S&P Global Market Intelligence offers our top picks of real estate news stories and more published throughout the week.
Distress from the coronavirus pandemic played out across U.S. real estate sectors in the trading week ending March 20, with no property type left untouched — even those that investors considered safe in normal times.
In a March 16 research note, Compass Point analyst Merrill Ross argued that widespread restaurant shutdowns would hurt hourly employees, and the damage to those workers' livelihoods would filter through to apartment owners. The SNL US REIT Multifamily index fell by roughly one-third in the month ended March 18, slightly outperforming the broader real estate investment trust space.
For apartment REITs with higher leverage and lower dividend coverage, dividends could be at risk, Ross wrote, adding, "Job growth had been supportive of high demand, and the opposite — job contraction — will lead to lower occupancy and a lack of rent growth."
In triple-net REITs, too, "This wasn't supposed to happen," BTIG analysts Michael Gorman and James Sullivan wrote in a March 18 note, observing that the sector was down 47% so far in 2020 and 45% in March alone. With key tenants such as restaurants, theaters and fitness clubs shut down, the normally defensive sector was looking uncharacteristically vulnerable.
Though managing risk is a core competency for many triple-net REITs, the analysts wrote that questions remain about when business may return to normal.
"Companies we spoke to highlighted that without these answers, landlords and tenants will not be able to start discussing solutions while shares struggle to find a bottom," they said.
Meanwhile, in healthcare, one of the hardest-hit REIT sectors, SMBC Nikko analyst Richard Anderson argued that, when viewed rationally, seniors housing is worth something more than zero. Amid the sell-off of coronavirus-exposed sectors, investors appeared to be assigning no value to private seniors housing portfolios, while government-reimbursed skilled nursing properties — widely out of favor in recent years — were being valued higher because of the presumed greater likelihood of a government bailout, Anderson wrote.
"While we expect the seniors housing operators and the REITs to ultimately share the pain, and the extent of the damage remains unknown," he added, "the presumption of zero value on senior housing makes zero sense to us. This is particularly relevant considering the future demand from the Great Depression-era elderly that is going to come no matter what, while declining supply may be one silver lining to all of this — the combination being the longer-term opportunity."
The coronavirus impact
* The U.S. hotel sector was also hit quite hard by the impact of the virus and subsequent travel restrictions. STR data showed that U.S. hotel occupancy dropped 24.4% year over year to 53.0% in the week ended March 14. The Wall Street Journal reported that hotel industry groups have asked the Trump administration for a $150 billion bailout, with $100 billion to retain workers and $50 billion to service debt.
* Marriott International Inc. withdrew its 2020 guidance and said its upcoming dividend payment on March 31 may be the last until conditions improve. The hotelier is also implementing cost-cutting measures, including reported plans to furlough tens of thousands of workers.
* Hilton Worldwide Holdings Inc. reportedly plans to close most of its hotels in key U.S. cities, with President and CEO Christopher Nassetta saying the virus has hit the industry in a "devastating way."
* Regional mall giant Simon Property Group Inc. moved to temporarily close all of its U.S. retail properties, with the measure taking effect from March 18 and ending March 29. Simon also amended and extended a $4.0 billion senior credit facility with a $6.0 billion facility earlier in the week.
* Another regional mall REIT, Taubman Centers Inc., said it is closing all but two of its shopping centers in the U.S. in light of the pandemic, effective at the close of business March 19 and through March 29. The company noted that its two Chinese shopping centers have reopened after temporary closures.
* Fellow regional mall landlord Washington Prime Group Inc. further slashed its cash dividend for common shares and operating partnership units due to uncertainty caused by the pandemic. It plans to pay a quarterly dividend of 6.25 cents per common share and operating partnership unit throughout the rest of 2020. It had earlier declared a first-quarter dividend of 12.5 cents per share.
* U.S.-based self-storage REIT Public Storage decided not to pursue its offer for Australian peer National Storage REIT in light of the uncertain environment due to the pandemic.
* Healthcare REIT Ventas Inc. withdrew its 2020 financial guidance due to the coronavirus pandemic and recently drew $2.75 billion under its $3 billion revolving credit facility to increase liquidity as a precautionary measure.
* The observatory of the Empire State Building in New York City was temporarily closed. Empire State Realty Trust Inc. said the observatory accounted for $13 million in net operating income for the first quarter of 2019 and $24 million in the second quarter of 2019.
* Lodging REIT Park Hotels & Resorts Inc. expects to suspend quarterly dividends for the remainder of the year and outlined cost-cutting contingency and limited operation plans.
In the M&A zone
* Data center REIT Digital Realty Trust Inc. completed its merger with InterXion Holding NV. The deal was agreed to in October 2019, valuing InterXion at about $8.4 billion.
* NexPoint Hospitality Trust and Condor Hospitality Trust Inc. extended the closing date of their merger to March 23 from March 16. The companies have already extended the closing of the deal several times.
* Office REIT Mack-Cali Realty Corp. said its board is open to acquisition proposals and its management recently met with an unnamed bidder to discuss a potential deal, and that the party indicated that it would revisit a proposal when markets stabilize.
Will we work?
Embattled coworking giant WeWork Cos. Inc. was in the news during the week for a number of reasons.
WeWork's new CEO, Sandeep Mathrani, is said to be considering more layoffs, people briefed on the matter told London's Financial Times.
The Wall Street Journal reported, citing people familiar with the matter, that WeWork's main backer, SoftBank Group Corp., may decide not to go through with its planned acquisition of roughly $3 billion in WeWork shares from existing investors. WeWork executives then sought to reassure staff that SoftBank's stock purchase had no bearing on the Japanese conglomerate's commitment to WeWork, according to a memo obtained by Bloomberg News.
The We Co. unit also sold the Lord & Taylor building in Manhattan, N.Y., to e-commerce giant Amazon.com Inc. for $978 million, Real Estate Weekly reported, citing city records. Amazon plans to use the 11-story property as its New York City headquarters.
* South Korea's KB Asset Management Co. Ltd. was the winning bidder for a 48-story tower in Houston that is being sold by a partnership between Hines Interests LP and the California Public Employees' Retirement System for $675 million, Real Estate Alert reported. The 1.1 million-square-foot property is 94% occupied.
Around the world
* Australian developer Goodman Group is selling its central and eastern European logistics real estate portfolio to Singapore's GLP Pte Ltd. for roughly €1 billion. The portfolio includes properties in Poland, Hungary, Czech Republic and Slovakia.
* Commercial real estate transactions in the Asia-Pacific region fell 50% year over year in the first eight weeks of 2020, and were down 18% in Europe, according to Real Capital Analytics. The fall was attributed to the coronavirus pandemic, and the firm noted that the virus has spread more recently in the Americas, where deal volume was 10% higher year over year in early 2020, and disruptions would be evident in data for the second quarter.
* Private equity and real estate giant The Blackstone Group Inc. is in talks to buy the Southbank Place development in London that was placed on the market in May 2019 with an asking price of roughly £875 million, Property Week reported. The fully leased office asset is being sold by Almacantar Ltd.
Featured during the week on S&P Global Market Intelligence
Mall REIT kingpin shuts doors as retail outlook dims again
Commercial real estate in uncharted territory as market retreat deepens
Data Dispatch: Hotel REITs halt dividends, tap credit facilities to help maintain liquidity
Data Dispatch: US REIT capital market usage remains high in February
Data Dispatch: Roughly half of US equity REITs top Q4'19 FFO estimates