As part of its asset-light strategy,
Marriott International Inc.
) 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
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.
Red Lion Hotels Corporation
Morgans Hotel Group Co.
) 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).
STARWOOD HOTELS (HOT): Free Stock Analysis
MARRIOTT INTL-A (MAR): Free Stock Analysis
MORGANS HOTEL (MHGC): Free Stock Analysis
RED LION HOTELS (RLH): Free Stock Analysis
To read this article on Zacks.com click here.