Blackstone Group, the world’s largest real estate owner, is converting to a corporation

The company hopes it will open up its investment pool

Apr.April 18, 2019 08:58 AM
Blackstone Group CEO Stephen Schwarzman (Credit: Getty Images)

Blackstone Group CEO Stephen Schwarzman (Credit: Getty Images)

UPDATED, April 18, 10:41 a.m.: Blackstone Group is changing is corporate structure to become a corporation, in a move that others have used to boost stock ownership.

The company said the change from a partnership will be effective on July 1. The conversion to a C-corp comes after the tax law changes lowered the highest corporate rate to 21 percent from 35 percent.

“We believe the decision to convert will make it significantly easier for both domestic and international investors to own our stock,” CEO Stephen Schwarzman said in a statement. In an accompanying video, he added that other companies have converted and “have experienced strong stock price performance, a meaningful pickup in trading volume and a significant increase in mutual- and index-fund ownership.”

C corporations are taxed on their profits and again when those profits are distributed to shareholders as dividends. Meanwhile, partnerships as pass-through entities that allow income to pass to owners and get taxed at individual rates.

Analysts believe this will allow Blackstone, the largest real estate owner on earth, to tap a more diverse pool of investors.

“We believe this will unlock value, as the partnership structure made it too difficult for many of our long-only clients, and major indexes, to own,” Credit Suisse analysts wrote in a research note.

On an earnings call, management echoed this sentiment, noting that the move unlocks a vast array of investors, including long-only index and ETF investors. It’s also a move the company hopes will boost its shares.

“Blackstone stock has not matched the trajectory of our business,” Schwarzman said on the call. “Time will tell what impact conversion will have on our stock.”

He noted that the change would open the company up to trillions of dollars from investors that were previously restricted from the stock. The company has been weighing the change since the change in tax law.

Private equity competitors KKR and Ares Management corp. already changed their corporate status. Schwarzman alluded to peers who have made the conversion, noting that it’s led to increases in ownership and trading volumes. Other executives on the call made the same argument and added that the company’s stock historically has been “under-owned.”

Blackstone’s move coincided with the firm’s first quarter earnings. It earned $481.3 million, or 71 cents a share, compared with $367.9 million, or 53 cents a share, a year earlier.

Distributable earnings were $538 million, or 44 cents a share. That’s up from $502 million, or 41 cents a share a year earlier.

In January, Blackstone announced that it was close to raising $20 billion for its largest real estate fund ever. The company owns hotels, office, retail, industrial and rental properties across the U.S., Europe, Asia and Latin America.

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