As part of its asset-light strategy, Marriott International Inc. (MAR) is on the verge of selling three Edition hotels (located in London, Miami Beach, and Manhattan) for $800 million. If the sale goes through, Marriott would continue to manage the properties post sale.
All three properties are under construction. The London EDITION is nearing completion and will be ready by the next 30 days whereas the Miami Edition is likely to be complete in the second half of 2014. Construction of the New York Edition will be over in early 2015. However, the residential part of the Miami Beach Edition is not a part of the transaction.
Since late 2010, transition to an “asset light” business model has gained momentum in the hotels and REIT industry. Many of Marriott’s close competitors, Starwood Hotels & Resorts Worldwide Inc. (HOT), Red Lion Hotels Corporation (RLH) and Morgans Hotel Group Co. (MHGC) have embarked on this strategy.
The asset sale is part of the companies’ long-term strategy to strengthen financial flexibility, which in turn will maximize shareholder value. The companies aim to unlock real estate value by giving away ownership of selective assets. A higher concentration of franchise fees reduces earnings volatility and provides a more stable growth profile. Companies intend to use the sale proceeds to invest in brand positioning as well as restructure the company’s balance sheet that often includes paying off debt.
Marriot reported its second-quarter 2013 earnings earlier this month wherein it lowered its revenue per available room (RevPAR) outlook and earnings expectation for the full year. While we prefer the hotelier’s restructuring initiatives, its downbeat outlook for the full year is a major concern. Marriott currently retains a Zacks Rank #4 (Sell).
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