FT : Hollywood comes for Formula One

Hollywood comes for Formula One

F1’s Alpine brings in storytelling consortium

Hot on the heels of Wrexham’s fairytale promotion back to the English football league, Hollywood duo Ryan Reynolds and Rob McElhenny are making a new foray into the world of sport.

The pair are among a group of investors buying a 24 per cent stake in Formula One team Alpine, the Renault-backed racing franchise, though it’s unclear how much money the two actors are actually putting in.

The incoming shareholders include RedBird Capital, owner of AC Milan, and a new offshoot called Otro Capital run by former RedBird executives. Creed-star Michael B. Jordan (a minor investor in Premier League team Bournemouth) and Main Street Advisors are coming in too.

The valuation of $900mn marks a new high for F1 and puts it on a par with some big European football deals.
The price has been pushed up by F1’s booming popularity in the US, and also the sport’s new spending caps that have put a lid on costs.

Netflix series Drive to Survive may have set the wheels in motion, but with F1 recently adding both Miami and Las Vegas to its global line-up of host cities, the sport is laying down some long-term foundations stateside.

Reynolds clearly has an eye for a good investment (read our profile of him here). He sold his Aviation Gin brand to Diageo for $600mn, and T-Mobile is awaiting approval to buy Mint Mobile in a deal that would net the Canadian actor around $300mn. Both those wins are partly thanks to the marketing savvy deployed by Maximum Effort, his agency.

In announcing the stake sale, Alpine made it clear what it was after: partners who could build a global audience with smart campaigns. RedBird is trying to do that with AC Milan, selling Italy’s fashion capital alongside its football team.

Reynolds and McElhenny have successfully done it too — albeit on a different scale — with Wrexham. The little Welsh club now has 1.4mn followers on TikTok and close to 1mn on Instagram, while the team will play Manchester United and Chelsea on its upcoming US tour.
That’s all thanks to Welcome to Wrexham, the Disney TV show fronted by the two actors.

Alpine hasn’t won an F1 championship since 2006. But one lesson from Wrexham is that a team doesn’t have to be good to attract big sponsors and global fans. It just needs a good tale to tell, ideally to a new, untapped audience.

The challenge now for the investors in Alpine will be coming up with a compelling storyline in a sport that is seriously lacking in twists as Red Bull leaves everyone else in the dust.

FT : Jeff Blau rejects ‘office is dead’ claims by betting billions on new towers

Jeff Blau rejects ‘office is dead’ claims by betting billions on new towers
Hudson Yards developer sees strong demand for ‘lifestyle offices’ despite record commercial vacancies

The view from the observatory atop Manhattan’s Hudson Yards was clouded on a recent afternoon by smoke from distant wildfires in Canada. But that has not dimmed Jeff Blau’s outlook for the sprawling development or the high-end offices that are its speciality.

At a time when offices are dragging the commercial real estate sector into crisis, Blau, the chief executive of Related, one of the largest US developers, is planning to build 10 new towers in cities across the US and in London, an investment that will total an estimated $6.5bn.

The idea is not an easy sell to investors just now, Blau acknowledged. The trend of remote working that was accelerated by the Covid pandemic has slashed office attendance and pushed up vacancies.
A record 70.3mn square feet of available space sat on the Manhattan office market at the end of the second quarter, according to Savills.
Investors and lenders have become desperate to reduce their office exposure.

Still, Blau believes there is a shortage of the most modern and lavishly equipped offices — buildings he now refers to as “double-A” or “lifestyle offices”. That conviction has arisen from the performance of Hudson Yards on the west side of Manhattan. 

“We’ve had some of our best leasing over the last 12 months in the middle of all this period of time when everyone says the ‘office is dead’ — except it’s not,” Blau said, noting that Related was securing rents on the upper floors of its newest tower, 50 Hudson Yards, in excess of $200 per sq ft. That is more than double the $95.53 average asking rent for a class A building in Midtown, according to Savills.

For its forthcoming towers, Related is targeting Austin, Miami, West Palm Beach, Santa Clara, Boston, Chicago, Detroit and Brent Cross in London. Those projects are in various stages of development. The most advanced, in West Palm Beach, is already under construction and boasts signed leases. 

Its confidence in offices is such that Related is also planning to eventually build a 2mn sq ft office tower on the as-yet-undeveloped west side of Hudson Yards. That site will also host a casino if a joint-bid with Wynn Resorts is selected for one of three forthcoming New York licences.

“Every landlord thinks they have an A building, right?
But some of these A buildings are 50 years old.
And even if they have been well taken care of over the term, they are not the same as the new buildings,” Blau said. “These buildings truly are differentiated in every which way.”

Those at Hudson Yards boast advanced air filtration and energy efficiency, and vast floor plates that can accommodate an entire firm on a single floor. Their ever-increasing amenities range from private cafeterias overseen by celebrity chefs to concierge medical clinics and, most recently, helicopter shuttle service to local airports.

The combined effect, according to Blau, is an environment that pulls employees back into the office — something for which certain companies will pay dearly. 

“I don’t care what industry they’re in — every CEO wants their employees back in the office five days a week. He may not be saying that because he’s afraid that his employees will quit or he won’t be able to attract employees. But if you asked them, is that a better way to run his business — is it more productive, is it more innovative? They will say ‘yes,’” he argued. “Once it becomes about employee talent attraction and retention, then the rent becomes irrelevant.” 

According to Related, occupancy among Hudson Yards’ tenants now averages more than 80 per cent from Monday through Thursday. (“Friday,” said Blau, “has turned into a national holiday.”)That compares to less than 50 per cent for the rest of the city. 

It is not clear whether employees are responding to the carrot of Hudson Yards’ plush offices or the stick of bosses like BlackRock’s chief executive, Larry Fink, who recently ordered his workers back to their desks four days a week.

Either way, Related received further validation recently when Brad Lander, the New York City comptroller and a one-time Hudson Yards sceptic, noted the development was now delivering $200mn more in annual tax revenue than forecast — and growing. “So this is one place I gotta say I got it wrong,” Lander told Errol Louis on the Inside City Hall programme. (As for its architecture — slammed by many critics as soulless — there were still “some questions,” Lander noted).

Other developers are also betting on super offices. SL Green has reaped similar success at One Vanderbilt, near Grand Central Station, with some rents topping $300 per sq ft. Hines, its partner on that venture, is also convinced there is a shortage of top-quality office space. RXR, meanwhile, is soon to join the fray with 175 Park Avenue.

“Each market can probably only support one or two of these,” Blau said. “But that’s our business. That’s what we focus on.”

Blau, 55, was handpicked by Related’s founder, Steven Ross, while still a student at their alma mater, the University of Michigan. He joined the firm in the midst of the early 1990s commercial real estate crisis. This time, he observed, many properties were performing well — they were simply overleveraged at a time of rising interest rates.

“Anyone who has too much debt is struggling right now. That’s one of the lessons — don’t put too much debt on your buildings,” Blau said. “Almost all of this is driven by interest rates, across the board. And then we do have this segment of older office [buildings] that [are] struggling at the property levels.” It helps that Related is privately held, and so, unlike some publicly traded competitors, it is not under pressure to mark its buildings to market. 

Blau was one of Ross’ top lieutenants on the Time Warner Center — now the Deutsche Bank Center — at Columbus Circle. It confirmed Related’s evolution from an affordable housing specialist to a developer of mixed-use projects that blend retail with luxury condominiums and offices.

Hudson Yards, the largest development in North America, features those same elements on a far grander scale. It was also a daunting engineering challenge because of its location above a working rail yard. Related was selected from a group of bidders in 2008 after the financial crisis prompted another developer to pull out.

The original plan was for Hudson Yards’ office towers to play a supporting role by attracting the affluent to its retail space and condominium towers. In the event, they have been its star performers. Three towers — 10, 30 and 55 Hudson Yards — are now 100 per cent leased. Some early tenants, such as Tapestry and BlackRock, were lured from Midtown with favourable deals, according to leasing experts. A fourth tower, 50 Hudson Yards, is nearly 90 per cent leased.

By contrast, the anchor tenant for the shopping mall, Neiman Marcus, was pushed into bankruptcy in 2020 by the Covid pandemic, leaving three abandoned floors. “The demand for office is so strong we’re converting that space — instead of retail — back to office,” said Blau.

Another thing that has not gone quite to plan: the Vessel spiral staircase sculpture at the centre of Hudson Yards. Ross viewed it as an iconic piece of public art. Instead, it has featured in several suicides and been closed to visitors for nearly two years as Related tests safety netting.

As Related focuses on new construction, other developers are plotting different paths through the office crisis. Some are spending heavily to upgrade dated buildings. Others are trying to convert them to residential use. Blau sees possibilities in both but is not a great fan of either approach. 

He praised Vornado’s refurbishment of PENN 1, a 1970s tower at Pennsylvania Station, for example, but foresaw a limited ceiling for its rents. As for conversions, office towers were simply not designed for residential use, he noted, making it expensive to repurpose them. Adding to the cost is the need to first empty them.

“They often don’t go to zero per cent occupancy. They go like 70, 60, 30 — and then the 30 never want to leave. And then you have to spend so much money to convert that it’s basically the cost of essentially building a new building,” Blau said. “And if that’s true, you should tear the building down and build a proper building.”

FT : Lessons from the Thames Water debacle

Lessons from the Thames Water debacle
Privatised utilities face a day of reckoning caused by spectacular regulatory failure

It wasn’t meant to be this way. The UK’s wave of privatisations in the 1980s and 1990s was intended to create private sector balance sheets that could be used to borrow to invest. But there was a flaw: the belief in light-touch regulation. So regulators decided that the balance sheets were a matter best left to the companies, and, even worse, positively incentivised them to borrow by mortgaging the assets and paying out the proceeds to investors. As the years passed, negative real interest rates and quantitative easing were added to the mix. Financial engineering became the main game in town — and a very profitable one.

Not only did the regulators let the companies get away with gearing up their balance sheets and paying out extra dividends, they also failed to ensure they did the day job: looking after the assets. Across the utilities there is a widespread perception that things are not working. When it comes to water, we see the tangible effect of sewage in our rivers.

None of this was inevitable: it is a result of spectacular regulatory failure. In theory, the regulators could now restate the balance sheets to allow debt only for new investment not paid for by current customers, demand that the rest of the equity is put back, make investors fix all those pipes and sewers, and ensure that electricity networks can stand up to storms. The chances of this happening are close to zero. The horses have bolted with their dividends.

The day of reckoning for this mismanagement, seen last week with the struggles of Thames Water, has arrived at a very inconvenient moment. All the utilities need massive investment to make them fit for purpose. Water needs billions to sort out sewage treatment, pipes and supply shortages. Electricity needs a massive investment programme to achieve net zero by 2035 (or 2030 under Labour plans) and secure supply.

The money will have to come mostly from outside the UK.
Tinkering around with pension funds might help a bit, but the fundamental facts are that the UK runs a massive external current account deficit. Foreigners need to lend us the money to buy more than we sell so that we can live beyond our means, prop up the fiscal deficit, and pay for all the shiny new net zero infrastructure, better sewers, HS2 rail links, airport expansions and the completion of the fibre and mobile networks.

These (largely overseas) investors made hay while the sun was shining but they are unlikely to feel remorse at the excess payouts, volunteer to put back equity to deal with the shortfalls or stump up for the infrastructure renewal that is so obviously needed. If the nation doesn’t want to save, we must beg and beggars can’t be choosers.

Tinkering will not fix this. We need a fundamental reset and we need the investment. We will have to pay the costs of investment or be forced to do so through higher taxes. That would be a big hit on standards of living in the middle of a cost of living crisis.
But net zero investment is going to cost.
Cleaner rivers are going to cost.

Serious regulatory reform is needed too. It requires an integrated systems-based regulatory regime, with reasonable profits and costs paid for by customers and taxpayers. We currently regulate in silos and lack joined-up planning for electricity generation and networks and for river catchments. We can’t even efficiently fit smart meters — the programme is years behind schedule.

It is not impossible to fix all this but renationalisation is a red herring. Neither Conservative ministers nor Labour have come to terms with the fact that no one else will pay for all this. They both set targets, promise cheap, secure low-carbon power and clean rivers, while being unwilling to spell out uncomfortable truths about the cost. Until they do, bet instead on more ad hoc sticking plasters, more Thames Water-style casualties, postponed net zero targets and a further widening of the gap between the problem and delivering the solution.

FT : US private equity faces extra scrutiny under new merger review rules

US private equity faces extra scrutiny under new merger review rules
Antitrust agencies’ overhaul adds to growing checks on sector and will delay deals, say lawyers

Advisers to the world’s largest private equity firms are warning new merger notification rules proposed by US antitrust agencies threaten to disproportionately affect the serial dealmakers and significantly delay getting transactions over the line.

Changes to the Hart-Scott-Rodino (HSR) form, which companies fill out to notify the Federal Trade Commission and the Department of Justice about deals exceeding a certain threshold, would force buyout groups to disclose significantly more information in the early stages of a transaction and potentially lead to more deals being blocked, antitrust experts said.

“This is breathtaking and astonishing in its reach and potential impact to deals,” said James Langston, a partner at Cleary Gottlieb in New York. “There’s nothing about the existing process that was broken.”

The overhaul of HSR, as it is often referred to, is the first in more than four decades and has been widely anticipated by dealmakers.

Under the proposal, companies will be required to file more detailed information to the FTC and the DoJ about the parties involved, their respective markets and how the businesses operate ahead of an initial 30-day assessment period.

Antitrust lawyers say this level of scrutiny had previously only been required in the so-called second stage of the approval process when the agencies ask for more information on the handful of deals that trigger further concern.

The agencies have predicted that this will add 100 hours to the amount of time companies will need to prepare the forms, though dealmakers believe this could end up being significantly longer.

Lina Khan, FTC chair, said in a statement that “much has changed” since the HSR was first enacted, including the increasing complexity and volume of deals. “The information currently collected by the HSR form is insufficient for our teams to determine, in the initial 30 days, whether a proposed deal may violate the antitrust laws,” she said.

The agencies did not highlight specific sectors or businesses, such as private equity, when announcing the proposal, which will move to a 60-day comment period before final implementation.

While the rules are applied regardless of the buyer’s funding model, there are certain provisions that experts think specifically target private equity firms, which have been some of the most active dealmakers over the past decade. In 2021 and 2022 alone, buyout firms accounted for about a fifth of global transactions, respectively, according to data from Refinitiv.

Among the list of new requirements are disclosures of previous transactions over a 10-year period and detailed workforce reports to identify whether there is significant overlap between the two parties, which lawyers say will ensnare large private equity buyers who own numerous businesses across industries.

“People have realised that private equity can sometimes be shrouded in secrecy in ways large public companies are not. It’s hard to figure out what private equity owns,” said one antitrust lawyer. “[Regulators] have homed in on the fact that they want to know what’s happening in private equity.”

Private equity firms have increasingly found themselves in the crosshairs of regulators as their footprint in the US has rapidly expanded to the point where they control large swaths of the economy. Both Khan and Jonathan Kanter, head of the DoJ’s antitrust division, have been vocal about their desire to increase scrutiny of dealmaking by buyout groups.

Last year, the FTC required private capital buyer JAB to divest 11 veterinarian clinics as it completed two large acquisitions owing to market concentration concerns, a sign of the agency’s tougher stance on private equity roll-ups — plans by private investors to consolidate niche sectors such as vet clinics and funeral homes.

The DoJ, meanwhile, is closely scrutinising Thoma Bravo’s proposed $2.3bn take-private of cyber security company ForgeRock, which lawyers said could lead to a rare antitrust challenge involving a large private equity deal.

Antitrust regulators have also focused on so-called “interlocking” board directors, where representatives from one private equity firm sit on numerous boards in a single sector. The FTC’s proposed changes seek to increase scrutiny on how boards wield their influence by forcing buyout firms to identify “board observers” — key dealmakers monitoring investments that do not hold formal board seats.

Lawyers, several of whom said they had received numerous calls from frustrated clients following the HSR announcement, may be lamenting the extra time it will take to pull material together but conceded that this is ultimately good for their bottom line.

One antitrust lawyer said the new rule would likely be “great for my pocket but terrible for my private life” as long as deal volume was not dramatically affected.

“The real beneficiaries will be the antitrust lawyers specialising in HSR,” said George Hay, an antitrust professor at Cornell University. “Their billings will increase very substantially especially in the first year as law firms learn the ropes.”

However, the prolonged slowdown in dealmaking amid a tougher financing and regulatory environment has left others feeling that there will be a bigger price to pay if acquirers are discouraged.

“This will hurt small companies especially hard by increasing deal costs substantially,” said Eric Laumann, a former litigator who heads North American risk arbitrage research at Oscar Gruss.

Regulators “want a lot more information about the structure and ownership of private equity funds and they style it as trying to get more transparency. I’m sceptical of that view,” said Daniel Culley, a partner at Cleary Gottlieb who focuses on antitrust issues. “I think they’re trying to disfavour private equity as acquirers.”

FT : Bond fund giant Pimco prepares for ‘harder landing’ for global economy

Bond fund giant Pimco prepares for ‘harder landing’ for global economy
CIO Daniel Ivascyn says the market is ‘too confident in the quality of central bank decisions’

The world’s largest active bond fund manager says markets are too optimistic about central banks’ ability to dodge a recession as they battle inflation in the US and Europe.

Daniel Ivascyn, chief investment officer at Pimco, which manages $1.8tn of assets, said he was preparing for a “harder landing” than other investors while top central bank chiefs prepare to continue their campaign of interest rate rises.

“The more tightening that people feel motivated to do, the more uncertainty around these lags and the greater risk to more extreme economic outlooks,” Ivascyn said in an interview with the Financial Times.

He noted that when rates have risen in the past, a lag of five or six quarters for the impact to be felt has been “the norm”.

“We would argue that the market may still be too confident in the quality of central bank decisions and their ability to engineer positive outcomes,” he said. “We think the market is a bit too optimistic about central banks’ ability to cut policy rates as quickly as the yield curves are implying.”

The US Federal Reserve, the European Central Bank and the Bank of England have all been rapidly raising rates after criticism that they had been too slow to react as inflation gathered pace.
At a conference in Sintra, Portugal, this week, the heads of all three indicated more action is likely to be needed while inflationary pressures persist. On Friday, the Nasdaq Composite stock market index recorded its strongest first half of the year in 40 years, in part on expectations that US interest rates would soon peak.

But core inflation, which is used as a gauge of underlying price pressure because it strips out volatile food and energy prices, has hovered around 5 per cent in the US and eurozone in recent months, while surging as high as 7.1 per cent in the UK for the year to May.

Ivascyn said: “Today we have a real legitimate inflation problem.
It will likely be harder for central banks to cut policy even if the economy is weakening as long as inflation is comfortably above their [2 per cent] targets.” 

Pimco, which is owned by German insurer Allianz, is repositioning funds to be “more defensive and more liquid” as it draws back investors following a terrible year for bond funds in 2022.

The California-based manager suffered €75bn of outflows last year, but Ivascyn said flows had “materially improved” as investors grab the higher yields now on offer. Pimco has attracted €14bn of assets in the first quarter of this year, Allianz has reported.

While Pimco thinks a “soft landing” is the most likely outcome for the US economy, Ivascyn said the group is avoiding areas of the market that would be most vulnerable in a recession.

Favouring high-quality government and corporate bonds for now, he is waiting for company credit ratings to be downgraded, which he said will prompt forced selling among vehicles such as collateralised loan obligations in the coming months and years. That will be the time to snap up bargains, he said.

“A great trade will be to take advantage of the violent repricing of the public markets and then wait for private markets to adjust over the next few years and then rotate into what should be a really attractive opportunity,” he said.

“Hold some cash because we think the next two, three years is going to be quite target rich for opportunities in the higher yielding space.” 

However, he cautioned this cycle might be different to previous ones. Central banks may be less willing to provide support for fear of fuelling rising prices, while the fact that so much risk has been transferred to private markets would slow down the deterioration of credit valuations, but not prevent it.

“This could be more of an old fashioned cycle that lingers for a few years with inflation high but policymakers don’t come to the rescue,” he said.

Pimco’s move to safer bonds is part of a wider industry shift towards higher quality fixed-income assets.
The latest survey of fund managers by Bank of America showed investors were the most overweight in investment-grade bonds compared with their high-yield counterparts since 2008.

Even for investors who do not think central banks will be able to bring inflation back down to target, Ivascyn said fixed income provided the best value we have seen for “many, many years”, with real inflation-adjusted yields in the US at levels not seen since the global financial crisis.

“You can be defensive in terms of interest rate risk, inflation risk, credit risk and generate a very, very attractive return,” he said.

“Which is different from saying ‘buy everything, it’s all going to be fine’.”

FT : Vincent Bolloré, the conservative billionaire taking on France’s mainstream

Vincent Bolloré, the conservative billionaire taking on France’s mainstream media
Having created a French version of Fox News, he now has one of the country’s most influential newspapers in his sights

Last year corporate raider Vincent Bolloré celebrated his supposed retirement from his family-owned media and logistics empire. But that has not stopped him from making waves in French business and politics.

The 71-year-old conservative billionaire is now mounting an assault on a bastion of French mainstream media: the prominent weekly newspaper, the Journal du Dimanche. His allies have appointed the controversial former editor of a far-right magazine to run the paper, prompting outraged journalists to strike and triggering a wave of concern from leftwing and centrist politicians and celebrities.

Sitting out retirement on a beach was probably never on the cards for the financier whose name has become synonymous with bare-knuckled dealmaking and proximity to power (he is a close friend of former president Nicolas Sarkozy, who celebrated his 2007 election victory on the billionaire’s yacht). 

Nicknamed the “little prince of cash flow” for his business acumen, Bolloré celebrated his departure from the family company with a Catholic mass and a party in his home region of Brittany. A devout Catholic, Bolloré wore traditional Breton clothes as bagpipes played at the event timed to coincide with the group’s 200-year anniversary. 

One of his sons, Yannick Bolloré, who replaced his father at the helm of the family’s media group Vivendi, called the ceremony a “moving and really joyful moment” during which retired factory workers and managers feted the patriarch. “Working with a genius is always wonderful,” he told the Financial Times.

Asked about the nomination to the JDD of editor Geoffroy Lejeune, whose last magazine was convicted for running afoul of France’s hate speech laws, the younger Bolloré insisted it had nothing to do with Vivendi or his father. 

Vivendi has yet to finalise its acquisition of the JDD’s parent company Lagardère, he said, so legally could not have made the choice. “We had no part in the decision,” he said.

But many in Paris media and business circles see the hand of Bolloré behind the move to install Lejeune. After all, they point out, the tycoon has form. In the past six years, Bolloré has put a conservative stamp on the media outlets he controls in what people who know him say is a concerted strategy to build a counterweight to what he sees as the leftist bias of French media. 

Yet that agenda is never admitted openly. When senators grilled him last year in hearings over the concentration of media ownership, Bolloré denied any desire to influence politics and minimised his role. “Our interests are not political and not ideological, it is always and only economic,” he said. “I am answering your questions only as an individual. I have no title nor power at Vivendi, Bolloré . . . and even less at Lagardère.”

One banker marvels at the performance: “He advances wearing a mask . . . There is an 18th-century aspect to him: I will strangle you but with a form of grace and elegance.”

The most emblematic example of Bolloré’s rightwing media push came when Vivendi gutted the staff of 24-hour news channel i-Télé in 2016. It was rebranded as CNews, a Fox News-like outlet that has since become an incubator for rightwing personalities, including the 2022 presidential hopeful Éric Zemmour. Lejeune has also appeared on the station frequently. In 2021, stars from CNews were parachuted into Lagardère’s Europe 1 radio station after Vivendi built up its Lagardère stake to more than 40 per cent. 

CNews also bears traces of Bolloré’s faith, notably a Sunday show called In Search of Spirituality. “The assignment Vincent Bolloré gave me was to bring spirituality back to the TV screen,” host Aymeric Pourbaix told La Croix magazine in 2021. 

Keeping his family’s business going is another of Bolloré’s obsessions. He started his career as a banker, but when the family business making bibles and cigarette paper ran into trouble in the 1980s, the young Bolloré saved it. He later branched out in Africa to build an extensive ports and logistics network that relied on close ties with political leaders in Côte d’Ivoire, Ghana and Nigeria.

He has had only a few failures as he built a fortune now estimated at around $10bn: Vivendi’s Telecom Italia stake has shrunk massively in value and a costly venture in electric batteries did not pan out.

People who know him say he is charming and funny, attributes he uses to get his way. “Everyone knows he is a serial seducer but he is so good at it, you doubt yourself for a moment and think this time is different,” says one person. 

In business, he is rational and calculated, buying and selling assets with little emotion. Since 2022, Bolloré Group — the infrastructure-focused family holding managed by another son, Cyrille — has divested the African and logistics business the patriarch spent decades building. 

The Africa business has also brought legal woes for the billionaire: he has been under investigation by French prosecutors since 2018 for alleged bribery of local officials and spent time in police custody for questioning. He has denied wrongdoing.

Back at the JDD, the journalists have few illusions that they can win against Bolloré. Most expect Lejeune to remain as editor and predict a staff exodus, as happened at CNews and Europe 1. After all, this is a man whose family’s longstanding motto since 1789 is: “Kneel before God, stand before men.” 

Barrons : Buy This ‘Tech’ Stock. Automation Is the Future.

Buy This ‘Tech’ Stock. Automation Is the Future.

Tech stocks are all the rage—and that makes industrial stock Rockwell Automation ROK +1.61% a stock to buy now.

When investors think of industrials, they tend to imagine companies that make pipes, turbines, tractors, and backhoes. That isn’t Rockwell Automation (ticker: ROK). The Milwaukee-based company, which competes with the likes of Siemens (SIE.Germany) and ABB (ABBN.Switzerland), is a leader in the automation and digital transformation of manufacturing processes. Companies making everything from cars to cookies use Rockwell hardware and software to make their plants function.

Rockwell’s stock has had a great start to 2023—it has gained about 25% through Wednesday’s close—and there are probably more gains ahead. By providing the technology necessary to automate manufacturing, Rockwell is growing faster than it has in the past, and that growth should continue as supply chains continue to ease, industrial activity begins to recover, and the U.S. brings manufacturing back home. What’s more, the stock should earn a higher valuation as investors begin to consider it for what it really is—a tech company.

“[Trends] across automation and shoring, as well as the emergence of AI over time, could lead manufacturers to lean in and invest in smarter devices and software solutions,” writes Citigroup analyst Andrew Kaplowitz
GE Stock and 5 More Winners From the Debt Ceiling Deal
Citi industrial analyst Andrew Kaplowitz says the debt ceiling outcome is favorable for several stocks he covers.
Continue reading. “We view Rockwell to be a key beneficiary.”

Some of that is already priced into the stock.

Rockwell shares trade at 25.5 times 12-month forward earnings of $12.59 a share, above their five-year average of 23.7 times.

That reflects the fact that Rockwell’s growth already has accelerated.

The company reported $8.1 billion in sales during 2022, up 12% from $7.2 billion in 2021, faster than its 5% or so average annual growth rate over the past five years.

That faster growth was spurred in part by the easing of supply chains following Covid-19.

The pandemic, remember, made semiconductors—part of almost every piece of hardware Rockwell makes—hard to come by.

With chips now more available, Rockwell reported blowout fiscal second-quarter earnings in April, while raising full-year financial guidance to a midpoint of $11.85 a share from a prior midpoint of $11.10. “[The improvement was] more a factor of chip supply starting to come in better and better,” says CEO Blake Moret.

More semiconductors, however, aren’t the only reason that sales will grow faster. Rockwell benefits from one of the biggest changes of the past few years—the reshoring of U.S. manufacturing.

When China joined the World Trade Organization in 2001, the U.S. accounted for about 25% of global manufacturing output, but today represents just 15%.
China accounts for 30%. The U.S. government, whether dominated by Republicans or Democrats, wants to change that, and spending roughly $2 trillion—the total amount coming from the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the Creating Helpful Incentives to Produce Semiconductors and Science Act, or CHIPS Act—is a good start.

That headline number has started to turn into real economic activity. Ford Motor F +1.20% (F) announced a record $9.2 billion loan from the Energy Department to help it build electric-vehicle battery capacity in Kentucky and Tennessee, while Taiwan Semiconductor Manufacturing (TSM) announced another $20 billion investment in Arizona for a second fab for making cutting-edge microchips. All told, some $500 billion in new projects have been announced since 2020, according to Melius Research analyst Scott Davis. Only about half of those have been started, which means more spending is on the way.

That spending bodes well for coming results, even if U.S. manufacturing remains in a slump. After five consecutive monthly readings below the expansionary level of 50, the Institute for Supply Management’s manufacturing purchasing managers’ index of production turned higher in May, a sign that the worst of the downturn could be in the past. Even if a recovery isn’t a straight line up, Rockwell’s backlog of $5.6 billion at the end of the second quarter—up from roughly $4 billion a year earlier—should provide a buffer. “We’ve got such a large backlog that the lead times for a lot of our products are still out there a ways,” says CEO Moret.

But the biggest change in Rockwell’s business—the one that is most responsible for its rapidly rising sales growth—is the continued shift to automation with an artificial-intelligence kicker.
Software-related sales have grown to $2.4 billion, or about 30% of Rockwell’s total sales in calendar year 2022, up from 27% in 2020, and should hit about 32% of sales in 2025.
Software has better operating-profit margins, at almost 30%, than Rockwell’s overall 18.3%, which should help earnings grow at a roughly 10% clip, to $13.30, in 2024.

Historical valuations, however, don’t take into account the higher valuations that investors now place on
Apple AAPL +2.31% (AAPL) and Microsoft MSFT +1.64% (MSFT), which currently fetch about 29 times. In the past, they and Rockwell have traded at similar multiples, observes Citigroup’s Kaplowitz, who has a Buy rating on Rockwell shares. “As such, we do think that industrial tech could be relatively well positioned going forward,” he writes.

Morgan Stanley analyst Joshua Pokrzywinski’s most bullish case for the stock has earnings rising by 37%, to $15.37 a share, over the coming 12 months and its multiple improving to 27 times.
In such a scenario, Rockwell’s shares would be worth $415, up almost 30% from a recent $321.21.
It may not be automatic, but it seems reasonable for a stock with so many tailwinds at its back.

Barrons : Bargains Abound in Commercial Real Estate.

Bargains Abound in Commercial Real Estate.
Where to Find Income and Growth.

Paul McDowell’s business has seen happier days. He runs Orion Office REIT, a real estate company that owns 81 office properties with an 88% occupancy rate. But hybrid work has hurt profits and demand for new offices. Since going public in late 2021, Orion’s stock is down 74%.

Paul McDowell’s business has seen happier days. He runs Orion Office REIT, a real estate company that owns 81 office properties with an 88% occupancy rate. But hybrid work has hurt profits and demand for new offices. Since going public in late 2021, Orion’s stock is down 74%.
“Being in the office sector is not necessarily the easiest place to be,” Orion’s (ticker: ONL) McDowell told a recent investing conference in New York, looking at his sparse audience.

The great debate in real estate is whether the vacant office buildings in many cities will ever refill.
Office vacancy has reached nearly 25% in cities like San Francisco and Chicago.
Office real estate stocks are down 50% from pre-Covid highs, while the REIT sector has lost 9.5% in the past year against the S&P 500’s 14.5% gain.

But offices are now just 3.4% of the $1 trillion public market for real estate investment trusts, or REITs. The broader REIT space isn’t as troubled. With valuations laid low, there are bargains amid the rubble.

Some sectors are thriving, including warehouse/logistics properties and data centers. Apartment owners are enjoying healthy rental demand, as homebuyers stay sidelined by 6.5% mortgages with average monthly payments that have doubled to almost $3,000 since early 2022, according to Apollo Group chief economist Torsten Slok.

Even the office space offers opportunities. Some Sunbelt and suburban areas are seeing healthy occupancy and rents.
Office REITs, while troubled, are now deeply discounted.
Hybrid work may be here to stay, but corporations are pushing workers to return. Recent data show job postings for remote jobs have flattened.

The selloff has delivered cheaper valuations and higher dividend yields.
REITs, which must pay out almost all taxable profits as dividends, are yielding an average 4.1%, roughly double that of the S&P 500.
After a large correction, REITs also look cheaper on measures of value such as the capitalization rate, or “cap rate”—which is like an earnings yield on rental properties. Cap rates now average nearly 7%, up from 5.5% before the pandemic, according to real estate analytics firm Green Street Advisors.

The sale prices reflect the fact that conditions aren’t yet favorable. A recession may lie ahead.
The Federal Reserve hasn’t signaled that it’s done raising rates.
And few of the bankers who make real estate loans are taking calls, frozen by higher rates, tighter lending standards, and loan-loss provisions—worries that the Fed highlighted in a recent report on financial stability.

“The most striking thing right now is the delta between fundamentals on the ground, which are pretty good, and lending conditions, which are pretty tight,” says Cedrik Lachance, research chief at Green Street Advisors. “Lenders don’t want to play ball right now.”

Yet real estate stocks are quite sensitive to economic data, reviving when leading indicators turn up. And compared with privately held real estate, which hasn’t corrected as much, the public market looks cheap, according to economist Ed Pierzak of the National Association of Real Estate Investment Trusts.

At the start of 2023, cap rates for public REITs were more than 15% above private real estate, Pierzak says.
REIT total returns also fell nearly 40% behind returns for privately owned properties from 2022 to 2023—the biggest divergence in four decades. Gaps of that magnitude tend to close within a year, as cap rates and returns converge, he says, providing a potential tailwind for REIT stocks.

Debt also looks manageable for publicly traded REITs.
It averages 34% of assets, down from 65% during the 2008-09 financial crisis.
About three-quarters of that debt is unsecured bonds or bank loans, leaving REITs largely free of mortgage obligations.
And almost 90% of REIT debt is fixed-rate, maturing in an average of seven years.
That gives some breathing room. All told, REIT balance sheets can weather today’s tight credit environment.

One optimist is Willy Walker, CEO of commercial real estate financing firm Walker & Dunlop (WD).
The company has been hit hard; Wall Street sees its earnings per share at around $4.90 this year, down from a peak of $8.15 in 2021.
But after a lean 2023, the Mortgage Bankers Association trade group expects a revival in loan originations next year. Walker notes that his company has not backed off its goal of increasing revenue 50% by 2025.

“The market is progressing at a slow pace,” he says. “But we remain focused on getting to those numbers.”

One way to invest is with a barbell approach: Pair higher yielding stocks in hard-hit areas with those that aren’t as cheap but have strong growth trends and potential for capital gains.
Here’s a look at some key REIT sectors and prospects within them.

Office
Some of the deepest values now are in office REITs, partly because leading indicators still look weak in many big cities. About 18% of office space was vacant at the end of the first quarter, up slightly from December’s vacancy rate, according to leasing firm CBRE. In Manhattan, with a 15.5% vacancy rate, the map is dotted with office towers that have fallen behind on payments or sold at a loss.

Why go bottom fishing? Because the stocks may now be fully discounted.
Based on a real estate measure of cash flow called funds-from-operations, or FFO, office REITs trade at nine times next year’s estimates.
That’s just 55% of the S&P 500, using the analogous measure of earnings before interest, taxes, depreciation, and amortization.

“We just have to be patient and operate our way through it,” says Owen Thomas, CEO of BXP (BXP), the largest publicly traded office REIT, previously known as Boston Properties.
While BXP’s stock has been hammered, down 15% this year after a 41% drop in 2022, its operating metrics aren’t bad.
It has a 91% occupancy rate. The firm’s premier buildings in big cities still command top rents, and recent sales indicate those types of properties are in demand.
Rival office REIT SL Green Realty (SLG) saw its stock pop nearly 20% after the company sold half its stake in a prime Park Avenue building in New York at a $2 billion valuation.

Investing now is a game of waiting for downtown office demand to rebound. Faster-growing Sunbelt markets are likely to recover a bit quicker, according to Lachance.

Two plays on that theme are Cousins Properties (CUZ) and Highwoods Properties (HIW). Cousins sports a 6% dividend yield and one of the lowest levels of debt in its sector. Recent leasing deals should return occupancy to pre-Covid levels, the company says. Highwoods also has low debt levels, with none due until the end of 2025. It has grown earnings for years by refreshing its portfolio to focus on Sunbelt cities.

“All REITs are being painted with the same brush,” complains Ted Klinck, CEO of Highwoods Properties. He notes that Highwoods has been tweaking its portfolio. It plans to buy buildings in Dallas, a fast-growing market, and sell in Pittsburgh, where prospects are less favorable.

Residential
Whereas Sunbelt REITs are preferred in the office market, they are temporarily out of favor in the residential market. A flood of new apartments under construction in many Southern markets could dampen rent growth for a year or two.

Analyst Steve Sakwa of Evercore ISI likes AvalonBay Communities (AVB) and Equity Residential (EQR), two REITs with big portfolios in coastal markets where apartment construction has been limited.
Both companies are also considered good apartment operators and have moderate financial leverage, or debt levels.

Residential REIT stocks have fared better than office shares, so dividend yields remain around 3.5% at names like Avalon. That company’s roughly 300 properties are 96% occupied. Per-apartment rents and earnings are on track to rise 5% this year, according to Sakwa.

Equity Residential is the apartment network founded by recently deceased REIT pioneer Sam Zell. It also oversees about 300 properties, with 96% occupied and rents rising broadly. Equity enjoys a handsome 45% cash flow margin on its properties, yet its shares trade at an earnings multiple that’s below average for residential REITs.

One other play on residential real estate is single-family rentals. Demand has been healthy, due to high mortgage rates and a drop in homes for sale. Jonathan Litt, founder of Land & Buildings, a real estate hedge fund, likes AMH (AMH), a REIT that owns nearly 59,000 single-family homes across 21 states. “People with kids can’t stay in an apartment and they can’t buy a home—so they rent,” Litt says.

AMH trades at a steep price/FFO of 21 and only yields 2.5%.
But it has a dividend payout ratio of about 50% of FFO—implying plenty of dividend coverage and room to increase its payout.
AMH carries low debt. It has also been a winning stock.
It’s up 15% this year, beating the REIT average, which it has outperformed by an annualized eight percentage points over the past five years.

Retail
Retail REITs have been through the wringer as online shopping trends accelerated during the pandemic. Kimco Realty (KIM) operates strip centers, which are less affected by e-commerce than regional malls. Kimco’s niche is grocery-anchored shopping centers in stable inner-ring suburbs. CEO Conor Flynn tells Barron’s that remote work has helped, as homebound workers tend to shop more in suburban shopping centers.

“They are going to local stores more than to the destination stores,” he says.

Earnings are dipping this year, reflecting higher interest expense, but should grow about 4% in 2024, according to consensus estimates.
Kimco’s dividend yield is near 5% and looks covered with a 74% payout ratio of its adjusted FFO.

Simon Property Group (SPG) is considered one of the best mall operators, with a 94.4% occupancy rate on March 31, up a percentage point from the year-earlier period.
It also sports a balance sheet that’s stronger than most mall REITs, and yields 6.6% with enough cash flow to cover the payout.

The stock looks inexpensive at a price-to-FFO of about nine times, notes Green Street’s Lachance. The discount reflects anxieties about retail and consumer spending. But Lachance calls Simon a “best-in-class operator” with a low stock multiple that should price in “any kind of problems that will occur.”

Industrial
The rise of e-commerce has fueled huge gains for logistics and warehouse REITs.
The country’s largest REIT now is Prologis (PLD), with a $140 billion enterprise value and plenty of cash for acquisitions—including a recent deal for 14 million square feet of properties purchased from Blackstone for $3 billion. Yet Prologis is also one of the priciest REITs on the market, with a relatively low 2.9% yield.

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Less well-appreciated is First Industrial Realty Trust (FR).
Its collection of distribution centers covers coastal markets, which are the best locations for such properties. First Industrial has wide margins, a better-than-average balance sheet, and good management, according to Lachance.
In presentations, the REIT notes that its properties are full and rents are rising. Yet compared with some other midsize industrial REITs, the stock trades at a bigger discount to operating earnings and book value, as investors overlook upgrades in its portfolio.
The REIT’s yield is low at 2.5%, but Wall Street sees profit momentum with FFO expected to rise about 6% this year and 9% in 2024.

Healthcare
Healthcare REITs own medical offices, nursing homes, and life-science research labs. Some of these stocks have floundered as investors worried about funding for biotech start-ups and the pandemic’s pause in office visits—though the latter trend has reversed, as patients come back for elective procedures.

One diversified healthcare REIT with a 6% yield is Healthpeak Properties (PEAK).
It has a roughly even split of medical offices and life-sciences buildings. That provides both defensive stability and growth, says Lachance, who recommends the stock. Trading at about 11 times this year’s earnings—compared with a healthcare REIT average of 22 times—Healthpeak’s portfolio is one of the most-discounted in its sector, as investors worry about new supply of life-science space in key markets like Boston.

Yet the company faces few near-term lease expirations in Boston. It has pulled back sharply on development, to conserve capital and capture better prices in a downturn. “When fundamentals turn, which they inevitably will, we expect to be in great shape to capitalize,” CEO Scott Brinker told investors in April.

Data Centers
A wave of private equity flooded into data centers over the past few years, aiming to profit off tech trends like cloud computing and corporate demand for connectivity. Data centers are on-ramps to the internet and the flywheels that keep it humming. Lease renewal rates are high, as the steep costs of switching to another site keep most tenants in place.

Mergers have consolidated data center REITs, leaving Equinix (EQIX) and Digital Realty Trust (DLR) in command of much of the market.
Equinix stock has been a runaway winner, outperforming both Digital Realty and the S&P 500 for years.
Digital is a contrarian value idea: It trades at a 50% discount to Equinix, based on FFO estimates, and it offers a 4.5% yield versus Equinix’s 1.8% payout.

The case for Digital is that it could be on the cusp of closing those gaps. The company has shored up its capital, by raising several billion from stock and property sales over the past few years.
Cities around the world are now limiting new data-center builds.
That restricts competition and gives incumbents like Digital more pricing power. “It’s not easy to build data centers anymore,” CEO Andy Power said at a recent conference.

Green Street’s Lachance admits that Digital stock has been a headache. But it goes for a 2023 FFO multiple of 16 times, compared with 35 times at Equinix. With an implied cap rate that is more than 1.3 percentage points higher than that of Equinix, Digital trades at a “monstrous” discount, he says.

Data REITs therefore present a classic barbell opportunity, with Equinix offering cloud-computing growth, and Digital Realty offering a higher yield on a discounted stock.

>>> US Close Dow +0.84% S&P +1.23% Nasdaq +1.45% Russell +0.38%

Closing Stock Market Summary

The last day of the second quarter ended with a punctuation point on what marked the best first half of the year for the Nasdaq Composite (+31.7%) since 1983! Mega-cap stocks took the lead at the open, held it throughout the day, and joined with a host of other stocks to finish the week and the quarter on a winning note.

The tone for today's winning session was set early when Citigroup started coverage of Apple (AAPL 193.97, +4.38, +2.3%) with a Buy rating and $240 price target. Apple surpassed a $3 trillion market capitalization today. Not to be outdone, Daiwa Securities upgraded NVIDIA (NVDA 423.02, +14.80, +3.6%) to Outperform from Neutral. Those research calls put a bid in the mega-cap stocks that strengthened following the release of the Personal Income and Spending Report for May.

That report played into the optimistic view that the U.S. economy could in fact avoid a recession. It wasn't because the report was undeniably strong; rather, it was more because it wasn't decidedly weak. Personal income increased 0.4%, personal spending jumped 0.1%, the PCE Price Index rose 0.1%, and the core-PCE Price Index, which excludes food and energy, advanced 0.3%.

Importantly, the year-over-year increase for the PCE Price Index moderated to 3.8% from 4.3% and the year-over-year rate for the core-PCE Price Index moderated to 4.6% from 4.7%. The core rate is still too high for the Fed's liking, yet the recognition that the core rate dipped from April was enough to quiet concerns for now about the Fed possibly raising rates at its next two FOMC meetings.

The CME FedWatch Tool shows an 84.3% probability of a 25-basis points rate hike in July, but only a 20.2% probability for a second rate hike at the September FOMC meeting.

The Treasury market looked placated by what it saw in the data. Yields came down immediately after the report was released at 8:30 a.m. ET. The 2-yr note yield went from 4.92% to 4.84% and settled the session unchanged at 4.88%. The 10-yr note yield dropped from 3.88% to 3.82% where it settled for the week.

The Dow, Nasdaq, and S&P 500 all closed near their highs for the session. The Russell 2000, which outperformed on Thursday, trailed the action on Friday but still logged a tidy 0.4% gain.

Today's action might have been led by the mega-cap stocks but they had plenty of company. Advancers led decliners by a better than 2-to-1 margin at the NYSE and by a roughly 13-to-9 margin at the Nasdaq. All 11 S&P 500 sectors ended the day higher, including the real estate sector (+0.5%), which enjoyed a burst of buying interest in the last half hour of trading that ferried it out of negative territory. 25 of the 30 Dow components closed higher.

The information technology (+1.8%) and consumer discretionary (+1.4%) sectors were the best performers today, led by their mega-cap constituents. The consumer discretionary sector overcame a weak showing from Nike (NKE 110.35, -3.02, -2.7%), which disappointed with its fiscal Q4 results. Altogether there were five sectors that gained at least 1.0%.

The Vanguard Mega-Cap Growth ETF (MGK) jumped 1.5% today, leaving it up 15.1% for the quarter and 36.8% for the year. The Invesco S&P 500 Equal-Weight ETF (RSP) increased 0.9%, leaving it up 3.5% for the quarter and 6.0% for the year.

  • Nasdaq Composite: +31.7% YTD
  • S&P 500: +15.9% YTD
  • S&P Midcap 400: +7.9% YTD
  • Russell 2000: +7.2% YTD
  • Dow Jones Industrial Average: +3.8% YTD

Reviewing today's economic data:

  • Personal income increased 0.4% month-over-month in May ( consensus 0.4%; prior revised to 0.3% from 0.4%), personal spending rose 0.1% ( consensus 0.3%; prior revised to 0.6% from 0.8%), the PCE Price Index advanced 0.1% ( consensus 0.1%; prior 0.4%), and the Core-PCE Price Index, which excludes food and energy, increased 0.3% (consensus 0.3%; prior 0.4%). On a year-over-year basis, the PCE Price Index was up 3.8% versus 4.3% in April. The core-PCE Price Index was up 4.6% year-over-year versus 4.7% in April.
    • The key takeaway from the report is the understanding that the core-PCE Price Index moderated in May; however, it didn't move much, demonstrating some stickiness in this key inflation gauge for the Fed.
  • The final reading for the June University of Michigan Consumer Sentiment Index checked in at 64.4 ( consensus 63.9) versus the preliminary reading of 63.9. In the same period a year ago, the index stood at 50.0.
    • The key takeaway from the report is that consumers' attitude about the economic outlook has improved with an easing in inflation expectations.
  • The June Chicago PMI was 41.5, up from 40.4 in May but still well below the 50.0 level that is the line between expansion and contraction.

Looking ahead to Monday, market participants will receive the following economic data:

  • 9:45 a.m. ET: June IHS Markit Manufacturing PMI - Final (Prior 48.4)    
  • 10:00 ET: May Construction Spending ( consensus 0.4%; Prior 1.2%)
  • 10:00 ET: June ISM Manufacturing Index ( consensus 47.1; Prior 46.9)