Winston's Weekly: The month in review

Stock Watch

by Manny Anton

The following transcript was AI-generated.

Manny Anton: Good morning and welcome to this week's edition of Winston's Weekly: covering all things property. I'm Manny Anton, your host for today's property chat. Winston, welcome back.

Winston Sammut: Thank you.

Manny Anton: Okay. As usual, let's start with rates and inflation data movements in the US markets. We continue to see a lot of movement in markets, certainly equity markets, being pushed around by sentiment on inflation and rates. This week in the US (earlier in the week) we saw a couple of bond auctions by the government over there. And they weren't very eagerly received.

Winston Sammut: No

Manny Anton: In fact, the result was that the yields started to edge higher, post those two issues. We also saw several comments from some of the fed governors during the week suggesting there was no rush to cut rates. Again, same thematic that we've been seeing the last few weeks. So, what are your thoughts on this? What's going on with rates in the in the US and how it might impact properly over there?

Winston Sammut: Well, as the fed has said on many occasions and even the RBA here, everything is data dependent and the data that's been coming out has not been a positive in terms of, sort of, engineering a rate cut early. CPI numbers have been going the wrong way. So inflation is an area of concern for both the fed and the RBA. There's even talk that there's a growing expectation that in fact the next rate move might be up rather than down, both in the US and in Australia. So we need to just focus on the data as, and when, it's released. And again, in terms of the fed and the RBA, they're looking for a consistent downward move rather than a one-month. So even if we get a better number for a month, they want to see that continuing over a period of time. And we haven't seen that.

Manny Anton: Yeah. absolutely. And it looks like, the talk now, particularly in the US, is they're pushing back any potential rate cut to September and beyond.

Winston Sammut: Yes, the issue with that is, is that there is an election over there in in November. And I don't think the rate wants to be, sort of, seen at around the election time to be a moving rate. So if anything is going to happen, it's going to be, say, in September. And maybe then December, rather than through the election period. So that's one thing to keep in mind. But it's about the data. The data has to be consistent. So what we've seen in the US now is the ten year bond rate is at 455. It's broken through that 450 barrier. As you said, the the auctions didn't go too well. it was priced at the top end of the range in terms of yield. The demand wasn't as great. So, you know, people are expecting, in this uncertain time, a bit more of a premium, in terms of if they're going to be buying bonds.

Manny Anton: Yeah, that was definitely a message that came through. Sort of focusing a little bit more on our domestic markets here. We had April CPI data released this week, which you've touched on already. But it came in higher than anticipated, at 3.6 versus export expectations of around 3.4. Again, as you've also said, inflation here domestically is looking very sticky. And a lot of the commentary has been around the possibility that the next rate move could be up. And if that is the case, how are you seeing this sort of sentiment play out in domestic property?

Winston Sammut: Well, it's it's really a situation of it's either a feast or famine. And at the moment, everyone's looking at it from from the basis of a glass half empty rather than a glass half full, and so people seem to be stepping away. The sector, the REIT sector, so far this month being the last day of the month, is up 2.1% for the month, which is not too bad in the environment that we've seen. But it was up 5%/6% earlier in the month. So it's been dwindling down as bond rates have been moving up. We have seen maybe a couple more of transactions take place. But again, they're at the lower end of the market. They're not really reflective of the big end of town in terms of what's happening with valuations and where buyers and sellers are willing to meet.

Manny Anton: All right. Has has Goodman's continued to be the key driver of that index? (The property index)

Winston Sammut: Goodman's continues to be the key driver. I've mentioned before, it's seen as the proxy by a lot of the general equity guys, as the exposure to property being in Goodman. The positive aspect they see is that it's involved in data centers, now. And, and that's a positive for the sector overall. Goodman's has been up and down, but not to the same extent that the rest of the market has. In fact, Goodman just probably helped the market to to make that 2.1% -

Manny Anton: -to remain in positive territory?

Winston Sammut: Yeah,

Manny Anton: Yeah, okay. That makes sense. And a couple of stock specific questions for you, in the property space in Australia. Lendlease has featured heavily in the press this week. They've announced they're exiting the US. That follows hot on the heels of them exiting Asia. And there's further discussion that in fact, they putting together, an exit plan for their UK exposure. What's the rationale behind all that? What's going on there?

Winston Sammut: A number of large investors in Lendlease have been very disappointed with the performance of the stock, the performance primarily of the CEO and the board. And so they've been pushing for some change. And whilst Lendlease to date, has sort of shied away from selling some of these assets, the decision was taken last week, the week before, to actually jettison offshore investments and just to focus on Australia. And I can understand why that is. Lendlease is like an octopus with many tentacles, with businesses all over the place. It's a hodgepodge. One part of the business maybe up, the rest of the business are down. Very difficult to maintain and control. So I think getting back to basics; getting back to the Australian exposure, the Australian market, is probably the right way to go. Apparently there's there's going to be somewhere around $4 billion worth of assets to sell, get off the balance sheet, get into cash and bring that money back into Australia.

Manny Anton: Do you expect that some of those funds will be paid out to shareholders, in terms of a special deal, or will they will they be utilized elsewhere?

Winston Sammut: I very much doubt it. I think they'll be utilized elsewhere; reduced debt, bolster up some of the domestic businesses. I don't see any immediate payback, other than - there should be an improvement in the share price over time, but it's going to be gradual rather than in one big hit.

Manny Anton: Okay. And you, as a property fund manager, I'm getting the sense that you're positive about these changes, that Lendlease -

Winston Sammut: I'm positive about the change. But I'd like to see them actually, start and take place before before committing.

Manny Anton: Okay, understood. One more stock specific question for you. On the domestic front, there was a large sell down in Dalrymple Bay infrastructure, (ASX:DBI) is the code, on Wednesday night, It looks like QIC sold its shareholding, which is slightly above 10%. it was done by a bookbuild with Macquarie. Was done at almost a 7.5% discount to the prevailing price at the time. What's your take on this? What's going on? Why the exit by QIC?

Winston Sammut: Well, maybe I'm being a bit cynical, but at the same time, a couple of days before there was an announcement that the Queensland government is actually borrowing some money from QIC. And so that may be one of the reasons why, they've sold this, this block was they've now got about $129 million out of the transaction. The stock has been performing exceptionally well, got up nearly to nearly $3. And the price that the bookbuild was based on, ranged between $2.58 and $2.70 in 2 cent increments. So it was actually, sold towards the lower end of the price range, at $2.62. But, it is a very attractive investment. Dalrymple Bay infrastructure owns the coal loading terminal in Queensland. I think it's one of the biggest in the world. So it's an owner of property, as it were. And it's doing exceptionally well. They're shipping out a record tonnages. Now a 262. the stock is actually yielding, 8.2%, but it's franked to 67%. So when you take the franking into account, that becomes a yield of 10.5%, which is very attractive.

Manny Anton: Pretty impressive. Do you have it in your own portfolio?

Winston Sammut: Yes, we do have it in our portfolio. But it's settled now at around 276. And at 276, on a cash yield, it's yielding 7.8% and on a franked up yield, it's yielding 10%, which is still very attractive. And I think the distributions are likely to grow over the next couple of years.

Manny Anton: Okay, alright. Well, that covers the stock specific. Looking forward to next week; is there anything that, that you've got your eye on for next week? Anything we should expect in terms of news flow on the property front?

Winston Sammut: Well, we're into June and next week. Today is the last day of the month. We'll see what happens on the close today, there's always a little bit of maneuvering here and there with stocks to make them look either a little bit better or a little bit worse for the month. So the REIT's will start announcing distributions for the June quarter. Starting next week and the week after. So that's one thing to keep an eye on. In terms of whether distributions are maintained, whether they change, whether they cut back. I expect them to be maintained because so far we haven't seen a lot of adjustments in terms of what the outlook is, from management. So that's one thing to keep an eye on in the next couple of weeks, but, it will be the end of the financial year at the end of the month. I expect the REIT's to do reasonably well, because people will want to hold on to get their distribution, and then we'll see what happens in July.

Manny Anton: Okay, great. Well, Winston, thank you very much for your time, as always.

Winston Sammut: It's a pleasure.

Manny Anton: And, we will be back with another edition of Winston's Weekly next Friday. Until then, have a great day and a great week.

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

Manny Anton

Sequoia Financial Group
Manny has over 30 years’ experience in financial markets, banking and corporate advisory. He previously worked at UBS, Credit Suisse and RBC, covering equities and equity derivatives, both domestically and internationally, based in London, Hong Kong and Sydney. Manny has also worked with corporates in IR and development in the energy and resources sectors.

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