Spanish firm buying Crestline Capital

Move to Virginia in works before deal with Barcelo

March 29, 2002|By Meredith Cohn | Meredith Cohn,SUN STAFF

Crestline Capital Corp., the Bethesda-based hotel management company, said yesterday that it has agreed to be acquired by a Spanish hospitality firm for $602 million and plans to move its offices to Virginia.

The privately held Barcelo Hotels & Resorts, seeking to expand its U.S. presence, is to pay $34 a share in cash for Crestline's assets and create a U.S. affiliate called Barcelo Crestline. Crestline shares rose $1.94 to $33.64 yesterday.

Crestline spun off from Host Marriott Corp. in 1998, when that company became a real estate investment trust and, by law at the time, needed a separate company to lease the properties it owns. Although they maintain business ties and all had offices in Bethesda, Host Marriott and Crestline are companies independent from Marriott International Inc., the original parent company and the nation's largest hotel company. Marriott International received a $44 million incentive package in 1999 from Montgomery County and the state to maintain its headquarters in Maryland.

Crestline said it was not bound by that deal, which the state confirmed, and there were no discussions about the company remaining in Maryland.

Darryl Edelstein, a company spokesman, said Crestline needed less space and found cheaper offices in Tysons Corner. The move, planned for April 1, affects about 65 of the company's 3,677 employees.

"The timing is coincidental," he said. "We planned to move before the acquisition was announced."

Crestline will continue to manage hotels, and no other executive or operational changes are expected, although it will no longer be traded as a public company.

The company has been focusing on hotel management and selling off its ownership stake in its properties for the past couple of years, amassing hundred of millions of dollars in cash and making it an attractive target for acquisition, said Bruce Wardinski, Crestline's chairman, president and chief executive. Crestline now owns only minority stakes in some of its properties.

It also received a large payment from Host Marriott recently for cancellation of the lease agreements. Through a law change, it is able to operate its own hotels now.

"We've been in discussions with the Barcelo family for well over a year, and we'd been talking to and considering others," Wardinski said. "We exited out of asset intensive businesses and we were sitting on a lot of cash. We were looking to spend it on acquisitions but felt there were no good value opportunities out there in the industry. Prices are too high based on results. We decided not to go that road."

Wardinski said hotel sale prices are high at a time when many industry members' believe the slumping hospitality sector will make a strong comeback.

Industry consultant Warren Marr of PricewaterhouseCoopers said the company needed to do something with its cash. He also agreed with Wardinski that the industry has not rebounded yet in all hotels and all cities. Limited service hotels in cities where guests can drive are recovering the fastest.

Travel had been dipping with the economy when the terrorist attacks Sept. 11 sent revenue per available room, a key measure of hotel performance, to historic lows. The dismal picture sent many hotel companies scrambling for changes such as asset sales or promotions.

Barcelo was attracted to Crestline's slate of hotel contracts at brands including Marriott, Hilton, Sheraton, Renaissance, Crowne Plaza, Holiday Inn, Courtyard by Marriott and Residence Inn, Wardinski said. Crestline manages the Courtyard by Marriott in Inner Harbor East, which it briefly owned. Also attractive was the management team at the company, many members of which came from Marriott, Wardinski said.

The family-owned Barcelo and affiliates own and manage 108 hotels in 16 countries, including 18 across the United States. Locally, the company owns a Sheraton in Annapolis. Barcelo also has an equity interest in the European travel groups, First Choice Holidays PLC.

The acquisition is expected to close in June. Both company boards have approved the sale, although it is subject to approval by Crestline's shareholders.

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