Cushman Wakefield 1Q2021

CWK reported better than expected 1Q201 EPS on Friday driven by stronger capital markets and leasing revenue, particularly industrial leasing.

1Q2021 leasing revenue declined 3.3% YoY compared to a 36% YoY decline in the prior quarter. Office leasing activity remains soft, although in line with its peers, CWK noted that property tours continue to pick up and should drive revenue acceleration in 2H2021.

1Q2021 Residential REIT Earnings

Eight residential REITS reported 1Q2021 earnings within the past week. Key trends include improving rent collection rates, rising occupancy, and increasing rent rates over 4Q2020.

More specifically, operating highlights include: 1) sunbelt strength in rent collections and relative weakness in urban, coastal collections; 2) occupancy trends improving in coastal cities; and 3) challenged blended leasing spreads for companies exposed to coastal, urban markets, but signs of emerging strength in April.

2021 Retail Capex

Dick’s Sporting Goods, Restoration Hardware, Tractor Supply, and 20 additional retailers are leaning into their digital transformation with 46% YOY increases in capex and 40% of capex estimated to be tied to digital infrastructure.

To put the investment in perspective, DKS and RH digital sales are estimated at 30% and 48% percent of total 2020 sales, respectively, while TSCO digital sales only represented 3% of 2020 sales.

BlackRock, Carlyle ESG Targets

BlackRock’s new $4.4 billion five-year credit facility ties lending costs to ESG targets. BlackRock is joining Carlyle Group in the emerging use of finance terms that encourage borrowers to meet ESG goals. Carlyle secured a $4.1 billion three-year facility from a consortium led by Bank of America in February.

“The ESG-linked credit facility enhances BlackRock’s commitment and accountability to achieving certain sustainability goals by integrating a component of financial alignment through our liquidity management strategy,” a BlackRock spokesman said.

Cerberus Real Estate Raises $2.8B

Cerberus Capital Management has raised $2.8bn for its opportunist global real estate fund, Cerberus Institutional Real Estate Partners V (CIREP V).

Half of the CIREP V’s investment is forecast to be in Europe with the US forecast to be 40% of assets. The 10% balance is expected to be Brazil, China, and other Asian markets.

Prologis and Industrial REITs

We are bullish on industrial REITs despite share prices lagging other REIT subsectors (+7.2% versus the RMZ +21.7%) since November.

Fueled by e-commerce growth and rising inventories, industrial demand is forecast to keep leasing spreads high, vacancies temporary, and support new builds, an earnings driver that was somewhat put on hold in 2020, but we believe will re-accelerate in 2021.

Prologis 1Q 2021 earnings release will be a good bellwether on April 19, 2021.

Regal Cinemas to Reopen

Cineworld has announced reopening plans for its cinemas, with Regal Cinemas reopening from April 16 and UK sites reopening from May.

CEO Mooky Greidinger called it “a great moment for us — the U.S. market represents 75% of our business — and soon will be followed with all our markets. We are great believers in the theatrical experience, which only a year ago (2019) generated $43B worldwide.”

Single Family Rentals

AMH reported strong 4Q20 earnings and 2021 outlook as demand in the single family rental market remains strong despite increasing blended lease rates and US housing starts forecast to slow to 3% growth in 2021.

AMH occupancy was 97.2% with cash collections at 96.7% for 4Q20. AMH delivered 195 homes for $58MM and is targeting 2,000 developed homes in 2021. Bad debt expense is forecast to improve in 2H2021 as the economy accelerates.

Office REIT Earnings

Office REIT 2021 earnings season recently wrapped up as CXP, ESRT, HPP, and VNO reported results in a year where office REIT shares are down 35%.

Office utilization in major office markets remains in the mid-teens, but we forecast a meaningful return to office in 3Q2021 based on economists’ view that 50% of the population will be vaccinated by May. A recent JLL report (Better than Normal: Vision 2021) estimated 80% office utilization by yearend 2021. We believe the sector’s earnings, strong office rent collections and leasing spreads point to more durable fundamentals than current valuations reflect.

Moreover, the Goldman Sachs Economics team and others forecast US GDP to grow 7.0% YoY in 2021, a solid backdrop for the office market.

Dollar Stores

Dollar and discount store 2021 earnings season is on the horizon, leading us to dig into unemployment rates across the wage spectrum.

The headline unemployment rate, reported at 6.3% in January, has come a long way from the 14.8% a year ago April, and in fact has continued to improve every month since. However, the Federal Reserve believes unemployment is likely above 20% for 20% for workers in the bottom wage quartile.

The dollar and discount stores report a January 2021 stimulus-driven jump in spending by low-income households. A similar jump in spending is forecast for March.