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Winston’s Weekly: Bond rates, Newmark, Eureka

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

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’s property chat. Winston, welcome back.

Winston Sammut: Thank you.

Paul Sanger: Now, Winston, let’s start off today with an update on what’s been going on in the property sector.

Winston Sammut: Yeah, it’s been a quiet week, generally speaking, and now that results are all out of the way, and investors are sort of going through those results to see what they’re going to do. But a lot of it has to do with where the bond rates are going, particularly in the US, and they’ve kicked up a little bit overnight. But whatever the central banks are going to do in terms of cutting rates, whether in the Fed, in the US or the RBA here, it’s going to be all data dependent. So it’ll depend on the data that comes out, when it comes out and how they interpret that data. But there’s obviously been a slowdown in terms of consumer spending. And so I would suspect that the likelihood for a rate cuts is on the horizon. But timing, again, is the issue.

Paul Sanger: Yeah, because we discussed last week that, you know, the US Fed Chair was kind of, you know, indicating to the markets that a rate cut or two is definitely on the cards. Overnight, the CPI number came out and, you know, it was higher than expected. Certainly a surprise to the market. The market came off and obviously the bond yields reflected that surprise overnight. Do you think that’s going to impact the stocks this morning

Winston Sammut: I think so. It is probably going to put a view of pushing out rates a little bit longer than expected. But I think the issues in terms of the CPI primarily are the cost of services, insurance, power, all that sort of stuff, which is still fairly high, right across the board over in the US as well as here.

Paul Sanger: You know, I did read something this morning that, post that CPI number, the actual views on a rate cut in June only dropped fractionally and in July moved up fractionally. So, you know, it seemed like a fairly muted reaction compared to that number. But that’s probably, you know, the market’s still focused on other data points that are coming forward?

Winston Sammut: Correct. In reality, we know there will be rate cuts. We just don’t know when. And trying to sort of work out exactly when it’s going to happen is a bit difficult.

Paul Sanger: As long as they come, June, July, who cares — as long as they come.

Winston Sammut: Yeah.

Paul Sanger: All right, let’s move on. Can you give us an update on the Newmark Property (ASX:NPR) deal and also the current position of Euree Asset Management.

Winston Sammut: Okay. Well, during the week, Bunnings came out with an announcement that they will make the bid unconditional next Thursday 21 March. And at that stage, prior to that announcement, the final date… the offer was open until 22 March. They’ve extended that for another two weeks to 12 April. And I would have to say probably because acceptances have been relatively slow. They’ve got 36 per cent to date of the group, and they want 50.1. But when it goes unconditional, the 50.1 disappears because there’s no condition applying to that. So, I suspect that they’re going a little bit slowly.

The position for Euree hasn’t really changed. We’re still endeavouring to get to the 5 per cent threshold to call an EGM and remove them as the RE.

Paul Sanger: I appreciate the update there.

Winston Sammut: There is another M&A activity that’s been taking place, and there’s been a development on that front. That’s Eureka (ASX:EGH), which is subject of a bid by the Aspen Group (ASX:APZ).

Paul Sanger: Yep.

Winston Sammut: It’s a paper bid. It’s 0.26 of a security in Aspen for every Eureka share, which, at the current level of Aspen, values it at about 46c, 47c. Now, there’s been a substantial shareholder notice come out, or a couple come out, from a group called Filetron, who have amassed an 18 per cent stake in Eureka, and they’ve paid prices up to 54c. So, it’ll be interesting to see what develops on that front.

Paul Sanger: And, if you’re a betting man, are they going to go through the magic 19.9 and cause some trouble?

Winston Sammut: Personally, I don’t think they’ll go above 19.9. What they’ve really done is having gone above 10 per cent, they can effectively block the full acquisition and delisting of Eureka, so it will remain a listed entity because they can block the compulsory acquisition.

Paul Sanger: And they’ve obviously increased that stake over the last couple of weeks.

Winston Sammut: Yes.

Paul Sanger: So, there is intent?

Winston Sammut: Yeah, there is intent.

Paul Sanger: Got you. And look, looking forward to next week, what should we be expecting from the from the property front?

Winston Sammut: Probably more of the same. Interestingly, the sector up until the close of business yesterday is up 3.5 per cent for the month. So, another good month for the REITs sector. Also, in the next two weeks, most of them will be going ex-distributions for the March quarter, which makes him a bit attractive. I don’t expect people to sell prior to getting their distribution, so prices should hold up over the next couple of weeks.

Paul Sanger: Winston, thanks for your time today and your insights.

Winston Sammut: It’s a pleasure.

Paul Sanger: 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.