Decarbonisation And High Occupancy Will Support Resilient Income And Long-Term Portfolio Stability

Catalysts

About Cromwell Property Group

Cromwell Property Group is an Australian and New Zealand focused real estate investor and fund manager specialising in office, logistics and retail assets that generate stable income.

What are the underlying business or industry changes driving this perspective?

• Recent simplification of the business, including the sale of noncore European assets and associated cost reductions, positions Cromwell to redeploy capital into higher returning domestic opportunities, supporting earnings growth and improved net margins.
• Low gearing of around 28 percent and more than $500 million of available liquidity give the group meaningful capacity to pursue accretive acquisitions and developments as transaction markets reopen, contributing to revenue and funds from operations.
• High portfolio occupancy at 97.6 percent, long weighted average lease expiry and a tenant base anchored by Australian government entities provide rental income resilience that can underpin steady distributions and reduce earnings volatility through cycles.
• The Barton ACT development, backed by a 15 year Commonwealth lease and strong environmental credentials, is expected to seed future funds management product and attract third party capital, expanding fee income and diversifying revenue away from purely rental streams.
• Growing investor demand for energy efficient, lower emissions buildings aligns with Cromwell’s decarbonisation achievements and high NABERS ratings, which may support valuation resilience, tighter cap rates on core assets and higher net tangible assets per security.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Cromwell Property Group's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -58.1% today to 48.5% in 3 years time.
• Analysts expect earnings to reach A$104.2 million (and earnings per share of A$0.04) by about December 2028, up from A$-106.0 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, up from -11.5x today. This future PE is lower than the current PE for the AU Office REITs industry at 54.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Although portfolio valuations appeared to stabilize with a small uplift in the second half of 2025, any renewed weakness in office, logistics or retail property values due to long term structural shifts in workspace usage or consumer behavior could reverse this trend and drive further fair value write downs, pressuring net tangible assets per security and reported earnings.
• Cromwell’s strategy is now heavily concentrated in Australian and New Zealand office and related sectors at a time when long term office demand is being challenged by hybrid working and elevated incentives. This could erode rental growth, increase leasing costs and ultimately compress net margins and funds from operations.
• The growth strategy depends on deploying more than $500 million of available liquidity and adding third party capital into new and existing funds. However, if capital market conditions remain cautious and institutional demand for traditional real estate platforms stays subdued, Cromwell may struggle to scale funds management fees, limiting revenue diversification and earnings growth.
• The Cromwell Direct Property Fund liquidity event and the potential wind up if more than half of unitholders seek to exit highlight the risk that long term investors may prefer to reduce exposure to unlisted real estate. This could force asset disposals at less favorable prices, weigh on management fees and reduce overall group revenue and profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$0.53 for Cromwell Property Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$214.9 million, earnings will come to A$104.2 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of A$0.47, the analyst price target of A$0.53 is 11.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.