General Electric to Shed Most of GE Capital: Blackstone, Wells Fargo to Buy Most of GE Capital RE for $23B
John Jordan | April 1, 2015
NEW YORK—Blackstone and Wells Fargo announced on April 10 that they had signed agreements to purchase most of the assets of GE Capital Real Estate in a transaction valued at approximately $23 billion.
Fairfield, CT-based General Electric (GE) in a separate announcement on April 10th stated that it has letters of intent with other buyers for an additional $4 billion of commercial real estate assets. In total, these transactions are valued at approximately $26.5 billion.
The transaction with Blackstone and Wells Fargo breaks down as follows:
Wells Fargo, which is headquartered in San Francisco, has agreed to purchase performing first mortgage commercial real estate loans valued at $9.0 billion in the United States, the United Kingdom and Canada.
Blackstone’s flagship global real estate fund, BREP VIII, has agreed to purchase the US equity assets for $3.3 billion. These assets are primarily office properties in Southern California, Seattle and Chicago.
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.
BREDS, Blackstone’s real estate debt fund, has agreed to purchase performing first mortgage loans in Mexico and Australia for $4.2 billion.
BXMT, Blackstone’s publicly traded commercial mortgage REIT, has agreed to purchase a $4.6-billion portfolio of first mortgage loans primarily in the United States with Wells Fargo providing the financing. (Further details can be found in a separate release from BXMT issued simultaneously with this one.)
Eastdil Secured/Wells Fargo Securities acted as advisor to New York City-based 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’s businesses are excellent, and this is a great market for selling financial assets. Our people are world-class. We are confident these businesses will thrive elsewhere.”
—GE Capital Chairman, CEO Keith Sherin
GE Capital was advised by Kimberlite Group and BofA Merrill Lynch and represented by Hogan Lovells.
Mark Myers, head of commercial real estate for Wells Fargo, said, “This is an important transaction in the commercial real estate industry and Wells Fargo is pleased to be working with our colleagues at GE Capital and Blackstone. The portfolio of performing loans we’ve purchased is a strong addition to our commercial real estate platform in the United States, the United Kingdom and Canada, which are all active lending markets for us.”
Jon Gray, global head of real estate for Blackstone, said, “We are delighted to partner with GE on another major transaction and we thank them for their confidence in us. We also thank Wells Fargo for our longstanding relationship, and for their swift execution on this investment. This transaction clearly demonstrates the unique scale and reach of our real estate platform.”
These transactions are subject to normal regulatory and other approvals. The initial closings will take place in the second and third quarter of the year.
GE in a separate announcement stated the deals have the potential to return more than $90 billion to investors through 2018 in dividends, buyback and synchrony exchange.
GE reported that the transactions are geared at creating a simpler, more valuable company by reducing the size of its financial businesses through the sale of most GE Capital assets and by focusing on continued investment and growth in its world-class industrial businesses.
GE and its Board of Directors have determined that market conditions 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, the company stated. Under the plan, the GE Capital businesses that will remain with GE will account for about $90 billion in ending net investments (ENI) excluding liquidity—about $40 billion in the U.S.—with expected returns in excess of their cost of capital.
“This is a major step in our strategy to focus GE around its competitive advantages,” GE Chairman and CEO Jeff Immelt said. “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.”
“The successful IPO of GE’s retail finance business, Synchrony Financial, and other recent business exits have demonstrated that our financial services assets can be more valuable to others,” said GE Capital Chairman and CEO Keith Sherin. “GE Capital’s businesses are excellent, and this is a great market for selling financial assets. Our people are world-class. We are confident these businesses will thrive elsewhere.”
GE will retain its “vertical” financing businesses—GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance—that directly relate to its core industrial businesses. The assets targeted for disposition, in addition to Real Estate, are most of the Commercial Lending and Leasing segment, and all Consumer platforms, including all U.S. and international banking assets.
These businesses represent roughly $200 billion in ENI. Since 2008, GE has reduced GE Capital’s ENI from $538 billion to $363 billion at the end of 2014. The separation of Synchrony Financial, which is targeted by the end of 2015, and other recently announced dispositions, account for another $75 billion in ENI reduction (the Synchrony separation is subject to regulatory approval).
Approximately $16 billion of after-tax charges are expected to be recorded in the first quarter of 2015 in connection with the plan—of which about $12 billion are non-cash. The charges include taxes on repatriated earnings, asset impairments due to shortened hold periods, and charges on businesses held for sale, including goodwill allocation, the company stated.
GE expects that the earnings impact of the GE Capital exits will be offset by the buyback over the exit period.
“We are proud of the GE Capital team, the outstanding businesses that GE Capital employees have built, and how they have delivered for customers and shareholders over many years,” said Immelt. “The GE Capital team has displayed great resiliency, facing tough cycles and driving strong results.”
J.P. Morgan and Centerview Partners provided financial advice to GE, and Bank of America provided advisory services. Weil, Gotshal & Manges, Davis Polk, and Sullivan & Cromwell provided legal advice.