Marriott Unit, Senior Housing Property Trust Embroiled in Lawsuit

NEWTON, MA-Barely 30 minutes apart, Senior Housing Properties Trust and Marriott Senior Living Services Inc., a subsidiary of Marriott International Inc., filed lawsuits and counter lawsuits over Marriott’s management contract agreement with the locally based real estate investment trust.

In a statement issued by Senior Housing Property, the firm says that it and Five Star Quality Care Inc. sent a notice of management contract terminations to Marriott Senior Living Services. The notice of terminations concerns 31 senior living communities with 7,491 living units located in 13 states. These communities are owned by Senior Housing Property and leased to Five Star Quality. At the time these properties were acquired by Senior Housing Property, they were subject to long-term Marriott management contracts. Senior Housing Property says that it determined to terminate Marriott’s management contracts because it and Five Star believe “payments from Marriott to Five Star required under the management contracts have not been timely made and because Senior Housing Property and Five Star believe Marriott has improperly allocated charges to the operations of the 31 communities, which resulted in greater profits to Marriott and lesser earnings by Five Star from these communities.”

Senior Housing Property and Five Star’s lawsuit, which was filed in the Massachusetts Superior Court, is seeking a declaratory judgment that Marriott may not proceed with a transfer of the management contracts for these 31 communities as part of a planned sale by Marriott of its Marriott Senior Living Services business.

Roger Connor, spokesperson for Marriott tells GlobeSt.com that his company, which he says filed the lawsuit in Maryland Superior Court first, is seeking a declaratory judgment to prevent Senior Housing Property from ending its management contract agreement with the company. Connor acknowledges that Marriott is attempting to sell its Senior Living Services unit. He says that the company is currently in discussions with Sunrise Assisted Living to purchase the division.

In a statement, Sunrise says that it is “in discussions with Marriott International Inc. relating to a possible cash purchase by Sunrise of all of the outstanding stock of Marriott’s wholly owned subsidiary, Marriott Senior Living Services Inc.” Sunrise adds that the company is “aware of recent litigation and disputes” but it does not believe “that this litigation and the issues raised will preclude a transaction among Sunrise, its co-bidder and Marriott.”

Marriott received a temporary restraining order to prevent Senior Housing from terminating the management agreement. Senior Housing Property also received a restraining order to prevent Marriott from selling the division until the case is decided.

Senior Housing Property says that as a result of the court ruling, no further action will be taken to terminate Marriott’s operations of the 31 managed communities. If and when that court order is modified, Senior Housing Property expects Five Star to assume operating responsibility for the 31 communities after a contractual transition period. Five Star’s lease of those 31 communities requires Five Star to pay Senior Housing Property rent of approximately $63 million per year. Senior Housing Property adds that it does not believe that the pending litigation or termination of the Marriott management contracts will result in an interruption in rent paid by Five Star to Senior Housing Property.