Host Marriott Corp. announced plans yesterday to spend $433 million to purchase 29 upscale senior communities in 11 states from its sister company, a diversification the Bethesda-based hotel owner contends creates a platform for future growth.
With the purchase of the Forum Group Inc. assets from a subsidiary of Marriott International Inc., expected to close in the second quarter, Host Marriott will become one of the five largest owners of senior communities nationwide in an industry experiencing more than 20 percent growth rates stemming from an aging population and societal changes.
For 1997, the company predicts the communities' 6,127 units will generate $55.2 million in earnings before interest expense, taxes and noncash charges, and a more than 15 percent return on investors' capital.
"We view our entry into the senior living industry as a natural extension of our real estate investments in the hospitality industry," said Terence C. Golden, Host Marriott's president and chief executive.
The purchase will also brace Host Marriott for an expected eventual downturn in the hotel industry's explosive growth, which in 1996 generated a record $11.2 billion in pretax profits, according to Coopers & Lybrand LLC's hospitality division.
Host Marriott, which expects to grow its upper-tier senior community portfolio at a rate of 20 percent annually, owns 83 upscale and luxury hotels valued at more than $5 billion.
"Entry into this complementary line of business will enable us to invest in an industry enjoying double-digit growth rates, expand our alliance with Marriott International, further leverage off the benefits of the outstanding reputation of the Marriott brand and diversify into an industry with cash flows that are independent of the business cycle," Golden said.
Host Marriott also intends to invest $107 million to expand 22 of the 29 communities, adding 1,075 units by January 1999. The properties will continue to be managed by Marriott Senior Living Services Inc. under the Marriott brand name.
"Management has started to think about the next act, and this makes a lot of sense," said Camille E. Humphries, an Alex. Brown & Sons Inc. lodging industry analyst. "Although it means Host Marriott is no longer a pure hotel play, I agree it's an introduction into a second leg of growth.
"They have similar skill sets -- both involve real estate and are service-based, and they have the experience negotiating acquisitions. The alliance with Marriott International makes this a natural."
Host Marriott is buying the Forum Group properties, which have a 95 percent systemwide occupancy rate, for roughly 75 percent of their replacement cost, the company said. The price includes the assumption of about $244 million of mostly fixed-rate debt, with the remainder to be paid in cash.
The Forum Group deal also puts Host Marriott well on track to meet its 1997 acquisition goal of $1 billion. Including the senior living communities, Host Marriott will have spent $800 million this year to buy new projects. As a result, Golden said the company may re-evaluate its target figures.
Pub Date: 3/19/97