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Is Blackstone set to sell Hilton Worldwide?

Bloomberg discussed the potential sell-off of Hilton Worldwide by Blackstone Group, which purchased the hotel company in 2007.

According to the story, Jonathan Gray, the 42-year-old head of Blackstone Real Estate, has amassed $50 billion in assets and built the division into the company’s biggest profit generator.

However, now, "he and his team confront the twin challenges of producing superior returns on their new $13.3 billion fund, a record for the property industry, while finding buyers for more than 40 previous investments," the Bloomberg item stated.

It then went on to speculate that the holdings Gray may sell include Hilton Worldwide, which Blackstone bought for around $26 billion. Blackstone also, in 2004, bought while Extended Stay America for $3 billion, sold in 2007, but bought it out of bankruptcy by an investment group including Blackstone Group, Paulson & Co. and Centerbridge Partners in October 2010.

Blackstone also owns the Motel 6 chain, which it bought from Accor for $1.9 billion earlier this year. 

"They delivered wonderful returns when they were much smaller," Mike Kirby, chairman of Green Street Advisors Inc., told Bloomberg. "Now that they’ve gotten huge, it’s virtually impossible to knock the ball out of the park."

According to Bloomberg, Blackstone is the largest U.S. owner of hotel properties, with holdings such as New York’s Waldorf-Astoria hotel. 
Real estate, according to the Bloomberg story, "accounted for 63 percent of Blackstone’s income last year, while private equity, the firm’s traditional business of buying and selling companies, made up 15 percent."

But there are worries. "We have been hearing concerns about the unsustainability of our returns since Blackstone went public in 2007, yet our outperformance versus competitors has only grown," Gray said in a statement. "Today there is an enormous amount of distressed real estate around the globe and few remaining large opportunistic investment firms. We think this is a terrific environment to continue to generate attractive returns."

To sustain its track record, Blackstone needs to sell as well as buy, Bloomberg said. The company's fifth and sixth funds, which include Hilton, still hold unrealized investments representing about $13 billion of equity invested. They show net internal rates of return of 9 percent each as of June 30.

"I expect by the end of 2013, you will see a major disposition program out of Blackstone," said Roy March of Eastdil Secured, a unit of Wells Fargo & Co.

Blackstone has said it expects to exit Hilton in the next few years, Bloomberg stated.