S&P Global Market Intelligence offers our top picks of real estate news stories and more published throughout the week.
Ahead of second-quarter earnings reports, analysts cited the effects of the ongoing COVID-19 pandemic in lowered estimates for real estate investment trusts that own shopping centers and hotels.
The just-completed period, for which companies will be reporting earnings in the coming days, “could be one of the worst quarters ever” for shopping center owners, which could post negative earnings growth, report increases in vacancies and bad debt reserves, and take write-downs of straight-line rents and other receivables, Compass Point Research & Trading analyst Floris van Dijkum said.
Van Dijkum lowered estimates for nine strip center owners, predicting that quarterly same-store net operating income could decline by 10% to 20%, while funds from operations could fall by 24%. Still, he added, second-quarter results could represent a “trough” in earnings for most retail owners, and a buying opportunity for REIT shares.
In the hotel REIT sector, Robert W. Baird analyst Michael Bellisario lowered near-term earnings estimates to reflect a slower-than-anticipated revival of hotel demand and profitability, amid delayed hotel reopenings. Bellisario predicted that business travel will begin to recover in the second quarter of 2021, with revenue per available room next approaching 2019 levels in 2024.
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The coronavirus effect tracker
* The pandemic severely impacted commercial real estate deal activity in the U.S. in the second quarter, with deal volume nosediving 68% year over year to the worst levels for any second quarter since 2009, totaling approximately $44.7 billion, according to Real Capital Analytics, or RCA.
Hotel deal volume, in particular, tumbled 91% year over year to $642.9 million, hitting the lowest second-quarter volume in RCA records. Over 90% of distressed assets belong to the hotel and retail sectors, RCA noted.
* Globally, the volume of real estate investment in the first half of 2020 fell 33% year over year, according to global real estate services provider Savills PLC. The industrial and residential sectors were the least affected, while asset classes that have been most impacted by social distancing measures were hit the hardest.
* U.S. office REITs are expected to report leasing volumes for the second quarter that are materially lower than historical averages, although leasing spreads are expected to be aligned with recent quarters, Jefferies analysts Peter Abramowitz and Jonathan Petersen said.
* The increasing adoption of work-from-home arrangements triggered by the pandemic will undermine office REITs’ business in the coming years, analysts from Mizuho Securities USA said. Analysts Omotayo Okusanya and Venkat Kommineni slashed their earnings estimates and price targets for office REITs as they expect remote work to put pressure on traditional office building occupancy and rents.
* U.S. Democratic presidential nominee and former Vice President Joe Biden proposed a plan to invest $775 billion for a “caring economy” over 10 years, which would be funded by ending tax breaks for real estate investors and ensuring high-income earners pay their tax bills.
* Troubled regional mall landlord CBL Properties is preparing to file for Chapter 11 bankruptcy protection and is in talks with its lenders to reach a consensual restructuring agreement, Bloomberg News reported, citing unnamed sources.
Taking a piece
* Brookfield Asset Management Inc. acquired a controlling interest in single-family landlord Conrex, which operates more than 10,000 rental homes in the U.S., Bloomberg News reported, citing unnamed sources.
* Pacific Oak Strategic Opportunity REIT II Inc. shareholders are set to vote on the REIT’s planned merger with Pacific Oak Strategic Opportunity REIT Inc. at a special meeting to be held Oct. 1.
* Casino REIT VICI Properties Inc. purchased three property and land assets from Eldorado Resorts Inc. and modified certain provisions of existing lease agreements with Caesars Entertainment Corp. for a total of about $3.2 billion in cash.
* Private equity giant KKR & Co. Inc. raised $950 million at the final close of its KKR Real Estate Credit Opportunity Partners II LP fund.
Around the world
* Marriott International Inc. expects room occupancy rates in Greater China to rise back to pre-coronavirus levels beginning 2021 as domestic travel in the country picks up, Reuters reported, citing an executive.
* AREIT Inc., a subsidiary of Ayala Land Inc., secured approval from the Philippine Stock Exchange for its proposed 15 billion-peso IPO, putting it on track to become the first REIT in the country. AREIT aims to debut on the stock exchange Aug. 13 following its initial offering that is scheduled to commence July 27.
* Rakuten Inc., a major tenant of coworking giant WeWork Cos. Inc. in Japan, will not renew its current lease agreement with The We Co. unit once it expires in August, Bloomberg News reported, citing unnamed sources.
Earning calls coverage
S&P Global Market Intelligence reporters tuned in to conference calls hosted by some of the larger players in the real estate sector.
Prologis CEO foresees more retail-to-industrial conversions, but no ‘surge’
American Campus details slower leasing, greater no-show risk in coming months
‘Premature’ to draw conclusions on work-from-home trend, SL Green CEO says
French landlord Icade grows €5 billion healthcare business amid COVID-19 woe
Major hotel landlord warns of ‘steep crisis’ in sector, but sure of recovery
More than 14,500 real estate companies draw 6-figure loans through PPP program
Coming bank branch purge means perils, opportunities for landlords
Ann Taylor parent co. files for bankruptcy; 10 REITs report it as a top tenant