CROMWELL Property Group (ASX:CMW) has swooped on major movements in the property market in the past six months after revealing that property sales and valuation upgrades have boosted its bottom line 124 per cent to $195.5 million.
The net profit result for the six months to the end of December was built on a $105.4 million increase in the value of the Brisbane-based group's investment properties, as well as a $19.38 million gain recorded on the sale of property assets.
Cromwell's underlying group performance reflected the strength of the property sector with profit from operations surging 22 per cent to $88.8 million in the half-year.
The result was delivered on an 85 per cent surge in revenue to $301.8 million.
The figures were also boosted by the contribution of Valad Europe, the external wholesale funds management business acquired by Cromwell in March last year.
Valad helped profits in the funds management division surge to $10.7 million from $293,000 a year earlier.
The European funds management business had $5.46 billion in assets under management at the end of December. However, Cromwell's total assets under management dipped from $10.1 billion in FY15 to $9.8 billion at the end of December due to asset sales.
Among the assets sold during the year is 43 Bridge Street in Hurstville for $37 million, which was 19 per cent above book value, and 4 Bligh Street in Sydney for $68 million at 10 per cent above book value.
Cromwell landed a major windfall in Adelaide where it sold the Henry Waymouth Centre for $73 million. The group bought the property in 2003 for $30.4 million and spent $11.4 million on refurbishments in 2012.
Cromwell's net debt fell to $850.9 million during the period, from $942.3 million in the previous corresponding period.
Revaluations and sales have helped reduce portfolio gearing to 29 per cent from 36 per cent in FY15. Group gearing is down from 45 per cent to 38 per cent in the same period.
Cromwell CEO Paul Weightman (pictured) says the group will continue to 'bank' opportunities as they arise.
"We have taken the opportunity to realise value and benefit from the strong investor demand for well leased assets where it makes sense to do so," he says.
"We prefer to bank these opportunities when they present themselves and then look to recycle capital into higher value-adding initiatives."
Cromwell sees strong investor demand continuing in the near term, although price growth for assets is expected to slow.
"Every market cycle is different, but we are cautiously optimistic," says Weightman.
"We are coming out of a once-in-a-lifetime mining investment boom. The resultant fall in the Australian dollar has acted as an economic shock absorber and, while the hangover hasn't gone yet, a lower dollar will slowly drive a transition to a broad-based economy.
"We are already starting to see the beginnings of an improvement in currency-sensitive industries like tourism, education and exports in general and, dare I say it, even manufacturing.
"There will be a lag before this improvement flows into business and consumer confidence, and there will certainly be volatility along the way, but over the longer term, improved confidence will benefit services industries and also increase demand for property.
"While cap rates are currently tight, improving future tenant demand should mean improved leasing conditions. This won't happen overnight but we are optimistic about property markets over the medium term.
"Asset selection and investment discipline remains the key to success, but I'm confident that the right opportunities will present themselves, and we will be ready to capitalise when they do."
Cromwell is making a distribution of 4c per stapled security, up from 3.9c a year earlier.
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