Marriott International Inc said it would cut prices and scale back development plans for its luxury timeshare segment, resulting in a $760 million charge, because of soft demand in this business.
The operator of the Marriott and Ritz-Carlton hotel chains plans to sell a portion of its fractional ownership inventory. Marriott also expects to lower prices of its residential units, convert certain proposed projects to other uses, and sell some undeveloped land.
Demand for Marriott's luxury timeshares has weakened significantly in the past year, the Bethesda-based hotel operator said, citing a weak economy and a large supply of high-end residential real estate on the market.
We believe the discounted prices will help (Marriott) generate sales activity and sell its remaining inventory, JPMorgan analyst Joe Greff wrote in a research note.
Marriott's timeshare segment accounts for 5 percent of the company's earnings before interest, taxes, depreciation and amortization, down from 25 percent in 2007, FBR Capital Markets analyst Patrick Scholes said in a note.
The luxury segment only accounts for 10 percent of all of the company's timeshare earnings, Scholes added.
Marriott is taking the impairment charge in the third quarter ended on September 11. The charge will be noncash except for about $45 million that will be funded over the next two to three years and was already included in Marriott's spending forecasts.
Customers of Marriott's luxury timeshare segment, known as the Ritz-Carlton Destination Club, can buy three- to five-week intervals or purchase residential units outright.
Marriott said it had increased returns on its traditional U.S. timeshare business by cutting costs and delaying new projects.
The company said it expected profitability to improve at the timeshare segment, with cash flow there positive in 2009 and increasing in 2010.
Marriott said North American revenue per available room, or RevPAR, fell 19 percent in the third quarter, better than its previous outlook of a 20 percent to 23 percent decline.
Shares of Marriott were up 0.4 percent at $27.36 in morning New York Stock Exchange trading.
(Reporting by Deepa Seetharaman; Editing by Lisa Von Ahn)