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Host Marriott goes REIT
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April 17, 1998: 6:50 a.m. ET
Luxury hotel firm changes status, buys $1.7 billion Blackstone portfolio
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NEW YORK (CNNfn) - In a broad makeover that will ease its tax burden, Host Marriott Corp. announced plans Friday to turn itself into a real estate investment trust and acquire $1.7 billion worth of luxury hotels from Blackstone Group, including several Four Seasons and Ritz Carltons hotels.
Host Marriott, an owner of more than 100 luxury hotels, was spun off from from Marriott International Inc. in 1993. After the closing of the Blackstone transaction on Jan. 1, 1999, the Marriott family will retain only a 9 percent stake in Host Marriott.
Host Marriott will also spin off its 31 senior living centers into a publicly traded company. The new company will also lease Host's hotel real estate.
Blackstone's portfolio consists of 13 hotels in Boston, Atlanta and other metropolitan areas. Under the terms of the deal, Host Marriott has agreed to pay Blackstone $835 million in cash and assumed debt and about $940 million in partnership units.
Blackstone, a New York investment company, will effectively become Host Marriott's largest single investor, with a 19 percent stake in the hotel company.
Host Marriott's conversion to REIT status follows an industrywide trend over the past few years. As a REIT, Host Marriott would not have to pay corporate income taxes, but instead allocate at least 95 percent of its taxable income to shareholders in the form of dividends.
The Blackstone portfolio purchase and the REIT conversion are expected to be dilutive to Host Marriott's funds from operations by as much as 10 cents per share.
Blackstone hotels are likely to add six cents a share to Host earnings, while the new REIT status should add another 20 cents per share.
Host Marriott is said to have considered a number of REIT options. The new senior-living company will keep about 3 percent of the hotels' cash flow. That money previously would have gone to a landlord after paying the hotel's operator.
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