News last week that Blackstone Group had seen its fourth-quarter loss narrow as a result of its real estate holdings – in large part due to rising values of its hospitality holdings – has lead to renewed speculation about an exit from Hilton Worldwide.
Reports in the Wall Street Journal said that Blackstone’s $6bn investment in the buyout of Hilton had turned profitable. A year ago the company’s investment was thought to have lost 70% of its value. However, the group has now recovered some of these losses after its real-estate investment portfolio recorded gains of about 40%, according to those who have viewed the firm’s financial data.
Blackstone reported a loss of $11m, from a loss of $143.3m in the same period last year. While the group did not mention Hilton specifically in its results, its property unit, which refinanced Hilton, returned to profit and reported $1bn in revenues.
The group is now close to four years into its investment in Hilton, which came just in time for the downturn and has not been the textbook private equity get-in, get-the-job-done, get-out manoeuvre. It is likely that the group will therefore seek to extend its exit horizon as a result.
While Blackstone’s intentions towards Hilton are not known, the shift in fortunes of its investment seems to have encouraged ongoing enthusiasm for real estate. In a conference call, chairman and CEO Stephen Schwarzman said that the group was planning to launch a global real-estate fund this year to pick up real estate currently facing debt issues. According to Tony James, Blackstone’s president, the fund was likely to be similar in size to its current fund, at about $10bn.
HA Perspective: Much has been made of the lack of distress coming to the market from the hotel sector, a product of the banks’ practice of ‘pretend and extend’. However, this policy is likely to fade this year as improving trading fundamentals make disposing of assets more attractive.
Blackstone has shown no fading in its appetite for hospitality, most recently acquiring a group of 14 hotels it sold to Columbia Sussex five years ago. It may be that, in the short to medium term, instead of making an exit from the sector, it could instead look to further bolster its hospitality holdings.
Ultimately, though, an exit will come. The question is when. If Blackstone seeks to do its own bricks and brains split – separating out the real estate from the brand and operations – then it could spin-off the operating company sooner while retaining the property assets until there is a full recovery in value.