Marriott To Expand By Converting Competitors' Hotels

(Thursday, July 30, 2009) - Marriott International Inc., the largest U.S. hotel chain, plans to expand by taking over the operation of hotels from competitors unable to pay or refinance debt, Chief Financial Officer Carl Berquist said.

"There's a lot of money on the sidelines to step in and take the position as an owner," Berquist said yesterday in a telephone interview. "We are more than willing to work with those folks and help manage or franchise those opportunities," he said, adding that Marriott would be prepared to "put in some equity if it makes sense to us."

Marriott, owner of about 45 of the 3,000 hotels that carry its flag, expects conversions to help the company gain market share during the global recession. The value of hotel properties in default or foreclosure surged to $17.3 billion in the second quarter through June 24 from $9 billion at the end of the first quarter, data compiled by Real Capital Analytics Inc. show.

Marriott, based in Bethesda, Maryland, intends to add 110,000 rooms, including 30,000 this year, to its current total of about 577,000, Berquist said. About 50 percent are under construction at the chain's hotels, while 6 percent are being converted from rival brands. Most of the remaining projects are on hold as the property owners wait for building costs to drop or seek financing amid the credit crunch, Berquist said.

He declined to specify which brands were being switched over, or to estimate the number of likely conversions next year.

"We're very optimistic for 2010," Berquist said.

Shares Gain

Marriott climbed 98 cents, or 4.8 percent, to $21.44 at 4:10 p.m. in New York Stock Exchange composite trading. The shares have advanced 32 percent in six months.

The company also aims to expand in the Asia Pacific region to take advantage of "strong" economic growth and the expansion of the middle class, Berquist said. Marriott announced a plan last week to open its first hotel in Hanoi by 2012.

The company, which owns the Ritz-Carlton, Courtyard and Residence Inn names as well as the Marriott brand, reported a 46 percent decline in second-quarter net income, while revenue dropped 20 percent. On July 16, when the results were published, Chief Executive Officer J.W. Marriott said the company faced a "difficult environment for the travel and tourism industry."

Marriott lowered its forecast for 2009 earnings, excluding certain items, to as much as 86 cents a share from the $1.02 it projected in April. Berquist wouldn't give an earnings forecast for 2010.

Fewer Bookings

Hotel operators are cutting costs to counter drops in bookings and nightly rates. Revenue per available room in North America may fall 20 percent to 23 percent in the third quarter from a year earlier, the company said earlier this month. Sales by that measure sank 26 percent in the second quarter.

Property sales across the hotel industry will probably accelerate in the second half as buyers seek distressed buildings, Arthur Adler, managing director and Americas chief executive officer at Jones Lang LaSalle Hotels, said in an interview last week.

Global hotel transactions in the first half fell 78 percent to $3.7 billion from the same period a year earlier, according to data from LaSalle Hotels.

Marriott, which has trimmed expenses by shortening employee hours and freezing hiring, expects to keep slashing costs.

"We continue to look at costs and what we can do to manage them," Berquist said. "But as you go further out, it gets tougher and tougher to hold those margins."

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