Host Marriott Corp. has increased a bid to buy out limited partners in a group that controls four upscale hotels, even as it battles a lawsuit that claims the company failed to make an adequate offer for the partnership units.
The Bethesda-based hotel owner said its decision to raise the offer by 20 percent -- to $150,000 per unit -- was not influenced by the litigation.
Two Marriott Hotel Properties II Ltd. Partnership (MHP II) unitholders filing on behalf of the group claim the shares are worth at least $225,000 per unit based on the hotels' net operating income, according to documents filed in Delaware Chancery court.
"What they are doing is unfair," said Lawrence P. Kolker, a New York attorney representing a MacKenzie Patterson investment fund and unitholder George Wasserman. "They're trying to usurp the profit potential of the partnership. While we're pleased, that NTC they increased the offer by a significant amount demonstrates how inadequate the original offer was."
MacKenzie Patterson of California is the single-largest unitholder with 11, while Wasserman controls one of MHP II's 745 units.
The lawsuit represents the latest in what could be a series of imbroglios involving partnerships created nearly a decade ago by the former Marriott Corp. Of the 30 partnerships Marriott created, at least five are evaluating whether to sue Host Marriott for failing to act in a fiduciary manner.
Marriott sold the units for $100,000 each to tens of thousands of small investors to raise capital to fund new hotel development and corporate expansion. When the lodging industry collapsed in 1991 as a result of the Persian Gulf war and the economic recession, Marriott in many cases suspended dividends and the value of the units plummeted.
Since then, Marriott successor Host Marriott has failed to reinstate dividends to various unit-holders despite a strong hotel rebound.
MHP II owns the 1,290-room New Orleans Marriott hotel, the 999-room San Antonio Marriott Rivercenter hotel, the 368-room San Ramon Marriott hotel, and a 50 percent limited-partner interest in the 754-room Santa Clara Marriott hotel. Marriott bought the hotels in 1989 for $319.5 million, according to the lawsuit.
All four properties exemplify the type Host Marriott has been adding to its portfolio in the past two years.
Since 1991 the hotels' operating profit has risen 22 percent to $64 million last year.
Host Marriott, which raised the MHP II payout offer by $25,000 per unit late last week, also extended the tender offer from May 15 to June 13.
$111.7 million offer
In all, Host Marriott is now offering $111.7 million to acquire MHP II's partnership units, up from its original mid-April offer of $93.1 million.
"Of the respondents, a large majority are in favor of the deal," said Robert T. Souers, a Host Marriott spokesman. "Host Marriott believes even raising the price makes it a beneficial transaction for the unitholders and Host Marriott."
The increase may not be enough to placate unitholders, however.
In addition to the price disparity, MacKenzie Patterson and Wasserman contend that Host Marriott is attempting to significantly alter the partnership agreement to wrest control from the limited partners; has breached its fiduciary duty to maximize shareholder value by selling the units at auction or through some other manner; and misrepresented the underlying value of the assets controlled by MHP II.
$47 million question
Kolker said Host Marriott also has failed to refinance about $257 million in debt to increase the partnership's perceived risk, and that the company has failed to distribute roughly $47 million in cash the properties have generated.
A Delaware chancery intends to hold a hearing June 10 on a MacKenzie Patterson/Wasserman motion that would prohibit Host Marriott from completing the purchase, Kolker said.
Pub Date: 5/29/96
