Manny Anton: Good morning and welcome back to our first edition of Winston’s Weekly in 2024! I am Manny Anton, your host for today. As always we are talking today 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 Listed Securities with the ASX-listed property fund manager Charter Hall Group. Winston, welcome back to the network and happy new year!
Winston Sammut: Thank you. Happy New Year to you, Manny.
Manny Anton: Why don’t we start with a with a summary of of how you saw 2023, how it ended and what your expectations were.
Winston Sammut: Sure. Well, we had a very strong finish to the year, particularly with regards to the REITs. In November, we saw the sector up, just under 11% and in December the sector was up just a touch over 11%. So we had a 20% effectively compounding growth in the last two months and that was primarily on the back of investors expecting rate cuts to start in this year in 2024 and to have quite a number of them come through over the course of the year, particularly in the US and then here in Australia.
However, fast forward to 2024 January and sentiment has somewhat changed as a result of a number of, of of economic releases. Expectations are now that there won’t be as many interest rate cuts over the course of the year, number one. And number two, that they’re not likely to start for a couple of months rather than sometime in January or February.
So that’s why the market down. And yesterday we saw the market sort of impacted because of that. The sector was down just over 2% on the day as bond yields crept back up above the 4% level. The ten year bonds now are around 420 in Australia, 4.2 and in the US around 4.1.
Manny Anton: So Winston, you know, sort of having given us that description at the start of the year, what do you see ahead for valuations in the, in the property sector going forward, particularly in the first half of say 2024.
Winston Sammut: Particularly in the first half? We do see some further pressure on valuations. They won’t be as great as what we saw, movements that we saw last, but they’re still going to be there. And in particular concerns about the office space.
Manny Anton: Right. And the number of transactions or acquisitions was pretty low in 2023 by historical standards. Obviously, valuations being an issue. Do you see that changing in particular in 2024? Do you see more transactions? You see more acquisitions?
Winston Sammut: Yes, I expect more transactions, more acquisitions to take place, but it’s not going to be like opening the floodgates. It’ll be a gradual thing over time, particularly as interest rates levels stabilise and buyers then know exactly what they’re up for in terms of any borrowing costs.
Manny Anton: Okay. You’ve mentioned the office, you know, sort of the office space, and that is that’s that’s been hit pretty hard and it’s pretty soft. What about some of the other subsectors? I mean, where where where are you seeing – what’s the best performer of them, do you think? Where where’s the strength in those property subsector?
Winston Sammut: The best performers over the last, I suppose 12, 18 months, two years has been the industrial sector. But having said that, and everybody was sort of scrambling to get a bigger exposure to that subsector, prices have now sort of reached a level that is, I suppose, an issue. I doubt they’ll go much higher, but they’re unlikely to fall from these levels. Demand is still there, but people are now being a bit more choosy as to what they pay, what they buy, where they buy. So it’s a little bit more selective.
Manny Anton: All right. Okay. And you know, again, in the the other subsectors, obviously it’ll vary, but, you know, we expect to see some of that bid offer spread, maybe come in for some of those other sectors as well.
Winston Sammut: Yes. Expectations are for those office rates to come in. But the one that is very that spreads very large is the office of the sector.
Manny Anton: Okay. Well, it makes sense. Just just to finish up, tell us about the Euree Asset Management portfolio. How is it positioned to start the year. Have you positioned that, given what you’ve just described?
Winston Sammut: Well, at the moment we have very low exposure directly to office assets. We do have exposure through some of the diversified trusts like GPG and Mirvac because they do have some office space, but we don’t have any pure office exposures in the fund. We continue to like child care and retirement living, not aged care, but retirement living and childcare.
These are government supported /government funded. So we see that continuing as well, particularly as we want to get more people out into the workforce. So childcare is an important component of that in terms of assisting parents – for the ladies to go out and get a job.
Manny Anton: Winston, thank you for your time and insights today. We will be back with another edition of Winston’s Weekly after the Australia Day weekend. Have a great day!
Winston Sammut: Thankyou.
Disclaimer: Sequoia Financial Group (ASX:SEQ), the parent company of Finance News Network, owns a 20% interest in Euree Asset Management.