Is this the start of more M&A activity?


by Paul Sanger

*This transcript is AI generated*

Paul Sanger: We are talking today with Mr. Winston Summut, an investment manager Euree Asset Management. Winston has over 40 years investment experience, including 20 years in the listed property industry. Winston was previously the head of listed securities with the ASX Listed Property Fund Manager Charter Hall Group. Winston, welcome back to the network.

Winston Sammut: Thank you.

Paul Sanger: Now, Winston, I have to say you were on the money with this thought and there's been some early M&A activity that I'd like to discuss in more detail in the REIT sector. Let's kick things off with your thoughts and views on today's news. The BWP Trust has made a 246 million takeover bid for Newmark Property REIT. So how does this do look to you and what's the rationale behind it?

Winston Sammut: Well, the rationale behind this deal does make sense. BWP Trust owns primarily Bunnings stores and the majority of assets that Newmark owns are Bunnings stores. So it's a good fit in terms of the business itself and the assets involved. The reality though, is the price that this is being struck at. Newmark has a market cap of around $160-170 million, whereas Bunnings has a $3 billion market cap.

So it's a much bigger entity and the merged entity swapping out of Newmark into Bunnings gives you much more liquidity. So that's good. However, the NTA prior to the deal for Newmark was a $1.85. Yeah, it's now $1.65, but investors would only be getting an equivalent of $1.39 per security if they accept the paper bid.

There's no cash involved as far as Newmark security holders are concerned. But the other point is that Newmark management will receive a $22 million management fee for selling the management rights, which is equivalent to $0.12. per Newmark security, which is a little bit excessive in my opinion.

Paul Sanger: And so good for the owners of the management company, not so for the individual investors. You know, you talk about the pricing. The new directors I think owned about 18.3%. Then they've committed to accept the proposal?

Winston Sammut: Correct. It's not the directors, it's a number of the funds that they manage. Yes, they've accepted. So from that perspective, it looks like the deal will go through.

Paul Sanger: And, you know, the initial market reaction today is when I last checked, is that Newmark is last trading $1.35 up 38%. BWP was at $3.40, down 1.4%. Are you surprised by that reaction or is that in line with the -

Winston Sammut: No, that's probably in line, and you've got to remember that yesterday Newmark closed at $0.97. So it's a good upside and I suspect the deal will go through. But I think there's probably an issue about the payment for the management rights.

Paul Sanger: Yeah. Gotcha. And the point you made earlier is that you said it's a good fit because BWP is the owner of 75 of Bunnings large format properties and Newmark, the smaller landlord, they own Bunnings, Officeworks and Kmart. So that's the point you're making there.

Winston Sammut: Yeah.

Paul Sanger: Got you. Got you. Now, that's not the only M&A deal. Let's move on to the the Aspen deal and its intention to make an offer for an off market takeover for all the ordinary shares in Eureka Holdings. How does this offer look to you? And again, what's the rationale behind it?

Winston Sammut: Well, the rationale behind it is, is that Aspen effectively is focused on affordable living, which also does include some retirement living. So Eureka is a provider of retirement living accommodation. So that fit again is a good fit. The issue here is the pricing that this is being done at. Again, this is a paper bid. There's no cash changing hands.

So you get 0.26 of a security in Aspen for every security in Eureka, which works out at the current price of around $0.45 per eureka share, which is what the eureka prices have been trading at in recent times. So there's nothing in terms of any upside premium being paid for the acquisition. But there are a couple of issues here which I think we'll probably see could see this deal go through.

Eureka's largest shareholder is Cooper's investments, and they own 19.7% or thereabouts of Eureka, but they also own 10.4% of Aspen. Okay. So they're invested in both and they might like to see a merging of the two entities, which makes for a bigger entity easier to get into.

Paul Sanger: More liquidity, so.

Winston Sammut: The equity and so on. And likewise, Charter Hall has 4.9% of Eureka and they also own 2.6% of Aspen. So they might see a benefit in getting the two things together as well, notwithstanding the fact that the price is not - it doesn't really give anything any upside to existing Eureka shareholders.

Paul Sanger: I did notice that Charter Hall also a pretty big holding in in Newmark as well as has been a couple of good days for that fund.

Winston Sammut: Yes, a couple of good daysAnd we were a reasonable holder in Newmark as well, as we thought you know the dollar price it's a very cheap entry into into the sector.

Paul Sanger: Oh, that's great to hear. And let's talk about now, what are the implications to the broader REIT market post these deals? Has there or will there be a reaction or is it still too early to say?

Winston Sammut: I think it's probably a little bit too early to say. I think there will be more of these sorts of of acquisition proposals put forward, primarily paper rather than cash. And because one of the things that Aspen has been highlighting is that they're saying their NTA is $2, notwithstanding the share price is $1.70, not $1.75. So what they're saying is that investors will get a kick up in terms of the NTA backing, plus a more liquid asset for them to hold.

Paul Sanger: So it's fair to say we will be watching the market very, very closely and see how things pans out over the next few weeks.

Winston Sammut: Correct. And also, you've got to keep in mind that we coming up to the reporting period, in the reporting period, there might be some more announcements.

Paul Sanger: Well Winston, always appreciate your time, so many thanks. We will speak with you again next week.

Winston Sammut: Thank you.

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