2011 Media Releases

Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) has initiated coverage of property owner and fund manager Cromwell Property Group (ASX: CMW) with a Hold recommendation.

Research analyst Jason Weate said, “The group’s high earnings yield is predominantly supported by net income flowing from its A-grade property portfolio with property income yields enhanced considerably by its capital structure.

“However, in our view Cromwell Property Group may face earnings and distribution growth challenges.

“We forecast flat earnings per unit growth from FY12 to FY13 which is largely attributable to expected property vacancy. Acquiring a sizeable funds platform could address this subdued growth profile.”

However, according to the analysts, an acquisition could see the company’s EPU yield decline given an associated requirement for equity funding, thereby the potential to weaken the stock’s existing high yield point of differentiation.

“As an alternative, Cromwell Property Group could grow earnings by the creation of property syndicates throughout FY12 and beyond - growing organically,” Weate said.  

Barriers to these growth options identified by the analysts include a diminishing number of property fund platform acquisition opportunities as well as an industry wide lack of momentum in retail inflows over the last two years.

Looking forward, the analysts believe that while sources of meaningful earnings growth exist, they would classify these sources as being ‘opportunistic’ rather than options they could reasonably apportion a degree of certainty to.

“Therefore, we struggle to see Cromwell Property Group trading at pricing levels that reflect a material premium to the December 2010 book value,” Weate said.

Cromwell Property Group’s direct portfolio predominantly comprises A & B-grade office assets, the majority of which are located in CBD and fringe-CBD locations with an eastern seaboard emphasis spread across NSW, VIC and ACT.

For further information, please contact:

Deutsche Bank AG    
Name : Amy King   
Phone: +61 (0) 2 8258 2505
E-mail: amy.king@db.com