Friday, April 17, 1998 | 10:55 a.m.
Host Marriott Corp. of Bethesda, Md., said today it will buy 13 luxury hotels, including Ritz-Carlton and Four Seasons brands, from Blackstone Group for $1.77 billion and convert into a real estate investment trust to gain tax advantages shared by competitors.
Host Marriott also plans to spin off its retirement community business into a separate, publicly traded company.
The company's stock rose 9 percent on the news, gaining $1.68 3/4 to $21.50 in early trading on the New York Stock Exchange.
Host Marriott operates one senior assisted living facility in Southern Nevada, Village Oaks of Las Vegas, 3025 E. Russell Road. Company officials were not available to comment on what, if any, changes would occur under a spin-off arrangement.
The hotel properties bearing the Marriott name in Southern Nevada are managed by a separate unrelated company, Marriott International. Those properties, which market to business travelers, operate under the Fairfield, Courtyard and Residence Inn franchises in Las Vegas and are not a part of the Marriott Host deal.
After the deals are completed, Blackstone -- a New York-based investment bank -- will become the largest shareholder in Host Marriott with 19 percent.
The purchase includes Ritz-Carlton hotels in Boston and Amelia Island, Fla., and Four Seasons hotels in Philadelphia, Atlanta and Beverly Hills, Calif. Other brands include Grand Hyatt, Hyatt Regencies and Swissotel.
The deal is subject to Host Marriott converting to a REIT by March 31, 1999.
Host Marriott expects to pay approximately $835 million in cash and assumed debt for control of in the hotels. The company also will issue about 47 million operating partnership units in the new REIT. Each operating unit will be exchangeable for one share of Host Marriott common stock, or its cash equivalent, the company said.
The conversion to a REIT gives Host Marriott a lucrative income tax advantage. And the acquisitions from Blackstone end Host Marriott's practice of only owning hotel brands franchised by Marriott International Inc., which like Host Marriott, is controlled by the Marriott family.
"What it really means is they're cutting the apron strings from Marriott and broadening their range of acquisitions," said Salomon Smith Barney analyst Michael Rietbrock, who rates Host Marriott shares an "outperform."
REITs shelter their income from taxes as long as they pay out most of their earnings as dividends to shareholders. Host Marriott is the third big owner of hotels in the past month to announce a transaction that would give it the tax advantage that REITs enjoy.
Host Marriott benefited from its close relationship with Marriott International because it often got early notice of Marriott hotels up for sale and could buy them cheaply, Rietbrock said. But with rising prices of all hotels, including Marriott, in the last year and a half, Host Marriott needs to consider purchasing other names as well, and not limit itself to the Marriott brand, he said.
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