Marriott shrinks luxury timeshare segment

Hotel giant Marriott International Inc said that its luxury timeshare segment will undergo price reductions and cancel development plans due to lack of demand. The cuts are predicted to result in an estimated $760 million charge.

The operator of the Marriott and Ritz-Carlton hotel chains reported plans to sell off some of its fractional ownership inventory, Reuters reported Wednesday. Marriott also expects to lower prices of its residential units, convert certain proposed projects to other uses, and sell some undeveloped land.

The hotel operator stated in a recent report that demand for Marriott’s luxury timeshares has significantly weakened over the past year due to a weak economy and competition from a flooded real estate market.

“We believe the discounted prices will help (Marriott) generate sales activity and sell its remaining inventory,” JPMorgan analyst Joe Greff wrote in a research note.

Marriott’s timeshare segment today accounts for 5 percent of the company’s earnings, down from 25 percent in 2007, FBR Capital Markets analyst Patrick Scholes recently reported, adding that the luxury segment accounts for only about 10 percent of all of the company’s timeshare earnings.

Marriott said that by cutting costs and delaying future projects it had increased its timeshare returns. The company expects timeshare profits to improve through 2010.

Customers of Marriott’s luxury timeshare segment, known as the Ritz-Carlton Destination Club, can purchase three-to-five-week intervals or purchase residential units outright.

Marriott said North American revenue per available room fell 19 percent in the third quarter of 2009, better than its previous outlook of a 20 percent to 23 percent decline.