Image Source: Jeff Turner
Perhaps to no surprise to those following the General Electric (GE) story closely, the industrial conglomerate is looking to shed operations tied to the financial markets and work to reignite its moaty and cash-rich industrial businesses. We’ve long been fans of this strategic endeavor, and we’re not changing our tune now.
On April 9, the Wall Street Journal reported that GE is “close to selling off most of its $30 billion in real-estate holdings,” and we view this as not only a natural extension of the company’s 75/25 industrial/financial goal, but also a de-risking maneuver in light of the possibility for meaningfully higher interest rates in coming years. We’ve previously made the case that rising net operating income (NOI) could offset higher required returns by investors, thereby supporting continued strength in the real estate markets in the face of rising interest rates, but GE doesn’t appear to have the appetite to take that bet.
Frankly, we don’t blame the company.
The Financial Crisis did not treat GE well, and some shareholders still have not forgiven the company for its dividend cut. Though we maintain a positive view on real estate at least through the early phases of the credit tightening cycle, we have no qualms with GE’s decision. We like GE more for its powerhouse status within the industrials sector, and management is only enhancing that portion of its business.
The company remains a holding in both newsletter portfolios. Shares yield ~3.7% at the time of this writing.