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Marriott to Write Down $760 Million in Timeshares (Update1)
By John Gittelsohn
Sept. 23 (Bloomberg) -- Marriott International Inc., the largest U.S. hotel chain, plans to take a third-quarter pretax charge of $760 million in its timeshare business as the economic slowdown cuts leisure travel and investing.
The company will cut prices, halt development at some luxury fractional ownership and residential resorts, and sell some undeveloped land, Bethesda, Maryland-based Marriott said today in a statement. It also plans to sell its inventory of rooms as part of a new program with Ritz-Carlton Destination Club.
Hotel owners are struggling to attract customers as the recession deters vacationers. Demand for luxury timeshares “was soft in 2008 and weakened further in 2009,” Marriott said today. Timeshares have become a diminishing part of Marriott’s business, accounting for about 14 percent of revenue in the fiscal year ending in January, compared with 16 percent in the year earlier period.
“Marriott has shifted from development mode to cash- harvest mode in its timeshare business,” said Jake Fuller, an analyst with Soleil Securities Group Inc. in New York. He rates the shares “buy.” “This timeshare business will now produce cash instead of use cash.”
Marriott also said its revenue per available room declined by about 19 percent in the quarter ending Sept. 11 from a year earlier. That’s better than a forecast of a drop of 20 percent to 23 percent announced in July.
Competitors’ Writedowns
Marriott rose 16 cents at 10:04 a.m. in New York Stock Exchange composite trading. The shares are up 41 percent this year through yesterday.
Marriott’s announcement follows similar writedowns by timeshare companies including Starwood Hotels & Resorts Worldwide Inc. and Wyndham Worldwide Corp. The difference is that the new writedowns affect luxury properties, Arne Sorenson, Marriott’s president and chief operating officer, said in the statement.
“Today’s announcement reflects the significant decline in demand for luxury residential real estate over the last year,” Sorenson said. “We expect the timeshare segment to produce positive cash flow in 2009, higher levels of cash flow in 2010 and improving profitability.”
Marriott will take a charge of about $295 million at five luxury residential projects, $300 million at nine fractional- ownership projects in North America, $95 million at one North American timeshare project, $55 million at four European projects and $15 million associated with two Asia-Pacific timeshare resorts. The company didn’t disclose the names of the properties.
“Timeshare is a business investors don’t like much and it’s less a piece of their earnings,” said Smedes Rose, an analyst with Keefe Bruyette & Woods Inc. in New York, who rates Marriott “outperform.” “I don’t think they’ll be getting out altogether, but as a percent of overall business we’d expect it to be smaller and smaller.”
For its most recent quarter ending in June, Marriott reported net income of $37 million on revenue of $2.56 billion. The company plans to release earnings for the quarter ended Sept. 11 on Oct. 8.
To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.
Last Updated: September 23, 2009 10:27 EDT
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By John Gittelsohn
Sept. 23 (Bloomberg) -- Marriott International Inc., the largest U.S. hotel chain, plans to take a third-quarter pretax charge of $760 million in its timeshare business as the economic slowdown cuts leisure travel and investing.
The company will cut prices, halt development at some luxury fractional ownership and residential resorts, and sell some undeveloped land, Bethesda, Maryland-based Marriott said today in a statement. It also plans to sell its inventory of rooms as part of a new program with Ritz-Carlton Destination Club.
Hotel owners are struggling to attract customers as the recession deters vacationers. Demand for luxury timeshares “was soft in 2008 and weakened further in 2009,” Marriott said today. Timeshares have become a diminishing part of Marriott’s business, accounting for about 14 percent of revenue in the fiscal year ending in January, compared with 16 percent in the year earlier period.
“Marriott has shifted from development mode to cash- harvest mode in its timeshare business,” said Jake Fuller, an analyst with Soleil Securities Group Inc. in New York. He rates the shares “buy.” “This timeshare business will now produce cash instead of use cash.”
Marriott also said its revenue per available room declined by about 19 percent in the quarter ending Sept. 11 from a year earlier. That’s better than a forecast of a drop of 20 percent to 23 percent announced in July.
Competitors’ Writedowns
Marriott rose 16 cents at 10:04 a.m. in New York Stock Exchange composite trading. The shares are up 41 percent this year through yesterday.
Marriott’s announcement follows similar writedowns by timeshare companies including Starwood Hotels & Resorts Worldwide Inc. and Wyndham Worldwide Corp. The difference is that the new writedowns affect luxury properties, Arne Sorenson, Marriott’s president and chief operating officer, said in the statement.
“Today’s announcement reflects the significant decline in demand for luxury residential real estate over the last year,” Sorenson said. “We expect the timeshare segment to produce positive cash flow in 2009, higher levels of cash flow in 2010 and improving profitability.”
Marriott will take a charge of about $295 million at five luxury residential projects, $300 million at nine fractional- ownership projects in North America, $95 million at one North American timeshare project, $55 million at four European projects and $15 million associated with two Asia-Pacific timeshare resorts. The company didn’t disclose the names of the properties.
“Timeshare is a business investors don’t like much and it’s less a piece of their earnings,” said Smedes Rose, an analyst with Keefe Bruyette & Woods Inc. in New York, who rates Marriott “outperform.” “I don’t think they’ll be getting out altogether, but as a percent of overall business we’d expect it to be smaller and smaller.”
For its most recent quarter ending in June, Marriott reported net income of $37 million on revenue of $2.56 billion. The company plans to release earnings for the quarter ended Sept. 11 on Oct. 8.
To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.
Last Updated: September 23, 2009 10:27 EDT
Terms of Service | Privacy Policy | Trademarks