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Tensions in Cromwell lead to Unfriending move
July 25, 2019
Tensions between Cromwell Property Group & ARA Asset Management have lead the parties to unfriend each other in the latest move by the pair.
The pair came together in May 2018 when ARA acquired South Africa's Redfine Properties 19.5% interest in Cromwell. ARA's David Blight also took a seat on the Board of Cromwell and ultimately lifted its interest to 20.53%. Speculation that ARA had greater ambitions become hot news just as AREIT takeovers had started off with similar moves.
In June 2019, Cromwell denied ARA Asset Management with its pro-rata share of the $375 million fund raising it undertook to fund the acquisition of 400 George Street Brisbane. The rejection effectively diluted ARA's stake to about 18 per cent. Cromwell advised it took advice from its lawyers given that ARA was a related party, however ARA claim to have been mistreated given that Cromwell had no issues in issuing pro-rata issuings to Redefine when it held its 20% stake.
ARA and Cromwell have also aired differences on Cromwell's takeover bid for British-listed RDI REIT which ultimately fell over and on other acquisitions which ARA may have also been bidding for separately. ARA had believed those conflicts to be manageable, however the exclusion from the capital raising process had lifted the tensions.
Now, ARA Asset Management has ratcheted up a notch after the Singaporean investor withdrew its representative from the fund manager’s board.
With ARA now excluded from the potential of further conflicts of interest, it is possible a bid for control of Cromwell will emerge over the next few months.
Cromwell's stock has unperformed the broader ASX AREIT Index over the last 12 months, being 6.4% higher than July 2018 vs 14.9% for the index.
In May this year, JPMorgan price target for Cromwell was $1.15 with an M&A valuation of about $1.30 per share based on their view that its local portfolio of $2.8 billion is 8 per cent under-valued. The stock traded above the $1.15 value since may and risen to a high of $1.26 before going ex dividend and closed on Thursday 25/7 at $1.195.
JPMorgan noted that a $1.30 bid price would be a 13% premium to the May price and 30% premium to their fundamental valuation.
Cromwell Trading Chart vs ASX200 AREIT Blue - Cromwell, Purple ASX200 AREIT Last 12 months