Friday, April 21, 2006

 

Marriott Profits Hit By New Timeshare Accounting Charge

Marriott International, the world's largest hotel operator by revenue, on Thursday said first-quarter profits were hit by an accounting charge for timeshares, but adjusted earnings beat expectations as hotels raise room rates.

With business and leisure travel surging and hotel supply limited, Marriott boosted room rates 8 per cent in first quarter and continued to improve margins.

Few new hotels are being built in the US because of the high cost of commodities due to feverish construction in emerging markets such as China.

Marriott, whose brands include Ritz-Carlton and Renaissance, said demand for timeshare resorts continues to be robust, particularly at its properties in Las Vegas, Maui, Phuket, and St Thomas.

Timeshares have been an engine for growth for large US hotel chains in the past few years as families and the swelling population of baby boomers devote more time to leisure.

Many of Marriott's projects are sold-out or selling faster than expected, which will result in a 2 per cent decline this year in total revenue from timeshares and vacation products as inventory shrinks.

However, the company will begin selling units at Ritz-Carlton Clubs in Miami Beach, San Francisco and Kapalua, Hawaii with more projects to come in Kauai, Hawaii and Thailand.

Timeshares, part of the fast-growing "vacation ownership" business, have come under more regulatory scrutiny as the industry swells.

New accounting rules for the timeshare industry took effect in first quarter, changing the way revenues, sales costs and maintenance fees for unsold timeshare inventory are recorded.

As a result, Marriott booked a $105m non-cash charge, which dragged down first-quarter net income 55 per cent to $65m compared to last year.

Excluding charges, adjusted net income jumped 31 per cent to $167m. Quarterly revenues rose 7 per cent to $2.7bn.

Marriott projects continued strength through the year with operating income from lodging expected to rise between 31 to 35 per cent to reach $915m-$945m in 2006.

It estimates revenue per available room , or "Revpar" - a key industry indicator - will grow 8-10 per cent this year.

But insurance costs for US hotel properties have at least trebled, especially in regions with high risk of natural disaster.

Insurance for New Orleans hotels has jumped at least 10 times, yet 90 per cent of Marriott's hotel rooms in the city are open ahead of big business conventions starting in June.

Looks like timeshare real estate is on the rise again.

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