• Marriott fit for recovery

Marriott last week issued the first significant positive revision by a major hotelier since the onset of global recession.  The company said that revpar outside of North America would decline by two percentage points less in the final quarter of this year than it had anticipated.

The previous forecast was made just two months ago, indicating that the recovery is proving more robust than initially expected. In addition, Marriott says it will open 38,000 rooms this year rather than the previously thought 33,000.

Elsewhere in the Marriott empire, timeshare is also doing its bit to improve outlook. The division, which was an unexpectedly large drag on its performance during the downturn – historically timeshare had proved more robust in recessions – is selling more units than thought likely back in October.

In addition, Marriott has securitised the mortgages on a group of timeshares (an essential way for timeshare developers to raise cash) and booked a $37m gain on the deal.

HA Perspective: All this good news disguises a much tougher period ahead for the company, regarded by most industry observers as the bellwether of the hotel sector.

For almost two years, the additions to Marriott's pipeline have slowed to a trickle, as is the case for other hoteliers. In fact, in the second quarter of this year, Marriott said it had signed no new upscale contracts.

Given the two to three year time lag between signing deals and bringing the hotels into the system, the real impact of the hiatus will be felt in 2011 and 2012. By increasing the rate of openings, which is what the latest announcement shows is happening, Marriott will make the impact even greater.

This is not a criticism of Marriott alone, it applies to the whole of the industry. In previous recoveries, hoteliers that owned real estate were levered into the upturn. The recovering revpar dramatically improved profitability.

But in the asset light model, this will not be the case. Of course, profitability will improve but by nowhere near as much as in previous recoveries. What is needed is system growth but the last couple of years has seen the rate of signings collapse.

This can be fixed by acquisitions and / or conversions. But where is the capital going to come from to do this? The asset light hoteliers can no longer gear their balance sheets.

A clear example of this is InterContinental. In early December it raised £250m from selling seven year bonds. But this cash is earmarked to repay a $500m facility that matures next year.

But there has been a host of funds that have raised cash to make acquisitions. US-based website hotelnewsnow.com has a listing of 37 funds with almost $40bn of firepower (not all of this is hotels focused).

And yet hotel companies, which are the best placed to exploit distressed situations given that they already have management and brand solutions to troubled assets, have been conspicuous in their absence from this fundraising.

Reversing the asset light model is not the solution. But the industry does need a massive capital infusion. It is ironic that having handed back billions during the years in the run-up to the recession as assets were sold-off the industry is now left struggling for capital when it needs it.

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