Real-estate shake up – what does it mean for the property market?

Ross Greenwood speaks to Managing Director of Folkestone Asset Management Winston Sammut –  who has been following the real estate giant – about what will happen at McGrath after its chief executive, chairman and entire board walked out the door.

Introduction: Real-estate shake up – what does it mean for the property market?

Ross Greenwood: The big story of the day there is no doubt is in the area of real estate. You’ve seen McGrath Real Estate today. Of course John McGrath, one of Australia’s best-known characters when it comes to real estate. The share is down $0.07 cents to $0.50 cents, down by 12.28%.

Now bear in mind, it’s two years ago that McGrath was floated on the stock market and it was floated at $2.10, but today what happened was the chair of McGrath, Cass O’Connor plus the company secretary, plus the chief executive, plus more than half of the board walked out the door. As a result, John McGrath will become the new interim executive chairman of the company effectively having to step back up to run his old chop.

The problem is for John McGrath, that many of the key agents have already left. Of course, John McGrath who did make $37 million cash when it was floated, he sold a wedge of his shares but not all of them, right now is going to make some big questions. We’ll have that very shortly for you. The other company in real estate that also is in the news today actually is the majority shareholder that company Domain Group is also the majority shareholder in this radio station, Fairfax Media.

This is going to be a significant embarrassment for Fairfax, that is the chief executive of Domain Holdings, Antony Catalano, someone who I’ve known since he’s been a young man, has resigned as the chief executive officer not two months after that company listed on the ASX. Now, Fairfax is a new domestic and international search for chief executive has started.

The problem is why did Antony Catalano, who has resigned as a result of family reasons, believing that he needed to move to Sydney from Melbourne? He has eight kids, I’m going to tell you. Why did he not know this two months ago before the company floated? If he did know, why were investors not told at that time? Today, the Domain Group shares have fallen $0.57, $2.75 or 17.1%. Antony Catalano is Domain, was Domain. He’s the brains of it. He’s the man who created it and he was the absolute key in the floating of that on the stock market. It’s another big story as well.

We’ll take you through all of that stuff tonight on the program but I wanted to go first up to Winston Sammut, the managing director of Folkstone Asset Management. Winston has been an investor, has been certainly watching this whole issue with McGrath Real Estate for quite some time, John McGrath and his company. He’s on the line right now. Many thanks for your time, Winston.

Interview with: Winston Sammut, Managing Director, Folkestone Asset Management

Winston Sammut: It’s a pleasure.

Ross Greenwood: Can you just explain in regards to what’s taking place with McGrath? You’ve seen the chief executive, you’ve seen the chair, you’ve seen half the board and the company secretary walk out the door today. Is this a positive development for the company or not?

Winston Sammut:  It’s a very negative development when you have issues with management and the board without a real explanation of why this has happened. These people have been running the entity and setting the strategy and so on for the last couple of years. People are listening so you have to worry and wonder why this has occurred. You can understand one person leaving and I’ll talk about Domain in a moment, but when you’ve got the whole lot down, it’s not a good look at all. Investors should be worried about what’s actually been going on.

Ross Greenwood: Does it say something about the company or does it say something about real estate markets around the nation right now because quite clearly the company says it’s going to tip into loss in this six months, in this financial year? It is a situation where it says that there has been pressure on the number of listings which is where real estate agencies make their money? McGrath is one of the largest real estate agents in Australia so this is obviously of concern as to whether this is structural or whether it’s what’s happening inside the company.

Winston Sammut:  Well, it’s a combination of both. The issue with real estate agents is that they are being challenged, I guess. The traditional real estate occupation is being challenged by the advent of the Internet and the ability for people to effectively sell their homes using the internet at top price, fees, and so on. It is a very big change that’s appeared. I suppose also one has to question the price of the existing list initially which was probably priced to perfection if you take that for what it’s worth.

Ross Greenwood: Well, price to perfection is not there because if you sit there and think the price was $2.10 two years ago, it’s now $0.50, not only price to perfection but beyond perfection you have to say.

Winston Sammut:  Exactly right. You can’t do much about it now. I supposed for current investors that are in the stock at the moment, that’s how to come and sort out when they’re uncomfortable with the outlook.

Ross Greenwood: Would John McGrath do well to take his $37 million and take this company private?

Winston Sammut:  I think given what happened particularly over the last day with the board and the chair leaving, and the fact that they’ve lost a lot of those good people over the last 12 months or so, it’s probably the right thing for him to do to take it out of the spotlight of being a listed entity where you’ve got to come up and explain exactly what’s going on and maintain — maybe it’s never been listed in the first place.

Ross Greenwood: I’ll tell you what, it’s telling today, Winston, because there was certainly from both Domain Group plus also from John McGrath himself, there was no word. They did not want to talk, they did not want to say a word about any of these. Take me quickly to Domain Group and all Domain Holdings and the resignation of Antony Catalano as chief executive. I mean, surely two months ago, if you thought that the responsibilities as chief executive of a business thought that you might have had to have moved to Sydney, surely that would have been something you would’ve worked out before the flight not after the flight.

Winston Sammut:  Very, very much so. He’d be fine up here. He would have known that he would have had to spend a fair bit of time in Sydney beforehand. To run the business probably, he’d have to stay to Sydney so I suppose it’s better to leave for a while. That’s what he didn’t see two months ago or three months ago and went all disappeared.

Ross Greenwood: You can’t argue that it’s not a material situation given that fact that the share price has fallen 17% today on the news that he’s walking out the door.

Winston Sammut:  Well it’s quite right in truth. He is the face of Domain, has been the face of Domain. It’s a big issue. Investors are worried of their fate.

Ross Greenwood: It’s going to be interesting to watch. Winston Sammut is the managing director of Folkstone Asset Management, watches all of these property companies very, very closely. Winston, as always, we appreciate your time here on the program.

Winston Sammut:  It’s a pleasure. Anytime.

 

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