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Winston’s Weekly: REIT results period wrap

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: Winston, why don’t we start with with an update on this week’s property news. This week has seen the last lot of property names report – a few stragglers! Any highlights from these? Anything where we should be aware of?

Winston Sammut: Well, I guess now that they’re all out of the way, I guess there weren’t any major REIT’s announcing results this week, but the last few laggards with some of the smaller ones. I guess looking at the picture overall, there are a couple of things that came out of it, and I’ll talk about each property subsector separately. The standout was was in the industrial sector with Goodman Group coming out with a very good result. And as a result of that, the stock was was in favor and it appreciated.

Manny Anton: There was no surprise in that.

Winston Sammut: No there was no surprises whatsoever. But the fact that they’re concentrating now more so on data centers, which is a big growth area, it’s helped them. But the other bit of news which came out yesterday was that Goodman Group is now in one of the global REIT indices, which it hasn’t been in before. And that also gave it another a bit of a kicker.

Manny Anton: What index is that?

Winston Sammut: I think it’s the NAREIT, one of the large read indices.

Manny Anton: Okay.

Winston Sammut: And so that’s that’s the industrial sector looking reasonably good. Let’s not talk about office – which really what we’ve seen in the results in office is cap rates continuing to move up, valuations continuing to go lower. And that’s an expectation that will continue into the June half year, the June period results. So we expect some more adjustments to valuations. They may well be the last ones and probably in the area cap rates going another 10 to 15 basis points. Obviously, occupancy is an issue. And we’ve also seen this week that the Fair Work Commission has, in fact accepted an approach to put working from home into agreements with employees. So, that’s that’s going to be an issue in terms of getting people back into the office, which in my opinion, we’re not going to get a situation where everybody will be back in the office five days a week. So office is still a little bit of concern. Retail has been pretty well – the results were well-received. Foot traffic is up, turnover is up. Releasing spreads are going in the right way. So from that perspective, retail is looking okay. We may still see some issues with cost of living pressures and adjustments to CPI’s when they come out, but I think it’s probably over the hill, as it were, in terms of the issues with with the retail sector. Retirement living – and I’m not talking about aged care, I’m talking about retirement living, which is government supported. There’s been a bit of a slowdown in settlements because people what they basically do is sell their existing home to buy a smaller place, manufactured home in most cases, because of the issue with the cost of living pressures and higher interest rates, settlements of them selling their homes have been protracted, which means the settlements with the property operators have been pushed out. So that’s put a little bit of pressure on on those retirement living operators, but I think they should be okay. So much so that the lifestyle community’s one of the largest operators of manufactured home estates, came out last week with a capital raising because of issues with rising debt costs and slowing settlements. Apart from that, overall, the sector itself is in good shape and if you are looking at lower interest rates over the course of the year, not immediately, it should be in a good position going forward.

Manny Anton: Okay. And sort of looking out in the remainder of 2024, what do you expect? How would you position yourself? I mean, given what you’ve just described?

Winston Sammut: Well, again, we have a preference for retirement living. We have a preference for childcare center. Again, both of those are government supported. So we see that continuing to be in good demand going forward. Retail is probably something that we are looking at more closely at, but concentrating on cost of living – sorry – adjustments. So we’re looking at non-discretionary as opposed to discretionary, not the big malls. The other interesting thing is that there has been some activity in terms of transactions taking place, but they’ve been in that ‘under $100 million’ price tag. So some of the smaller offerings around whether they be retail or whether they be office, they have been taken up, but the larger ticket items are still a bit slow to get through. So we think the outlook is reasonable. And if you’re willing to sort of wait, this is the time to be increasing your exposure.

Manny Anton: So, Winston, in terms of M&A, looking forward for the rest of 2024, what are you expecting? Are you expecting to see a lot of activity? If so, what subsectors would you expect to see it in?

Winston Sammut: I think there will be more activity. I mean, we’ve got two M&A actions at the moment in Newmark Property Trust and in Eureka. And I expect to see a lot more going forward. And I’ll probably be targeting those those smaller groups and operations where they’re trading at reasonable discounts or larger discounts to NTA office, to some extent, some of the office funds around retail, things like RAM Essential Services, it’s got an NTA over $0.92 is trading at 66. It’s yielding about 6.5/ 7%. So they’re the sorts of things that that will be in focus by a lot of the groups are looking to get larger.

Manny Anton: Okay. And you did just mention BWP Newmark – any update on what’s happening there?

Winston Sammut: We are progressing with our getting to the 5% level in terms of calling for an EGM, and we’re in the process of getting to that. We’re around the 4% level, just waiting on some replies back and some people to just sort of commit to do what we’re trying to do.

Manny Anton: Okay, Well Winston, thank you for for your time today. And we’ll be back with with another edition of Winston’s Weekly next Friday.

Winston Sammut: Thank you.

Manny Anton: Until then, have a great day.

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