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Simon Property nixes $3.6B Taubman deal; concerns build over persistent pandemic

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

Growing concerns about the persistence of the COVID-19 pandemic shook real estate investment trust indexes and the broader market in the week ended June 12, even as analysts expressed optimism about some commercial property types.

Stocks slid June 11 amid reports that coronavirus cases were growing in several U.S. states, pointing to either a second wave of the virus or a prolonged first wave. The same day, Morgan Stanley analysts said there were troubling signs in newly released data on occupancy in skilled nursing properties.

In the week ended June 7, only 27% of operators of assisted living properties reported an occupancy decline, in a sharp improvement for that segment, according to the National Investment Center for Seniors Housing & Care. However, in skilled nursing — a property segment with residents who require serious care — 47% of operators reported a decline in occupancy, compared to 38% in the prior period. Occupancy declines can stem from a range of factors that include patient deaths and restrictions on move-ins.

Broader occupancy declines "could indicate a second wave of COVID-19 cases impacting the sector," the Morgan Stanley analysts wrote. "While it is too soon to tell, we continue to monitor increases in cases for states that are reopening."

Still, observers in other corners of the commercial real estate world remained optimistic. In a series of notes, Stifel analyst John Guinee adjusted price targets upward for five of seven covered multifamily REITs, 10 of 15 covered office REITs, and all six covered industrial REITs.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Deal drop

* Simon Property Group Inc. canceled its $3.6 billion deal to acquire rival regional mall REIT Taubman Centers Inc., citing a breach in covenants governing Taubman's operations and the impact of the coronavirus pandemic on the company.

Responding to the move, Taubman said the termination is invalid and without merit, noting that Simon "continues to be bound to the transaction in all respects." Taubman added that it intends to contest Simon's purported deal termination and legal claims.

In and out of trouble

* The U.S. Treasury Department asked hotel giant Marriott International Inc. to cease operations in Cuba, Reuters reported, citing a Marriott spokeswoman. According to the report, Marriott has been ordered to wind down its operation of the Four Points Sheraton in Havana by Aug. 31, and it would not be permitted to open other hotels it had been preparing to manage.

* Private equity firm Sycamore Partners Management LP is in early talks with J. C. Penney Co. Inc. to buy the U.S. department store chain out of bankruptcy if its negotiations with creditors are unsuccessful, Reuters reported, citing three people familiar with the matter. The private investor reportedly could also team up with Simon Property and Brookfield Asset Management Inc. to bid for the struggling retailer.

* Victoria's Secret and parent L Brands Inc. filed a lawsuit against a unit of landlord SL Green Realty Corp. requesting that a judge rescind a 2001 lease for its store at 2 Herald Square in Manhattan, N.Y., amid the pandemic-triggered closure, Bloomberg News reported, citing the complaint. The lingerie retailer argued that the "purpose of tendering a monthly rent of $937,734 or more to operate a retail store is completely frustrated when that store cannot open."

* The U.S. commercial real estate market will log a total return of negative 4.0% on the National Council of Real Estate Investment Fiduciaries property index in 2020, according to a prediction by the Pension Real Estate Association based on its second-quarter consensus forecast survey. According to the survey, participants forecast that the retail sector will have the lowest average total return of negative 11.2% on the NCREIF property index.

* U.S. hotel performance in the week ended June 6 remained significantly impacted by the pandemic, but there were signs of slight improvement compared to recent weeks, according to weekly data from STR, which tracks the hospitality sector. Year over year, revenue per available room fell 65.0% to $33.43, and average daily rate slid 35.9% to finish the week at $85.01. Occupancy for the week dropped 45.3%, to 39.3%.

A new Front

* Altisource Portfolio Solutions SA, a shareholder of single-family-rental REIT Front Yard Residential Corp., lambasted the REIT's "unexpected and still unexplained decision" to voluntarily terminate its proposed merger with Amherst Residential LLC and called on the REIT to undertake a further strategic review to sell its real estate assets on a one-by-one basis.

The WeWork yard

* WeWork Cos. Inc. co-founder Miguel McKelvey, most recently its chief culture officer, is set to leave the company at the end of June, Bloomberg News reported, citing a staff memo. According to a separate report by Reuters, The We Co. unit is injecting $100 million into its Indian business.

* The struggling coworking giant is also considering ending its expansion into the communal living business. WeWork hired an adviser and is negotiating handing over operations of its WeLive location in Crystal City near Washington, D.C., and is weighing options for its Wall Street location in New York City, Bloomberg News reported, citing people with knowledge of the matter.

Around the world

* Link Real Estate Investment Trust is said to be in negotiations with Hines Interests LP to buy Morgan Stanley's European headquarters in London, Mingtiandi reported, citing U.K. media reports. The 17-story office property at 25 Cabot Square was at the center of The Blackstone Group Inc.'s failed £390 million deal to buy the asset, the news outlet said.

* Chinese developer Jinke Property Group Co. Ltd. tapped CLSA Ltd. and Huatai International Finance Ltd. for the planned US$500 million IPO of its property management unit on the Hong Kong Stock Exchange, Bloomberg News reported, citing people familiar with the matter.

* Segro PLC paid £202.5 million for the acquisition of the 34-acre Perivale Park urban warehouse property in West London from Federated Hermes Inc.

Featured during the week on S&P Global Market Intelligence

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