What Qualifies as a "Win"

The FT erroneously reported yesterday that Blackstone had won the bidding for Equity Office Properties, a large REIT.

In reality Vornado won the bidding by dropping out, now Blackstone will have to pay the $39 billion it bid for EOP. Equity Office owns office buildings and profits from people renting those offices. Currently EOP has just over $26 billion of real estate on its books, less depreciation $22 billion. While these buildings could be on the books for substantially less than what they are really worth, the deal prices them as if they were worth 50% more than their book value.

The company trades at a 66 P/e ratio and at a dividend yield of only 2.38%, that means that at the price of $39 billion, these properties are going to provide less income than Blackstone could have earned by investing in Treasuries. That means that in a tough real estate market with rising interest rates, Blackstone has a huge bet on the price appreciation of these buildings, quite a win indeed.