In the U.S.:
- As part of trade talks with China, President Trump offered a lifeline to telecom equipment maker ZTE Corp stating that he and Xi are working together to give ZTE “a way to get back into business, fast.” ZTE was banned from doing business with the US for violating 2017 sanctions relating to dealings with Iran, Sudan, and North Korea.
- The US and EU could be facing a logistical battle regarding the US decision to re-impose sanctions on Iran. Since the EU desires to stay in the deal, it will be difficult for the US to sever Iranian bank ties to foreign financial institutions via the Belgium-based Swift network, whose financial messaging system facilitates cross-border payments.
- In earnings, 464 companies in the S&P 500 Index have reported, 76.2% beat, 0.9% were in-line, and 22.9% missed estimates.
Shares of Taubman Centers, Inc. (TCO) dropped sharply this week as it was revealed that activist investor Elliot Management had sold its stake in the company. Elliot was viewed as an ally to Jonathan Litt’s Land and Buildings proxy battle to replace the Taubman family from the board.
In REIT earnings, 108 companies in the Wilshire U.S. REIT Index have reported, 69 beat, 4 were in-line, and 35 missed estimates.
- As trade talks continue with the US, a report surfaced suggesting that China had offered the US a deal to purchase approximately $200B of American goods and help facilitate a deal with North Korea. However, China’s Foreign Ministry Spokesman Lu Kang denied the accuracy of the report.
- Q1 Preliminary GDP showed an annualized contraction of 0.6% versus the revised Q4 0.6% expansion. The drop, led by lower domestic demand, marked the first contraction of GDP since 2015.
- April core CPI rose 0.7% y/y versus March’s 0.9% y/y reading. The drop was somewhat expected following the BoJ’s outlook report, which had stripped out the timeframe for achieving the 2% inflation goal.
Sun Hung Kai Properties was awarded the Kai Tak Site for a record HK$25.2B. The site is designated for non-industrial purposes and has a maximum gross floor area of 131,495 sq. m.
- Germany reported weaker than expected Q1 GDP growth of 0.3% versus Q4’s 0.6% reading. The slowing growth was largely due to weaker exports and lower government spending.
- Italian populists Five Star and League agreed on a final government contract which seeks limited deficit spending, urges review of EU fiscal rules, and calls for end to pension reform. Of note, the contract excluded plans to exit the Euro.
The UK’s two largest listed real estate companies, British Land (BLND) and Land Securities (LAND), each reported results for the half year and full year ended 3/31/18 this week. BLND’s results appeared to be mostly in line with expectations, while LAND’s were slightly weaker than expected. BLND’s EPRA NAV/sh. increased 5.7% YOY to 967 pence/sh., partly helped by its share repurchase program, and full year EPRA EPS of 37.4 pence/sh. was down 1.1% YOY due in part to disposals. LAND’s EPRA NAV/sh. of 1403 pence/sh. was down 2.0% for 2H18 and the full year EPRA EPS of 53.1 pence/sh. was an increase of 9.9% YOY, helped in part from early refinancing activity that reduced their average cost of debt. Office portfolio operations continued to hold up better than expected in the post Brexit referendum world of uncertainty, while the retail operating environment continued to be more challenging, although the portfolios of both continued to hold up reasonably well. Both maintained low leverage with LTV’s in the mid to upper 20’s, but continued to trade at sizable discounts to their reported EPRA NAV’s given the lingering uncertainty surrounding Brexit’s outcome and longer term impact.
The views expressed in this update are as of the date of this blog entry. These views and any portfolio holdings discussed in the update are subject to change at any time based on market or other conditions. The adviser disclaims any duty to update these views, which may not be relied upon as investment advice. In addition, references to specific companies’ securities should not be regarded as investment recommendations or indicative of the Adelante products, strategies, or portfolios.