonstrate its ongoing commitment to enhance its ESG performance and test itself against the worldwide market.

Participation in GRESB is Cromwell’s opportunity to measure our ESG performance against our peers, and this year’s efforts have not disappointed.

Lara Young – Group Head of ESG, Cromwell Property Group

“Participation in GRESB is Cromwell’s opportunity to measure our ESG performance against our peers, and this year’s efforts have not disappointed.” said Ms. Young.

The Singapore-based Cromwell European Real Estate Investment Trust (CEREIT) achieved a record-high overall score of 85 points in the 2023 GRESB Real Estate Assessment, with full marks for social and governance aspects. CEREIT was awarded a four-star rating – up from a three-star rating last year – and achieved a public disclosure score of a perfect 100, placing first out of its five peers.
The Cromwell Diversified Property Trust (DPT) maintained its score of 87 points, ranking 28th out of 41 participating listed Australian office portfolios and achieving 95 out of 100 (A Grade) for public disclosure. With Australia’s real estate sector leading the world in sustainability, ranking first in GRESB for the last 12 consecutive years, DPT has consistently performed well against the hyper-competitive local market.
Cromwell Polish Retail Fund (CPRF) achieved a five-star rating and a record-high overall score of 90 points, ranking 11th out of 32 European retail non-listed peer funds and 17th out of 87 in the European Retail category.

“Not only have we exceeded our previous overall scores, but for all three disclosing portfolios -CEREIT, CPRF, and Cromwell’s investment portfolio, DPT – we have increased our scores across all categories, placing them well above global and industry peer averages,” said Ms. Young.

“These results would not be possible without a huge team effort and collaboration from our investors, tenants, supply chain partners, and the broader Cromwell team, and we would once again like to share our thanks to everyone involved.”

Cromwell will publish its FY23 ESG report in early December 2023.

September 14, 2023

In conversation with… Rob Percy

A native Glaswegian, Rob Percy has lived in Australia for almost 20 years. He’s an avid swimmer and AFL convert – and has adapted to the life of a Sydney Swans supporter in his adopted hometown.

Skilled in asset management, mergers and acquisitions, financial structuring, financial services, and valuation, Rob has been with Cromwell for just under 12 years – serving as the Group’s Chief Investment Officer since mid-2018.

1. You’ve been the Chief Investment Officer at Cromwell for the past five years, Rob – what does the role involve? What are some of the key responsibilities you take on daily?

The role has changed somewhat since I was first appointed, but the current role is responsible for Group Strategy, our Australian Funds Management business, Investor Relations, and Research. I also represent Cromwell on the Boards of our joint venture companies (Phoenix and Oyster) and, in the case of Oyster, I chair the Investment Committee.

On a day-to-day basis, I’m focused on thinking through what’s next for Cromwell Property Group and our suite of Funds Management products, while ensuring our existing balance sheet and retail products are appropriately and effectively managed.

2. You hold a Master of Science, focused on chemical physics, from The University of Glasgow – how did you transition from that field to the finance industry? Are there any transferable skills
between the two vocations?

I always enjoyed studying the sciences through school so, when it came to choosing what degree to do, I decided to choose something that clicked with me; something I enjoyed learning about. I had a great time at university, but never intended on becoming a professional scientist. In the summer before my final year, I spent two months in London with a large investment bank, working in their derivatives team – and I was hooked.

I applied to a number of investment banks to join their graduate programmes, and ultimately accepted an offer to join NM Rothschild & Sons for their 1998 intake.

I joined the bank around September that year, along with my fellow graduate programme members – which included geographers, linguists, and historians, among others. We embarked on a four-month on-the-job training programme, where I was taught financial analysis, presentation skills, basic legal skills, project management skills, and spent time on secondment across the various parts of the business. From then on, I spent eight years in investment banking in London and Australia before moving into property funds management.

There are a huge number of transferrable skills between science and finance. At Uni, I was taught how to independently think and motivate myself – the days of being chased and reminded by a teacher to complete an assignment were over. No-one else was going push me, I had to do that myself.

A science-based education teaches you strong analytical and problem-solving skills that can be used across any number of careers. I was taught how to observe, research, and think critically, all kills which can be used when approaching any task, be it in a laboratory, at an office desk, or in a boardroom.

3. There’s been considerable media attention given to the current state of the commercial property market over the past six months – how do you see the market in August 2023?

There is no denying that times are challenging and uncertain. The current volatility in interest rates and valuations is making investment decisions hard for investors, which is flowing through to low transaction volumes worldwide.

Recent data is looking more promising for Australia, but I think we still have some way to go until markets can settle down, interest rates become more stable, and investors have more confidence in deploying capital that is not just looking for opportunistic returns.

The other key focus is on leasing and maintaining our buildings to ensure we are keeping our occupancy high and that our buildings are attractive and relevant to existing and new tenants.

4. Given the environment, how does Cromwell navigate the uncertain market conditions to keep generating income for our investors?

A key focus for us in this environment is to protect our balance sheet. We have undergone a programme of noncore asset sales, the proceeds of which have been applied to reduce our outstanding debt balance and reduce gearing. These sales continue, particularly in Europe, where we are looking to return capital to Australia for investment locally.

The other key focus is on leasing and maintaining our buildings to ensure we are keeping our occupancy high and that our buildings are attractive and relevant to existing and new tenants.

5. In your opinion, what opportunities exist for Cromwell over the next twelve months?

With uncertain and volatile markets also comes opportunity. A key strategic goal for us in the short-to-medium-term is to expand and grow our Australian Funds Management business. We are looking to create a number of new products in the short-term to take advantage of some thematic trends we are seeing domestically.

We will be looking to expand our sector horizons outside of office and take advantage of our repositioning skills to look for opportunities where we can add value and additional life to existing assets.

We also see great opportunity to boost our funds under management and skill base through platform and portfolio acquisitions, much like our recently announced transaction between Cromwell’s Direct Property Fund and the Australian Unity Diversified Property Fund.

We have a great platform, loyal investors, and a broad skill set within Cromwell, which I think places us well to take the business to the next stage of its strategic plan.

6. The merger of Cromwell’s Direct Property Fund with Australian Unity’s Diversified Property Fund was seen as a bright point for the business in 2023 – can you expand on the work that was put into the deal?

It’s a big deal for both funds, and one that took a lot of people to get to this point.

We’ve been working on the transaction for close to 12 months, working with multiple advisors across all disciplines. It has already involved every team within Cromwell and will continue to as we move towards the unitholder meeting and hopefully completion and integration into our platform.

It’s a great illustration of what can be achieved together, working alongside our colleagues, and being aligned to a common goal.

7. What are some changes or shifting attitudes/trends/practices that you currently see playing out in the commercial property market?

As businesses adjust to the post-COVID-19 environment and work practices, we are seeing tenant attitudes to office shifting. We are seeing larger occupiers, which traditionally fill Premium buildings with large floorplates, contract – while smaller tenants are expanding.

This is changing the adage of “flight to quality”. Historically, “quality” would have been synonymous with Premium – top grade, large floorplate office buildings with high rents, but this ignores the needs of most office occupiers, particularly those that are growing.

The majority Australian businesses (and employment) are small and medium-sized enterprises. These SMEs are in the market for a new ‘Toyota’, not a ‘Rolls-Royce’. They want the highest quality office, in the best location, within their price bracket. So “high quality office” is really the space that meets the needs and preferences of its target audience.

We are also seeing a shift to “experiences”, with tenants now increasingly focused on the whole package of location, local amenity, on floor experience and fit-out, natural light, third spaces and wellness, and proximity to transport. We are seeing this play out particularly in the city fringe areas where rents are growing strongly, given the lack of availability.

8. What do you enjoy most about your role?

I think it’s the variety of the role and being central to the growth of the business, helping to set and drive the strategy, creating new products, and building new relationships.

When I was in investment banking, we would move from one transaction to the next, but at Cromwell I can follow through on ideas and new opportunities, helping to build out the business and develop the culture.

September 14, 2023

Initial ‘green’ loan secured under new Sustainable Finance Framework

In a milestone for the business, Cromwell Property Group transitioned to our first ever green loan in July, as part of the rollout of our new Sustainable Finance Framework. Developed in consultation with the Commonwealth Bank of Australia and French-based multinational financial services company Societe Generale, this framework will see Cromwell apply best practices in energy efficient real estate and sustainability to our portfolio – and support the transition to a more sustainable economy more broadly.

What is a ‘green’ loan?

According to the Climate Bonds Initiative, an international organisation working to mobilise global capital for climate action, green loans are defined as any type of loan instrument used to finance or re-finance projects, assets, and activities with environmental benefits.

Green loans are based on ‘use of proceeds’, with borrowing proceeds transparently earmarked for eligible ‘green’ assets1. It is global best practice for green loans to be arranged in line with the Green Loan Principles, the Climate Bonds Standard (to the extent of available criteria), as well as several country specific guidelines.

The Climate Bonds Initiative anticipates that green loan markets are poised for growth in the coming decade, as lenders and borrowers cooperate and leverage market development to support local economies to transition to become net zero and climate resilient.

It’s better being green

The inaugural transaction under Cromwell’s new Sustainable Finance Framework involved transitioning the existing $130 million bilateral loan on the Cromwell Riverpark Trust – with Commonwealth Bank of Australia – to a green loan certified by the Climate Bonds Initiative. The debt facility for the Cromwell Riverpark Trust was extended for a further two years, with all other terms remaining the same.

Obtaining this type of loan requires issuers, like Cromwell, to embed transformative steps, not incremental improvements, for rapid decarbonisation across all three scopes of their footprint.

Lara Young – Group Head of ESG, Cromwell Property Group

Cromwell’s Group Head of ESG, Lara Young, said a huge team effort, and considerable work, went into securing this type of loan for the Cromwell Riverpark Trust, which is underpinned by Energex House in Brisbane.

“The Climate Bonds Low Carbon Buildings Criteria was designed with an ambition of a zero-carbon future in 2050. Obtaining this type of loan requires issuers, like Cromwell, to embed transformative steps, not incremental improvements, for rapid decarbonisation. Only the top 15% most emissions-efficient buildings in a city can qualify for green loans certified by the Climate Bonds Initiative⁽¹⁾” said Ms. Young.

“Energex House is an industry leading Green Star 6 star, and 6-star NABERS Energy rated, building. By extending the term of the facility for a further two years under a green loan, we will continue to improve its sustainability performance.”

Framework to safeguard the future

Cromwell has developed its Sustainable Finance Framework to support, and provide transparency to, our commitment to fund low-carbon, sustainable, efficient, and resilient buildings that meet our ESG ambitions, as well as those ambitions of our people, our tenants, and our suppliers.

Moving forward, the framework will further optimise the Group’s borrowing practices through the use of sustainable debt instruments, including green bonds and loans – like those outlined above – as well as sustainability linked bonds and loans. A copy of the document is available on the Cromwell Property Group website.

Lara Young explained that Cromwell would continue to refine its Sustainable Finance Framework over the next few years, in line with the evolving sustainable finance market and the latest legislation, standards and best practices.

“By leveraging green or sustainability linked debt, Cromwell Property Group can move significantly closer to meeting our current and future ESG responsibilities, including a Cromwell portfolio Net Zero Scope 1 and 2 target for 2035, and Net Zero across all 3 scopes by 2045.”

Initial-green-article-1

The new framework was developed following in-depth consultation with issuers and financial institutions to ensure that a best practice methodology could be deployed. The Commonwealth Bank of Australia and Societe Generale acted as sustainability coordinators throughout the development process.

Commonwealth Bank of Australia General Manager Corporate Finance and ESG, Jane Thomson, said sustainable finance was a rapidly growing market.

“We have partnered with many high-profile clients through their first sustainable finance transactions, and we’re thrilled to support Cromwell to develop a framework that reflects their business objectives and sustainability strategy,” Ms. Thomson said,

“One of our priorities is to play a leading role in supporting Australia’s transition to a modern, resilient, and sustainable economy, and key to that is supporting high quality green buildings in the commercial property sector.

There are enormous benefits for an organisation in accessing the vibrant sustainable finance markets and we are pleased to have supported Cromwell’s inaugural green loan under the new framework for the Energex House asset.”

Tessa Dann, Head of Sustainable Finance for Australia & New Zealand at Societe Generale, said: “as a global bank with strong focus on supporting the transition to a more sustainable economy, we are pleased to have worked as a sustainability coordinator for Cromwell Property Group to develop a Sustainable Finance Framework with a global perspective that reflects Cromwell’s presence across 14 countries.”

“The Sustainable Finance Framework adds another dimension to Cromwell’s sustainability strategy by enabling all Cromwell funds and related entities to utilise the Framework by aligning debt funding needs with sustainability outcomes.”

Accountability: delivering on what we promise

Cromwell formalised an overarching ESG Strategy in early 2023, the process for developing which was one of consultation and collaboration, and we have sought to achieve a globally harmonised approach.

The new ESG Strategy includes targets that are crucial to our future, including decarbonising our business toward net zero and setting new baselines for areas such as energy consumption, waste management, and carbon in each of our operating regions. We have also developed region-specific targets to ensure we are addressing local concerns, such as the development and registration of an Australian Reconciliation Action Plan, with further progress and meaningful reflection occurring constantly.

As a capital light fund manager that focuses on the acquisition and uplift of existing buildings, we have a lower carbon footprint compared to organisations focused on new developments as our embodied carbon is largely limited to maintenance and refurbishment. That said, even Cromwell still strives to ensure embodied emissions are addressed. During our buildings’ lifecycles, we aim to act as responsible stewards – we generally acquire existing buildings, identify and implement the most relevant opportunities to improve their environmental efficiency and ensure they are performing well, before divestment.

In FY23, we developed a comprehensive Scope 1-3 emissions baseline and Marginal Abatement Cost Curves across all regions to understand where our major emissions sources lie in our value chain, and determine and prioritise locally appropriate and cost-effective emissions reduction activities.

We have now developed an ambitious Net Zero Strategy that encompasses our Scope 3 emissions, including our tenants’ emissions and embodied carbon, and we are excited to share updates on our progress.

_Footnotes

^{1. Green Loans Australia & New Zealand, 2020 (Climate Bonds Initiative)}

Explore our Sustainable Finance Framework

Read the full Sustainable Finance Framework and find out more.

August 15, 2023

After tax returns and the value of franking credits

Stuart Cartledge

Part of the advantage of the Cromwell Phoenix Property Securities Fund (Fund) over other REIT investment options, is that it is managed to maximise after-tax returns. This is the real measure that matters to investors. Unfortunately, the funds management industry doesn’t typically report this way, instead showing investment returns on a pre-tax basis; and it is this nuance that can lead to the under-pricing of franking credits.

While REITs have historically been trust structures, the more common structure among many large capitalisation REITs today is a combined trust and company structure. This is important, because companies pay tax on their earnings before distributing dividends and it is in this context that franking credits become important. Franking credits were introduced in Australia to stop the double taxation of company profits subsequently distributed to investors via dividends. These franking credits, representing company tax already paid, can be used by investors to reduce their tax bill. On average, over the last 10 financial years, the Fund has delivered franking credits that have “topped up” investors’ income by 0.49% per annum. Given the Fund’s positioning in Sunland, discussed below, the top up delivered in the 2023 financial year was 1.56%.

This article takes a closer look at the somewhat dry subject of franking credits and how they can help to maximise your after-tax returns.

The theory

Some of the stocks held in the portfolio are traditional corporates, subject to Australian tax, and are therefore likely to generate franking credits under the Australian dividend imputation scheme. These are valuable to investors and should influence how the portfolio is managed.

The table set out below shows the impact, with each column representing a different investor category. For example, the second column, labelled ‘Accumulation’ shows how a super fund investor in accumulation phase gets $85 of after-tax value from a $70 fully franked dividend. The performance figures for the Fund only capture the $70 of cash dividend. The uplift goes unreported but is clearly valuable.

In practice: Goodman Group versus Charter Hall Group

Goodman Group (ASX:GMG) (Goodman) and Charter Hall Group (ASX:CHC) (Charter Hall) are both Australian listed property securities that derive earnings from a combination of rental income, development and funds management activities. Goodman is focused on industrial property and diversified geographically with operations in the US, Europe and Asia in addition to Australia and New Zealand. Charter Hall is diversified across multiple property sub-sectors, but the business is focused geographically on Australia.

There are of course many other differences between these two securities, but Charter Hall’s domestic focus results in its corporate earnings being subject to Australian tax, and as a result, Charter Hall pays out franking credits. Goodman’s global business, on the other hand, will likely pay at least some tax in foreign jurisdictions, and these tax payments won’t come with franking credits. All else equal, an Australian investor should prefer the domestic business, because their after-tax returns will be higher.Sometimes it gets even better.

The Cromwell Phoenix Property Securities Fund holds a position in property development company Sunland Group (ASX:SDG) (Sunland). Sunland has been a profitable business for many years and has retained some of its profits to grow the business. As a result, it has built up a significant franking credit balance.

Following a strategic review, Sunland has elected to wind up its business and return all capital to shareholders. Phoenix has held a position in Sunland for many years – we like the business and management team and believe the company has been an excellent steward of shareholders’ capital.

A wind-up of the business may seem like a drastic step, but the share market has never really valued Sunland appropriately, with the stock price trading at a material discount to the book value of the company’s assets for most of its listed life, thereby ascribing negative value to the goodwill of the business. Furthermore, a sizeable franking credit balance has also been ignored by investors. For a tax-aware investor like Phoenix, we find this appealing.

At the risk of over-simplifying the transaction, as Sunland goes through the process of completing projects and selling inventory, it will pay out all cash proceeds as a combination of fully franked dividends and a return of capital. Table 2 shows some key metrics immediately prior to the announcement of the Sunland Group Strategic Plan, and the share price reaction to the announcement on 20 October 2020.

Table 2: Key metrics

Despite the strong share price reaction to the announcement, Phoenix lifted its exposure to the stock given the increased certainty of the recognition of value.

Over the subsequent 18 months, Sunland have made significant progress towards the strategic goal and has recognised further profits from the sale or completion of several development projects, such that the eventual outcome is likely to be even better than the original estimates.

For Australian taxpayers on low tax rates, such as super funds or foundations, the value of such a transaction is ‘super-charged’. Pun intended. Portfolio construction needs to consider a myriad of factors. Most of them require estimates of the future. At least with tax, the framework for analysis is reasonably steady, and a tax-aware strategy can deliver with certainty in a somewhat uncertain world.

Property	Management Team	Building services	Overall score
95 Grenfell Street	90	80	85
Tenant Satisfaction Index	84	79	81

Property	Management Team	Management Team	Management Team
100 Creek Street	88	87	87
Tenant Satisfaction Index	84	79	81

Learn

ESG improvements key to Cromwell Direct Property Fund longevity

Stage 2 solar installation completed

Learn

Actively managing our assets: 95 Grenfell Street, Adelaide

Leasing Activity

A total of four new leases have been signed for Chesser House in the last nine months (to 1 April 2024), including a significant state government tenant.

95 Grenfell Street tenants awarded Cromwell an overall satisfaction level 4% higher than the Tenant Survey Index

Key statistics:

Learn

Actively managing our assets: 100 Creek Street, Brisbane

Leasing Activity

A total of 13 new leases have been signed in the last six months (to March 2024).

100 Creek Street tenants awarded Cromwell a satisfaction level 6% higher than the Tenant Survey Index

Key statistics:

Learn

Cromwell releases annual ESG report, details full scope 3 inventory

What ESG progress means for investors

ESG and our tenants

This report covers Cromwell Property Group’s environmental, social and governance (ESG) performance for the year ending 30 June 2023.

The significance of understanding scope 3 emissions

Progressing on our ESG commitments

McKell Building case study

Looking long-term

Learn

Build to Rent – an emerging asset class in Australia

What is “Build to Rent”?

Mirvac is pioneering BTR in Australia

Financial metrics are interesting

About Stuart Cartledge

Performance commentary

Learn

In conversation with… Roxanne Ewing

1. It’s safe to say you’ve got a wide-ranging role at Cromwell, Roxanne – can you walk us through some of the key responsibilities you take on?

2. You’ve been Cromwell’s Head of People and Culture in the past – and helped shape our current organisational values. How did that process come about?

3. Over the past five or six years in particular, there’s been an undeniable societal shift in attitudes on diversity and inclusion, gender equality, and cultural shifts/accepted norms. How does the ever-changing society attitude change translate into the workplace?

4. What do you see as Cromwell’s role in the lives of our people as an employer? Is it as simple as just providing a place to work?

5. What operational targets has Cromwell set to improve ourself as an employer?

6. How has post-Covid hybrid working been addressed by Cromwell, and how are we shaping our office space to suit the needs of our workforce?

The new office is designed specifically for our people – and around our agile working approach. It’s designed to be light, green, comfortable, accessible and to have a space for every activity our people may want to undertake.

7. Are there any initiatives that Cromwell has rolled out that you’re particularly proud of?

8. What do you enjoy most about your role?

Cromwell achieves new highs results in Global Real Estate ESG Assessment

Cromwell achieves new highs results in Global Real Estate ESG Assessment

Learn

In conversation with… Rob Percy

A native Glaswegian, Rob Percy has lived in Australia for almost 20 years. He’s an avid swimmer and AFL convert – and has adapted to the life of a Sydney Swans supporter in his adopted hometown.

1. You’ve been the Chief Investment Officer at Cromwell for the past five years, Rob – what does the role involve? What are some of the key responsibilities you take on daily?

2. You hold a Master of Science, focused on chemical physics, from The University of Glasgow – how did you transition from that field to the finance industry? Are there any transferable skills between the two vocations?

3. There’s been considerable media attention given to the current state of the commercial property market over the past six months – how do you see the market in August 2023?

4. Given the environment, how does Cromwell navigate the uncertain market conditions to keep generating income for our investors?

5. In your opinion, what opportunities exist for Cromwell over the next twelve months?

6. The merger of Cromwell’s Direct Property Fund with Australian Unity’s Diversified Property Fund was seen as a bright point for the business in 2023 – can you expand on the work that was put into the deal?

7. What are some changes or shifting attitudes/trends/practices that you currently see playing out in the commercial property market?

8. What do you enjoy most about your role?

Learn

Initial ‘green’ loan secured under new Sustainable Finance Framework

What is a ‘green’ loan?

It’s better being green

Framework to safeguard the future

Benefitting our investors

Accountability: delivering on what we promise

Footnotes

Explore our Sustainable Finance Framework

Learn

After tax returns and the value of franking credits

The theory

In practice: Goodman Group versus Charter Hall Group

2. You hold a Master of Science, focused on chemical physics, from The University of Glasgow – how did you transition from that field to the finance industry? Are there any transferable skills
between the two vocations?

_Footnotes