Assisted-Living Shares Rise on News of Marriott Cancellation
Operators of assisted-living communities for senior citizens got a lift Tuesday after Marriott International said that it will cancel plans for 30 to 35 such projects, citing oversupply.
Bethesda, Md.-based Marriott said writing off the costs of planning those projects will cut its fourth-quarter earnings by 5 cents a share. It was expected to earn about 49 cents a share.
Marriott, which derives 96% of its earnings from its hotels, saw its stock ease 50 cents to close at $33 on Tuesday on the New York Stock Exchange.
But for many of the companies whose principal business is building and operating assisted-living communities, the news provided a modest boost. Most of the companies’ shares have plummeted this year as the firms’ costs have risen and investors have fretted that a severe glut of such facilities is developing.
Among the stocks gaining Tuesday were Sunrise Assisted Living, up 44 cents to $12.06 on Nasdaq, and American Retirement, up 56 cents to $5.50 on the NYSE.
Marie Conway, analyst at Prudential Securities in New York, recently downgraded the industry to “accumulate” from “strong buy,” citing earnings shortfalls at several companies.
Sunrise, for example, warned last month that its third- and fourth-quarter earnings will suffer from poor financial performance at facilities it bought last spring.
According to the U.S. Census Bureau, the number of Americans over the age of 65 is expected to grow 4.4%, to 36.2 million, by 2005.
“It’s a big demographic in the long term,” said analyst Jake Fuller of Donaldson, Lufkin & Jenrette in New York. But “the demand [for senior housing] is just not here yet.”
Conway, however, said the problem for most of the companies she tracks isn’t occupancy of their facilities, but management issues, financing and expansion costs.
Although bargain hunters should be looking at the group, she conceded that investor sentiment is so negative about the stocks that “we believe most investors will demand solid proof in the form of consistent quarterly earnings before even considering an investment.”
Longer term, she rates Sunrise, American Retirement and Brookdale Living Communities “strong buys.”
Bloomberg News was used in compiling this report.
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In Need of Assistance
Disappointing earnings and questionable growth prospects have hammered most assisted-living facility stocks this year. A sampling:
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1999 1999 Tues. Decline Stock (ticker symbol) high low close from high Brookdale Living (BLCI) $21.25 $11.75 $12.13 -43% American Retirement (ACR) 18.50 4.00 5.50 -70 Sunrise Assisted Liv. (SNRZ) 53.13 9.25 12.06 -77 Alterra Healthcare (ALI) 34.25 5.38 6.88 -80 Assisted Living Concept (ALF) 15.00 0.75 1.19 -92 CareMatrix (CMDC) 31.13 1.88 2.00 -94
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Source: Reuters
