Washington REIT Fell 8.8% As JPMC Analyst Forecasts Office Occupancy To Fall 300 BPS Through 2021

Back to The Great Recession … at least for the moment.

(Bloomberg) — Washington REIT fell as much as 8.8% after JPMorgan cut its price target and funds from operations estimate due to the Covid-19 pandemic.

WRE PT cut to $22 from $25; 2020 and 2021 FFO/share lowered by about 8% and 14%, respectively.

Analyst Anthony Paolone said he expects, apartment NOI to come down 2-3% in 2020 and another 1% in 2021, and retail NOI to fall by about one-third in 2Q 2020 before improving somewhat.

Expects apartment and retail non-payments to impact FFO immediately, but office non-payments will take longer to show up.

Assumes WRE will tap its ATM program in 2021 for about $100m in order to keep leverage in check.

Maintained underweight rating.

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And this was AFTER WRE had a negative FFO surprise on Feb 13.

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WRE’s EPS doesn’t look too grand even before the COVID-19 struck.

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Roll Out The (Oil) Barrel! WTI Crashes Below $0 a Barrel With Traders Fleeing May Futures (Spot WTI At -37.63, May Futures At -24.92)

April virus brings May crashes. As in the spot price of WTI crude crashing to -37.63.

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(Bloomberg) — West Texas crude plunged into the negative for the first time ever. WTI has been under extreme pressure as demand has been destroyed by the coronavirus lockdowns and a oil price war between Saudi Arabia and Russia has flooded the market. In addition, a technical oddity kicked in today as traders fled the May futures contract ahead of its expiration tomorrow. The June contract is currently trading for over $22 a barrel in New York.

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May 20 Light Sweet WTI futures are DOWN to -24.92. But at least June and beyond futures prices are positive.

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Should we dance to the Oil Barrel Polka?

Here is the Grateful Dead’s version.

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A physical contract such as the NYMEX WTI has a delivery point at Cushing, OK, & date, in this occurrence May. So people who hold the contract at the end of the trading window have to take physical delivery of the oil they bought on the futures market. This is very rare.

It means that in the last few days of the futures trading cycle, (which is tomorrow for this one) speculative or paper futures positions start rolling over to the next contract. This is normally a pretty undramatic affair.

What is happening today is trades or speculators who had bought the contract are finding themselves unable to resell it, and have no storage booked to get delivered the crude in Cushing, OK, where the delivery is specified in the contract.

This means that all the storage in Cushing is booked, and there is no price they can pay to store it, or they are totally inexperienced in this game and are caught holding a contract they did not understand the full physical aspect of as the time clock expires.

 

WTI Cushing Oil Plunges Below $11, Hotel Occupancy Rate Declines 69.8% YoY To 21% (All Time Record Lows)

My Corona!

The lack of demand for oil (and incredible supply build-ups) had led to WTI Crude oil to fall below … $11!

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WTI Crude (Cushing, OKLA) is now at an all-time low.

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Crude oil prices in the Middle East are … negative?

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On the hotel front (government lockdowns are pretty bad for travel and hotels!), in comparison with the week of 7-13 April 2019, the industry recorded the following:

Occupancy: -69.8% to 21.0%
• Average daily rate (ADR): -45.6% to US$74.18
• Revenue per available room (RevPAR): -83.6% to US$15.61

What I like about the government shutdown of the US economy? NOTHING!

Even Jack Torrance can’t get a drink from Lloyd in the shutdown.

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MBA Mortgage Purchase Applications Decline 35% YoY

Mortgage applications increased 7.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 10, 2020.

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The Refinance Index increased 10 percent from the previous week and was 192 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 35 percent lower than the same week one year ago.

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On the bright side, most of the decline in purchase application occurred before last week.

So, it appears that no more snake juice is required.

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Courtesy of the great Jesse from Jesse’s Cafe Americain!

US Core “Inflation” Falls To 2.1% From 2.4% Despite Massive Fed Intervention

The G-7 Central Banks have gone wild lowering their target rates and increasing balance sheet purchases.

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The US “inflation” numbers for March

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Despite fears of runaway, Jimmy Carter-style inflation, core inflation actually fell to 2.1% YoY.

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One of the culprits? Declining airline fares and lodging away from home (courtesy of MacroMarkets). This is similar to the post 9-11 recession issues.

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The US Inflation Swap Forward 5Y5Y is only 1.9160%.

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And Treasury Inflation Protection Securities (TIPS) continue to have negative yields.

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Of course, no country does inflation like Venezuela and Argentina!

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Is The Fed turning liquidity into cottage cheese?

Federal Reserve To Provide Up To $2.3 Trillion In Loans To Support The Economy (Fed Seizes Control of Entire U.S. Bond Market)

The Fed Seizes Control of Entire U.S. Bond Market!

The Federal Reserve on Thursday took additional actions to provide up to $2.3 trillion in loans to support the economy.This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.

“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” said Federal Reserve Board Chair Jerome H. Powell. “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

The Federal Reserve’s role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system. In support of these goals, the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit in the economy.

The actions the Federal Reserve is taking today to support employers of all sizes and communities across the country will:

  • Bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The PPP provides loans to small businesses so that they can keep their workers on the payroll. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value;
  • Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will provide $75 billion in equity to the facility;
  • Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury; and
  • Help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.

In addition, on April 9, 2020, the Federal Reserve announced additional measures to support the economy amounting to as much as $2.3 trillion in liquidity. Among their actions, the Term Asset-Backed Securities Loan Facility (TALF) will now include legacy commercial mortgage-backed securities (CMBS) as eligible collateral. Eligible CMBS securities must have been issued prior to March 23, 2020, while securities related to other asset classes are only eligible if they were issued after this date.

TALF Specifics for CRE

The TALF term sheet specifies the following for the commercial and multifamily real estate loan/securities markets:
The underlying credit exposures for CMBS must be to real property located in the United States or one of its territories;
CMBS securities related to single-asset single-borrower (SASB) and commercial real estate collateralized loan obligations (CRE CLOs) are not eligible at this time.

TALF provides three-year loans to investors of CMBS and other eligible collateral. Haircuts and other terms can be found on the Fed’s website.

Mortgage REITs were pleased by the news!!

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But remember the old proverb, “There’s many a slip ‘twixt the cup and the lip.” Or “Don’t count your chickens before they hatch.”

 

 

Commercial & Industrial Lending Growth BOOMS As Companies Seek Funds To Survive The Lockdown (Back To Just Before The Great Recession)

As the US economy slows thanks to the Novel Coronavirus, we are seeing business loans growing at a tremendous rate as they seek to live another day.

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The growth rate of C&I lending (aka, business loans) is the highest since … just before Q4 2007 and The Great Recession.

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Hopefully, this situation is temporary. Otherwise, …

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Tumble! Mortgage Purchase Applications Drop 33% YoY As Economic Shutdown Continues

According to the latest survey from the Mortgage Bankers Association (MBA), the Refinance Index decreased 19 percent from the previous week and was 144 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 12 percent from one week earlier. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 33 percent lower than the same week one year ago.

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Yes, 33% lower than the same week a year ago.

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And this was in spite of the historic drenching of the market by The Fed with liquidity and trillions in economic something by Congress.

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And nearly a third of U.S. apartment renters didn’t pay April rent.

This was a tumble!

Gold Contango? Gold Futures Price SOARS Above Spot Price

The COVID-19 virus sweeping the globe is having dramatic impact on asset and commodity prices. Particularly gold.

Contango, also sometimes called forwardation, is a situation where the futures price (or forward price) of a commodity is higher than the spot price of the contract today. Such is the case for gold futures where the futures price for gold exceeds the spot price.

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This will not be the Last Contango for Gold.

And good luck finding physical gold in the form of gold bars. Gold coins, on the other hand, are available.

RIP, Honor Blackman.

goldfinger_spanish-poster artwork

 

Mortgage REITs Collapse By More Than 50% Before Slight Rally

Mortgage Real Estate Investment Trusts (MREITs) got clobbered starting February 20th and declined by over 50% before a small rally after the Fed/Congressional bailouts.

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Year-to-date, mortgage REITs are down over 50%.

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The Fidelity and Vanguard bond indices didn’t plunge as far and had a better rebound effect after the bailouts.

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Equity REITs had a plunge and rebound similar to the Dow.

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Mr. Freeze is still around for mortgage REITs.

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