# As economic woes deepen, Marriott swings to loss



## LilMsFoodie (Feb 12, 2009)

Marriott Swings to $10 Million Loss, Sees Continued Weakness for Year

from this morning's Wall Street Journal

By MIKE BARRIS

Marriott International Inc. swung to a fourth-quarter loss on restructuring charges as the company projected continued weakness this year.

It sees earnings of 13 cents to 15 cents a share amid a 17% drop in revenue per available room at company-operated hotels in North America.


For the year, earnings are seen between 86 cents and $1.04 a share on double-digit revpar declines in North America, though Marriott admitted it "cannot forecast results with any certainty."

Marriott also expects to slash capital spending by more than one-third from 2008's $950 million.

The hotel sector continues to be hammered by steep cuts in airline capacity, a pullback in consumer spending and waning corporate travel. Analysts have warned in the past that the hotel industry might not recover until 2011. Marriott's dour results come on the heels of weak reports and outlooks from rivals such as Starwood Hotels & Resorts Worldwide Inc. and Choice Hotels International Inc.

Marriott reported a net loss of $10 million, or 3 cents a share, compared with year-earlier net income of $176 million, or 46 cents a share. Excluding restructuring charges and other itmes, earnings fell to 34 cents.

Marriott's latest forecast -- from October -- was for earnings of 44 cents to 50 cents.

Revenue fell 7.5% to $3.78 billion even with the latest quarter including an extra week than a year earlier.

Marriott was one of the few major hotel companies to leave its fourth-quarter earnings forecast unchanged since its third-quarter report, despite business conditions subsequently taking a turn for the worse.

Its view had assumed world-wide revenue per available room falling 1% to 3%, including a 3% to 5% drop in North America. The results ended up being down 8.4% and 8.3%, respectively.

*The bottom line was weighed down by the timeshare segment, which swung to a $2 million loss as revenue slumped 28% amid continued consumer skittishness about buying real estate.

The woes come as Fitch Ratings said last week that monthly defaults on timeshare loans hit an all-time high in December. Marriott, Starwood and other big hospitality companies consistently reaped big profits in the past by financing timeshare purchases amid strong consumer demand. But the lockdown in credit markets and pullback in consumer spending prompted developers to scale back plans for new projects.*


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## BocaBum99 (Feb 12, 2009)

CNBC is reporting that Marriott's timeshare business is down 40%.  Not sure what that is based on and how it relates to the 28% in the above article.


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## Dave M (Feb 12, 2009)

From Marriott's press release....

For the quarter:





> Fourth quarter Timeshare segment contract sales declined to $103 million reflecting weak demand. Contract sales were also reduced by allowances totaling $115 million for previously signed contracts now expected to cancel.
> 
> In the fourth quarter, adjusted timeshare sales and services revenue declined 28 percent to $386 million and, net of expenses, totaled $10 million for the quarter. Softer demand across all product lines continued to constrain development revenue. Financing revenue declined largely as a result of the absence of a note sale in the fourth quarter of 2008, compared to a $36 million note sale gain recognized in the fourth quarter of 2007, partially offset by increased interest income in the 2008 quarter.
> 
> Adjusted Timeshare segment results, which includes timeshare sales and services revenue, net of direct expenses, as well as base management fees, equity earnings, minority interest and general, administrative and other expenses associated with the timeshare business, totaled a loss of $2 million in the 2008 fourth quarter compared to income of $116 million in the prior year quarter.


For the full year:





> Timeshare segment contract sales in 2008 declined 23 percent to $1,076 million reflecting significantly lower demand, the impact of projects approaching sellout and anticipated contract cancellations. The allowance for anticipated contract cancellations reduced contract sales by $115 million for the year.
> 
> Adjusted Timeshare sales and services revenue declined 15 percent to $1,484 million in 2008 reflecting lower revenue from projects approaching sell-out, a decline in demand for all Timeshare products, and lower reportability. Adjusted Timeshare sales and services revenue, net of direct expenses, totaled $147 million in 2008, a decrease of 58 percent. Adjusted Timeshare note sale gains totaled $28 million in 2008 compared to $81 million in 2007. Two note sale transactions were completed in 2007 compared to only one transaction in 2008. Timeshare direct expenses also included the $22 million impairment charge at the fractional and residential joint venture project referred to below.
> 
> Adjusted Timeshare segment results, which includes timeshare sales and services revenue, net of direct expenses, as well as base management fees, equity earnings, minority interest and general, administrative and other expenses associated with the timeshare business, totaled $121 million in 2008 compared to $306 million in the prior year. The segment results reflected a third quarter $10 million net pretax impairment charge for a fractional and residential consolidated joint venture project, adjusting the carrying value of the real estate to its estimated fair market value. The $10 million charge included a $22 million negative adjustment in timeshare direct expenses discussed above partially offset by a $12 million pretax ($8 million after-tax) benefit associated with the joint venture partner's share, which is reflected in minority interest.


And as we already knew:





> In our timeshare business, [in 2008] we closed less productive sales offices, substantially reduced overhead and dramatically scaled back development, and we will do more if needed.


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## bw3 (Feb 12, 2009)

*and 2009 will get worse*

Thanks for the update Lil Ms Foodie.  Interesting that Marriott was the only one that did not revise earnings guidance after the October meltdown.  Defaults on timeshare loans will lead to more foreclosures followed by more supply and lower prices.  I will have to ask Marriott if they are still offering financing when I visit St. Thomas next month.  I am wondering if Marriott just stops building or lowers prices.

I noticed a Marriott Grande Ocean Gold week for sale on eBay.  The seller has a reserve on it but it should be a good indication of where the new market low is going.


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## Lawlar (Feb 12, 2009)

*More Inventory?*

What happens to the Timeshares that are foreclosed upon?  Does Marriott buy them?  Are they available for others to bid on at the trustee's sale?  Who handles the foreclosures and how do we tract the foreclosure sales?

Is this an opportunity for us to buy at distressed prices?


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## siberiavol (Feb 12, 2009)

I listened to conference call which I think is still in their web site. This is from memory so please verify. They spent a lot of time talking about timeshare . 

Defaults on loans to Marriott are up. They are halting projects in the planning phase. I assume this meant projects that were not being sold yet but were not just ideas either.  They indicated that some of the planned phases of existing units will not be built if they are not economically viable. They didn't say anything about stopping construction on things that were being built.

Eight percent of people taking tours are buying. That is down from thirteen percent. More people than in the past are self financing instead of using Marriott.Pricing on timeshares are holding up(My interpretation is that they are not resorting to price cutting to sell new units).

My bottom line was they see timeshare business as different than real estate business but are recognizing the economic environment is very poor. Thus they are pretty much halting anything new until things get better. I would be surprised if we see any new resorts for several years that are not already being sold.


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## tlwmkw (Feb 12, 2009)

*Marriott is not the only one...*

If you look in the Disney section there's a post stating that Disney has lost their financing for time share sales and may have to self finance.  It's affecting everyone now.  Will be interesting to see if Disney stops exercising ROFR too.


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## minoter (Feb 12, 2009)

Lawlar;

I will attempt to answer your questions on a complicated subject.

The BeachPlace Board explored the option of the Association buying back a foreclosed week and reselling the week on the open market with the profits going to the Association. After receiving 3 hours of counsel from a foreclosure attorney and a timeshare resale profession (a TUG member), the Board and the professionals determined the Association purchase and resale opportunities to be financially too risky and beyond the fiduciary responsibilities of MVCI Boards. Marriott had no prohibition for the Association to start a repurchase and sales program. I am not aware of any Association that is currently handling foreclosures and resales. 

The foreclosure process (both legal and accounting) is controlled by Marriott. Currently Marriott has a "Repurchase Program" (offered by Marriott to the Board annually) for MVCI weeks the go through the foreclosure process. Marriott decides which MVCI properties participate in this program and at what benefit level. Basically Marriott repurchases the week at foreclosure and agrees to pay the Association a percentage (ranging from 50% to 100% depending on the property) of the outstanding maintenance fees. Marriott will then take the week and sell it at current Developer prices.

The Marriott foreclosure process in Florida is very lengthy and timeshare foreclosures are not a priority in the Florida courts. Timeshare foreclosures can take 2-3 years. The BeachPlace Board tracts the foreclosure process and Marriott repurchase of weeks very closely. 

Eric Minotti


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## davidvel (Feb 12, 2009)

Eric-

Are you specifically referring to foreclosures by the HOA due to non-payment of dues? Or are you including foreclosures by lender (Marriott, I presume) on default of the loan note? 

David


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## Lawlar (Feb 12, 2009)

*Probably Varies by State*

Minoter:  Thank you for the info.

I suspect that the foreclosure process will vary by state.  Marriott would control who handles the foreclosure process (lenders usually give the job to foreclosure companies - sometimes run by escrow or title companies). If Marriott has assigned the loan to another company (did they securitize the loans like subprime mortgages?) then that investor/company will have to initiate the foreclosure process for the loans they purchased from Marriott (unless Marriott is obligated to buy-back the defaulted loans).

In California the traditional foreclosure process took about 120 days for real estate (I am assuming its the same for timeshare ownership - I haven't researched this topic).  That process has been lengthened by an additional notice period due to the current real estate crises.

So I suspect that trying to track foreclosures will be complicated and vary from state to state/ and from lender to lender.

Still, the holder of the timeshare notes (mortgages) would be well served to publicize the foreclosure sales as a way to get higher bids at the foreclosure sales (unless Marriott wants that exclusive opportunity).

Interesting topic.


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## MLC (Feb 12, 2009)

minoter said:


> Lawlar;
> 
> I will attempt to answer your questions on a complicated subject.
> 
> ...



Eric,

How does Marriott buy these back if the foreclosed weeks do not go to the court house to be sold?  The home owners do not own the weeks until the title is clear of the original owner and that is only done at the court steps.  Thanks you for your time and I know George who is the president tried to get this done a different way.

Marty


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## minoter (Feb 12, 2009)

David,

The foreclosure process is initiated by the non payment of maintenance fees. The Association board is not privy to the debt on the timeshare week. Marriott has told the BeachPlace Board that many owners are actually current on their debt, but delinquent on the maintenance fee. Also, as strange as it may seem, there are some foreclosures (based on delinquent maintenance fees) where there is no financing debt outstanding. 

Lawlar and Marty

The Board has been informed that Marriott controls the entire foreclosure process. I have no experience with the foreclosure process. However, Marriott does a deed in lieu foreclosure. See the link below for an explanation:

http://articles.directorym.com/Short_Sales_and_Deeds_in_Lieu_of_Foreclosure_-a935306.html

Eric


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## Garnet (Feb 13, 2009)

*How do Property Taxes Figure in?*

I'm a bit confused about the Association Board is not privy to the debt on the timeshare week.  What if the debt holder also wants to foreclose?   And what about those states (like California) that bill property taxes separately?  I know that Riverside County (California) was auctioning off DSVs.  Sounds like multiple foreclosures    Glad I didn't buy at the county auction...too many open issues.


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## lovearuba (Feb 13, 2009)

*somehow I have no sympathy for them*

I do think Marriott will be viable at the end of this economic crisis but the way they handle it will be remembered by timeshare owners who are being crippled with their escalating maintenance fees.  There will be long term effects on their reputation and future time share sales.


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## Big Matt (Feb 13, 2009)

Any HOA for residential property has no insight into the mortgage debt that any homeowner has.

No different than timeshares.




Garnet said:


> I'm a bit confused about the Association Board is not privy to the debt on the timeshare week.  What if the debt holder also wants to foreclose?   And what about those states (like California) that bill property taxes separately?  I know that Riverside County (California) was auctioning off DSVs.  Sounds like multiple foreclosures    Glad I didn't buy at the county auction...too many open issues.


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## kjd (Feb 13, 2009)

*Timeshare financing*

Recently I had a chance to talk with someone from a major bank (Wells Fargo) about timeshare financing in general.  Many timeshare borrowers used their home equity to make their TS purchase.    One of the problems that was mentioned was that some borrowers used their line of credit much like an ATM machine.

I was told that certain states have a higher rate of default on home equity loans.  It was said that when people got into financial trouble they often paid the first mortgage but didn't pay the home equity loan.  Some banks have vitually stopped giving home equity loans unless a borrower has an unusually high credit score. 

Several posters on TUG have advocated the use of home equity loans as a smart way of financing a TS rather than pay Marriott the 13.49% interest rate.  An income tax deduction was also given as an additional benefit.  Banks are looking at these loans as a way that borrowers get into trouble.  It's very easy to fall for a TS sales pitch and use your home equity in a moment of weakness.

However, for the people who eventually defaulted on their loans, were they not better off using the Marriott financing rather than home equity?  At least they might be able to keep their homes.


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## jerseyfinn (Feb 14, 2009)

minoter said:


> David,
> 
> . . .  Marriott has told the BeachPlace Board that many owners are actually current on their debt, but delinquent on the maintenance fee. Also, as strange as it may seem, there are some foreclosures (based on delinquent maintenance fees) where there is no financing debt outstanding.



Eric,

Thanks very much for your comments from the perspective of a board member. It's very helpful to gain insights as to how things are with Marriott TS.

It's intriguing that many folks are current on their installment debt with Marriott, but are coming up short when it comes time to pay the MFs. This might suggest that some folks were on such shoe-string-tight budgets that they can't come up with a MF which runs $1100 to $1500 depending upon the resort & season.

As to Marriott's overall revenue numbers & TS-specific data. I guess that none of these numbers are really a surprise as they reflect how badly the overall economy tanks last year and the salutory impact upon leisure and travel-related segments.

Once again, thanks as your remarks as much appreciated.

Barry


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## jerseyfinn (Feb 14, 2009)

kjd said:


> . . .One of the problems that was mentioned was that some borrowers used their line of credit much like an ATM machine . . .  Some banks have vitually stopped giving home equity loans unless a borrower has an unusually high credit score



Kjd,

You make a good point that the home equity borrowing scheme is running into trouble -- in specific regions ( which I suspect are places like California, Phoenix metro area, Las Vegas, and Florida to name a few ).

That said, home equity loans and refinance deals for home equity loans are gaining momentum in other regions as qualified borrowers line up to take advantage of the lower interest rates ( ourselves included ). In our Philadelphia metro area, lots of folks are trying to jump in on this.  And yes, the banks are looking closely at income-to-debt ratios. But the good news is that this is indeed a good time to re-do either an equity line or a regular mortgage at these low rates. 




kjd said:


> . . . . However, for the people who eventually defaulted on their loans, were they not better off using the Marriott financing rather than home equity?  At least they might be able to keep their homes.



No not really. There's a huge cost difference between a 14% loan and a 4-5% loan financed through other source. The decision to undertake *any *sort of borrowing should always be predicated upon income, spending, & interest rates. Many folks who are getting into trouble are those who held little or no initial home equity ( by virture of not being required to make any sort of initial down payment ) when they first bought. These folks then take a second mortgage or equity line when their equity value shot up in the bubble. Many of these folks proceeded to fully spend/leverage  this additional borrowing. In areas where house values fell dramatically, things look pretty bleak on paper at the moment for these people.

That said, there are many folks who are having trouble getting loans because their earnings have dropped in this economy &/or their home values have significantly declined and the ability of a lender to extend the sort of credit they seek is impaired.

Now that Congress has spent the initial trillion dollars ( OK, it was in the low $800 billions ), the next thing on the horizon is a national bail out for negative-equity homeowners, many of whom fit my description above. Now that's a big issue to ponder.

Barry


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