Merck Spin-Off of Organon Targeted for 21Q2

In recent weeks, Merck has been following through on its plan to spin-off its subsidiary, Organon & Co., to shareholders.  On March 17, it filed its Form 10 registration statement related to the transaction.  On March 24, it posted on its investor relations website a lender presentation related to planned debt to be issued by Organon.  On March 30, it announced that it had agreed to acquire Alydia Health on Organon’s behalf.  On April 8, it issued a press release announcing the pricing of three debt tranches in a private placement.  The debt offering is expected to close on April 22.

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Vaccinations Raise Visibility of a Bottom in Occupancy for DHC

Diversified Healthcare Trust reported 2020 fourth quarter normalized funds from operations (FFO) (my definition) of $15.1 million or $0.06 per share, slightly better than 20Q3, but well below 19Q4.  The results were modestly better than I anticipated with lower operating expenses, greater unrealized gains on its investment in Five Star Senior Living (FVE) and realized gains on property sales.  Even so, occupancy in its senior housing operating portfolio continued to fall at about the same pace as in 20Q2 and 20Q3.

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Citius Pharma Raises $71 million in Equity Unit Offering

Citius Pharmaceuticals (CXTR) is a specialty pharmaceutical company focused on the development of four potential products: (1) Mino-Lok, an antibiotic lock solution to treat and salvage infected central venous catheters (“CVCs”) in patients with catheter-related bloodstream infections (“CRBSIs”); Halo-Lido, a topical formation of halobetasol propionate and lidocaine for the treatment of hemorrhoids; Mino-Wrap, a liquefying, gel-based wrap for the reduction of infections associated with breast implants following breast reconstructive surgeries; and a next generation mesenchymal stem cell (MSC) mRNA therapy under license from Novellus Therapeutics Limited that is early in pre-clinical development.

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Five Star Senior Living (FVE) Update

Vaccination of 90% of Residents Raises Visibility on a Rebound in Occupancy

Five Star reported slightly stronger 20Q4 results than anticipated, due primarily to gains on investments held by its captive insurer.  Average occupancy across its owned and leased senior living communities (SLCs) declined by 320 basis points (bp) to 71.5% in the quarter, comparable to the decline reported for 20Q3.  Average occupancy at SLCs managed for Diversified Health Care Trust (DHC) declined 293 bp to 72.3% in 20Q4.  The decline in managed community average occupancy was 54 bp slower than that reported for 20Q3.  At year-end, the company said that “spot” occupancy was 70.7%.

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2021 Market Outlook – Part 2: S&P 500 Sector Analysis

2020 was of course dominated by the impact of the pandemic on the economy and specifically on the revenues and profits of each of the S&P 500 constituents.  There was a sharp stock market sell-off in March-April, followed by a quick recovery.  By mid-July, the S&P 500 had recovered all of its March-April losses.  By the end of the September, it was up 4.1% YTD.  With a quick resolution to the presidential election and the announcements of the vaccine rollouts, the Index rallied 11.7% in the fourth quarter, posting a 16.3% official return for the full year.

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2021 Market Outlook – Part 1

Despite Ongoing Uncertainties about the Pandemic, the Economic Recovery and Global Events, the Stock Market is Poised to Move Higher in 2021.

The financial markets turned in a stellar performance in 2020, the year of COVID-19, when real GDP probably fell about 3.7%.  Both stocks and bonds had a great year.  The S&P 500 was up 16.3% on price, 18.5% with dividends.  The Bloomberg Barclays U.S. Aggregate index, the broadest measure of U.S. fixed income securities performance, delivered a 7.5% total return.

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The Employment Situation and Outlook – December 2020

Yesterday, the Bureau of Labor Statistics estimated that nonfarm payroll employment declined by 140,000 in December.  The estimate for November was increased by 135,000.  The level of employment for December was therefore virtually unchanged from the November report.

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An Uncertain Outlook for Housing

2020 was a surprisingly solid year for housing in light of the pandemic and the havoc that it wreaked in other parts of the economy.  December data will not be reported until later this month.  I project that single-family housing starts will total 971,700 units in 2020, up 9.5% over 2019 and new residential sales will be 804,000, up 17.9%.  That is pretty remarkable, considering that single-family starts and sales were down double-digits in March and April.

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Colony Credit Real Estate 20Q3 Update

Shares of Colony Credit Real Estate (CLNC) have surged over the past six weeks, nearly doubling from a low of $4.37 on Oct. 29 to a high of $8.11 on Nov. 25.  Since then, CLNC’s share price has been trading in a range, closing most recently at $7.75 (on Dec. 8).

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Diversified Healthcare Trust (DHC): Weaker Than Anticipated 20Q3 Results

Diversified Healthcare Trust reported 2020 third quarter normalized funds from operations (FFO) (according to my definition) of $11.0 million or $0.05 per share, well below results for 19Q3 and 20Q2 and also below my projection of $27.8 million or $0.12 per share.  The decline reflects the impact of pandemic-related costs and occupancy declines on its senior housing operating portfolio (SHOP) business.

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