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REIT stocks face coronavirus challenge; $5.8B US hotel portfolio deal at risk

S&P Global Market Intelligence offers our top picks of real estate news stories and more published throughout the week.

Real estate took a major hit this week as growing coronavirus concerns metastasized into market panic, which was then fueled by President Donald Trump's ban on travel from Europe.

The toll on real estate investment trusts was a little lighter than on the broader stock market, and it remains the second-best-performing sector year-to-date of the 11 in the Global Industry Classification Standard, according to S&P Global Market Intelligence data. Year-to-date through March 12, the SNL U.S. REIT Equity index fell 20.5%, while the S&P 500 dropped 23.2%.

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Analysts and other real estate market observers revised and tweaked their models, as the prognoses for specific real estate segments appeared to worsen. Sentiment in seniors housing and skilled nursing was particularly sour, as it was in lodging, as several players including Host Hotels & Resorts Inc., Pebblebrook Hotel Trust, Sunstone Hotel Investors Inc. and Park Hotels & Resorts Inc. withdrew their respective earnings guidance in view of the likely impact from greatly reduced global travel. A BMO Capital Markets analyst trio downgraded a handful of names including Host Hotels and Hilton Worldwide Holdings Inc., which also withdrew its earnings outlook.

"While the ultimate fallout remains uncertain, the travel restrictions that have been put in place, group event cancellations, consumer travel fears, and the subsequent reduction in airline capacity, has rippled through the group and is significantly impacting demand globally," the trio said in a research note.

Investors, meanwhile, are airing concerns about a possible liquidity squeeze in the commercial real estate debt markets, according to Compass Point's Floris van Dijkum and Merrill Ross. U.S. hotel companies, in particular, have more than $300 billion of debt outstanding and cash flows will be challenged in 2020.

The hotel, mall and diversified REIT segments are all high-risk in light of their leverage positions, low interest coverage, high short interest and the risk of dividend cuts, the pair said.

In the office space, Evercore ISI analysts Steve Sakwa and Jason Green singled out a few names for special concern, including SL Green Realty Corp. and Mack-Cali Realty Corp., and praised Boston Properties Inc., Kilroy Realty Corp., Corporate Office Properties Trust, and Vornado Realty Trust, given their relative leverage levels, as recession fears grow.

"While at the moment we are not concerned regarding the ability of REITs to finance at the asset or the corporate level, we recognize we are in a volatile (warranted or not) time, and highlighting leverage exposure seems prudent," they said.

Earlier in the week, Evercore ISI analysts cut their 2020 estimates for hotel owners and operators, predicting 9/11-like market shock from coronavirus.

The properties plain

* Mirae Asset Global Investments Co. Ltd.'s planned acquisition of Anbang Insurance Group Co. Ltd.'s $5.8 billion portfolio of 15 luxury hotels in the U.S. could collapse, as investors become reluctant to provide roughly $4 billion in bridge financing needed for the deal, Bloomberg News reported, citing unnamed sources.

* Amazon.com Inc. is said to be buying the Lord & Taylor building at 424 Fifth Ave. in Manhattan, N.Y., for $1.15 billion from WeWork Cos. Inc., a source close to the situation told the New York Post. The property will serve as Amazon's New York City headquarters and will house several thousand employees, the source told the publication.

* A joint venture of Jeff Sutton of Wharton Properties LLC and Joe Sitt of Thor Equities LLC sold the 11-story retail building at 530 Broadway in Manhattan to a development group led by Michael Shvo of Shvo for $382 million, The Real Deal reported, citing property records.

* An affiliate of Boston Properties Inc. sold two office buildings at 399 and 499 Grove St. in Herndon, Va., to a fund affiliated with USAA Real Estate Co. for $256 million, the Washington Business Journal reported.

* Spear Street Capital struck a deal to buy the 31-story office tower at 225 W. Wacker Drive in Chicago for roughly $225 million from Mirae Asset, Crain's Chicago Business reported, citing sources familiar with the deal.

* Equity Residential put up for sale the 625-unit apartment complex at 3003 Van Ness Street NW in Washington, D.C., with the property expected to attract bids of approximately $240 million, Real Estate Alert reported. Separately, Equity Residential sold the 540-unit Park Hacienda apartment community in Pleasanton, Calif., to Acacia Capital Corp. for $248 million.

* Equity Office Properties Trust, or EQ Office, owned by private equity giant The Blackstone Group Inc., sold the 24-story, 354,000-square-foot property at 44 Wall St. in New York City for $200 million to Gaedeke Holdings Ltd., Commercial Observer reported, citing a spokesperson for Finback Real Estate.

Shareholders vote

* Shareholders of First REIT of New Jersey will vote on the company's proposed liquidation and multifamily portfolio sale at a special meeting to be held April 21. The REIT said its board recommended that shareholders vote in favor of the proposals.

* KBS Real Estate Investment Trust II Inc. shareholders approved the complete liquidation plan of the company and its dissolution at the March 5 annual meeting. The REIT's board authorized an initial liquidating distribution of 75 cents per common share.

Merger close

* Steadfast Apartment REIT Inc. completed its mergers with multifamily REIT peers Steadfast Income REIT Inc. and Steadfast Apartment REIT III, achieving roughly $3.4 billion in gross real estate asset value.

Around the world

* AEW SA, backed by Natixis, deferred its planned €900 million sale of office properties across Europe, citing lack of clarity on real estate markets because of the coronavirus pandemic, Bloomberg News reported, citing four people with knowledge of the matter.

* Unibail-Rodamco-Westfield reached a deal with Crédit Agricole Assurances SA and La Française to sell a 54.2% stake in a joint venture that will own five shopping centers in France worth €2 billion. The portfolio has a gross leasable area of 320,800 square meters with footfall of 42.5 million in 2019.

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