Crunched by a glut of senior housing construction, Marriott International Inc. announced yesterday that it will delay development of several assisted-living projects and cancel others.
The Bethesda-based hotel operator's move, together with higher than expected start-up costs, pre-opening charges and higher reserves for accounts receivable, is expected to lower its fourth-quarter earnings by $12.3 million, or 5 cents per share.
Marriott said the lowered earnings estimate stems from one-time charges associated with its senior-living business.
"We're going to either slow down or drop between 30 and 35 projects," said Nick Hill, a Marriott spokesman.
Hill said Marriott's research has determined that Knoxville, Tenn.; Reno, Nev.; Akron, Ohio; Pittsburgh; and Charleston, S.C., have slowed their paces of senior-living sales. The company intends, however, to continue focusing on California and the Northeast corridor, areas such as New Jersey, Washington, New York and Boston.
Marriott currently operates 139 senior-living-services communities containing roughly 24,000 units.
Another 15 projects are under construction and scheduled to open by the middle of next year.
Marriott began a serious push into senior housing in February 1996, when it acquired the Forum Group Inc. for $605 million. The purchase catapulted Marriott to become the nation's second-largest operator of senior-living centers.
The company added that it has decided to focus on maximizing the profitability of its existing communities, rather than developing new ones. Marriott also said it plans only to pursue development of new projects that are "compelling."
Although the senior-living-community snag will clip its fourth-quarter earnings, Marriott emphasized that its moves will have no effect on its worldwide hotel operations, which generate 96 percent of the company's operating profit.
By contrast, Marriott projects an increase of between 15 percent and 19 percent in the fourth quarter from the comparable period a year ago.
As a result, lodging industry analysts greeted the news regarding the senior-living projects with a collective yawn.
"I think people are making a mountain out of a molehill," said Bryan A. Maher, a lodging industry analyst at Credit Lyonnais Securities, in New York. "This is a one-time, 5 cents-per-share charge. It's not the end of the world. I'd rather have them do this now than continue building communities that don't sell. They've made a tough business decision to slow down development now, but I'm really not overly concerned."
Marriott's common stock fell 50 cents per share yesterday, closing at $33.
By comparison with its 154 existing senior-living projects and those under construction, Marriott operates 1,900 hotels, timeshare units and resorts in the United States and 56 other countries.
For the fourth quarter of 1998, Marriott posted net income of $114 million, or 44 cents a share, an 18 percent gain from the final three months of 1997. Revenue in Marriott's fourth quarter of last year amounted to $2.5 billion, a 10 percent gain.