26 Jan

Can a New Luxury Brand Revitalize This Company?

Author: admin  |  Category: Luxury Property

Recs


1

    By
    Matt Thalman

    More Articles

    January 26, 2012

    Comments (0)

    Watch stocks you care about

    The single, easiest way to keep track of all the stocks that matter…

    Your own personalized stock watchlist!

    It’s a 100% FREE Motley Fool service…


    Click Here Now

    Marriott International (NYSE: MAR  ) recently announced five new hotels for its luxury Edition brand. Haven’t heard of it? Don’t worry — the company has only opened two, and one already shut down. The Edition brand concept is a highly stylized luxury chain. But while everyone loves dreaming of staying at a fancy new hotel, most individuals don’t book rooms at these locations.

    Luxury is not so glamorous
    The Edition brand falls under Marriott’s luxury brands segment. In the third quarter, the company’s high-end hotels only carried 2.2% of revenue to the bottom line. The luxury segment looks even weaker when compared to the Marriott’s limited service hotels, which turned 16.5% of revenue into profit during the same time frame.

    Other hotel companies have been focusing on the non-luxury full-service brands. Starwood Hotels (NYSE: HOT  ) has opened over 50 Aloft hotels in the past three years. This brand focuses on Gen Y travelers and boasts “style at a steal.” While the economy is still sluggish, having a product that satisfies price-conscious consumers’ needs for quality at a discount may be the best road to higher profits.

    Real estate investment
    One possible upside to the Edition venture could be property value appreciation. Marriott expects to “recycle its property investments over time through the sale of the hotels while maintaining long-term management contracts.” The company recently purchased the Clock Tower building in Manhattan for $165 million, which is where the New York Edition is planned to open sometime in 2015. Just four years ago, that building sold for $200 million. The London Edition will be in one of the city’s most sought-after districts and the Miami location was purchased in a short sale.

    With real estate prices in the gutter across the U.S., buying distressed properties seems to be the new trend for hotel companies. Pebblebrook Hotels (NYSE: PEB  ) and Host Hotels (NYSE: HST  ) have spent $1.6 billion and $1.7 billion, respectively, on higher-end properties throughout the U.S. recently, at what appear to be good prices. But if real estate continues to decline, newly acquired assets will need to be written down, hurting balance sheets throughout the industry.

    Foolish take
    In my opinion, Marriott’s risk involved in the new venture outweighs the possible upside return. As we have all seen in the past few years, real estate doesn’t always go up, and with margins on the company’s luxury segment being so low, from an operational standpoint there is very little room for error.

    Finding solid investment opportunities can be difficult, but our analysts here at The Motley Fool have found a few companies that the smart investors are buying. And even one that Warren Buffett might be interested in, if he were a smaller investor. To find out which companies before thousands of others, click here.

    <![CDATA[

    .eCapForUnregisteredUsersTestCell_eCapReplacement { background: none repeat scroll 0 0 #FFFFFF !important; border: medium none !important; }
    #content div.ecap, #content div.ecapReplacement { background: none repeat scroll 0 0 #FFFFFF !important; border: medium none !important; }
    ]]>

    The Collapse of the Euro
    Europe is only weeks away from economic collapse, insists a former IMF chief. Yet you probably haven’t heard the whole story: You can protect yourself and even profit from this looming catastrophe if you move fast enough…

    Discover your chance to profit now. Enter your email address below to receive your copy of “The Investor’s Guide to Shorting the Euro.” Developed by the expert analysts of Motley Fool PRO, this report is yours FREE for a limited time. Enter your email address now.

    Tags: ,

    Similar Posts:

Comments are closed.

YourGage -- You Pick Your Term