Host Marriott seeks to add 4 upscale hotels Limited partners get $92.5 million offer from general partner

Lodging

April 19, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Host Marriott Corp. yesterday unveiled plans to acquire four upscale hotels for $92.5 million through an unusual transaction that involves buying out limited partners in a company set up eight years ago by the former Marriott Corp.

The tender offer for units in Marriott Hotel Properties II Ltd. Partnership represents the first time that the Bethesda-based hotel owner has attempted to buy out limited partners to further its strategy of acquiring so-called full-service hotels.

The offer is unusual in that Host Marriott, as general partner, technically controls Marriott Hotel Properties II and 29 other similar entities through agreements.

"Host Marriott is a hotel owner, and this represents a way to increase ownership of quality hotels," said Robert T. Souers, a Host Marriott spokesman.

As general partner, Host Marriott owned less than 1 percent of the stock in Marriott Hotel Properties II, Mr. Souers said.

By acquiring the 740 limited partnership units, Host Marriott would obtain full control of the New Orleans Marriott, the San Antonio Marriott Rivercenter and the San Ramon, Calif., Marriott hotels. It would also receive a 50 percent partnership stake in the Santa Clara Marriott, in California.

In all, the four properties would add 3,411 rooms to Host Marriott's portfolio, but Host Marriott declined to provide projections on how much the hotels would contribute to its 1996 earnings.

"This is part of their ongoing strategy," said Bruce Turner, a Salomon Bros. hotel industry analyst. "In this case, they'll control the hotels outright, as opposed to having to share cash flows and profit with partners."

For investors in Marriott Hotel Properties II, Host Marriott's offer of $125,000 per unit represents a 25 percent appreciation over the unit price in 1988, when the partnership was formed. In addition, limited partnership unit holders received roughly $11 million in dividends last year, Mr. Souers said.

Host Marriott assumed control of the various partnerships in October 1993, when Marriott split into hotel owner Host Marriott and Marriott International Inc., an operating concern.

The company intends to finance the acquisition with the proceeds of a $415 million stock offering completed April 1.

Host Marriott, which spent $915 million in 1994 and 1995 to buy upscale hotels in an attempt to capitalize on the recovering lodging industry and a lack of new construction, currently owns 62 full-service hotels.

But by offering to buy out Marriott Hotel Properties II limited partners, Host Marriott may have touched off a conflagration with other limited partnerships. Investors in several other Host Marriott-controlled limited partnerships say that the company has failed to provide promised dividends despite the hotel industry's rebound.

Yesterday, for instance, Host Marriott held a meeting with partners in Courtyard II Ltd. Partnership in an effort to avoid possible litigation, sources said. Courtyard II investors, as well as unit holders in a group known as Courtyard I Ltd. Partnership, say they have not received any money from the company for at least three years.

Courtyard I and Courtyard II were $100 million partnerships formed in the late 1980s by the former Marriott Corp. to finance expansion of its moderately priced brand. Like Marriott Hotel Properties II, Host Marriott is now the general partner of those groups.

Although Mr. Souers confirmed the Courtyard II meeting, he declined to comment on what occurred or the threat of a lawsuit.

He added that there is no link between other partnerships and the company's actions regarding Marriott Hotel Properties II, although Host Marriott may extend similar offers for other partnership units, he said.

In all, the 30 Host Marriott-controlled partnerships own 262 hotels, according to a company prospectus issued for the April stock offering.

Host Marriott's offer to buy the Marriott Hotel Properties II units expires at 12 a.m. on May 15, unless extended, the company said.

Pub Date: 4/19/96

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