- The Washington Times - Monday, October 11, 2004

Marriott International Inc.’s stronger financial results last week point to the start of a dramatic recovery for the lodging industry, analysts say.

The Bethesda-based hotel chain said profits surged 45 percent for the third quarter, which ended Sept. 10, to $133 million (59 cents per share) from $92 million (39 cents) in the previous year.

The company’s revenue also jumped 10 percent to $2.3 billion from $2.1 billion a year earlier.

Highlights for the quarter included room rates rising 4 percent while occupancy increased to 75 percent. Revenue per available room, or “revpar,” a commonly used measure of hotel profitability, for Marriott’s North American locations rose 7.7 percent.

During the quarter, the company added 36 properties with 6,045 rooms, bringing the total number of hotels in the system to 2,806.

JMP Securities LLC analyst William Marks said Marriott’s performance is just the tip of a broader recovery for the industry. “I think the whole lodging sector, even after its strong run up in the past couple of years, still has a long way to go,” said Mr. Marks with the San Francisco investment bank.

Mr. Marks, who rated Marriott as outperforming the market, said rising consumer demand coupled with a limited supply of new hotels coming into the market has set up the industry for a strong third and fourth quarter for the year.

Mr. Marks does not own any shares of Marriott but JMP is seeking business with the company.

Chairman and Chief Executive Officer J.W. Marriott said the hotel chain is benefiting from strong demand and rising rates.

“In fact, third-quarter North American room-rate growth exceeded occupancy growth for the first time since early 2001,” he said.

Synthetic fuel joint ventures also continued to be a revenue generator for the company. Marriott’s fuel venture produced $31 million of the company’s total income, up 48 percent from $21 million a year ago. The company said the boost came from Marriott’s receiving more tax credits for its fuel operations and a slightly higher production volume this year.

But Ivan Feinseth, a research director at New York investment bank Matrix USA LLC, said Marriott’s stock price heavily depends on its profit forecasts, putting investors at risk if the company is not in line with its earnings outlooks.

Shares of Marriott closed yesterday on the New York Stock Exchange at $53.57, up 15 cents from $53.42 a week earlier. Mr. Feinseth said 71 percent of the stock price is based on Marriott’s future earnings growth.

He advised investors to sell their stock, basing his decision on an economic model Matrix uses that calculates how well Marriott compares to its industry peers. Mr. Feinseth does not own any Marriott stock and Matrix has no banking relationship with the company.

Banc of America Securities LLC analyst J. Cogan kept his neutral rating, noting that Marriott is still sensitive to trends like business spending and consumer confidence, as well as external shocks, such as natural disasters and terrorist attacks.

But he called Marriott’s 2005 revpar forecast, of 5 percent to 7 percent, “a good omen for the lodging group.”

Mr. Cogan does not own any stock but Banc of America, a New York investment-banking subsidiary of Banc of America Corp., does have a banking relationship with Marriott.

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