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Corona Capital

9 Jul 2020 By Breakingviews columnists

Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Nursing home investments

– Travelers become owners

– Walgreens’ LBO heyday

Hearty to frail. Nursing home and assisted-living may be in for an investment revamp. Fear of catching Covid-19 has reduced demand for the elderly facilities. Local governments are imposing costly measures to control outbreaks. And the private sector is also weighing in – insurance rates for U.S. senior-care centers have risen as much as 300% for those institutions that can find it, according to Reuters’ sources.

About 70% of nursing homes are for-profit, according to the government. Booming demand and the ability to leverage assets lured in private equity investors in recent years.

But things are changing. Ventas, a roughly $13 billion REIT that owns senior housing, facilities and medical offices, has lost about 40% of its market capitalization this year. Private equity looks even more exposed – a March paper by NYU professors found lower quality of care after buyouts, as firms tried to maximize margins.

Granny may benefit eventually if the pandemic forces higher quality care. For many investors, though, it’s a zero-sum game. (By Robert Cyran)

Power trip. U.S. taxpayers may finally have the upper hand in pushing back on abysmal flying experiences. On a recent American Airlines flight where, according to the New York Times on Tuesday, passengers who had changed seats to gain some extra distance were asked to move back to their original – crowded – spots. Even as Covid-19 cases surge in the United States, attendants noted they hadn’t paid for the extra room.

In fact, passengers might argue that they had. Government-backed bailouts have left air carriers indebted to taxpayers. Airline employees are particularly invested in winning people over in the court of public opinion. Their jobs are on the line as companies like United Airlines send out notices that thousands of workers could be furloughed. Sure, the rank and file who serve drinks and accommodate room in the overhead compartments are just doing their jobs. Now they just have a few extra bosses. (By Lauren Silva Laughlin)

Small ailments, big problems. Stefano Pessina, the chief executive of Walgreens Boots Alliance, should be happy November’s talk of a buyout of the drugstore chain in a deal valued at $87 billion resulted in naught. The company reported disappointing quarterly results on Thursday, sending its shares down 8%. The shares are now down about 40% from where they were in November.

The pandemic worsened existing problems in UK operations, where main street shops have been losing customers to online competitors. Covid-19 squeezed them even harder. Sales fell by more than $700 million, and the company took a $2 billion impairment charge.

A buyout was always a stretch, and closing stores, cutting jobs and suspending share repurchases should help. But problems haven’t disappeared. Pessina, the company’s largest shareholder with 16%, might’ve liked solving problems out of the public eye. But he would have been doing so with a more highly leveraged WBA. Sometimes the cure is worse than the disease. (By Robert Cyran)

Middling Kingdom. China’s economic recovery from the coronavirus pandemic has brought a rare bit of good news for embattled Ford Motor boss Jim Hackett. The $24 billion U.S. carmaker on Thursday unveiled its first quarterly sales increase in the country for almost three years. Adding to the achievement, Ford performed better than arch rival General Motors, which offloaded some 5% fewer vehicles than the same period last year.

It’ll be an unusual boost for Hackett, who has had a disappointing three years at the wheel of the Detroit manufacturer. It’s not an unqualified success, though: Overall industry sales in China grew much faster than Ford’s in the three months to June. And it’ll be hard to replicate such success back home, with new daily U.S. coronavirus cases hitting record highs in recent days. But Hackett should take any good news where he can get it. (By Antony Currie)

Shop horror. British department store John Lewis and pharmacy chain Boots said on Thursday they would lay off more than 5,000 staff. Pharmacies stayed open, but with the lockdown in place, footfall for brick-and-mortar retailers nosedived.

Covid-19 has accelerated the high street’s decline but did not create it. The retail sector employs around 3.1 million people in the UK – a number that’s been falling with automation and with consumers switching to online. With Britain’s unemployment rate expected to more than double to 10%, these workers will find it hard to find new jobs. Finance ministers, including Britain’s Rishi Sunak, are trying to help, pumping billions into protecting employment. That’s a critical endeavour, but saving all shop jobs is a lost battle. (By Dasha Afanasieva)

Extra boost. British housebuilder Persimmon said on Thursday that revenue plunged more than 30% to 1.2 billion pounds for the six months ended June 30 after the housing market screeched to a halt during two months of lockdown as potential buyers were generally unable to visit homes.

But things aren’t all bad. Customer demand in the six weeks since its sales offices in England reopened in mid-May showed signs of life, with around 30% more weekly average net private sales reservations than last year. On top of that, Chancellor Rishi Sunak confirmed on Wednesday that he will give the housing market a tax break, at a cost of 3.8 billion pounds. Thursday’s hint of a recovery pushed Persimmon shares up more than 5% and suggests Sunak jumped the gun. With the economy expected to contract almost 9% this year, the money may be needed elsewhere. (By Dasha Afanasieva)

Up in the air. AirAsia’s problems will travel to regional peers. The Malaysian carrier is in talks to raise funds, Reuters reported on Thursday, a day after auditor EY doubted its ability to operate as a going concern and a stock plunge left it with a $550 million market value. Apart from the lifelines handed to Cathay Pacific and Singapore Airlines, there has been a dearth of official support for the industry.

AirAsia could merge with its compatriot, Malaysia Airlines, given the latter’s sovereign backer Khazanah Nasional has played down the idea of a bailout for the flag carrier. Or it could sell off its stake in its Indian joint venture to the Tata group, which is also the sole contender in the fraught privatisation of Air India, according to local news site Times Now. Covid-19 disruptions might force Asian carriers into an overdue tidy-up. (By Una Galani)


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