In a courting call to Wall Street today, Marriott International Inc. Chairman J.W. "Bill" Marriott Jr. said his company intends to add 1,000 more hotels by 2003 and urged investors to view his hospitality empire as a powerful global brand worthy of the higher stock valuations customarily given to the likes of Coca-Cola and McDonald's.
The addition of the planned 175,000 new rooms would bring the Bethesda-based company's total to about 500,000 rooms worldwide, requiring an investment of an estimated $7 billion, he told analysts.
"We expect to manage or franchise a hotel in every gateway city in the world and in 70 countries within the next five years," Marriott told about 150 analysts here.
But Marriott's expansion plans, rather than convincing analysts of the giant lodging company's uniqueness, had some of them worried about an oversupply of hotel rooms.
"The supply-demand characteristic in the industry does not favor Marriott," said Harry C. Curtis, a principal with BancBoston Robertson Stephens.
Although Marriott said the investments would not keep company earnings from growing at 14 percent to 15 percent annually over the next five years, Wall Street was not impressed. Marriott's stock slipped soon after today's announcement and closed at $35.56 1/4, down 18 3/4 cents from Monday's closing price.
To continue earnings growth, Marriott--which derives three-fourths of its income from franchisee and management contracts and owns just 1.3 percent of rooms that carry its name--must continue adding rooms. But doing so will only worsen the glut in the 14 million-room, $300 billion global lodging industry, analysts said.
According to Marriott, there is plenty of room for expansion. The company says its 1,810 units, with 345,000 rooms make up just 7 percent of the U.S. lodging market and less than 1 percent of the global total. Even within the United States, it says, there are only three cities (Atlanta, Detroit and Washington) where it has more than 15 percent of available rooms. "The potential to grow is enormous," said James M. Sullivan, executive vice president of lodging development.
But Marriott accounts for 24 percent of all new additions to rooms in the United States, according to the trade publication Lodging Econometrics. And of the 70,000 rooms in the pipeline at Marriott, 55 percent are in this country.
Given that the chunk of Marriott's new hotels will be in the competitive economy segment, analysts expect the oversupply problem to persist.
"Every mom and pop wants to own a hotel, since investments are relatively low and lenders plenty," said Denise Warren, senior industry analyst at Merrill Lynch Global Securities, which has a long-term "accumulate" rating for the stock.