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ExxonMobil, Pfizer Latest to Announce Major Re-Investments in Response to Tax Reform Law

Benefits from 'Repatriated' Capital Could Result in Short-Term Infusion in Some CRE Markets as Companies Fast-Track Expansion Plans
February 2, 2018
Later this spring FedEx will release details of its plan to modernize and expand its 'SuperHub' in Memphis, which currently spans more than 850 acres and employs more than 10,000 workers. Credit: FedEx Corp.

ExxonMobil, Pfizer and FedEx Corp. are the latest corporate titans to announce multi-billion investments in facilities, employee compensation and pension plans in recent days, joining Apple and other large employers announcing capital spending programs following passage of the massive tax overhaul in December.

ExxonMobIl CEO Darren Woods this week said the world's 10th-largest company will invest a total of $50 billion over the next five year in its U.S. operations, including $35 billion in new spending spurred in part by enactment of the U.S. Tax Cuts and Jobs Act, signed into law by President Donald Trump on Dec. 22.

Pharmaceutical giant Pfizer Inc. Tuesday said that it intends to invest $5 billion over the next five years due to anticipated savings from the tax reform law, including an expansion of Pfizer’s U.S. manufacturing infrastructure and other capital projects.

FedEx, meanwhile, revealed plans a few days ago to spend $1.5 billion to "significantly expand" its Indianapolis shipping hub and also to enlarge and modernize its 2 million-square-foot Memphis "super hub" opened in 1988 in a major program to be announced this spring. The facilities are Fed Ex's largest and second-largest hubs, respectively.

Although the shipping giant did not elaborate on the specific provisions of the new tax law that spurred the announcement, the tax code now allows companies to immediately write off the full value of capital costs.

The trio of announcements follows Apple's plans to build another U.S. corporate campus and hire 20,000 workers as part of a $30 billion capital spending program over the next five years.

While estimates of the potential economic impact of tax reform vary widely, many analysts predict the legislation could contribute to a modest lift in the annual U.S. GDP. The CRE industry stands to be a clear winner, with the tax legislation and subsequent re-investment activity likely resulting in expansions and additional hiring.

The new legislation contributed to strong investor sentiment and a favorable lending environment for commercial real estate in the final quarter of 2017, according to new research from CBRE.

“With the recent enactment of comprehensive tax reform and relatively favorable treatment of CRE as an asset class, we expect continued strong investor interest in the sector," said Brian Stoffers, CBRE global president for debt and structured finance, capital markets. "Significantly lower maturing loan volumes in 2018, and good supply/demand equilibrium, should continue to result in favorable loan spreads for borrowers."

While the tax overhaul clearly makes investment more attractive and is expected to increase the rate of return on CRE, participants in the Winter/Spring 2018 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey released today expect moderate growth from the new tax law but will likely have an uneven impact across different markets.

While most California office developers in the survey taken during December indicated that the new tax regime brings the prospect of higher profits and greater optimism, the panelists said they were taking a wait-and-see approach as to whether the changes would lead them to kick-off new development.

CoStar analysts, meanwhile, said the tax bill could cause many firms to move-up the timing of their expansion decisions, according to Paul Leonard, managing consultant with CoStar Portfolio Strategy.

"That could cause a bit of a 'sugar rush' in 2018," Leonard said. "You could therefore see a temporary boost in fundamentals over the next 12 to 18 months in some markets."

President Donald Trump, the nation's first developer-in-chief, touted the massive investments by U.S. corporations in his State of the Union address to Congress last night, asserting that roughly 3 million American workers have received "tax-cut" bonuses, "many of them thousands and thousands of dollars per worker."

"We slashed the business tax rate from 35% all the way down to 21% so American companies can compete and win against anyone else, anywhere in the world," Trump said. "Just a little while ago, ExxonMobil announced a $50 billion investment in the United States," the president said as Rex Tillerson, former ExxonMobil CEO now serving as U.S. Secretary of State, watched from a front-row seat.

As part of its announcement this week, the multinational oil and gas company said it would create thousands of jobs and spend billions of dollars to increase oil production in the Permian Basin in West Texas and New Mexico, expand existing operations, improve infrastructure and build new manufacturing sites.

"The recent changes to the U.S. corporate tax rate coupled with smarter regulation create an environment for future capital investments and will further enhance ExxonMobil’s competitiveness around the world," Woods said on ExxonMobil's blog. "We’re actively evaluating the impact of the lower tax rate on the economics of several other projects currently in the planning stages to further expand our facilities along the Gulf Coast."

Pfizer executives said the company's effective tax rate would be about 17% next year, down from 20% in 2017, with the company anticipating $15 billion in tax payments over eight years to repatriate its overseas cash. Pfizer said it plans to contribute $500 million to its U.S. pension plan and has set aside $100 million for a one-time bonus for all nonexecutive employees in the first quarter of 2018.

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