Marriott to Write Down $760 Million in Timeshares
Bethesda, MD, Sept. 23, 2009- In a statement released today Marriott International Inc. said it plans to take a third-quarter pretax charge of $760 million in its timeshare business as the economic slowdown cuts leisure travel and investing.
The company will cut prices, halt development at some luxury fractional ownership and residential resorts, and sell some undeveloped land. It also plans to sell part of its fractional inventory of rooms as part of a new program with Ritz-Carlton Destination Club.
Specifically, the company is recording impairment charges of approximately $295 million associated with five luxury residential projects, $300 million associated with its nine North American luxury fractional projects, $95 million related to one North American timeshare project, $55 million related to the four projects in its European timeshare and fractional business, and $15 million associated with two Asia Pacific timeshare resorts.
Demand for the timeshare segment’s luxury residential products was soft in 2008 and weakened further in 2009. Marriott said it has decided to reduce prices of existing fractional units to accelerate sales and cash flow, prompting the third quarter charge. The company will sell a portion of its fractional inventory as part of the new portfolio membership program in Ritz-Carlton Destination Club (“RCDC”).
Going forward, while Marriott expects to continue to license and manage luxury residential projects developed by others as part of its lodging business, it does not expect its timeshare segment to pursue new Marriott-funded residential development projects.
For the segment’s traditional U.S. timeshare business, recent successful marketing promotions included volume discounts and other purchase incentives. The company expects to continue targeted short-term promotions. At the same time, the company has enhanced returns by lowering overhead, streamlining sales and marketing efforts and deferring introduction of new projects and development phases. Despite the difficult business environment, only one U.S. timeshare project is incurring a charge for the 2009 third quarter, largely attributable to its high development costs coupled with lower demand than originally anticipated.
Outside the U.S., the company’s four European timeshare and fractional resorts continue to experience low demand. As a result, the company plans to continue promotional pricing and marketing incentives, while reducing overhead to accelerate sales and cash flow. The company is currently not pursuing additional development in Europe. In Asia, impairment charges for the third quarter are attributable to only two timeshare resorts which experienced project scope changes and high development costs.
Arne Sorenson, Marriott’s president and chief operating officer, said in the statement that today’s announcement reflects the significant decline in demand for luxury residential real estate over the last year. They expect the timeshare segment to produce positive cash flow in 2009, higher levels of cash flow in 2010 and improving profitability. See the whole press release: Marriott Announces Timeshare Segment Charge; Notes Third Quarter 2009 REVPAR Ahead of Expectations
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- Marriott International to Provide Live Webcast of Marriott Vacations Worldwide Corporation Security Analyst Meeting on October 28
- Marriott Updates Fourth Quarter REVPAR Outlook
- Marriott posts 3Q Loss on Timeshare Charges
- Vacation Timeshares Drop at Record Pace as Americans Cut Back
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