Cromwell Group (ASX: CMW) shares have gone into a trading halt as it announced a capital raising to fund acquisitions.
Cromwell is a diversified real estate investor and manager with operations on three continents and a global investor base. At the end of 2018 it had a market capitalisation of $2.2 billion, a directly-owned property portfolio worth $2.5 billion and total assets under management of $11.5 billion across Australia, New Zealand and Europe.
What Has Cromwell Announced?
The property business has announced an underwritten capital raising to the tune of a $375 million from institutional investors for acquisitions.
Cromwell is raising $375 million from institutional investors at $1.15 per new share, which is a 7% discount to the distribution adjusted closing price yesterday of $1.237.
After the institutional part of the raising, regular/retail investors will be able to participate in a non underwritten share purchase plan (SPP). They will be able to invest in up to $15,000 of new shares at $1.15 per share.
What Will The Money Be Used For?
Cromwell has identified over $1 billion of acquisition opportunities across Australia and Europe as part of Cromwell’s ‘Invest to Manage’ strategy.
The indirect invest to manage opportunities include over $500 million of Australian office acquisitions and over $500 million of European office and retail opportunities.
Profit And Distribution Guidance
Cromwell re-iterated its FY19 guidance of achieving operating profit of at least 8 cents per share and distributions of 7.25 cents per share.
However, the property business also provided preliminary guidance for FY20 which includes the impact of the capital raising. Cromwell expects operating profit to be between 8.1 cents per share to 8.3 cents per share and distributions of not less than 7.5 cents per share.
The projected balance sheet’s gearing will reduce to 23.9% before funding the identified opportunities. After that, gearing will be within the target range of 30% to 40%.
The pro forma net tangible assets (NTA) per share, the underlying value per share, will increase to $1.02.
Is Cromwell A Buy?
The offer is being priced at a 12.7% premium to the updated NTA and comes with a projected FY20 distribution of 6.5%.
The income offered is not bad, but I’m a bit wary of buying assets for more than they’re valued for. Many real estate investment trusts (REITs) are being sent much higher than their underlying value due to lower interest rates. I think there is share price risk with this strategy.
I’d rather consider the reliable ASX shares in the FREE REPORT below for consistent income and proven growth.
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.