Marriott International Inc. moved into the interim housing business yesterday when it announced plans to spend $128 million to buy ExecuStay Corp., the nation's second-largest provider of leased corporate apartments.
The Bethesda hotel giant's purchase comes as part of a larger push to maintain earnings growth by entering businesses -- such as vacation time-share units, senior-living facilities and food-service distribution -- related to its core lodging activities.
"It's a logical extension of our lodging business," said Kenneth R. Rehmann, a Marriott vice president. "They are a service provider as we are, and we believe it's an industry that is ripe for consolidation. We think a number of our systems can be plugged in and expand their growth potential. With the Marriott name on it, we feel the business could really take off."
ExecuStay provides about 6,000 furnished apartments in 44 states primarily for corporate clients and professionals. The 12-year-old Gaithersburg company, which owns no residential real estate, generates $150 million in annual revenue and has more than 450 employees. ExecuStay's average lease lasts for three months at a cost of $2,200 per month.
Under terms of the transaction, Marriott will pay $14 in cash for each publicly held share, while the company's founders will receive a combination of Marriott common stock and other financial incentives.
Marriott, which had $9 billion in sales during its 1997 fiscal year, will also assume about $13.5 million in ExecuStay debt as part of the purchase.
ExecuStay will continue to operate from its Gaithersburg offices, and its top management will continue to run the company on a day-to-day basis. Marriott Executive Vice President Joseph Ryan will oversee the company's operations for the lodging company.
ExecuStay, which will maintain its 32 offices nationwide, from Atlanta to Los Angeles, will be known as ExecuStay by Marriott.
"We believe that ExecuStay's new association with Marriott International and its global distribution systems will greatly expand ExecuStay's growth potential over the next several years," said Gary R. Abrahams, ExecuStay's chief executive.
Marriott, which hopes to complete the ExecuStay purchase by March, said it believes the highly fragmented interim housing business -- a $3 billion a year industry -- is in the early stages of consolidation.
But even in a consolidating industry, Marriott will have a long way to go to shore up market share. ExecuStay acknowledges that it controls just 5 percent of the market.
Still, analysts said the move is a sound one for Marriott, and is similar to its acquisition of Forum Group Inc., a senior-housing operator. Marriott bought Forum in February 1996 for $605 million, and became the nation's second-largest operator of senior-living centers.
"This is another deal where people other than Marriott own the assets and they run the operations and control the distribution systems," said John J. Rohs, an analyst at Schroder & Co. in New York. "And it's high-profit stuff and the return on investment is high."
Pub Date: 1/07/99