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Winston’s Weekly: Economic data releases impact on A-REITs

The following transcript has been AI generated:

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

Winston Sammut: Thank you.

Manny Anton: Okay, So, Winston, why don’t we start with an update on this week’s property news? Perhaps starting with the US Fed chair has been sort of fairly chatty this this week and has been out there pushing markets or tele-markets that a rate cut or two is definitely on the cards before year end. What did you make of that and what are the implications from a property perspective?

Winston Sammut: Well, the markets seemed to have taken that news fairly well. But it’s interesting because a rate cuts have already been priced into the market, so it shouldn’t have been much of a surprise. The question really is as to when will they start to make the cut? And we still don’t know that. And there’s some speculation whether it is going to be in May or June, maybe as late as September. More than likely it’ll be sometime in June going forward. So as I said, the markets already aware of rate cuts. It’s just the timing that’s the issue.

Manny Anton: Okay. Understood. And shifting our focus to the domestic front, there were some there was some data out this week which also has implications, I think, for rates. So GDP numbers which came out, I think it was on Monday, were a little bit softer than expected. What’s the read through there for the domestic rate, and again, likewise property here domestically?

Winston Sammut: Well, I’ve mentioned before that there are prospects for perhaps another rate rise. This softer number probably pushes that out or maybe eliminates a rate rise altogether, given that the economy is actually slowing down, and that’s what the RBA want to see. So that the flow on effect of that, is that likely to be again, interest rate cuts, which markets are anticipating but timing uncertain and the prospect of a rate rise sort of diminishes.

Manny Anton: Okay, you think it’s probably likely we still need a few more data points that firm that sort of view up a little bit before markets really commit heavily, right?

Winston Sammut: Correct. Correct. The other thing we’ve got to keep in mind is that Australia’s rate of inflation is still higher than, say, the European market, which is now getting close to 2% and the US inflation rate, which is which is close to 2%, we’re still around 4%, so we’ve still got a way to go. And so the the central banks need to see numbers come through to support the case for a rate cut.

Manny Anton: Yep. And let’s have a look at the residential property in Australia. So there was some interesting data out as well on residential this week, which I think was new home lending data for January, which as it happens, came out unexpectedly soft. I think it fell 3.9% from December to Jan. Did that surprise you? Did that surprise property markets in Australia? And again, what are the implications of that?

Winston Sammut: To some extent it was a bit of a surprise because the demand for housing is very strong. Realistically, there is a shortage of housing, so there should be a high demand. The problem is I guess supply. And also the problem is that as we got closer to Christmas, people were sort of under pressure with cost of living pressures. So they’ve sort of backed off a bit in terms of of making a decision about buying a house and going out and borrowing. So I suspect that slow down is probably was on the cards, but it was probably a bit softer than markets were expecting. But we might see a rebound in February after the holiday period goes through. But I doubt it’ll be a very big rebound at this point in time. It’ll be a slow and steady increase as we go along.

Manny Anton: All right. In the listed space, what are the key residential exposures?

Winston Sammut: Well, the key residential exposures are Stockland and Mirvac, but they’re two different animals. Stockland is more about land and and a standalone building on that land. Whereas Mirvac is has got predominantly more apartments. So they’re different markets and they’re different price points as well. So they are different, but they’re primarily the two main ones. There are a number of smaller operators; Cedar Woods, for example, Pete I’m from W.A. that are primarily residential land owners and developers, but they’re not as big as the Australia wide builders like Stockland and Mirvac.

Manny Anton: Okay, understood. And then, looking forward to next week now. Is there anything on the property front that you’re expecting, any bits of news that you’re looking for?

Winston Sammut: There was a bit of news this week about one of the M&A activities in Eureka and a substantial shareholder came out with a just under 10% exposure to Eureka. It picked up 8 million shares on one day and 8 million shares a couple of days before at 53 and a half cents for the 18 million, which when you compare it to the the the price relative that Aspen is is bidding for Aspen is bidding for Rio for Eureka on the basis of .26 of an Aspen share for every eureka share and if you take a 1.70 price for Aspen that comes out at a point which comes at around 40 $0.45. So this group has been building up a stake at 53 and a half, and I’m not sure whether they paid 54, but 53 and a half is what they paid. What they plan to do going forward, I don’t know. They’ve got that that 10% stake. If they just building a blocking stake, if they get above 10%, they can stop compulsory acquisition. If the Aspen bid does go ahead and they get to to 90%, they can block the compulsory acquisition of the de-listing and whether they go for a full bid, we’ll have to wait and see.

Manny Anton: It is a considerable premium, though? Enough to get that block –

Winston Sammut: It is a considerable premium. The NTA’s about 47 cents., so paying a bit above. But if you want control or if you want a decent there’s a control premium

Manny Anton: Understood. Alright Winson, thank you for your time today, as always. And we will be back with another edition of Winston’s Weekly next Friday. Have a great day and a great weekend.

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.