Good News for Blackstone Stock?
Anbang Insurance has agreed to buy real estate investment trust Strategic Hotels and Resorts Inc (NYSE:BEE) from the Blackstone Group LP (NYSE:BX). The Hotel REIT has a portfolio of 16 luxury hotels including the Four Seasons Washington DC, the Westin St. Francis in San Francisco and the Ritz-Carlton Laguna Niguel in California. Blackstone stock did not budge on the sale, trading at around $27.25.
Blackstone Group had acquired Strategic Hotels last September for $6.0 billion, meaning it made a handsome profit of $500.0 million in a matter of six months. This is probably the most value in the shortest period ever recorded at this level by Blackstone Group. Considering market volatility has caused several banks to downgrade REITs, Blackstone’s SHR is a success. Meanwhile, the buyer, Chinese insurance giant Anbang, has been on the hunt for important hotel assets.
Blackstone’s transaction with Anbang clashes with the logic behind Deutsche Bank’s rating downgrade. Deutsche Bank dropped the Blackstone Group from a “buy” to a “hold” in a research note issued on March 11. Deutsche Bank has a $28.00 price target, down from a previous target of $30.00.
Deutsche Bank is concerned about Blackstone’s exposure to market volatility because of market volatility, which adds risks to the global economy. Blackstone owns many real estate assets and RIETs have dropped in 2015-2016; Blackstone draws some 40% of its earnings from real estate investment. (Source: “Blackstone Group LP (BX) Downgraded to Hold; Here’s Why,” Business Finance News, March 12, 2016.)
Yet Blackstone has clearly derived significant upside from real estate assets. In fact, Deutsche Bank’s assessment is in the minority, as most analysts are bullish on Blackstone. The consensus target price for Blackstone stock is $36.72, which represents an upside of about 33%. (Source: “The Blackstone Group, Company Profile,” Marketbeat, last accessed March 15, 2016.)
The onslaught of Chinese investors over the U.S. hotel industry’s crown jewels raises questions about the motives and consequences. Anbang, based in Beijing, is not even among the richest insurers in the country, representing only three percent of the insurance market and possessing less than 100 billion euros of assets. That said, it has embarked on a policy of property acquisitions at all costs.
The immediate explanation is that Anbang is predicting a bullish property market, especially in North America. If investors needed any more proof, Anbang is also rumored to be taking over Starwood Hotels and Resorts Worldwide. That group said it has received an unsolicited takeover offer for $12.84 billion, and Marriott reported that Anbang Insurance is leading the consortium of buyers.