Cromwell Property Group targets Australian Unity-run trust

Cromwell Property Group chair Gary Weiss. Picture: Adam Head

Cromwell Property Group has begun the year with a play for the management of an Australian Unity-run trust that has about $550m worth of shopping centres under its wing.

Cromwell, which is chaired by corporate raider Gary Weiss, has an ambition to grow its local funds empire – and picking up the management of the unlisted Australian Unity Diversified Property Fund might fit the bill.

The vehicle has nine properties in NSW, Victoria, South Australia and Western Australia, and focuses on convenience retail assets.

It owns a series of WA centres including the Dog Swamp and Woodvale Boulevard centres in Perth, and Busselton Central in the southwest, as well as NSW assets including the Caltex Twin Service Centres in Wyong, and the North Blackburn centre in Melbourne.

It has almost 120 tenants and a weighted average lease expiry of 8.3 years. The top five tenants by income are Caltex-Ampol, Woolworths, Australian Naval Infrastructure, Coles and Metcash.

The trust, which was last year in line to be merged with Australian Unity’s ailing listed office fund, is instead likely to come under the Cromwell umbrella.

Investors in the Australian Unity Office Fund revolted against plans to merge the unlisted diversified property fund, and the office vehicle has since slumped.

Merging the two vehicles would have created a fund with $1.2bn of real estate, but assets in the office trust are now being sold down individually.

Scanlon family-backed investment house Hume Partners, which held 20 per cent of the office fund, was opposed to the merger.

Cromwell separately wants to launch a listed real estate investment trust focused on office buildings.

Such a move would start the merger and acquisition activity in the real estate investment space, which has been hampered by a lack of finance.

Property values and stock prices have also fallen, but this has thrown up opportunities for consolidation.

As Cromwell chairman, Dr Weiss is pushing ahead with moves to simplify the group, which has a sprawling $12bn property funds empire across Australia and Europe. It wants to get assets off its balance sheet and step up as a funds manager.

The biggest initiative is the launch of an externally managed real estate investment trust to be listed on the ASX and which would hold the bulk of Cromwell’s $3bn office portfolio.

Cromwell told investors last year that this plan was still on track. But equity markets face another rocky ­period as office stocks trade at a ­discount.

Investors are wary about the impact of rising interest rates on indebted REITs and on property values, with lower-grade properties most in the gun.