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Brazilian shareholders battle over pre-trial buyout for Crowne Plaza Universal

Brazilian shareholders battle over pre-trial buyout for Crowne Plaza Universal
Outlined in red is the Crowne Plaza hotel property at 7800 Universal Blvd., with Sand Lake Road to the south and International Drive two blocks west. The hotel is neighbored to the north by a 2.48-acre undeveloped parcel that could be targeted for future expansion. (Orange County Property Appraiser)

Two shareholders battling over ownership of the Crowne Plaza Orlando Universal Hotel each want to buy out the other's stake, but are miles apart on settlement talks. The property could be worth $34 million or more, based on a new appraisal conducted by CBRE Orlando in March on behalf of the hotel's lender.

They'll now start preparing for trial in April 2017, which will focus on alleged malfeasance by the Brazilian court-appointed administrator who is managing the hotel's owner-entity.

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But the minority stakeholder believes he'll soon have the leverage to buy out the Brazilian government-controlled majority, with silent investors backing his buyout effort, and a desire to expand the hotel onto vacant land to the north.

THE BACKGROUND
Set on a 4.74-acre parcel northwest of the Universal Boulevard-Sand Lake Road intersection, the 400-key full service hotel opened in 2002, and is owned by Universal Towers Construction (UTC).

Management of UTC has been controlled since 2009 by Brazilian court-appointed administrator Francisco F. Bomfim. He's done so on behalf of Brazil's federal 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 in June 2015.

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 affiliate 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 to help finance and build the hotel.

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.

MINORITY SAFEGUARDS
Zanchet's new attorney, Keith T. Grumer of Grumer & Macaluso PA out of Fort Lauderdale, will argue that three unique provisions in UTC's bylaws were created to protect Zanchet as minority shareholder, and all were violated in 2015 by the administrator Bomfim, he told GrowthSpotter on Tuesday.

Unanimous approval is required for shareholder actions, expenditures over $100,000 require dual signatures, and full attendance is required for action at shareholder meetings, Grumer said. Those would prohibit issuing new shares in the company, or using UTC funds on anything but the hotel, according to the company's bylaws filed with the Orange County Circuit Court.

Bomfim has total control of UTC as its board director, president and treasurer ever since November 2010, when Constrazza's Zanchet was removed as secretary and vice president, which Zanchet has argued was unjust.

Despite Zanchet's objections, Bomfim converted some of UTC's debt to equity in April 2015, and transferred company funds to Brazil, despite UTC having $15 million remaining on a mortgage through 2026 from Ocean Bank, on which Zanchet is a guarantor, according to court records and testimony in November.

Zanchet claims that Bomfim's conversion of debt to equity diluted his 35 percent stake to 3 percent last year.

Orlando law firm CPLS, P.A., which is representing both the hotel owner-entity UTC and Bomfim the individual, did not respond to requests for comment on Tuesday.

ALLEGED MALFEASANCE
Zanchet's attorneys will try to prove in the coming year that Bomfim's transfers of millions of dollars from UTC to investments in Brazil, and a local non-profit church, are in violation of the company's bylaws.

Starting in July 2015, Bomfim made two transfers totaling $4 million to a Brazilian LLC named Universal Towers Brasil Agropecuaria Ltda. 

Brazilian federal law dating back to 1998 gives a court-appointed administrator like Bomfim the authority to invest and reinvest assets under his management.

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Brazil is the world's leading beef producer and exporter, making it a strong investment for UTC's revenue, Bomfim detailed in a business plan. He spent the money on a cattle operation in Mato Grosso state in 2015, and projected up to 232 percent return in just five years, better than any return UTC would get by investing its income in the United States.

Bomfim approved that Brazilian cattle investment by himself, per minutes from a UTC board meeting in July 2015.

Bomfim conceded during testimony last November that a Brazilian judge had yet to approve that cattle investment, but he still transferred the $4 million in anticipation. Records show Bomfim sold the cattle from another business he controls to the new UTC-related cattle operation, Grumer said Tuesday.

"What American company invests retained earnings in cattle? And is it prudent fiduciary duty to buy a ranch operation from yourself?" Grumer said.

Separately, over the three years from January 2013 through December 2015, UTC has made monthly donations totaling $189,600 to the First Brazilian Baptist Church of Orlando, according to partial UTC accounting records filed as evidence.

Payments were made by UTC's personal assistant Lis Oliveira to a church administrator, Ivana Oliveira. Any relation between the two is unconfirmed; church leaders and Ivana are scheduled for deposition on April 13.

Hotel owner UTC filed a notice in March of election to purchase the minority stake from Zanchet, and an application to determine fair market value. An evidentiary hearing was held March 29.

PROPERTY APPRAISAL
A view into the Crowne Plaza's financials can be gleaned from a market value appraisal produced in early March by Don K. Johnson, appraiser and lodging specialist from CBRE's hospitality and gaming group in Orlando, on behalf of UTC's mortgage lender Ocean Bank of Miami.

CBRE appraised the hotel's "as is" value at $33.9 million. The current 12-month occupancy rate stands at 75.2 percent, Average Daily Rate for the past 12 months is $107.51 (with estimated annual inflation of 3 percent), and its "Going In" Capitalization Rate is 8.25 percent.

Total revenue for the hotel in the past year was $15.38 million ($38,471 per room), with operating expenses at $12.63 million (expense ratio of 82 percent), and net operating income of $2.76 million ($6,899 per room).

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If vacant, the property's highest and best use would be as a hotel, CBRE concluded, giving credence to other market analysts who told GrowthSpotter last June the hotel would command top dollar in the tourism corridor lodging market.

That appraisal is a good start for both parties, but is incomplete because it was written with the lender in mind, instead of the stakeholders who have different objectives.

Grumer believes the $33.9 million valuation is low, and will pursue appraisals from other national groups, including PricewaterhouseCoopers, to determine total value when considering EBITDA.

The neighboring 2.48-acre undeveloped property directly north of the hotel is owned by Robert T. Craig Jr. of Orlando, who bought it for $90,000 in December 2003, according to county land records. Craig declined to comment on Tuesday about the availability of his property.

BUYOUT COMPLICATIONS
Zanchet has offered Bomfim a buyout for UTC's 65 percent stake that he should take, if liquidating the asset and returning funds to the Brazilian taxpayer is his goal, Grumer said.

But Bomfim's hands remain tied. Brazil's legal system permits a nearly endless amount of appeals, and attorneys for Arcanjo Ribeiro in Brazil continue to appeal a federal judge's decision in October 2014 to liquidate Arcanjo's assets.

This could drag on for another five years in Brazilian court before the 65 percent majority stake in UTC could be made available for sale, said Eliel Alves de Sousa, attorney for Zanchet in Brazil, via email on Tuesday.

With that in mind, Brazilian law shouldn't permit Bomfim to take profits from the hotel entity and invest them elsewhere, he added.

FUTURE TIMELINE
In the case management meeting held Tuesday, Judge Lisa T. Munyon of the Orange County Circuit Court laid out a timeline for how the case should proceed over the next year.

A deadline of June 30 was set for any motions of leave to amend the pleadings and add additional parties. A mediator must be chosen by both parties by July 1, with mediation held that month.

Both sides have until Dec. 16 to conclude their discovery, and are limited to three expert witnesses per side. A five- or six-day trial for the case is scheduled for April 24, 2017.

Have a tip about Central Florida development? Contact me at bmoser@growthspotter.com, (407) 420-5685 or @bobmoser333. Follow GrowthSpotter on Facebook, Twitter and LinkedIn.

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