Patriot American to
sell 30 percent stake

Bloomberg News

DALLAS -- Patriot American Hospitality Inc.agreed to sell about a 30 percent stake for $1 billion to an investor group led by financiers Leon Black and Thomas Lee, giving it cash to help repay $1.7 billion of debt coming due.

The Dallas-based real estate investment trust, one of the biggest U.S. hotel companies and owner of the Wyndham Hotel chain, said the group will make the investment through the purchase of convertible preferred stock. The group will be entitled to six of 15 seats on the company's board.

Patriot shares rose 75 cents yesterday to close at $7.94 in heavy trading on the New York Stock Exchange. Before yesterday, the shares tumbled 75 percent this year as the company struggled with its expansion.

In August 1997, Patriot bought the 227-room Park Shore Hotel in Waikiki for $24 million.

More recently, Patriot's purchases have included seven hotel companies over the past year. Those deals were largely financed with short-term debt that the company hoped to replace with longer-term debt. The plan fell apart when capital markets dried up in September as plunging emerging markets soured investors' appetite for risk, forcing the company to delay an $850 million bond sale. "This certainly clarifies a lot of questions about their liquidity," said Brad Cohen, an analyst at Sands Brothers, which rates the stock "neutral."

Given the high cost of the preferred stock, the dilution of stakes of current shareholders and other issues not addressed by the company, such as the status of current management, some analysts said they're not ready to recommend the stock.

"The hope, I think, of a lot of shareholders is a better offer comes out of the woodwork," said Michael Reitbrock, an analyst at Salomon Smith Barney, which has a "neutral" rating on the shares.

The $1.7 billion debt is due in stages over the next 16 months. In all, the company has $3.9 billion of debt, compared with $6.6 billion of hotel assets. It owns manages or franchises 486 properties, more than 400 of which were acquired during the past year. It has already started selling some of its hotels to help repay some debt.

"The investment will enable Patriot to reduce leverage, improve liquidity and allow the company to implement its business plan," Patriot American Chairman and Chief Executive Paul A. Nussbaum said.

Black is making his investment mainly through his Apollo Real Estate Advisors LP and Apollo Management funds. The real estate fund provided Nussbaum with financing in the early 1990s when he launched Patriot American. Lee's Thomas H. Lee Co., a buyout firm, is best known for his investment in Snapple Beverage Corp. before it was sold to Quaker Oats Co. in 1994.

Apollo also has an ownership stake in Honolulu's Aloha Tower Marketplace and the nearby Harbor Court luxury high-rise.