Host Marriott weighs travel plaza spinoff

March 30, 1995|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer Bloomberg Business News contributed to this article.

Host Marriott Corp. of Bethesda said yesterday that it may spin off its airport and toll road concession business or otherwise restructure as the company tries to decide whether the restaurant and gift shops fit into a strategy built around buying luxury hotels.

"If you know Host Marriott, the Host/Travel plazas have a dominant market share," company spokesman Nick Hill said. "They are doing very well, but the strategic direction of the business is the acquisition of full-service hotels."

That direction has been in place since the company was formed in October 1993, when Marriott Corp. split into Host Marriott and Marriott International Inc. Marriott International manages more than 800 hotels worldwide and also owns a contract food service business. Host Marriott owns 100 hotels and its other main unit is the travel plaza business.

Since its inception, the company has shed most of its cheaper hotels as well as 14 retirement homes that fetched a reported $320 million. It has sold off 114 Fairfield Inn and 21 of its 54 Courtyard by Marriott hotels, most of which Marriott International continues to manage for their new owners.

On the other hand, Host Marriott has bought 18 full-service hotels for about $530 million and has lost out in bidding to buy other properties.

The announcement, which Mr. Hill said was made after CNBC analyst Dan Dorfman reported the deliberations Tuesday, could presage either the "separate financing" or the spinoff of the division.

Host Marriott Chief Executive Stephen F. Bollenbach said Host Marriott hasn't made a final decision about a spinoff. The company first plans to separate the finances of the concessions business from the parent company by selling debt backed by the unit's assets, he said.

The company could file with the Securities and Exchange Commission for such a debt sale within a month, Mr. Bollenbach said. "What we're looking to do is finance our concessions business separately from the rest of our business. If we're successful doing that, we would consider alternatives if we thought they would enhance the value of the company. Those alternatives could include a spinoff," he said.

The spinoff would be in the form of a tax-free distribution to current Host Marriott shareholders of stock in the concessions business, Mr. Bollenbach said.

Mr. Hill said the travel plaza unit operates stores in 73 airports and has more than 90 units on 14 U.S. toll roads. It earned $44 million on operations last year, on sales of $1.1 billion, much less impressive than the $147 million operating profit the company posted on hotel revenue of $360 million. After interest expense and depreciation, the company posted a $25 million loss.

Mr. Bollenbach has said the company believes it can get higher returns from owning more luxurious hotels for two main reasons:

One reason is that upper-end hotels can still be bought for much less than what they cost to build during the hotel boom of the 1980s, which led to the bust of 1990-1992; the other is that upper-end hotels are more expensive to build and harder to get approved by zoning officials, making it much tougher for competitors to enter that end of the market.

Host Marriott shares closed unchanged at $11.50 yesterday on the New York Stock Exchange, near the 52-week high of $11.875 reached Aug. 26.

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