By Joe Hoppe
Boku Inc. shares rose Tuesday after it said it has entered a new multi-year commercial agreement with an Amazon.com Inc. subsidiary to supply its digital wallet and other local payment methods to Amazon.
Shares at 0727 GMT were up 8.4 pence, or 11% at 85.4 pence.
The London-listed mobile-payment and identity-verification company said that the agreement–which has a three-year term from launch, with a one-year renewal period–covers the processing of payments for Amazon Prime Video subscriptions for customers located in certain South East Asian and African counties.
Revenue for Boku from Amazon will be based on the percentage of Prime Video transaction value that it processes.
At the same time, Boku has issued Amazon warrant to subscribe for up to 11.2 million shares in the company, representing up to 3.75% of Boku’s existing share capital. Some 747,676 shares were vested on the warrant issue, and the balance vests are based on Amazon achieving certain revenue targets over the next seven years.
The warrants are exercisable at 81.2 pence, the 30-trading day volume weighted average price of Boku’s shares immediately prior to issuing the warrants, and are exercisable for 10 years from issue.
Write to Joe Hoppe at joseph.hoppe@wsj.com
Premiums are set to remain “inflated” as changing climate patterns lead to more extreme weather events in Australia, analytics consultancy Decision Inc said today after examining key data from the last few years.
The consultancy analysed rainfall data from the Bureau of Meteorology (BOM) and Australian Prudential Regulation Authority gross written premium (GWP) figures and found a correlation: premium costs have risen in line with annual rainfall increases.
GWP rose to $10.4 billion last year from $8.3 billion in 2019 with rainfall data tracking in line, increasing to 172,000mm from 102,000mm over the same period.
“You can clearly see a broad correlation with how increases in rainfall are affecting the insurance sector over the past three years,” CEO Aiden Heke said.
“The climate has seemingly shifted already, and everything from the relentless flooding seen in Queensland and NSW this year, to the devastating bushfires of 2019 and even pestilence are occurring more regularly and seemingly one after the other.
“As climate impacts rise, so too do the premiums.”
Last week the BOM declared a La Nina is under way, igniting worries the flood-hit east coast may again be inundated in the coming months. The BOM declaration means it will be the third straight year of La Nina in Australia.
Decision Inc says without near term solutions, Australians will need to become accustomed to more regular catastrophic climate events, and therefore become accustomed to the increased costs associated with recovering in the aftermath.
“We need businesses to take a stronger stance, understand their emissions and build climate risk into their modelling, and make change at the board level,” Mr Heke said.
“Major government projects can only do so much; real change can be made at the board level on down.
“In the near term? Sadly, it looks like we’ll be stuck with climate-driven inflated insurance premiums for a while yet.”
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On September 14, the New York Department of Financial Services
(NYDFS) published a notice of proposed rules under New York’s Commercial
Financing Disclosure Law (CFDL) (we discussed this previous
rulemaking in a blog post here). Under the CFDL, commercial finance
companies are required to give consumer-style loan disclosures to
potential recipients when a specific offering of finance is
extended for certain commercial transactions of $2.5 million or
less. We note some items in particular from the latest proposed
rule:
- An additional requirement that if the finance company is
operated out of New York, then the New York disclosure law applies
to all their transactions, across the entire country, mostly
without regard to where the borrower is located or managed
from. - Continued overlap with similar California regulations (we
discussed the California regulations in previous blog posts here and here). The NYDFS did confirm its intent to align with California where it is
possible. - An additional notice requirement for the transfer of servicing
by the servicer of a commercial financing.
Note that while financial institutions such as banks, trust
companies, industrial loan companies, federally chartered savings
and loan associations, federal savings banks, or federal credit
unions are exempt, there is no exemption for bank subsidiaries in
New York and California.
Public comments on the proposed rule are due on or before
October 29, 2022.
Putting It Into Practice: As the New York
regulations continue to come into shape, companies will need to
thoroughly review the New York and California regulations to ensure
that they prepare and timely deliver compliant disclosure forms in
each state.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
POPULAR ARTICLES ON: Finance and Banking from United States
First Nations small business owners face bigger insurance challenges than the rest of the country, according to new research commissioned by Allianz.
Just 21% of Indigenous SME owners have general property insurance, compared with 42% for the broader SME sector and while 95% agreed insurance is a “must have” for their business, about half say there were probably things that they needed insurance for, but they were not aware of these requirements.
In other key findings released today, 16% of First Nations SME owners say they do not have any insurance cover with the no-insurance take up rate even higher in less established businesses and the ones with smaller turnover, at 23% and 19% respectively.
Allianz says the research, conducted by First Nations engagement consultancy Winangali, holds important findings for the insurance industry.
“First Nations businesses provide important social and economic benefits to First Nations communities through employment, empowerment and self-determination,” GM Conduct and Customer Advocacy Sema Musson said.
“We know that business insurance is a key aspect of building successful and resilient businesses, and by working with First Nations consultancies such as Winangali, we are seeking to better understand the role insurers can play to support this growing sector.”
The research also found only 8% of business owners agree that insurance companies understand First Nations businesses and just 25% agree the industry understands the particular needs of their business.
Almost 70% of business owners surveyed said that having an insurance company that understands First Nations businesses is extremely important in their decision-making about insurance purchases.
About 63% purchased their insurance through a broker, with 75% citing convenience is a key reason and about 50% reported they turn to a broker because they need insurance cover that’s more tailored to their businesses.
“This channel of purchase, information advice and support will be important in achieving a better understanding of First Nations businesses,” the report says.
Allianz says it is also a cause of concern that only 21% had general property cover.
“The disparity in general property insurance for First Nations small businesses indicates a particular risk for those businesses operating in the home and expecting coverage under their home and contents policy,” Ms Musson said.
“Business stock may not be covered, or have very limited cover, as part of general home and contents insurance, and in addition, if an incident was to occur in a home where a small business operates, the home insurance cover may also be void.”
The research defines First Nations businesses as enterprises that are majority owned by persons identifying as Aboriginal and/or Torres Strait Islander and with up to $20 million in annual turnover.
Click here for the report.
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In the third in our series on the California Commercial
Financing Disclosure Regulations, we focus on the disclosure
requirements for merchant cash advances (MCAs).
Background
In previous client alerts, we discussed the California Commercial Financing Disclosure Law
enacted in September 2018 (the “Act”), provided a
high-level overview of the recent final regulations implementing the Act, and
took a deeper dive into the content and format
requirements. In this alert, we focus on disclosures, APR and
finance charge calculations, and estimates for MCAs.
Scope
The Act applies broadly to sales-based financing transactions,
including MCAs, made to California recipients. Specifically, the
definition of sales-based financing covered by the Final
Regulations includes MCAs if they meet one of two requirements:
- The funding is repaid as a percentage of sales or income in
which the payment amount is impacted by the volume of sales made or
income received; or - The agreement includes a true-up mechanism.1
A true-up mechanism is defined as a contractual term by which
the financer receives periodic payments based on an amount(s)
specified in the contract and the contract allows for adjustments
to the payment amount or amounts paid so that the amount paid is
closer to the split rate in the contract. The split rate is the
percentage used to calculate payment amounts or the true
up.2
Note that this definition of sales-based financing transactions
is broad enough to include not only MCAs, but also loans or other
transactions that meet on of the two criteria
above.3
MCA Disclosure Requirements
We discussed the general disclosure requirements that apply to
all types of commercial financing (such as font size, use of
columns, etc.) in our previous client alert. For MCAs specifically, the Final
Regulations require a three-column by nine/ten-row table containing
the following information using the following font sizes and column
widths, with annotations in red:
Footnotes
1 Cal. Code. Regs. tit 10, § 900(a)(28).
2 Cal. Code. Regs. tit. 10, § 900(a)(34),
(a)(31).
3 See California Department of Financial
Protection and Innovation, Response to Comment 1.2.18, Final Statement of Reasons at 38 (PRO 01/18)
(stating that the definition of sales-based financing does not
require that the recipient’s payment obligation be contingent
on the recipient’s income or sales volume (e.g., an MCA), but
includes transactions (with or without minimum payment amounts)
where the payment amount increases or decreases based on income or
sales volume (e.g., closed-end loans with sales-based repayment
terms)).
Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
situations.
© Morrison & Foerster LLP. All rights reserved
POPULAR ARTICLES ON: Finance and Banking from United States
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The California Department of Financial Protection &
Innovation recently issued is 2021 Annual Report of Operation of
Finance Lenders, Brokers, and PACE Administrators Licensed Under
the California Financing Law. The DFPI reports a nearly 12%
increase in the number of licensees from 3,886 to 4,340.
Interestingly, about 6% of the licensees, or 454, failed to file
the required annual report.
With respect to commercial lending, the DFPI noted the following
highlights:
- The number of
commercial loans originated in 2021 increased by 8 percent to
762,253 from706,228 in 2020. The total principal amount of
commercial loans increased by 33.5 percent over the same period, to
$214.2 billion from $160.4 billion. - The number of online commercial loans originated in 2021
increased by 3 percent to 37,110from 36,016 in 2020. The total
principal amount of online loans increased by 39.1 percent over the
same period, to $3.4 billion from $2.4 billion.
The following chart summarizes some of the data included in the
report regarding the number of licensees, licensed locations and
new applications:
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
POPULAR ARTICLES ON: Finance and Banking from United States
Billions of dollars worth of office buildings, retail centers and apartment buildings in coastal U.S. cities sit in the path of major flooding as sea levels rise, according to a new DBRS Morningstar report.
The credit rating agency looked at a snapshot of roughly 47,000 buildings that it monitors out of the roughly $670 billion commercial mortgage bond market and found nearly 5,000 were at risk of severe or extreme flooding, given the dramatic pace of climate change in recent decades.
All told, it pegged about $539 billion worth of mortgage bond deals rated by the agency as having some exposure to severe or extreme flooding, leaving only a fraction of the market free of the threat.
“Investors and underwriters no longer have the luxury of simply checking if a property is outside of FEMA’s 100-year flood zones and verifying there is some evidence of flood insurance,” Kevin Augustyn and his credit rating team, wrote in a new report.
Instead, the team looked at the National Oceanic and Atmospheric Administration’s latest projections for sea levels, which point to an additional rise along the U.S. coastline of 10 to 12 inches by 2050, or as much as the total rise measured in the past 100 years.
Flood risks helped inform this map, which shows Miami topping the country with an estimated $1.1 billion worth of office, retail and multifamily buildings at risk of structural damages as sea levels rise, according to the report, which relied on data from Arup and the First Street Foundation.
Miami and New York City top the list of cities with commercial buildings most at risk as sea levels rise
Sources: Arup and First Street Foundation
New York had an estimated $582 billion in similar properties at risk, followed by about $450 billion in Pittsburgh, $330 billion in Boston and roughly $280 billion each in Houston and San Francisco.
“Although not all coastal, Pittsburgh is particularly susceptible to flooding because the city is at the junction of three rivers,” the report said.
Heavily exposed
Climate change has been rapidly evolving, evidenced by the stunning increase in billion-dollar weather and climate disaster events since the 1980s, which makes historical data “less accurate,” according to the DBRS Morningstar team.
What’s more, commercial property owners can tap national flood insurance coverage from the Federal Emergency Management Agency of only $500,000 for a building and $500,000 for the building’s contents, according to the report, even though many key properties in big cities have been financed with hundreds of millions of dollars in mortgage debt. The report said additional coverage would need to be purchased in the private insurance markets.
To help investors get a better grip on their potential exposure to rising sea levels, the DBRS Morningstar team found 4,704 buildings at risk of extreme and severe flooding (see chart) in bond deals it rates. The following breaks down exposure by deal type.
Most commercial mortgage bonds rated by DBRS carry some risks of climate-related flooding.
DBRS Morningstar
While the commercial mortgage bond market finances only a cross-section of the nation’s buildings, the DBRS Morningstar report still provides a grim snapshot of the near unavoidable flooding risks most investors face.
That also isn’t the only risk, particularly with the embrace of flexible work arrangements. Before the pandemic, lenders often pitched “single-borrower” commercial mortgage bond deals to investors as safe-haven investments, in part because they frequently helped fund top real estate owners looking to build, buy or refinance New York City’s priciest office towers.
The pandemic upended that view, with office buildings still only 43.% occupied more than two years after the onset of the COVID crisis, according to Kastle Systems’ latest 10-city weekly average.
With that backdrop in cities like San Francisco, lenders and investors have grown increasingly wary about financing office buildings.
Real estate owners also will face sharply higher borrowing costs when their debts come due, with the benchmark 10-year Treasury rate
TMUBMUSD10Y,
near 3.4% on Tuesday, and with the Federal Reserve expected to pull the trigger on another jumbo rate increase next week in a bid to cool rampant inflation, while risking sparking a potential recession.
Read: Any doubt Fed will raise rates by 75 basis points next week is gone after hot U.S. inflation data
U.S. stocks swooned on Tuesday after August inflation data came in hotter than expected, with the Dow Jones Industrial Index
DJIA,
down more than 900 points at last check, the S&P 500
SPX,
off 3.2% and the Nasdaq Composite Index
COMP,
tumbling 4%.
Text size
Blackstone headquarters in New York.
Angus Mordant/Bloomberg
A slowdown in the credit markets could lead to upside for two commercial-mortgage real-estate investment trusts in the form of lending opportunities, according to BTIG.
Higher interest rates, recession fears, and the war in Ukraine have made U.S. banks more hesitant to lend, BTIG analyst Eric Hagen wrote in a research report. In the second quarter, banks issued $20.6 billion of securities backed by real-estate loans, down from $29 billion in the first quarter, The Wall Street Journal reported, citing Trepp data.
This translates to opportunity for commercial mortgage REITS such as
KKR Real Estate Finance Trust
(ticker: KREF) and
Blackstone Mortgage Trust
(BXMT). Both provide senior commercial-mortgage loans to properties backed by institutional sponsors. “Both companies are nonbank mortgage originators/lenders. They’re more flexible and nimble than a bank, which is trying to navigate through a whole host of complex variables,” Hagen told Barron’s.
Hagen has Buy ratings on both KKR Real Estate and Blackstone Mortgage. He said he “might lean a little bit toward KREF as the better value right now.” He trimmed his price target for Blackstone Mortgage to $32 from $35, and his price target for KREF is $21.
Both could see a pickup in lending activity due to a mortgage dislocation, Hagen said. The situation makes the REITs appealing. The two have traded similarly this year. The yield for each, including dividends, is about 9%, Hagen noted.
Each REIT has its own risks. KKR Real Estate’s portfolio comprises 47% multifamily loans, 26% office and 11% industrial, according to the firm’s website. It had $7.9 billion in assets under management as of June 30. KKR Real Estate’s average loan-to-value, or LTV, is 67%. Lenders use LTVs to assess risk; loans with a higher ratio typically mean higher interest rates. “It’s standard for most of the commercial mortgage lenders to operate below 70%,” Hagen said. KKR Real Estate originated $1 billion in loans in the second quarter, according to its second quarter earnings release.
The much-bigger portfolio in Blackstone Mortgage had $26.5 billion in AUM as of June 30. Office loans comprise 41% of Blackstone Mortgage’s portfolio, while multi is 25% and hospitality is 19%, according to a Q2 earnings supplement. Blackstone Mortgage’s LTV ratio is 64%. It originated $3 billion in loans in the second quarter.
Hagen sees potential earnings and book-value upside for Blackstone Mortgage connected to higher short-term interest rates, including an estimated 26 cents a share from SOFR, the floating interest rate benchmark, which is expected to rise 150 basis points, or bps, according to a Sept. 8 note.
By comparison, KKR Real Estate could see a pickup of about 30 cents a share from SOFR rising 150 basis points, Hagen wrote in an Aug. 25 note. He expects its third-quarter earnings capture the 75 basis-points hike in July, plus the hike next month. KKR Real Estate stock is down 6% this year. At Friday’s close of $19.62, shares are trading at about one time book value, Hagen noted.
Both REITS face some possible bumps in the current environment. For BXMT’s portfolio, one risk is the economic and political uncertainty in Europe, including the intense focus on higher energy costs, Hagen said in a Sept. 8 note. Roughly 25% of BXMT’s $26.5 billion loan portfolio is in Europe, Hagen said. BXMT, down about 5% year-to-date, changed hands Friday at $29.15. The stock is trading slightly above book value, Hagen said.
KKR Real Estate, meanwhile, doesn’t have any European exposure. But it does face some risk due to
Amazon.com
(AMZN), which is canceling, closing or delaying the opening of 49 delivery-processing facilities across the U.S. due to the slowdown in online shopping, according to the OC Register.
The largest loan in KR Real Estate’s portfolio is a $381 million refinancing for a multifamily property in Arlington, Va., located across the street from Amazon’s HQ2 office park, Hagen said in the note. KR Real Estate’s second-largest loan supports the construction financing for one of Amazon’s new LEED certified office towers in Bellevue, Wash., Hagen said.
Amazon declined to comment, but pointed to a story from the Washington Business Journal, which said that Amazon planned to pause construction on office towers in the Bellevue, Wash., area, but no changes are expected for the development of its HQ2 campus in Arlington.
Write to Luisa Beltran at luisa.beltran@dowjones.com
Rising sea levels trigger falling house prices
12 September 2022
Home prices in flood-prone areas are set to fall as climate change influences Australia’s property market values, an RMIT University academic says.
Property, Construction and Project Management Senior Lecturer Peng Yew Wong says greater difficulty in accurately predicting more volatile house prices will be “primarily due to the emergence of new drivers in the housing market due to natural and man-made disasters”.
“Flood-prone properties will be facing significant downward pressure due to rising sea level and under-perform other residential property types into the future,” Mr Wong said. “Into the future, the Australian housing market will be more volatile … due to climate change disasters.”
The research comes after the Climate Council said around one in 25 Australian homes are at high risk of becoming effectively uninsurable by 2030.
Mr Wong says the distinction is narrowing between rare “Black Swan” events that evade economic model predictions, and structural shifts in the way countries, industry and markets operate due to the increased frequency of disasters.
RMIT expects more use of unconventional monetary policies like quantitative easing to address economic impacts brought about by natural disasters in the future.
“With insurers already imposing higher insurance premiums – or not insuring at all – and the banks getting more reluctant to lend on flood-prone or cyclone-prone locations, it is reasonable to conclude that flood-prone properties will be facing significant downward pressure due to rising sea levels and as such, to under-perform other residential property types into the future,” Mr Wong said.
Home values in August saw their largest monthly decline since 2011. Some cities see house prices drop by 3%.
Home values are edging down as buyers remain spooked by high mortgage rates, according to a new report.
The typical value of a home in the U.S. fell 0.3% in August from the previous month, according to real-estate company Zillow’s August market report. That’s the largest month-to-month drop since 2011, the company said.
Zillow cited “the historic rise in home prices over the pandemic, compounded by this year’s spiking mortgage rates.”
Though home-price appreciation has slowed since it peaked in April, home values are still up 14.1% from a year ago. They’re up nearly 44% from August 2019, before the onset of the coronavirus pandemic.
The typical 30-year mortgage rates has now surpassed 6%, meaning that monthly payments are significantly higher than just months ago. And, with home prices retreating only modestly, many would-be buyers consider a purchase still out of reach and remain on the sidelines.
“The prime suspect to explain the pullback in home-buyer demand is the huge decline in affordability over the past year. The diverging fortunes of more and less affordable markets backs up the hypothesis,” Zillow said.
“More affordable markets in the Midwest are generally retaining their heat while competition is cooling most rapidly in Western markets, especially those with the highest home prices and the ones that saw the most home-price appreciation over the pandemic.”
Home values fell the most in San Francisco, where they were down 3.4%, a percentage decline matched by Los Angeles. In Sacramento, values were down 3.2% and in Salt Lake City 2.6%.
Home values rose in a few markets, such as Birmingham, Ala.; Indianapolis; Cincinnati; and Louisville, Ky. Homes in these areas are typically priced at under $300,000.
With people hesitant to buy homes, the typical time a listing lasts on the market is increasing slightly: In August, the average listing was pending 16 days after first going active on Zillow. That typical market time was three days longer than in July.
Inventory is crawling up, rising by 1% from July.
“Typical mortgage payments show an even starker picture of the astronomical growth of expenses for new homeowners over the past three years,” Zillow said.
The typical monthly mortgage payment for a new home has jumped from $897 in August 2019 to $1,643 this year — an 83% increase. That’s an “astronomical growth of expenses for new homeowners over the past three years,” Zillow said.
Affordability has significantly declined. In April 2021, when the benchmark mortgage rate was around 3%, the annual income needed to buy a home at the median price of $340,700 was $79,600, researchers at the Harvard Joint Center for Housing Studies said on Friday. With rates at 5.41% in July, the annual income needed to buy a median-priced $403,800 home was $115,000, they said.
Emma Ockerman contributed to this report.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com.
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