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, as always, welcome back.
Winston Sammut: Thank you.
Manny Anton: All right, let's start, like we usually do with with the US markets. The S&P and the Nasdaq continue to hit new records this week. But we had some interesting data overnight, the market was looking very keenly at the CPI print for June, in the US, which came in last night. And surprise, surprise, the number was much, much softer than what economists had expected. The print for June came in down 0.1% month on month. And that was versus expectations of a rise of 0.1%. It also dragged the annual inflation rate down to 3%. Now, all of this is great news from the fed perspective, and certainly investors took it that way. They're now increasingly confident that fed rate cut is likely to come in September. So, not surprisingly, Treasury yields fell, as you'd expect overnight. And we also saw some housing related names over there, for example, Home Depot and, and D.R. Horton, rally on the back of that news. Your thoughts on these bits of information coming out of the US and some of these moves?
Winston Sammut: Yeah. The numbers came in positive, and taken positively in terms of expectations for inflation continuing to come down. It is happening at a slower rate, but nevertheless it is positive news and the market's taking it that way, and the bonds rallied as a result. And as you quite rightly pointed out, the expectations are now that there's a greater chance of a rate cut in the US in September. Having said that, because the question was asked of the fed chairman at Powell. "Are we going to cut rates? Are they going to cut rates shortly?"
[He] said, 'well, there's no expectation to actually cut rates straight away'. They still want to see some more data come through consistent with a downward trajectory for inflation. And as far as labor markets are concerned, the unemployment rate edged up just a little. So that's also a positive for rate cuts. But he was also asked a question about would you cut rates pre/ 30 to 60 days before the election. And he said that, they don't look at the political aspects of what they do. The central bank's concentrate on data, the numbers, and regardless of what's happening on the political front.
So, I think there is a very strong likelihood of right of a rate cut in September, providing the numbers that come out between now and then continue to indicate that inflation is under control.
Manny Anton: Okay, fantastic. I agree, it's looking really interesting now. And as I said, the the property names seem to have moved.
Winston Sammut: Yes. Residential REIT's did well. So, it's positive for the REIT market overall. If rates come down.
Manny Anton: Okay. let's turn our attention to domestic markets. Now, I believe Macquarie issued a property report this week. And the report basically recommended moving overweight on the A REIT sector. Now, I gather, being the number one property manager in Australia yourself, or fund manager I should say, that you've seen the report. Can you tell us a little bit about what drove the move to overweight Macquarie?
Winston Sammut: The reasoning behind the move is primarily looking for investors to move ahead of the curve. And by that, what I'm what I'm saying they're saying is that effectively, rate cuts are going to happen. The market is improving. We've seen some transactions take place in terms of physical, transactions taking place, assets swapping hands, and that we're very close to the bottom of the cycle. That being the case, it's appropriate for people to move ahead of the curve, as it were, and get set in the REIT sector now – which is trading at a, 20 to 30% discount to NTA in general. It's offering some good attractive yields. And so expectations, as far as Macquarie is concerned, is that prospects are for high prices going forward. And to get in there, rather than wait for the news to come out and everybody else starts to climb in.
Manny Anton: Did they make any particular comments in terms of sub-sectors, any one over another?
Winston Sammut: Again, look, in terms of the property subsectors, there's still a question mark about office, about [if] industrial is still okay. Retail is okay. And of course, anything's that got to do with data center is positive. And that sort of helps stocks like Goodman Group, that have indicated that they're looking to getting into the sector in, in a reasonably big way.
Manny Anton: Right! Now, moving on. We've decided to start a new a new segment to our weekly chat. What we are going to do is add a new segment which will discuss a stock of the week. So it won't be a recommendation. It's purely for informative purposes, but every week Winston will highlight a particular stock and, give us a little bit of information and color, around the stock itself, what it is exposed to, what the key drivers would be to it, etc. But again, to be clear, not a recommendation from us to buy or sell a stock, which is not what we do. So, Winston, what's the first the very first stock of the week?
Winston Sammut: The first stock of the week is, Ram Essential Services. The code is REP. It's market cap's about $310 million, and it's primarily exposed to retail, but not discretionary retail. They own neighborhood shopping centers, as well as some medical assets. And medical assets are slowly getting a lot of attention from investors. So from that perspective, it's exposed to some property subsectors that are doing well at the moment. Non-discretionary retail is doing well, and medical centers are in demand.
The stock is currently around the 60 – 62 cents. It's got an NTA of $0.92. So it's trading at about a 30% discount to NTA, but it's yielding above, 9%. 9.2%. It's paying a 1.4% distribution each quarter. So it's, it's paying 5.6 cents for the year, and there's very little risk to that distribution, going forward. So it's quite an attractive yield.
Now, is it possible that there might be some corporate activity? There may well be, but it's not the right time at the moment for corporate activity in terms of some of the biggest stocks, taking out a vehicle like RAM. We need to see different metrics in terms of interest rates being, lower. We need to see, the REIT's gearing levels maintained at around that 30% level. But it's it is an attractive stock, at current levels. And I'm just highlighting the fact that it's in those sectors for some subsectors that are in demand at the moment.
Manny Anton: Okay, great. That's our very first stock of the week. So, looking forward then to next week, as usual, anything we need to be aware of, anything big? Any big announcements in property land that we need to be aware of?
Winston Sammut: Well, being mindful of the fact that we're very close to the results coming out, early in October. Stocks are in blackout mode. So we're getting very limited news, in terms of how stocks are performing and how they're looking at things at the moment. Management will will come out when the results come out and make statements appropriately. So very quiet at the moment, in the meantime.
Manny Anton: Winston, that was fantastic. Thank you for your time and your insights today, as always.
Winston Sammut: Pleasure. Thank you.
Manny Anton: And, that will be it. We will be back with another edition of Winston's Weekly next Friday. And 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.
