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Sunrise to Buy Marriott Division

From Bloomberg News

Sunrise Assisted Living Inc. agreed to buy Marriott International Inc.'s senior living unit for $150 million in cash and assumed debt to become the largest manager of senior living centers in the U.S.

Both companies have significant operations in California. Sunrise has 28 assisted living centers in the state, including 16 in Southern California. Marriott has 15 centers in California, including 13 in the Southland.

Virginia-based Sunrise will take over managing 126 centers housing the elderly, boosting its management business to 350 properties with 40,000 residents. The company has sold about $1 billion in properties since 1998 while retaining management contracts, to get more of its profit from set fees rather than from the income that the centers generate.

“We are insulating our shareholders from the property risk that comes with owning large portfolios of real estate,” Chairman and Chief Executive Paul Klaassen said on a conference call with analysts and investors.

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Sunrise will pay $89 million in cash and assume $38 million in liabilities and $23 million of life-care endowment obligations, or money owed to residents for unused time in the centers.

Sunrise shares rose 80 cents, to $24.81 in New York Stock Exchange composite trading, while Marriott shares rose 41 cents, to $32.57.

Separately, CNL Retirement Properties Inc. will buy nine of the centers from Marriott for $170 million. The centers will be managed by Sunrise. The purchase is in addition to the 12 centers Marriott sold to CNL last week for $89 million.

The sale of the management business and the 12 centers will lower Marriott’s fourth-quarter results by $123 million, or 48 cents a share, to $133 million, or 52 cents. The Maryland-based company said it expects to have a gain of $23 million, or 9 cents a share, in the first quarter when the sale of the nine centers is completed.

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Marriott, the nation’s largest hotel company, said earlier this year that it would sell the unit to focus on owning, managing and franchising Marriott, Ritz-Carlton and Fairfield Inn hotels. Marriott entered the senior living business in 1984 and is exiting after a glut of development hurt profit in the industry.

The purchase will be completed in the first quarter of 2003, Sunrise said. With the purchase Sunrise will enter states including Texas, Arkansas, Utah and Tennessee, and expand its managed properties in California and Florida. Sunrise also will acquire 12 land parcels with the acquisition.

Klaassen said the industry will see further consolidation, as more than 90% of senior living centers still are owned by independent operators.

Sunrise said it expects to earn $2.57 to $2.65 a share in 2003. Though the purchase will cut net income by 10 cents a share in 2003, Sunrise said it will sell more of its properties while retaining management agreements next year. The purchase will add to 2004 profit, Sunrise said, without elaborating.

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