Marriott, Spanish hotel group launch brand

Frankfurt, Germany, is one of the European cities where Marriott operates now, and the compay is focusing on opportunities overseas.
Frankfurt, Germany, is one of the European cities where Marriott operates now, and the compay is focusing on opportunities overseas. (B)
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By Danielle Douglas
Capital Business Staff Writer
Friday, October 8, 2010

Bethesda-based Marriott International said Thursday that it has joined with the Spanish lodging group AC Hotels to manage and franchise a new brand, AC by Marriott, across Europe and Latin America.

The deal dovetails with Marriott's ventures in China, where it expects to double the number of hotels it runs, and in India, where it plans to triple its roster.

The global expansion strategy follows the release of quarterly results that showed demand is picking up for corporate and leisure travel.

For the three months that ended Sept. 10, Marriott reported earnings of $83 million, or 22 cents a share. That's up from a loss of $466 million, or $1.31 a share, a year ago, when the company took a $502 million write-down on its time-share business.

Although revenue increased 7.2 percent, to $2.6 billion, for the quarter, the overall results fell short of analysts' expectations, as did the company's projections for the fourth quarter. That sent the hotel operator's stock, which was up 39 percent for the year, on a slide of nearly 6 percent Thursday, closing at $35.67.

Marriott, however, is bullish on the recovery of the beleaguered hotel industry. Nearly 90 percent of its hotels raised corporate room rates an average of 9 percent during the previous quarter, spurred by greater demand.

Revenue per available room - a key performance measure - rose 7.5 percent worldwide during the quarter. International room revenue, in particular, rose 12 percent.

The company sees it brightest prospects for growth outside the United States. Of the full-service hotels in the company pipeline, 70 percent are scheduled to open on foreign soil.

And that does not include the more than 90 existing AC hotels in Spain, Italy and Portugal that are slated to be rebranded once the deal closes at the end of the year.

"There is still tremendous development opportunities outside the U.S., and we see that continuing in Asia Pacific, and somewhat in Europe," Carl T. Berquist, executive vice president and chief financial officer at Marriott, said during a conference call with analysts.

Marriott has been in China for 15 years, but most of its hotels are in major cities, leaving room for greater penetration in outlying markets. Marriott flags have flown in European markets for some time, but the company sees significant opportunities in brand conversions.

Brazil, Russia, India and China are primary targets of the hotel operator, Arne Sorenson, Marriott's president and chief operating officer, said during the call.

"Some of those investments may form something like the AC deal, where we partner with local companies," he said.

There has been a notable increase in travel in emerging markets, which, in some cases, are bereft of major lodging brands.

"In some markets, it's kind of the Wild West for expansion," said John Arabia, an analyst with Green Street, a real estate research firm. "That doesn't mean that it is easy or anyone can do it, but companies that have very long reach, stable operating platforms and significant capital, such as Marriott, are racing oversees."

Rounding up development financing, however, may have gotten tougher for the hotel operator. Loan terms are more stringent these days, repayment periods are shorter and developers are more often being asked for personal guarantees, Berquist said.

"As we have done in the past," he said, "we will use the strength of our balance sheet to grow our business."

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