ANNUAL REPORT 2020 CONTENTS 04 19 147 Financial Highlights Annual Financial Corporate Governance Report Statement 20 Directors’ Report 68 Auditor’s Independence Declaration 70 Consolidated Statements of 06 Profit or Loss Chair's Report 71 Consolidated Statements of Other Comprehensive Income 72 Consolidated Balance Sheets 73 Consolidated Statements of 10 Changes in Equity CEO's Report 75 Consolidated Statements of Cash Flows 76 Notes to the Financial Statements 142 Directors’ Declaration 143 Independent Auditor’s Report 2 CROMWELL PROPERTY GROUP I 2020 ANNUAL REPORT Cromwell Property Group Cromwell Property Group (ASX:CMW) (Cromwell) is a Real Estate Investor and Manager with operations on three continents and a global investor base. As at 30 June 2020, Cromwell had a market capitalisation of A$2.4 billion, a direct property investment portfolio in Australia valued at A$3.0 billion and total assets under management of A$11.5 billion across Australia, New Zealand and Europe. Cromwell is included in the S&P/ASX 200 and the FTSE EPRA/NAREIT Global Real Estate Index. THIS DOCUMENT IS ISSUED BY Cromwell Property Group 165 consisting of Securityholder Cromwell Corporation Limited ABN 44 001 056 980 Information and Cromwell Diversified Property Trust ARSN 102 982 598 ABN 30 074 537 051 (the responsible entity of which is Cromwell Property Securities Limited AFSL 238052 ABN 11 079 147 809) Level 19, 200 Mary Street, Brisbane QLD 4000 Phone: +61 7 3225 7777 Fax: +61 7 3225 7788 Web: www.cromwellpropertygroup.com Email: [email protected] SECURITYHOLDER ENQUIRIES All enquiries and correspondence regarding your security-holding should be directed to Cromwell’s Investor Services Team on 1300 268 078. CROMWELL PROPERTY GROUP I 2020 ANNUAL REPORT 3 FINANCIAL HIGHLIGHTS Assets under management $11.5 billion FY20 operating profit NTA per unit $221.2 million $0.99 up 27.0% (FY19 $0.97) Distributions of 7.50 cps Gearing ↑3.4% 41.6% meeting original guidance FY20 operating profit per security WALE ↑3.5% 6.4 years to 8.50 cps 4 CROMWELL PROPERTY GROUP I 2020 ANNUAL REPORT Financial Results Summary FY20 FY19 Change Objective Statutory profit ($M) 181.1 159.9 $13.3 To provide securityholders with an attractive combination of stable Statutory profit (cents per security) 6.96 7.53 (7.6%) long-term cash flows, demonstrated asset enhancement capabilities and transactional profits, and low risk exposure Direct Property Investment ($M) 172.2 136.1 26.5% to Asian capital flows and European real Indirect Property Investment ($M) 55.9 45.4 23.1% estate markets. Funds and Asset Management ($M) 40.8 28.5 43.2% Total Segment Results ($M) 268.9 210.0 28.0% FY21 distribution guidance of Operating profit ($M) 221.2 174.2 27.0% 7.50 cents Operating profit (cents per security) 8.50 8.21 3.5% per security Distributions ($M) 195.5 157.5 24.1% Distributions (cents per security) 7.50 7.25 3.4% Distribution per security yield Payout Ratio (%) 88% 90% (2.1%) 8.20% based on the closing price of Jun-20 Jun-19 91.5 cents at 26 August 2020 Financial Position (Actual) ($M) (Actual) ($M) Total Assets 4,990.5 3,695.7 Total Liabilities (2,401.5) (1,512.7) Net assets 2,589.0 2,183.0 Securities on issue (‘000) 2,612.9 2,236.6 NTA per security $0.99 $0.97 (including interest rate swaps) Gearing(1) 41.6% 35.0% Gearing (look-through)(1) 47.5% 42.3% (1) Gearing calculated as (total borrowings less cash)/(total tangible assets less cash). Look through gearing adjusts for 30.7% interest in CEREIT, 94% interest in Ursynów, 28% interest in Portgate, 50% in Oyster and 50% interest in LDK. CROMWELL PROPERTY GROUP I 2020 ANNUAL REPORT 5 CHAIR’S REPORT The entire Board is conscious of the legacy left by Geoff and Michelle, and the other directors who preceded them. We are determined to stay true to their example, to Cromwell’s values and to always do what is right for all Cromwell’s securityholders. COVID-19 response COVID-19 has created unprecedented uncertainty and dislocation within the global economy and commercial real estate markets. Cromwell experienced the impact of the virus earlier than most with our Milan office moving to working from home in February. We took the opportunity then to plan and prepare for what was to come. The Board’s FY20 was notable, not just for the impact COVID-19 priorities since that time have been to: has had on all of our lives, but also in terms of testing • ensure the safety and wellbeing of our people and their the resilience of the Cromwell business and its people, families; and their continued ability to deliver for Cromwell’s • to work through pandemic issues with our 3,000+ securityholders. CEO Paul Weightman details the FY20 tenant-customers; results in his report, but on behalf of the Cromwell Board, • to minimise and mitigate the commercial and financial I would like to extend my thanks to the whole Cromwell impact of the pandemic on the business; and family for their efforts in delivering excellent results in a • to safeguard the interests of our securityholders and difficult and challenging operating environment. investors. Board refresh Cromwell continued to operate smoothly despite the whole The year also saw a successful refresh of Cromwell’s business moving to working from home in March, and while Board. The Annual General Meeting in November 2019 some of our people have since begun to work from the saw the retirement of Non-executive Director, Ms Michelle office once again, others have yet to return. Irrespective McKellar, after 12 years of exemplary service and Chair, Mr of where they are, they have all demonstrated a strong Geoffrey H Levy, AO, also retired on 26 February 2020 after collective commitment to our mission and values. I am successfully onboarding our two new independent Non- proud that the business has been able to stand beside them executive Directors, Ms Lisa Scenna and Ms Tanya Cox. throughout the last few months. Michelle joined the Board in 2007 and Geoff joined a year Strategic review later in 2008. Both were active contributors to the Board Our Strategic Review, the results of which were presented and its Committees in their time at Cromwell, highly to the Cromwell Board in June 2020, has validated our valued for their advice and wise counsel through a period belief that this is a resilient business that will continue which has seen significant growth and value creation for to perform as markets recover. The Board is confident Cromwell securityholders. I had the honour of succeeding that Cromwell’s business model is robust and resilient, Geoff as Chair and have been ably assisted by Mr Andrew and that the strategy is appropriate to deliver returns for Fay in his role as Deputy Chair, as well as Lisa, Tanya securityholders within the Board’s risk tolerance. and our other independent no-executive director Ms Jane Tongs, over the last few months. 6 CROMWELL PROPERTY GROUP I 2020 ANNUAL REPORT I would like to emphasise the last part of the statement. We have 14,000 securityholders, the majority of whom are retired and we know that the consistency, and reliability, of Cromwell’s distributions is something they value. The entreaties that we should change strategy, sell core portfolio assets, transition to a more of a funds management model would introduce a higher level of risk to the business. We do not think this is in the best interests of all securityholders, nor in anyway appropriate in the middle of a pandemic. Cromwell Property Group Foundation Finally, it is also pleasing to see the good work of the Cromwell Property Group Foundation continue. I believe it is important to be mindful of others who may be doing it tough, and to look for ways that we can help and contribute back into the communities in which we all live and work. The Foundation has now donated more than $1 million to worthy causes relevant to the mature-aged community in Australia, and alongside the other local contributions made by our people in the other countries in which we operate, I am proud that we are able to make a lasting difference in the lives of those who may be less fortunate than ourselves. The details of the Foundations 2020 beneficiaries are shown on page 8. On behalf of the Cromwell Board I would like to thank securityholders for their ongoing support. Leon Blitz Chair Cromwell Property Group CROMWELL PROPERTY GROUP I 2020 ANNUAL REPORT 7 Cromwell Property Group Foundation 2020 beneficiaries On 18 August 2020, the Cromwell Property Group It is a wonderful opportunity for smaller, efficient non- Foundation (Foundation) announced Active university and non-government research foundations Rehabilitation, Bolton Clarke, Griffith University, like ours who traditionally struggle to attract research MercyCare and the Lady Musgrave Trust as funding.” beneficiaries of its FY20 fundraising activities. Bolton Clarke - $17,500 A total of $166,400 was donated in FY20, which takes the Bolton Clarke offers nursing services, resources total donations of the Foundation to more than $1 million and real community support to help people age well, since its 2014 inception. delivering more than one million days of residential aged care and more than four million home visits every year. “The Foundation surpassing $1 million in donations is a significant milestone,” stated Foundation President and Bolton Clarke has been provided with $17,500 to fund the Cromwell CEO, Paul Weightman. Be Healthy & Active programme. Targeted at Australians aged 60 and over, the programme provides practical and “With a focus on charities and causes that fly under the accessible education in the community to improve health radar, the Foundation has supported tangible change outcomes, reduce avoidable disease and suffering, and to the mature-age community.