Marriott adds senior housing $605 million deal for Forum Group and No. 2 spot in industry

February 17, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Marriott International Inc. pushed further into the expanding senior housing market yesterday through a $605 million purchase agreement for the nation's third-largest provider of elderly living centers.

The Bethesda-based lodging operator's decision to acquire the Forum Group Inc. through a mix of cash and debt assumption will bring the number of senior living facilities in its portfolio to 69, its number of units to 14,500.

"When we went looking at the top providers in terms of service and quality, we felt Forum fit well with our established brand and the quality we provide," said Paul E. Johnson Jr., executive vice president and general manager of Marriott Senior Living Services.

As health care and nutritional advancements allow senior citizens to live longer and healthier lives and the so-called baby boomer population ages, various companies are attempting to capitalize on the $12 billion senior-living industry.

By the end of this decade, for instance, the number of people over the age of 75 is expected to grow by 29 percent, and the number of people over 85 by 43 percent.

Marriott -- whose senior-living division doubled its profits last year over its 1994 performance -- is hoping that its brand-name recognition with consumers as well as its ability to contain costs and generate operating efficiencies akin to its lodging business will help the company dominate the growing market.

The $13-per-share Forum transaction, expected to close by the end of March, will bump Marriott up to the nation's No. 2 provider of senior housing, behind Holiday Retirement Corp. of Washington, which controls roughly 18,000 units. Before the deal with Fairfax, Va.-based Forum, Marriott had been the nation's fourth-largest operator of senior housing, with 27 facilities and about 6,600 units in nine states, many of which are under the Brighton Gardens brand name.

Forum, with operations in 12 states and assets of $398 million at year-end, will also provide Marriott entry into Sunbelt states such as Florida, California, Texas and Arizona.

"Positive development'

"We see this as a very positive development for Marriott," said Camille E. Humphries, a lodging industry analyst with Alex. Brown & Sons Inc. who tracks Marriott.

"This expands and complements their involvement in that business, and it fits well within their existing strategy, because they have a terrific reputation with consumers."

Ms. Humphries added that Forum represents a good investment for Marriott, a cash-flush company whose operations generated net income of $247 million and revenues of nearly $9 billion in 1995.

By comparison, Forum in 1995 generated net earnings of $12.2 million on revenues of $149 million.

Those earnings represent a far cry from five years ago, when Forum defaulted on $109 million in bonds and was forced to seek Chapter 11 bankruptcy protection. It emerged in April 1992.

The investment was also attractive because Forum has five new facilities under construction, roughly 20 of its existing centers are being expanded, and because it is introducing new concepts such as moderately priced as sisted living centers and home health care to residents in its communities.

Marriott intends to complete the transaction by paying Forum stockholders $302 million in cash and by assuming $303 million in primarily long-term debt on its centers.

Slight premium

For Forum, whose predominant stockholders are Apollo Advisors Ltd. Partnership and a Dallas investment firm, the Marriott deal will generate a slight premium over its usual trading price. Yesterday, Forum stock closed at $12.63 per share, up 13 cents per share.

Marriott also is in the midst of expanding its senior living centers, with plans to add 75 new centers by the end of the decade. This year, Marriott plans to begin construction of 15 additional facilities with 1,800 units, Mr. Johnson said.

The transaction is expected to have little effect on Marriott's overall earnings, however, adding just two to three cents per share in 1997.

Marriott stock closed yesterday at $46.50, down 12.5 cents.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.