Host Marriott targets partnership Offer is made despite properties' poor showing

November 21, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Host Marriott Corp. yesterday offered $36 million to buy a controlling interest in a partnership that owns two Florida hotels, despite poor performances by the properties during the past five years.

The Bethesda-based hotel owner's $80,000-per-share offering price for 45 percent of Marriott Hotel Properties Ltd. Partnership continues the owner's strategy of buying upscale properties at bargain prices.

But the offer might also be Host Marriott's way of defusing a potential lawsuit. At least two other Marriott-sponsored partnerships have sued the company in the past year, contending Marriott has failed to live up to its obligations. In recent months, 300 angry Marriott Hotel Properties shareholders have hired a New York law firm and amassed nearly $50,000 to determine why the partnership has failed to perform up to its projections.

"There's certainly been an agitation on the part of the limited partners, because they've not received returns approaching anywhere near what had been projected," said Philip Asquith, a Marriott Hotel Properties investor and chairman of a group of vexed shareholders.

He added, "The question now is: How do we determine whether this is fair, and if it goes through, what is the fate of the partnership? We've already been beaten up pretty well by Marriott, and I can't believe the relationship will get any better if they control things."

Asquith, a retired Bear, Stearns & Co. Inc. senior managing director who invested $300,000 for three limited partnership shares in Marriott Hotel Properties, said that in 1985 Marriott projected the hotels would have generated $255,000 per share for its investors by now.

Actually, the 1,193 investors have received slightly more than $50,000 per share -- or one-fifth of the projected dividends and tax benefits.

In the first half of 1996, Marriott Hotel Properties' two hotels -- the 1,503-room Marriott Orlando World Center and the 624-room Marriott Harbor Beach Resort in Fort Lauderdale -- generated revenues of $43 million and net income of $14 million.

Despite that, investors have split a little over $2 million in dividends, after nearly five years of receiving nothing.

Meanwhile, Host Marriott's sister company, Marriott International Inc., has been paid $6.3 million for managing the hotels this year, according to financial reports distributed by Host Marriott.

In all, Marriott has received more than $195 million in management fees since the partnership was formed, Asquith said.

Under the original agreement between the investors and Marriott, limited partners were to receive 99 percent of the hotels' profits and Marriott would receive 1 percent, plus management fees.

Andrea Jacob, Host Marriott's director of investor relations, said there is "absolutely no connection" between the threatened litigation and the offering for the shares.

"The dynamics between the investment then and now have totally changed," Jacob said. "The structure is different, the tax laws are different, the hotel industry is different. We believe now we can make a profit because the properties have strong operating results, and we'll be buying them for less than their replacement cost."

Host Marriott's offer marks the fifth time this year it has sought to acquire projects lumped into partnerships in the 1980s.

Host Marriott has set a Dec. 20 deadline for investor responses.

Pub Date: 11/21/96

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