GE has been selling off real estate businesses, insurance operations and overseas business stakes apparently to lessen its reliance on its finance business.
5th June 2013
G.E capital will sell some of its U.S. real estate assets and its Canadian vehicle leasing business, as part of its parent General Electric’s efforts to reduce the size of its unit. In separate deals announced late last week, G.E Capital said it would sell its $ 807 million property portfolio to American Realty Capital Properties, while Element Financial Corp will take over its Canadian auto portfolio for $ 553.48 million. It has also agreed to form an alliance with Element Financial to deliver fleet financing and management services to cross border customers in U.S. and Canada. G.E had earlier said it was considering spinning of parts of its financial arm through an IPO. The sale of its assets comes after Mr. Immelt, Chief executive, last week said the company was examining a range of strategic options for parts of GE Capital.
The company is considering an initial public offering to sell some parts of GE capital. The chief executive has set a target to cut the assets held by G.E capital to less than half of their size by the end of 2014. On Friday, American Realty Capital, which has been on an acquisition streak said it is buying a portion of the formerly public traded Trustreet Properties Inc. It includes a portfolio of more than 471 lease properties, many of them net leased to tenants who operate chain restaurants, such as Burger King and Wendy’s. Nicholas S Schorsch, chief executive of American Realty Capital said the “deal bolsters and further diversifies significantly” the company’s net lease portfolio. The real estate investment trust (REIT) also said that it had agreed to buy CapLease Inc. for about 202 billion which also include its debt. This latest deal when closed will put American Realty Capital above its $ 1.1 billion acquisition forecast by the end of the second quarter, five months earlier than expected. The company also said the adjusted rental revenue for the year generated by its largest 10 tenants will decline from 60 % to 36%.
GE has been selling its real estate businesses, overseas banking states and insurance operations for the past several years to lessen its reliance on a finance business that has accounted for almost 50% of the company’s earnings from continuing operations. It has also resisted calls from analysts and investors to consider separating GE Capital and focus only on finance operations which supports its industrial business. During the financial crisis in 2008, the concerns about GE capital brought down the stock prices of GE and also cost the company its top level, treble A credit rating and forced the company to cut down on its dividend pay outs. Mr.Immelt is also optimistic of increasing the industrial earnings and their share of total profit. He also told that he aims to get the industrial profits up to 70% of the company’s total, up from 54 % last year.
GE had identified last year its retail finance and international banking operations as businesses it could exit if the proceeds from its sale got a decent package. GE, wants to focus on its commercial lending and leasing business, which provides finance to middle market companies. The proceeds from the sale of GE capital would be paid to its parent company in the form of a special dividend to help fund GE’s stock buybacks.