Host Marriott Corp. has invested $89 million to purchase a majority interest in a group owning four suites-style hotels, a move that continues the Bethesda-based company's strategy of acquiring upscale lodging properties.
The four hotels owned by Marriott Suites Ltd. Partnership -- in Scottsdale, Ariz.; Chicago; Atlanta; and Orange County, Calif. -- will add 1,012 rooms to Host Marriott's portfolio and bring its 1996 investments for acquisitions to $1.3 billion.
Before the Marriott Suites investment, Host Marriott had bought 16 hotels containing 8,556 rooms. In all, Host Marriott currently owns 76 full-service hotels.
"These hotels are all high quality assets located in major metropolitan areas," said Terence C. Golden, Host Marriott's president and chief executive, in a prepared statement.
As in the past, Host Marriott's investment in the partnership represents just 70 percent of the cost required to replace the hotels today.
The investment comes as Host Marriott is wrestling with unhappy investors in numerous Marriott-inspired partnerships. They claim, in lawsuits, that the company has failed to act responsibly toward the groups and defrauded investors. The lawsuits also contend that Marriott International Inc., Host Marriott's sister company, has overcharged the partnerships by
millions of dollars for management fees.
"It appears that in this case there's enough cash flow after the management fees to justify purchasing the partnership, which in our case is hard because the fees are so high," said Philip Asquith, an investor in Marriott Hotel Properties I. L. P., which might sue the two Marriott companies.
With its purchase, Host Marriott will control 89.3 percent of Marriott Suites L. P. The company also has offered to buy out the balance of the partnership interests for $11 million. Marriott fTC International will continue to operate the properties.
As the majority owner of the partnership, Host Marriott is expected to receive a lion's share of the $13.5 million in earnings before interest expense, taxes and non-cash charges generated the four hotels this year.
"Host Marriott gets a larger interest in quality assets, while the investors get a return on their equity in a somewhat illiquid investment," said Robert T. Souers, a Host Marriott spokesman.
The $89 million will be used to retire $81 million in first mortgage debt on the hotels, as well as a portion of the $11 million owed the company for loan guarantees.
Marriott formed Marriott Suites L. P. in November 1989, selling partnership interests to six institutional investors and raising $43.2 million, said Andrea Jacob, Host Marriott's director of investor relations. Marriott's investment amounted to $2.2 million, excluding the partnership's debt.
The Marriott Suites L. P. purchase marks the second time Host Marriott has acquired partnership interests this year.
In June, the company completed the purchase of a thin majority of shares in another group controlling four upscale hotels.
Pub Date: 10/25/96