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Pennsylvania REIT/Macerich close to commencing $325M Philly revamp project; Weyerhaeuser agrees to unload printing paper biz

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


Pennsylvania REIT/Macerich close to commencing $325M Philly revamp project; Weyerhaeuser agrees to unload printing paper biz

Commercial real estate

* PennsylvaniaReal Estate Investment Trust and Macerich Co.'s $325 million redevelopment of the Galleryat Market East shopping mall in Philadelphia is expected to commence Oct. 7,according to a reportfrom The Philadelphia Inquirer.

The redeveloped project will be called , andwill contain 730,000 square feet of retail space. Completion is slated for2018, and no tenants have been announced so far, the report said.

* WeyerhaeuserCo. entered into an agreement to sell its printing papers business to OneRock Capital Partners LLC, marking the end of its strategic review of thecellulose fibers business.

* The New York Times'Square Feet column featured a reporton a "smart-growth" development push along a 1.7-mile stretch ofMaryland's Rockville Pike thoroughfare, which connects Bethesda and Rockville.Federal Realty InvestmentTrust is close to completing a nearly $270 million first phase ofits Pike & Rosemixed-use project in the area. A second $205 million phase is also underway.

A number of other developers are also lining up projectsthat could add around 5,000 residential units, 1.2 million square feet ofoffice space and 1.6 million square feet of retail space in the area, thereport noted.

* PrologisInc. is set to commence work on its first ground-up project as partof the $1.2 billion Oakland Global Trade and Logistics Center project, which isa redevelopment of aformer army base in Oakland, accordingto the San Francisco Business Times.

* VornadoRealty Trust in part filled up a large vacancy in its One PennPlaza tower near the Penn Station in Manhattan, N.Y., Crain's New York Business reported.Cable television network Fuse Media has signed a 27,000-square-foot lease atthe 57-story building where around 150,000 square feet were vacated by U.S.Customs and Border Protection, the report said.

* New York City overtook London to become the topdestination for cross-border real estate investment, The Wall Street Journal reported,citing Cushman & Wakefield. The foreign investment volume in the Big Applefor the year ended in June outpaced London's nearly $25 billion "by aslither," the report said.

Bloomberg News also reportedon the ranking.

* Starwood Capital acquired the One Atlantic Center landmarkbuilding in Atlanta for an undisclosed price, the Atlanta Business Chronicle reported.The 50-story property at 1201 West Peachtree St. spans 1.1 million square feet.Sources familiar with the deal had told the news outlet in July that Starwoodwas expected to pay around $330 million for the asset.

* Miami's Wynwood neighborhood saw its highest-eversingle-property sale with a $53.5 million deal for buildings and land at2600-2630 NW Second Ave. Citing Tony Arellano — an executive at Metro 1Commercial, which co-brokered the sale — MiamiHerald reportedthat the property contains buildings with a total of 41,616 square feet on a42,000-square-foot lot.

The buyer is an affiliate of ASG Equities, and plans toredevelop the property into a retail project and just under one acre of openpark space, according to the report.

* Developer ZOM Holdings filed permits for a 40-storyresidential tower with retail and restaurant space in downtown Dallas' ArtsDistrict, The Dallas Morning News reported.The tower will contain 416 apartment units, and the permit is valued at $132million, the report said.

* The North Texas office market is expected to witness arecord year for leases, with the third-quarter net leasing volume reaching 1.7million square feet, The Dallas MorningNews reported,citing CBRE. The total figure for the first three quarters of 2016 has reachedabout 4.5 million square feet, which is close to the total figure for all of2015, the report pointed out.

* In a reportciting figures from MPF Research and Axiometrics Inc., the Journal said apartment rents declined in some of the priciest U.S.cities during the third quarter. The publication said the "dramaticreversal" could herald the end of a six-year boom in the country's rentalmarket.

Rental growth has slowed down in four consecutive quartersand turned negative in certain regions, the report noted.

After the bell

* Realty IncomeCorp.'s notes offering priced at 98.671% of the principal amount for aneffective yield to maturity of 3.153%. The offering of $600 million of 3.00% senior unsecured notesdue 2027 is anticipated to close Oct. 12.

* MedEquitiesRealty Trust Inc. wrapped up its IPO of 19,925,333 common shares, including 19.0 millionshares sold by the company and 925,333 shares by the selling stockholders.

Housing

* LennarCorp.'s LMC unit received an additional $250 million commitment for theLennar Multifamily Venture development vehicle, bringing the total commitmentto $2.2 billion.

The latest commitment marks the completion of fundraisingfor long-term multifamily development investment vehicle, Lennar said.

Gaming

* Efforts to allow casino gambling in Georgia appear to beheating up, with Wynn ResortsLtd. hiring a law firm as its lobbying team for the 2017legislative session, The AtlantaJournal-Constitution reported.The news comes a day after MGMResorts International Chairman and CEO James Murren made his latestpitch for a more than$1 billion gambling resort in Atlanta.

The day ahead

Early morning futures indicators pointed to a lower openingfor the U.S. market.

In Asia, the Hang Seng was up 0.42% to 23,788.31. The Nikkei225 climbed 0.50% to 16,819.24.

In Europe as of midday, the FTSE 100 had dropped 0.63% to7,029.75, and the Euronext 100 had declined 0.77% to 884.16.

On the macro front

Mortgage applications increased 2.9% from a week ago on aseasonally adjusted basis for the week ended Sept. 30, according to theMortgage Bankers Association's weekly survey. The market composite index, which measuresmortgage application volume, increased 3% on an unadjusted basis, compared tothe previous week.

The ADP employment report, the international trade report,the Gallup U.S. job creation index, the PMI services index, the factory ordersreport and the ISM non-manufacturing index are also due out today.

Now featured onS&P Global Market Intelligence

Data Dispatch:ChartWatch: Exit, opportunity in Moody National REITs' merger: Thecombination of the two nontraded hotel REITs, both sponsored by the MoodyNational Cos., would bring together two entities with shared leadership, amongother similarities.

Data Dispatch:US REITs trade at a slim premium to NAV at Q3-end: The "other"retail sector, comprising single-tenant and outlet center REITs, among others,traded at the largest premium to NAV, at 30.3%.

Q&A:Farmland Partners CEO — 'We're after every high-quality investor we canget': S&P Global Market Intelligence caught up with PaulPittman, CEO of Farmland Partners, to talk growth strategy in the nichefarmland REIT space.

The Daily Dose isupdated as of 7:30 a.m. ET. Some external links may require a subscription.Articles and links are correct as of publication time.


Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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