There's no forecast for when a Brazilian federal court may end the decade of appeals that's stopping it from liquidating a majority stake in the Crowne Plaza Orlando Universal Hotel. But the business is healthy, with $15 million in projected revenue this year and a 30 percent gross profit margin, the property's general manager said Wednesday during an evidentiary hearing between the hotel owner's two shareholders.
Judge Lawrence R. Kirkwood of the Orange County Circuit Court decided Wednesday to quash the order by another judge on Nov. 2 to appoint an American manager as receiver of the hotel's ownership company, Universal Towers Construction (UTC).
Management of UTC now falls back under the control of Brazilian court-appointed administrator Francisco F. Bomfim, who has overseen the owner-entity since 2009. He's done so on behalf of the Brazilian government, in anticipation of eventually liquidating Orlando-based assets of UTC's former majority stakeholder João Arcanjo Ribeiro, who serves time in a Brazilian federal prison for charges related to money laundering, tax evasion and homicide, GrowthSpotter first reported June 12.
The Crowne Plaza's day to day operations are managed by Interstate Hotels and Resorts. Anthony Lazzara, general manager, said Wednesday the hotel boasts a strong occupancy rate, and projected $15 million in revenue this year, $16 million in 2016 and a 30 percent gross profit margin. The business' gross profit over the past year and a half has been roughly $8 million, he noted during testimony.
About $1.5 million in renovations are currently being completed on a new restaurant, ballroom and fitness room in the hotel. With property-wide room renovations slated next, up to $3 million in total investment is projected over the next few years.
A 400-key hotel like the Crowne Plaza, with an address on Universal Boulevard, would likely draw a bevy of interested buyers if put up for sale and should command more than $50 million, hotel-focused commercial brokers have told GrowthSpotter.
SHAREHOLDER DISPUTE CONTINUES
Judge Kirkwood quashed the Nov. 2 order to appoint a local receiver for UTC after seeing ample evidence that the Crowne Plaza is being well-managed and that the case doesn't meet the legal threshold for a receiver to intervene.
But a classic shareholder dispute remains for UTC and the Crowne Plaza, with two owners strongly disagreeing on how funds should be invested or distributed.
Arcanjo Ribeiro founded UTC in 1998 to build the hotel and held a 65 percent super-majority stake in the company, which he later transferred to his Brazilian company, Universal Towers Investimentos e Participações Ltda (UTI). He brought on Sao Paulo-based construction firm Constrazza International and its founder, Zilberto Zanchet, for a 35 percent minority stake.
Brazil's government has been controlling the hotel's fate since Arcanjo Ribeiro went to prison in the mid-2000s by controlling the assets of his Brazilian business, UTI.
Zanchet's attorney, Eric W. Ludwig, has argued that an original shareholder agreement for UTC requires unanimous approval by all owners for major decisions -- no matter the stake they hold -- like issuing new shares in the company, or using UTC funds on anything but the hotel at 7800 Universal Blvd.
A lawsuit by Constrazza's Zanchet against Bomfim will likely continue in Orange County Circuit Court. Zanchet claims that Bomfim's mismanagement of UTC funds has diluted his 35 percent stake to 3 percent this year, and that he moved $4 million of UTC funds to a Brazilian cattle investment without Zanchet's approval as shareholder.
Zanchet has objected at previous shareholder meetings to the idea of turning some of the company's debt to equity, which Bomfim did in April of this year. He also objected to transferring funds outside the country, because UTC has about $15 million remaining on a mortgage through 2026 from Ocean Bank, on which Zanchet is a guarantor.
Beginning in July, Bomfim made two transfers totaling $4 million to a Brazilian LLC named Universal Towers Brasil Agropecuaria Ltda. Bomfim contends that Brazilian law allows him to do this as a court-appointed administrator.
Brazil is the world's leading beef producer and exporter, making it a strong investment for the Brazilian government's assets from UTC, Bomfim detailed in a business plan. He'd invest the money in a cattle operation in Mato Grosso state and projected up to 232 percent return in just five years, far better than any return UTC would get for its money in the U.S. stock market.
Bomfim conceded during testimony that a Brazilian judge has yet to approve that cattle investment, but he still transferred the $4 million in anticipation. Brazil's attorney general's office also submitted a letter to that Brazilian court, not endorsing the investment.
Bomfim's and UTC's attorneys with CPLS, P.A. filed documents earlier this week stating that the majority stakeholder would offer a buyout of Constrazza's less than 3 percent.
Zanchet told GrowthSpotter Wednesday that no monetary value had been shared with him for a buyout offer yet, and that he wouldn't want to sell. He prefers to buy the majority stake of the Crowne Plaza from the Brazilian government eventually, having the first option to do so as a minority stakeholder.
He's optimistic that an ongoing appeals process in Brazil will end in 2016 between federal prosecutors and Arcanjo Ribeiro, and then the government will be free to sell the Orlando hotel.