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Cromwell Property Group Investing in property for tax effective monthly income 1

Investing in property for tax

effective monthly income

July 2013

Michael Blake

National Head of Sales, Marketing & Investment


Important Information & Disclaimer

Thispresentation andits appendices ("Presentation") aredated 20February2013and have been preparedby theCromwell PropertyGroup,which comprisesCromwellCorporation Limited(ACN 001056980)and CromwellDiversifiedPropertyTrust(ARSN102982598)ofwhichCromwellPropertySecuritiesLimited(ACN079 147809;AFSL238052) is theresponsible entity. Units inthe CromwellDiversifiedPropertyTrust are stapledto sharesin CromwellCorporationLimited.Thestapledsecuritiesarelisted onthe ASX(ASX Code:CMW).

CurrencyofInformation

This Presentation contains summary information about CromwellProp er t y Grou p a s a t 3 1 De ce mb e r 2 0 12 . Statu to ry f i na nc ialinformationhas beenreviewedby CromwellPropertyGroup's auditors.Operating financialinformationhasnot beensubjectedto auditreview.

All informationis in Australian dollarsand all statisticsare as at 31December2012 unlessotherwisestated.

NotanOffer

ThisPresentationisnotan offeror aninvitationtoacquiresecuritiesinCromwellProperty Groupor securities in Cromwell BoxHill Trust,CromwellRiverpark Trust, Cromwell IpswichCity Heart TrustandCromwellPhoenixProperty Securities Fundor any other financialproductsand isnot aprospectus,productdisclosurestatementor otherofferingdocumentunder Australianlaw or anyotherlaw. It is forinformationpurposesonly.

SummaryInformation

Theinformationin thisPresentationis subjectto changewithoutnoticeanddoesnotpurporttobe completeor comprehensive. Itdoesnotpurporttosummarise allinformation thataninvestor shouldconsiderwhenmakinganinvestmentdecision. Itshouldbe readinconjunctionwi th Cromwel l Prop er t y Grou p 's o the r p e riod ic a nd c o nt inu ou sdisclosure announcements lodged with the Australian SecuritiesExchange,which areavailableatwww.asx.com.au.

PastPerformance

CromwellProperty Group does notguaranteeany particular rateofreturnor theperformanceof CromwellProperty Group or anyotherfinancialproductnordo theyguaranteethe repaymentof capitalfromCromwellPropertyGroup, anyother financial productor anyparticular

taxtreatment. Pastperformanceinformationgiven inthis Presentationisgivenforillustrativepurposesonlyandshouldnot berelieduponas(and isnot)an indicationof futureperformance. Actualresultscoulddiffermateriallyfromthose referredtoin thisPresentation.

FuturePerformance

This Presentation contains certain "forward looking" statements.Forwardlookingstatements,opinions andestimates arebased onassumptions andcontingencieswhichare subjectto changewithoutnotice.Forward-lookingstatements,includingprojections,indicationsorguidance on future earningsor financial positionand estimatesareprovidedas a generalguideonlyandshouldnotbe relieduponasanindicationor guaranteeof futureperformance.

Th ere c an b e n o a s su ran c e th a ta c tu al o u tc o me s wi ll n ot d i ff er materiallyfromthesestatements. Tothe fullestextentpermittedby law,Cromwell Property Group and its directors, officers, employees,advisers, agents and intermediaries disclaim any obligation orundertakingto releaseany updatesor revisions tothe informationtoreflectanychangein expectationsor assumptions.

Reliance

Theinformationin thisPresentationhasbeenobtainedfromor basedonsourcesbelievedbyCromwellPropertyGroupto bereliable.To themaximum extent permitted by law,CromwellProperty Group, theirofficers,employees,agentsandadvisorsdo notmakeany warranty,

e xp res s o r impl ied a s to the c u rren cy , a cc ura cy , re li a bi l it y o r completenessof theinformationin thisPresentationand disclaimallresponsibilityandliabilityfor theinformation(includingwithoutlimitation,liabilityfornegligence).

Notfinancialproductadvice

ThisPresentationis notfinancial productadviceor arecommendationtoacquiresecurities. Theinformationin thisPresentationdoesnot takeintoaccount yourindividualobjectives, financial situationor needs.Beforemakingan investmentdecision,Investorsshouldconsider, withor without a financial or taxationadviser, the relevantinformation(includingthe informationin thisPresentation)havingregard totheirownobjectives,financialsituation andneeds. Investors shouldalso

seek suchfinancial, legal or taxadviceas theydeemnecessaryorconsiderappropriatefor theirparticularjurisdiction.

Cromwell Corporation Limited is not licensed to provide financialproductadvicein respectof CromwellPropertyGroupsecurities. Totheextent thatgeneral financial productadvicein respectof CromwellPropertyGroupstapled securitiesis providedin thisPresentation. Itisprovidedby CromwellProperty SecuritiesLimited. CromwellPropertySecuritiesLimitedandits relatedbodiescorporate,andtheirassociates,willnot receiveany remunerationor benefitsin connectionwith thatadvice. Directorsandemployeesof CromwellPropertySecuritiesdonotreceivespecificpaymentsof commissionforthe authorisedservicesprovidedunder itsAustralianfinancialservices licence.Theydo notreceivesalariesandmayalso beentitledto receivebonuses,dependingupon performance. CromwellPropertySecuritiesLimitedis a whollyownedsubsidiaryofCromwellCorporationLimited.

NOTFOR DISTRIBUTIONOR RELEASEINTHE UNITEDSTATES


Who is Cromwell?

CromwellPropertyGroup

Market cap: $1.62 bn1

Security price: $0.951

Gearing: 43.3%2

Operating earnings: 8.30 cps3

Distributions: 7.50 cps3

Property Portfolio4

Portfolio value: $2.3 bnNumber of buildings: 33WALT: 6.7 yrs

Funds Management Business

Assets under management: $718 m5

Number of Funds: 46

1 ) A s at 2 4 J un e 2 01 3

2) Calculated asnetdebttototalassetslesscash, asat31 December2012adjustedfor subsequentsaleof 101GrenfellStreet,Adelaide andsettlement ofsecuritypurchaseplanannouncedin December 2012

andtheMay2013capital raising

3 ) FY14gu idance

4) Asat31 March2013adjustedfor purchaseof NSW Government Portfolio andexcludesHealth& ForestryHouse, Brisbane acquisition

5) Includes valueof IpswichCityHeartandBoxHillpropertiesasif complete

6 ) Asa t31December 2012

Cromwell commenced operations in 1998 and has evolved organically - it now has two distinct but

complementary parts of the business


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Property Portfolio

HQ North, QLD

475 VictoriaAvenue, NSW

Bundall, QLD Collins St, VIC

Qantas HQ, NSW

Synergy, QLD


Investing in Direct Property


Why Invest Outside Of Residential

Higher yield

Most Australians are overweight residential property

Longer lease terms available of up to ten years or more which provides greater certainty of income

Better quality of tenants such as government and blue chip companies

Higher level of tax effectiveness due to depreciation allowances

Typically in the form of tax deferred income

Fixed annual rental increases built into most leases deliver a growing income stream.

Has a low correlation of returns to residential property, shares and bonds and therefore provides diversification


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Historic Income Returns Commercial Property

Commercial property incl udes offices, shopping centre's, industrial sheds and other types of non-residential property

Income return is very stable and consistent and much higher than residential property

Investment cycle is different to shares and residential property and less volatile. The GFC was an exception


Income returns across property sectors

Within each sector there is a range of yields. The lower risk assets have a lower yield, higher risk assets have a higher yield

Like bonds, yield and growth are inverse


Investing in Commercial Property?

An income of between 7 9%, with quality of assets determining the

income

A unit trust formed by a fund manager to invest in a single property,known as a syndicate or a pool of properties known as a diversified trust

Ideally the property will have a long lease to a high quality tenant, requireminimal capital expenditure and be w ell located

The trust will collect rent on a monthly basis and after paying interest and

operating costs the net amount will be paid to investors as distributionseither on a monthly or quarterly basis

Often a significant percentage of the income w ill be tax deferred

The fund manager will earn a management fee for managing the property

Allows investors to obtain exposure to direct property without outlaying asignificant % of investable funds into one i nvestment

Typically minimum investment of $10,000

Allows diversification across geographic regions

Allows diversification across fund managers

Artists impressionof the Cromwell BoxHill Trust asset, Victoria.


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Why invest in direct property

Positives:

Investors seeking a higher level of tax deferred income

Investors seeking diversification from o ther asset classes such as shares, bonds

and residential property Investors with a longer investment timeframe

Negatives:

Typically illiquid although transfers can be processed at any time

Hit hard by the GFC

Like any investment, quality of the underlying asset is important

Dont trade quality for yield

Self Managed Super FundsSelf Funded Retirees


Cromwell has run many syndicates, and open ended funds

An extensive acquisition and due diligence process allows Cromwell to find (or build) a high quality officebuilding, find a strong stable tenant and model the fund to pay investors an attractive monthly income

Direct Property Funds

Cromwell Riverpark TrustLaunch Feb 2009, closed Dec 2009

Cromwell Ipswich City Heart TrustLaunched Dec 2011, closed Sept 2012

Cromwell Box Hill TrustLaunched Dec 2012, closed April 2013

New funds targeted to be launched in the second half of 2013 subject to the successful completion ofthorough in house due diligence.

Direct Property Funds Options


Secrets to A REIT Investing


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A-REIT Re-structure

An A-REIT is an entity listed on the ASX that invests into property

They can be a stapled A-REIT

OR an externally managed trust

Pre-GFC A-REITs traded at a very large premium to NTA. To generate profits high enough to sustain their prices managers

moved up the risk c urve to derive a greater percentage of income from development, mergers and acquisitions, increasedgearing and off shore ventures

Post GFC, many A-REITS are in a financially stronger position

Gearing is down

Offshore investing is down

Development is down

Funds management is down

Many A-REITs are now boring lowly geared rent collectors


Prices up but Valuations Still Down

Sector NTA over time

Offering a yield of 5-6%

Tax effective income

AREIT sector finally trading back at NTA and

higher

The share market / A-REIT m arket always

anticipates what will happen in the future

Valuers on the other hand record history

NTA reflects property values which have not yetrecovered

Expect NTA to increase in line with valuations as

demand for property pushes up prices

Source: BAML


Outlook for AREIT Sector

AREITs up strongly to March 2013. Then down 10% with the market correction. Is the overall market now a bear market

Stapled AREIT s with property fund manager models have outperformed and are over valued

Sector is finally back at NTA

What can drive the sector higher? Is now the time to take profits?

Bear Case:

Falling cash rates driving demand for yield based investments

Benefits of lower cost of debt yet to fully flow through, with further accretive acquisitions and deals likely

Investor appetite for real estate as a store of wealth is driving higher property values and lower yields

Great rotation / weight of m oney from fixed income and bond investors into equities could continue to see demand

for bond like equities including REITs. The bond out look i s bleak

Foreign demand for property significantly i ncreasing considering yields in Asia, Europe and USA

Bull Case:


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Doing it yourself what you need to model

FinancialsIncome Statement

Balance Sheet

Cash Flows Statement

TrustProperty ownership

DDM

Macro assumptionsInterest Rates, FX, mid-cycle rents, occupancy, sales growth

Micro assumptionsHedging, Payout Ratio,

Capex amount and return

Capital allocationMargins

CorporationFunds Management

Development

Property ServicesConstruction


Portfolio Construction

Corporate

Activity

Portfolio

Valuation

DDM, SOTP

Portfolio

ConstructionGuidelines

Earnings

Revisions

StockSpecific Risk

Agency Score


Proprietary research: Company m eetings, Analysis of financials

Cromwell Property Group are active participants in the direct market regular dialogue, monthly ISG

Site visits, industry analysis

Stock broker research domestic and global

We do not use broker models

Real estate brokers strong relationship with Cromwell

Savills, Knight Frank, Ray White, CBRE, Colliers, JLL

Corporate membership of:

Property Council of Australia

Australian Direct Property Industry Association

Sources of research


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A-REIT issues - Index Concentration

The top ten A-REIT stocks represent over 90% of the

S&P/ASX 300 A-REIT Accumulation index (theBenchmark)

But there are ov er 50 listed A-REITs

Other property like stocks can be included for exampleinfrastructure

Many of the stocks outside the S&P/ASX 300 A-REITindex are not covered by brokers and are under valued

Finding a fund that is materially different from thebenchmark can provide real opportunities for out-performance with lower volatility


A-REIT issues - funds under management

Your funds under management (FUM) determines the size of stocks you canbuy

Small funds can take relatively meaningf ul positions in small cap securities -small cap stocks are generally not well researched and often inefficientlypriced

Mr Big simply cant invest in small cap property stocks:

A manager with $1bn FUM who wants to trade 1% of their portfolio wouldrequire a trade value of $10m

For benchmark property stocks, only the top 20 have market caps greaterthan $200m

Therefore, the $1bn fund manager needs to trade 5% of the market cap ofthe 21st stock, in order to implement the insight

Starting from zero, Mr Big becomes a substantial shareholder, and must tellthe whole world about it.


A-REIT Alternative

A larger universe of investment options provides more opportunities to addvalue

Investment universe includes:

Benchmark stocks

Non-benchmark stocks

Preference shares

Some infrastructure

Other?


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Managed Fund Options

Vanguard Cromwell Phoenix Other PSFs

Index Approach

Index unaware Index aware

Limited diversification -I ndex onlystocks (20)

Expanded universe 70+ Typically 20 - 30

Risk focus is Active

Total Risk is entirely determined byindex constituents

Risk focus is Total

Fundamental research helps identifyand manage risk

Various, typically active

Fundamental research, but still typicallyfocussed on active risk

Large Cap dominates Mid / small c ap exposure helpsdiversify risk and m ay add substantial

value

Various, typically large c ap focussed

Infinite capacity Limit on capacity allows formeaningful exposure to Best Ideas

Capacity constraints limit desiredexposures


Relative Performance

Source: Morningstar

1] Past performance is not a reliable indication of future performance.


Results as at 31st March 2013

1 Year 2 Years 3 Years 4 Years Since Inception(16 April 2008)

Fund Performance(Before fees and costs)

35.4% 26.0% 22.7% 32.9% 5.4%

Fund Performance(After fees and costs)

34.2% 24.8% 21.5% 31.7% 4.4%

Benchmark(S&P/ASX 300 A-REIT

Accumulation Index)30.5% 15.2% 11.6% 18.5% -3.6%

Excess Return(After fees and costs) 3.6% 9.6% 9.9% 13.2% 8.0%

Important notes:

Past performance is not a reliable indication of future performance.

The Fund changed its investment strategy on 1 July 2009, so 4 Year and Since Inception figures show performanceunder both mandates.

Figures are annualised, with the exception of 1 Year figures.


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Consistency of Performance is important

1] Alpha shows the difference between the Fund performance and the Benchmark. Past performance is not a reliable indication offuture performance.


Understanding Attribution Analysis

1] Past performance is not a reliable i ndication of future performance.


Property Securities Learning Outcomes

The A-REIT sector is complex and picking stocks yourself is difficult

You need at least 15 stocks to avoid stock specific risk

Because the index is concentrated a benchmark unaware approach is less risky

and can offer higher returns. Therefore avoid index funds

Large funds will only ever provide index like returns at a higher cost

Smaller index unaware funds wil l give investors the best chance of out performing


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Summary

Direct property offers a high yield than listed

Direct property is m ore tax effective

Direct property provides monthly income

Direct property provides diversification from shares and bonds

BUT

Listed property provides daily liquidity

If you dont understand it dont buy it . Transparent investments are often the best

Do not focus purely on yield but rather consider the total return and quality of the assets

Dont become emotionally attached to your investment, your selling discipline is just as important as your buying

Always re-balance across asset classes as relative valuations move. If an asset class falls you should be buying more tore-balance and if an asset class rises you should be selling. Most amateur investors do the opposite.

Diversify, Diversify and Diversify


Thank you for your time

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19 Michael Blake Tuesday 800