Winston's Weekly: M&A activity and rate cuts

Stock Watch

by Winston Sammut

Winston Sammut, the Director Property of Euree Asset Management, gives his weekly take on the REITs sector.

The following transcript was AI-generated.

Paul Sanger: Good morning and welcome to this week's edition of Winston's Weekly, covering all things property. I'm Paul Sanger, your host for today. As always, we are talking tonight with Winston Sammut, an investment manager at Euree Asset Management. Winston has over 40 years investment experience, including 20 years in the listed property industry. Winston was previously the head of securities at the ASX-listed property fund manager Charter Hall Group.

Paul Sanger: Winston, welcome back to the network.

Winston Sammut: Thank you, Paul.

Paul Sanger: Winston, let's start with an update on significant property news over the last couple of weeks. There has been some activity, as we've talked about, on the M&A front in Australia.

Winston Sammut: Yes, at the moment in the REITs sector there are two M&A actions. One is Bunnings Trust is looking to acquire Newmark Property Trust on a ratio of 0.4 of Bunnings security for every Newmark security. And the other one is Aspen's endeavour to acquire Eureka Group on the ratio of 0.26 of an Aspen share for every Eureka share. And that's ongoing, and I am in the situation, as far as my clients are concerned, of trying to change the situation in the Bunnings play. Try and get a better deal for investors.

Paul Sanger: Just talk a bit more about that. Obviously, you know, it's a week or so since these deals being done, and that's very telling how the market's reacting to it. So you're kind of alluding there that this deal is, you know, obviously you're a shareholder in your fund. What are you not happy about with the deal?

Winston Sammut: What I'm not happy about is that investors are being asked to sell out of Newmark still at a 20% discount to its NTA. But at the same time, the manager of the trust is getting paid a 22.5 million fee to sell the management rights. That 22.5 million fee is equivalent to seven and a half years of the fee that they got last year. And I regard that as being exorbitant and I'm looking to try and get a better deal for the small investors in Newmark and for our investors.

Paul Sanger: Gotcha. And let's move on. There's also been a bit of news on the rates front both in the US and Australia. What's your kind of take on this?

Winston Sammut: Well, over the last couple of weeks, pardon me, there's been some more economic data come out both in the US and here in Australia which seems to indicate that inflation is on the way down. Last week, or earlier this week, I should say, the CPI figure in Australia came out, which has sort of enthused people around the place in terms of lower bond rates, which effectively flow through to better property values. So, we did have a bit of a pick up in the REITs sector at the end of the month. And so, you know, I guess the real question is, when are we going to get the rate cuts and how many of them are we going to get? And at this stage, it's still very early to call.

Paul Sanger: And just on that, you know, what are the futures telling us. You know, in the US with the treasuries, when are they indicating that we could expect the first rate cut?

Winston Sammut: Well, markets were expecting a rate cut in March. That looks now like being delayed for some time, another couple of months. But whilst that's negative or it's disappointing in one way, the market has taken it as positive as a further indication that basically there's going to be no more rate rises, which is quite important.

Paul Sanger: So it's fair to say that, you know, the next inflation numbers that come out, you know, globally US, Europe and here, if they continue to show the path, is the chance that those expectations, the rate cuts, you know, maybe come forward.

Winston Sammut: Correct. I think the issue there is that it's a situation where it's reality versus what actually happens. The reality is that it's probably been priced in already. So we may not get a kick up when it actually comes out because it's already been done.

Paul Sanger: Got you. Going back to the States as well, there's been a couple of articles this morning that there's been some concern around commercial property positions in the US with several banks showing signs of stress. What's your thought on this?

Winston Sammut: The situation in the US, particularly as it relates to office space, is a bit more dire than it is here in Australia. As a percentage, there are more people working from home in the US than there are in the office, and that means that there's quite a lot of vacancies in office space and lower demand for office space, so much so that property values of office space has come down quite dramatically. There are some instances of a couple of buildings in San Francisco and LA that were effectively sold for $0.25 in the dollar because there's a lot of vacancies in there. So, there are a lot of losses for someone or other or some groups. And what seems to happen over the last week or so is that some of the smaller regional banks in the US are being taken, have been taking a big hit because of their exposure to property and the fact that they are small, and so that could be an issue going forward.

Paul Sanger: So that's something we should keep an eye on over the coming weeks. There could be some contagion outside of the US if that continues to deteriorate.

Winston Sammut: Correct.

Paul Sanger: Yeah. Got you. And let's finish up today. What will you be focused on in the coming weeks in the property sector.

Winston Sammut: Well, next week starts the reporting period, and that's going to be very important in terms of, I suppose, not only just talking about what's happened in the past six months, but for management to talk about the way forward over the next 6 to 12 months and their expectations of what's going to happen, either in terms of interest rates, in terms of of leasing activity and so on. So, that's something that I'm going to be focusing on over the next week or two, having a look at all these results and seeing what it all means.

Paul Sanger: Winston, thank you for your time and insight today. We will be back with another edition of Winston's Weekly next Friday. Have a good day.

Winston Sammut: Thank you.


Disclaimer: Sequoia Financial Group (ASX:SEQ), the parent company of Finance News Network, owns a 20 per cent interest in Euree Asset Management.

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