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GE Capital Slims: Asset Sales to Blackstone and Wells Fargo

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GE is changing. The company is rapidly shrinking the size of its GE Capital unit (once a key revenue driver), while focusing on its industrial businesses which range from expensive medical devices to jet turbines. The U.S. corporate giant is targeting to have 90% of its earnings generated by industrial businesses in 2018, up from 58% in 2014. Divestitures and spin-offs have taken place over the years at GE. GE recently had an initial public offering of its retail finance business, Synchrony Financial. GE also began selling off GE Capital assets in Europe and Australia. A major impetus for change is that GE does not want to be designated as a Systemically Important Financial Institution (SIFI). GE had discussed aspects of its complex corporate strategy plan to staff of the Financial Stability Oversight Council (FSOC). Increased financial regulation (limits profitability) plus the nasty wound from the global financial crisis made the case for selling assets in GE Capital easier. However, some critics contend that GE’s greatest competitive advantage is their low cost of capital.

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GE anticipates that private equity firms, asset owners such as sovereign wealth funds and pensions, and other investors are hungry for yielding financial assets. The conglomerate’s board determined that market conditions (plenty of buyers) are favorable to pursue disposition of most GE Capital assets over the next 24 months except the financing “verticals” that relate to GE’s industrial businesses.

GE CEO Jeff Immelt said in a press release, “GE today is a premier industrial and technology company with businesses in essential infrastructure industries. These businesses are leaders in technology, the Industrial Internet and advanced manufacturing. They are well-positioned in growth markets and are delivering superior customer outcomes, while achieving higher margins. They will be paired with a smaller GE Capital, whose businesses are aligned with GE’s industrial growth.”

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Source: GE

Source: GE

Furthermore, GE plans to bring back approximately US$ 36 billion in overseas cash. GE’s board authorized a share-repurchase program of up to US$ 50 billion.

Major Asset Sales – Blackstone and Wells Fargo

The Blackstone Group and Wells Fargo inked agreements to buy most of the assets of GE Capital Real Estate, a unit of General Electric, in a transaction value worth approximately US$ 23 billion. The transactions are subject to normal regulatory and other approvals. Deals like these are why Blackstone is able to attract limited partners such as sovereign wealth funds and pensions.

Deal Highlights

Participant(s) Description
Wells Fargo Wells Fargo has agreed to purchase performing first mortgage commercial real estate loans valued at US$ 9 billion in the United States, UK and Canada.
The Blackstone Group Blackstone’s latest flagship global real estate fund, BREP VIII, has agreed to purchase the US equity assets for US$ 3.3 billion. These assets are primarily office properties in Southern California, Seattle and Chicago.
The Blackstone Group Blackstone’s European real estate fund, BREP Europe IV, has agreed to purchase the European equity real estate assets, for €1.9 billion. These consist of office, logistics and retail assets, largely in the UK, France and Spain. The logistics assets will be integrated into Blackstone’s European logistics platform, Logicor, and the retail assets into its European retail platform, Multi.
The Blackstone Group BREDS, Blackstone’s real estate debt fund, has agreed to purchase performing first mortgage loans in Mexico and Australia for US$ 4.2 billion.
The Blackstone Group and Wells Fargo BXMT, Blackstone’s publicly traded commercial mortgage REIT, has agreed to purchase a US $4.6 billion portfolio of first mortgage loans primarily in the US with Wells Fargo providing the financing.

Source: Blackstone Group
 

Details on Mortgage Deal

Blackstone Mortgage Trust, Inc., a unit that is managed by BXMT Advisors L.L.C., a subsidiary of Blackstone Group, has signed a definitive agreement to acquire a US$4.6 billion commercial mortgage loan portfolio from GE Capital Real Estate. Blackstone is purchasing a portfolio of 82 first mortgage loans secured by a diverse set of commercial property types across its core and target markets, including the United States (68%), Canada (15%), the United Kingdom (10%), and Germany (7%). BXMT plans to pay US$ 4.4 billion for the funded loan portfolio and assume US$ 0.2 billion of unfunded commitments. Wells Fargo plans to provide US$ 4 billion in acquisition financing of which US$ 3.8 billion will be funded at closing. Blackstone intends to raise additional capital or use available liquidity to fund the massive purchase.

With regard to the real estate-related deals, Eastdil Secured and Wells Fargo Securities acted as financial advisors to Blackstone and Wells Fargo. Simpson Thacher & Bartlett LLP acted as legal counsel to Blackstone and Dechert LLP acted as legal counsel to Wells Fargo. GE Capital was advised by Kimberlite Group and BofA Merrill Lynch and represented by Hogan Lovells.

SWFI First Read, September 21, 2018

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U.S. Public Becomes More Aware that Gmail Scans Emails

Alphabet is a major stock holding for sovereign wealth funds and large pensions. Search giant Google is under fire for allowing third-party partners and companies, like Return Path Inc and other advertisers, to share data from Gmail accounts. Many experts and tech observers already knew this, but more people in the public are becoming aware of Google’s practices when it comes to privacy. Google disclosed in a letter to U.S. lawmakers this finding. The Wall Street Journal reported that in some instances, app companies were able to read people’s emails in order to improve their algorithms. In 2017, Google said they would stop scanning all of one’s Gmail messages for the goal of personalized ads.

GPIF Infrastructure Exposure Almost Reached 200 Billion Yen in March 2018

Japan Government Pension Investment Fund’s (GPIF) exposure to infrastructure real estate was 196.8 billion JPY at the end of March 2018. At that period, 57% of the exposure was to the UK, 15% was to Australia, 15% to Sweden, 10% to Spain and 3% to Finland. 21% of GPIF’s infrastructure portfolio was linked to airports versus 27% to ports.

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Iceland Contemplates a Sovereign Wealth Fund

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The Government of Iceland is looking to possibly form a sovereign wealth fund to stabilize the country from unforeseen shocks to the national economy. The Iceland government released a statement saying, “The state’s contributions to the Fund will be equivalent to new revenues from publicly owned power production companies which are expected to accrue in the coming years.”

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CBRE Global Wins First GPIF Global Real Estate Mandate

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Japan Government Pension Investment Fund (GPIF) awarded its first global real estate mandate by hiring CBRE Global Investment Partners Limited. This is a global core real estate fund-of-funds separate account. Overseeing this mandate as a gatekeeper is Asset Management One Co., Ltd., which is a unit of Mizuho Financial Group. This RFP was launched in April 2017.

CBRE Global Investment Partners is the multi-manager arm of CBRE Global Investors.

In addition, on August 8, 2018, GPIF hired two custodians for short-term investments. These custodians are Trust & Custody Services Bank, Ltd and The Master Trust Bank of Japan, Ltd.

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