GE agrees to sell part of real estate for $23 bn; announces $50-bn share buyback

General Electric Co (GE) yesterday struck a deal to sell a major part of its real estate portfolio to Blackstone Group LP and Wells Fargo & Co for about $23 billion as part of its plan to focus on its core industrial business.

GE also announced a share buyback plan of up to $50 billion - the second-largest ever after Apple's $90-billion buyback plans. It also said that there is potential to return more than $90 billion to investors in dividends, buyback and the Synchrony exchange through 2018.

''GE will create 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, the Connecticut-based company said in a statement.

GE, whose real estate portfolio is held with GE Capital worth around $30 billion, said it had letters of intent to sell an additional $4 billion of commercial unnamed real estate to other buyers. These transactions are totally valued at approximately $26.5 billion. 

The acquisition of GE's real estate portfolio is the biggest commercial real estate transaction for Blackstone after it acquired Equity Office Properties Trust in 2007 for $39 billion.

The current sale comes four months after Blackstone agreed to buy GE's property unit in Japan for around $1.6 billion.

GE's real estate portfolio includes investments in office buildings, shopping malls and other commercial property spread around the world.

About $9 billion of GE's portfolio is held as ownership stakes that GE Capital has taken in properties, while around $20 billion is in investments in debt issued by property owners,

GE said that market conditions are favourable to pursue disposition of most GE Capital assets over the next 24 months except the financing ''verticals'' that relate to GE's industrial businesses. 

Under the plan, the GE Capital businesses that will remain with GE will account for about $90 billion in ending net investments excluding liquidity – about $40 billion in the U.S. – with expected returns in excess of their cost of capital.

GE had invested billions of dollars into property to reap fast profits, but since the 2008 global financial crisis, the property market is no longer lucrative, especially in the US, where bulks of its property assets are held.

''Coming out of the financial crisis, financial markets have changed for a generation…the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward,'' said Immelt in a letter to shareholders.''The market is strong for the businesses we will sell, and I am confident they will thrive elsewhere.''

As a result of the move, some $90 billion in buybacks and dividends could be returned to shareholders through 2018, the company said in the statement.