Net Lease News

B+E Weekly Newsletter

December 12 – December 18, 2023

MARKET

FED BEGINS PIVOT TOWARD LOWERING RATES AS INFLATION DECLINES | WSJ

• Slowing inflation prompted Federal Reserve Chair Jerome Powell to pivot away from raising interest rates and toward considering when to cut them, igniting a rally on Wall Street.
• The labor market has been cooling but remains solid. The unemployment rate ticked down to 3.7% last month from 3.9% in October, and private-sector employers have added an average of 130,000 jobs a month over the past six months, down from 228,000 during the six months before that.
• Powell repeated his view that officials could lower rates next year simply because inflation is well on its way to their 2% target. Holding rates steady as inflation falls would lead inflation-adjusted or “real” rates to rise, which the Fed doesn’t want.

INDUSTRIAL

INDUSTRIAL RENT GROWTH WILL TEMPER TO HISTORICAL AVERAGES NEXT YEAR | Globe St

• With supply increasing while demand slows, rent growth should continue to slow throughout 2024 but remain the strongest asset class for rent growth.
• The surge in nearshoring/onshoring/friend-shoring and related capital investments are disrupting normal production and distribution patterns. Relatedly, the first major railroad merger in more than two decades will more directly link trade flows between the US, Canada, and Mexico.
• While it is clear that the amount of supply delivered will exceed new demand over the next six to nine months resulting in generally limited rent growth in 2024, infill, supply-constrained locations attracting tenants between 50,000 sf and 150,000 sf have the potential to outperform the base case and experience real rent growth.

RETAIL

WALGREENS CUT TO JUNK BY MOODY’S ON HEALTHCARE STRATEGY PUSH | Yahoo Finance

• Walgreens Boots Alliance Inc. had its senior unsecured credit rating cut to junk by Moody’s Investors Service, with the credit grader citing the drugstore chain’s high debt relative to earnings and risks associated with its push to offer more healthcare services.
• The downgrade to Ba2, two steps into high-yield, reflects “Walgreens’ stubbornly high financial leverage, weak interest coverage and pressured free cash flow that Moody’s believes will be sustained over the next 12-18 months
• Walgreens paid down debt during its 2023 fiscal year and says it will continue doing so next year. The cost of the new strategy and a weaker consumer environment will likely cause the company’s debt load to peak around 6 times its earnings before interest, taxes, depreciation, and amortization at the end of the 2024 fiscal year, according to the note, before recovering in 2025.