For Patriot, Hilton And Rival Offers Come At A Price

<B> For Patriot, Hilton And Rival Offers Come At A Price</B>

By Maria P. Vallejo

Patriot American Hospitality Inc. is expected to survive a financial restructuring if either of its two bidders wins, but questions remain over whether Wyndham and its sister brands will have the strength to go on.

It was only last year that analysts and industry experts viewed Patriot American as a hungry acquirer of hotel brands and properties. But that image has changed. "The company was very profitable, but we had a problem paying back our debt," said Wyndham president Les Bentley. "Our financial issues have been publicized and that has really masked the successes that Wyndham has had this year. We've tried to block that all out. But it does affect our growth in the future until this is resolved."

The paired-share real estate investment trust is seeking the aid of an outside party to satisfy the demands of its lenders on its previous equity forward contracts. These contracts allowed Patriot to borrow money with the intent of issuing stock or repay them with stock, gambling on what seemed a safe bet that Patriot stock prices would hold. But the credit crunch that hit in the summer resulted in falling stock prices, leaving it short as the equity forward contracts matured in the fourth quarter of 1998 and the first quarter of 1999.

Hilton Hotels Corp. and Apollo Real Estate Advisors have stepped up to the plate with cash, though the success of either one could result in a loss for Patriot and its primary brand, Wyndham.

Hilton is offering to buy $1 billion in hotels--including its Summerfield Suites brand, according to some published reports--and invest $350 million, as well as helping refinance Patriot with about $3 billion in loans and bonds. Apollo is offering to invest about $1 billion in Patriot in exchange for a 42 percent share of its stock.

But insiders say that accepting Hilton's proposal could prove a short-term solution that harms the company in the long run.

"Even though we don't know what the price would be for the individual assets, getting the hotels and converting them to Hiltons would be great for Hilton and lousy for Wyndham," said Mark Mutkoski, managing director of Bankers Trust in New York. "The issue is going to wind up being, how much do you damage the Wyndham brand in the long term if you strip some of its best center-city assets?"

Hilton officials told the Wall Street Journal they are hoping to buy Wyndham hotels in Chicago, Hauppauge, N.Y., Houston, Philadelphia and San Diego. They also are considering a Hilton in Parsippany, N.J., a Marriott in Colorado Springs, Colo., the Boulders resort in Carefree, Ariz., the Carmel Valley Ranch resort in Carmel, Calif., and the Peaks at Teluride, Colo. Hilton already owns hotels in Chicago, Houston, Philadelphia and San Diego.

"In the long term you are not realizing Wyndham's distribution strategy," Mutkoski said. In his opinion, the best scenario for Patriot would combine the bids of both Apollo and Hilton. Patriot could receive a smaller investment from Apollo and sell some of its properties to Hilton to cover the difference in the offers.