Marriott to Halt Development of Time-Shares, Luxury Projects By Kris Hudson Wall Street Journal 09-24-2009

Marriott to Halt Development of Time-Shares, Luxury Projects By Kris Hudson Wall Street Journal 09-24-2009

Marriott to Halt Development of Time-Shares, Luxury Projects
By Kris Hudson
The Wall Street Journal
September 24, 2009

Marriott International Inc.'s disclosure Wednesday that it will stop developing new time-share and luxury-residential projects and write down the value of such properties under construction by $760 million marks the beginning of the next phase of the shakeout in the vacation-home industry.

The three largest time-share players -- Wyndham Worldwide Corp., Starwood Hotels & Resorts Worldwide Inc. and Marriott -- already had dramatically pared their time-share businesses in the past year to reflect weakening demand, falling prices and difficulty securitizing loans for consumers.

Now, Marriott is stepping back even further by abstaining from new development until the market recovers and slashing prices on existing inventory in an effort to sell it quickly. Marriott said it will take the $760 million noncash charge against third-quarter profit for 21 projects under development in North America, Europe and Asia. The company is scheduled to release its third-quarter earnings report on Oct. 8.

"This business, at least for the next 10 years, is going to remain permanently shrunk," said Joseph Greff, a gambling and lodging analyst for J.P. Morgan Securities, speaking of the time-share and luxury-residential markets in general.

The pullback affects all three formats that Marriott sells under its Marriott and Ritz-Carlton brands: time-shares, fractional-ownership projects and luxury-residential projects. Marriott is permanently exiting development of luxury-residential projects, which are for-sale condominiums and penthouses that sit atop or adjacent to its hotels. It will, however, continue to manage such properties built by other developers and license its brands to them. It will complete its luxury-residential projects already under construction.

Marriott also will stop building new time-share and fractional-ownership projects. But, unlike its exit of the luxury-residential market, Marriott plans to return to building new time-share and fractional-ownership projects when those markets rebound. The time-share format allows buyers to purchase a week or more of access to a resort each year, and sometimes to trade for time at other resorts in the same network. Fractional ownership, by contrast, entails buyers purchasing a share of a given unit in a resort and thus getting access to it for a dozen or more weeks a year.

The time-share business actually has done better for Marriott than the fractional-ownership and luxury-residential segments. In the first half of this year, Marriott logged $338 million in time-share sales. By contrast, the two other formats generated nothing after cancellations wiped out their gains.

Overall, Marriott's entire time-share division -- including sales of the three formats and income from managing and licensing them -- registered $632 million in revenue in this year's first half. That is down from $863 million in the same period last year.

Marriott, based in Bethesda, Md., also manages or franchises 3,150 hotels globally and owns eight.

Marriott's pullback will focus attention on whether Wyndham and Starwood will follow suit when they report third-quarter results.


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