Cromwell Property Fund to Merge With Australian Unity Vehicle in $730M Tie-Up

ASX-listed Cromwell Property Group on Friday announced an agreement to merge its Cromwell Direct Property Fund with Australian Unity’s Diversified Property Fund to form a 15-asset portfolio valued at A$1.1 billion ($730 million).

The merger will result in unitholders in CDPF and AUDPF both owning interests in a more diversified and stable fund with improved geographic and sector diversification and strong weighted average lease expiry and occupancy metrics, Cromwell said in a release.

Cromwell has entered a separate deal to acquire Australian Unity Property Ltd, the responsible entity of AUDPF, for a total consideration of A$17 million, conditional on AUDPF unitholder approval, as well as implementation, of the merger.

“The proposed transaction aligns with Cromwell’s strategic exit from non-core assets and recycling of capital to grow Cromwell’s funds under management, adding approximately A$425 million in third-party gross assets to our Australian platform,” said Cromwell chief investment officer Rob Percy. “This transaction continues our journey to a capital-light funds management business model and enables us to continue to provide Cromwell investors with long term stable and risk adjusted returns.”

Funding Assistance

As part of the proposed merger, Cromwell Diversified Property Trust will subscribe for units in CDPF (up to A$12 million) to assist in funding a one-off withdrawal facility for AUDPF unitholders. The merger is expected to be completed in late 2023.

Joe Fernandes, chief investment officer and executive general manager for funds management at Australian Unity, said the combined fund would benefit investors through increased scale, diversification, and income and distribution stability.

“Cromwell’s reputation as a leading real estate funds manager and a custodian of investors’ capital places the combined fund in good stead for future success,” Fernandes said. “We look forward to working with Cromwell to preserve and enhance value for investors.”

Cromwell, whose two largest shareholders are Hong Kong-listed property giant ESR and the family of Singapore-based mainland tycoon Gordon Tang, reported a loss of A$129.5 million (now $86.2 million) for the six months to December 2022, reversing a year-earlier profit of A$132.5 million.

Chairman Gary Weiss has said the group is pursuing “simplification of Cromwell’s operating structure, improved staff engagement and management of the balance sheet through non-core asset sales”.

Down Under Dealmaking

On Monday, Cromwell announced a joint venture with Value Partners Group that will see the Hong Kong-based asset manager acquire a 50 percent stake in Cromwell’s portfolio of seven logistics assets in northern Italy.

The partial sale of the assets, based on a portfolio asset value of €55.8 million ($60.8 million), will further the group’s goal to reposition itself as a capital-light fund manager, said CEO Jonathan Callaghan.

In other dealmaking news from Down Under, Elanor Investors Group last month received a commitment from the Abu Dhabi Investment Council supporting its acquisition of a real estate business managing A$3.4 billion ($2.3 billion) in assets.

As part of a deal announced two months ago for Sydney-based Elanor to acquire the real estate fund management business of local asset management giant Challenger, the ASX-listed property fund manager has granted ADIC options to purchase up to 7.5 million in securities to be issued by the company over the next three years.