Blackstone Group has a friend in China. The private-equity giant has been unwinding from some investments of late, and its been Chinese buyers all too ready to accommodate.
In total, Blackstone, as documented by The Wall Street Journal, has sold at least $16 billion in hotels, office buildings and other real-estate assets to Chinese buyers since 2013.
In the hospitality space, it's been an active seller recently. Earlier this week, China's HNA Group, whose interests, among others, are in travel, tourism and aviation, and already earlier this year agreed to buy Carlson Hotels, acquired a 25-percent stake in Hilton Worldwide worth a reported $6.5 billion. The deal drops Blackstone Group's interest in Hilton to around 21 percent from 46 percent. HNA also owns a percentage of Red Lion Hotels Corp.
A source familiar with the Hilton deal told HOTEL MANAGEMENT that Blackstone made the decision to sell at a "premium price" thanks to the "long-term potential" of the deal. "Blackstone is a buy, fix and sell private equity company. They are executing on their business model and setting us up for success," the source said.
The deal could prove propitious for Hilton in the long-term. During Hilton's third-quarter earnings call, CEO Chris Nassetta commented that HNA would allow Hilton to more easily grow in China. "We believe there are some compelling reasons why this is beneficial. They are big time in travel and tourism, with an airline and millions of loyal members. They are well respected in China and globally," Nassetta said.
"The idea is to we have our customer base, they have their base, and there is not much overlap between our customer base and theirs, so there is the opportunity to connect those bases. It's mutually beneficial."
HNA also has reach into China's debt and financial markets, another benefit for Hilton. "We are dependent on third-party capital and the better we have access to it, the more beneficial," Nassetta said.
Some believe that Blackstone's share sale of Hilton will continue. As Hui-Yong Yu, in Bloomberg, writes, "Blackstone is tripling its money in its sale of shares to HNA. The New York-based firm’s cost basis in Hilton is about $8.60 a share. Blackstone’s finite-life private equity funds require the firm to cash out of investments by a certain deadline. It will likely continue to sell down its stake, especially as Hilton shares climb."
The HNA/Hilton deal comes a month after Blackstone closed on the sale of most of its Strategic Hotels & Resorts portfolio to Anbang for $6.5 billion.
The two deals acted as part of the backdrop to Blackstone's Q3 earnings report. Blackstone said it earned an economic net income—a key earnings metric for U.S. private equity firms that accounts for unrealized investment gains or losses—of $687 million after taxes between July and September, compared with a loss of $416 million a year earlier.
Returns from real estate, the largest of Blackstone's business arms, blossomed. Performance fees, earned by Blackstone when it generates returns in excess of a level agreed upon with clients, jumped nearly seven times to $366.8 million from a year ago.
Here's how Michael Chae, Blackstone's CFO, summed up his firm's investment approach:
China continues to be a willing partner and friend for Blackstone and other asset-selling companies.
According to WSJ, at least $25 billion of the $199 billion in China’s outgoing deals this year has involved hotel or property acquisitions, according to the newspaper.
“As the second largest economy in the world, it’s no surprise that China is making more outbound investments,” Blackstone spokesperson, Christine Anderson, told The Journal. “Given the nature of our business and quality of the assets we own, it’s also no surprise that they would be acquiring from us.”